GROWING INDUSTRIAL INTERCONNECTIONS AND
INTERNATIONAL CONFERENCE ON
GLOBALISATION OF KNOWLEDGE DEVELOPMENT AND
THIRD ANNUAL CONFERENCE OF THE FORUM FOR GLOBAL KNOWLEDGE SHARING
OCTOBER 17-18 2008
Françoise Pardos, Pardos Marketing
The great buying spree
The fast growth of emerging companies buying into world markets is documented with many reports, think tanks, and organizations. A few of them are listed in the Sources section.
The Boston Consulting Group, BCG, has identified 100 companies in emerging countries that have the power and the ambition to compete, even upset, the existing multinationals. Over 3 000 companies, from 30 countries, were examined by BCG, firms with $1 billion annual sales.
The Swiss group KPMG screens the mergers and acquisitions by analyzing deals between 10 selected emerging economies and 11 key developed markets. The research analyzes deal flows between 11 selected “mature” economies, the UK, USA, Canada, Spain, France, Germany, Netherlands, Italy, South Africa, Australia and Japan, and 10 selected emerging economies, India, China, Russia, Brazil, South Korea, Vietnam, Macau, Hong Kong SAR, Qatar and the UAE.
The United Nations Conference on Trade and Development, UNCTAD, provides figures on foreign direct investment, FDI, from 1970. By 2006, the latest year available, the flow of FDI, including mergers and acquisitions, amounted to $1.3 trillions total world, of which $379 billions from developing economies, and $857 billions from developed economies. The respective figures in 2000 were $ 256 billions from developing economies and 1146 billions from developed economies.
In 2006, the total mergers and acquisitions by developed countries were $722 billions, and the purchases from the developing economies were still only $127 billions, up from $37 billions in 2000.
Since the UNCTAD first analysis in 1970, there has been concern about companies from rich countries into poorer ones. Some developed countries were worried also about the American companies, a word was even coined then, “The American Challenge”. In the 1960s, IBM, Ford, General Motors, Dow Chemical, ITT, looked threatening to the then Western Europe. Then, in the 1980s, America worried as Japanese firms were buying up Hollywood and Manhattan.
The latest trend reflects a new, fundamental shift. In a more open world, emerging economies are building their own giants. Investment now flows increasingly from South to North and South to South, as emerging economies invest both in the rich world and in less developed countries. There is the emergence of a growing number of new multinationals from emerging economies that will increasingly challenge the economic power of the rich country world.
Major acquisitions and mergers
In a recent Forbes magazine list of the world 2 000 largest publicly traded companies, 378 were from emerging economies around the world. This list did not include the giant state-owned oil companies in the developing world, which control 65 % of all known oil and gas reserves.
China and India, the world's two emerging economic superpowers, have the most companies on the Forbes list, with 44 and 21, respectively.
India now is the most actively acquisitive. According to Dealogic, Indian companies announced 150 foreign acquisitions in 2007, with a total value of $18 billions, four times more than in 2005.
The purchase of Arcelor by Mittal in 2006, creating the largest world steel company with 100 million tons, is one of the most talked about and symbolic moves, but there are many more:
Tata, the long time Indian major company, acquired the famed Jaguar and Land Rover cars, in spite of many hurdles and questioning. At the same time, Tata Motors was launching the cheapest car in the world, the Nano, at $ 2 500, for the Indian domestic market, with still some local delays.
Much earlier, in 2000, Tata had acquired Tetley, the world second largest manufacturer and distributor of tea, in 40 countries. More recently, Tata had also acquired Corus, an Anglo-Dutch steel company, with mills in Ohio and Pennsylvania and quintupling its steelmaking capacity.
Among the most recent acquisitions, from Indian companies:
Three major companies, Wipro, Infosys Technologies and Tata Consultancy Services, TCS, have built an IT outsourcing industry that is now global and competing with leaders such as Accenture and IBM. Wipro bought the New Jersey software house Infocrossing.
Bharat Forge is now the world second largest forging company and a leading supplier to the motor industry around the world, recently tied up with a French company to get close to PSA Peugeot Citroën.
In the pharmaceutical industry, there are Ranbaxy and Dr. Reddy. Ranbaxy Laboratories is the world largest pharmaceutical company.
Suzlon Energy is the largest wind energy turbine maker in Asia and the fifth in the world, offering full wind power solutions. In 2006, Suzlon bought the Belgian firm Hansen Transmissions, specializing in gearboxes for wind turbines, and in 2007, it purchased a controlling stake in German REpower, thus combining REpower offshore turbine technology with its own cheap components.
Mahindra & Mahindra is the third largest tractor company in the world, plus a wide range of vehicles, SUVs, with participations and plants in China, the UK, and the US. Mahindra & Mahindra dominates the Indian market with its small tractors. As about two thirds of the tractors sold in the US are 70 HP or less, Mahindra is now competing with Deere and other established tractor makers in the US.
Together with Renault and Nissan, Mahindra is investing in a Logan low-cost type passenger car plant in Chennai, to open in 2009, as the largest car factory in India, with 400 000 car annual capacity. Also in 2009, Mahindra plans to launch a range of compact pickups and hybrid SUVs in the US.
Bajaj Auto, competed by Japanese motorcycle manufacturers in the Indian market, is becoming the leader in India, and now competing with Japanese and Chinese manufacturers in Indonesia, Egypt, and Brazil.
Reliance Group makes more polyester fibre and yarn than any other company.
Hindalco Industries, part of India Aditya Birla group, bought the Canadian aluminium company Novelis.
United Breweries bought Whyte & McKay, the world fourth largest distiller of Scotch whisky.
And all these are just examples of many more.
China may also have become the largest single source of new multinationals, now.
The earliest moves took place with the drive for resources, particularly oil and gas and minerals. Petro-China, China Petroleum & Chemicals (Sinopec) and China Minmetals Corp. are examples. CNOOC division COSL is buying Awilco Offshore ASA, a Norwegian oil service company in 2008. It was prevented from getting the US Unocal in 2005, and Australian oil companies, wary of a government organization. CNOOC has been buying into oil and gas reserves in Southeast Asia, Africa, and Central Asia.
Baosteel has bought iron ore interests in Brazil and Australia.
There are many famous names of Chinese companies becoming world companies.
Lenovo bought the personal computer division of IBM.
Haier has become one of the main appliance manufacturers in the world, as well as lesser known Hisense. Haier operates plants in the US since 2000.
China Huawei Technologies won some of the work on British Telecom $20 billion plan in the UK. Huawei Technologies competes with Cisco Systems to sell telecommunications equipment in the world.
TCL bought the struggling French Thomson TV receivers.
The Pearl River Piano Group is now number one of the world piano market.
BYD is the world largest maker of nickel-cadmium batteries.
Chery Automobile, the largest China car exporter, plans to build plants in Eastern Europe, the Middle East and South America.
Johnson Electric, of Hong Kong, has half the world market for small electric motors. Any new car now has over 100 tiny motors, to move the wing mirrors, adjust the seats, open the sun roof and so on. Johnson makes 3 millions per day of such motors, put everywhere, in cameras, phones, appliances, vehicles, most of them for export.
China Mobile is the world largest mobile phone operator, with 70 % of China, almost 400 million consumers, and growing.
China International Marine Containers Group supplies 50 % of the world marine container market.
The new government team says Russia needs more long-term investment to ensure its transition to an innovative development model and join the group of the world five largest economies.
Foreign Direct Investment, FDI, into Russia, is mostly in the retail, construction and raw material sectors. FDI could be $60 billions in 2008, compared with $45 billions in 2007, $30 billions in 2006.
So far, Russia is best-known for basic raw materials companies. Gazprom, Lukoil, use their natural resources to buy into the United States and other countries. Gazprom, 51% government-owned, plans to grow from being the world leading gas company into a world leading energy company
MMC Norilisk Nickel is the world largest nickel producer.
RUSAL is one of the three largest aluminium companies in the world.
Although the electronics and telecommunications are not yet a major industry in Russia, there is Mobile TeleSystems, or MTS, the largest mobile operator in Russia and CIS, as well as Central and Eastern Europe.
The fast growing Luxoft is the largest provider of IT outsourcing services. According to the International Association of Outsourcing Professional, IAOP, there are six companies, Russian or with development centers in Russia, Auriga, DataArt, EPAM Systems, IBA, Luxoft and Mera.
In raw materials, the main companies are:
Brazilian oil major Petrobras has strong expertise in deep water work.
Vale, the former Vale do Rio Doce, CVRD, is the world largest iron ore producer. It tried without success to get the British/Swiss Xstrata. The new Vale-INCO was created by the purchase and merger of the Canadian INCO. Before being purchased by Vale in 2006, INCO was the world second largest producer of nickel.
The aircraft manufacturer Embraer has displaced the Canadian Bombardier as the world’s third largest aircraft manufacturer, in regional jets.
Very large Brazilian companies are appearing in agricultural and processed products, such as Sadia, frozen foods, and Perdigão. Over half of the $ 6 billions of sales are for exports. Sadia, for example, a household name in the Middle East, was perhaps helped by its name similarity to sa'ada, the Arabic word for happiness.
Embraco has 25% of the global market for compressors.
Braskem is large in petrochemicals and plastics, although not yet international, nor global.
Natura Cosméticos S/A is one of the Brazilian leading manufacturers and marketers of skin care, solar filters, cosmetics, perfume and hair care products. With its specific model of home sales distribution, international sales in Argentina, Chile and Peru, now surpasses Avon sales in Brazil.
CEMEX, the world largest cement ready-mix company, has already taken over the British group, RMC.
América Móvil has 100 million customers across 14 Latin American countries, the biggest international cellular empire.
The South Korea success story is one generation older than the BRIC country emerging story.
South Korean successes included Samsung Electronics, one of the world's most important semiconductor companies, Hyundai Motor and Kia Motors, competitive automobile companies, LG Electronics, a major manufacturer of electrical appliances.
Tata Daewoo Commercial Vehicle, TDCV, is the second largest heavy commercial vehicle manufacturer in South Korea. It was established in 2002 as Daewoo Commercial Vehicle Co. Ltd, after it was spun off from the mother company, Daewoo Motor Co. Then it was acquired by Tata Motors, of India, in 2004.
Taiwan has a similar older success story as South Korea. Taiwan has a number of then pioneer semiconductors and electronics companies that compete globally.
A number of large emerging companies are now known in many areas of the world, if not yet globally.
Koç Holding operates in the automotive, durable goods, food, retailing, energy, financial services, tourism, construction and IT industries.
Koç Holding controls Arçelik A.?. a large household appliance manufacturer in Turkey. Products include white goods, electronic products, small home appliances and kitchen accessories, such as refrigerators, freezers, washing machines, dishwashers, aspirators, vacuum cleaners, coffee makers and blenders. They are sold everywhere, particularly in Eastern Europe and South Mediterranean.
Arçelik AS is present in more than 100 countries, including China and the United States through 13 international subsidiaries and over 4 500 branches, operating 10 plants in Turkey, Romania and Russia. It offers products under its own nine brands, including Arçelik, Beko, Altus, Blomberg, Arctic, Leisure, Arstil, Elektra Bregenz and Flavel. Arçelik is the third largest household appliances company in Europe. Innovation is a strong point, as Arçelik is one of the first four companies with the highest number of patents to its name.
Vestel is a company of the Zorlu Holding Group, with many companies, such as Vestel manufacturing electronics and white goods, TAC manufacturing furniture and curtain textiles. In addition to companies in the oil and energy sector, helicopter rental, satellite communications and Internet provider, banks and investment services, and tourism, Vestel operates the largest TV manufacturing plant in Europe, and third largest in the world, with an annual output of 15 million television receivers.
The Sabançi Holding controls 70 companies, many of which are recognized market leaders in their respective sectors. The group has a total of 50 000 employees and operates in 15 countries. Sabançi and its subsidiaries own more than 40% of Akbank, one of Turkey largest banks, and has operations in cars, cement, energy, retail, insurance, telecom, textiles, tires, plastic, hotels, paper and tobacco. Sabanci has 10 joint ventures with several international groups, such as Citigroup, Aviva, Bridgestone, Toyota, Verbund, Bekaert, Heidelberg Cement, Carrefour, Hilton, Mitsubishi Motor, International Paper, Philip Morris, etc.
The glass and chemicals group Turkey Sise ve Cam Fabrikalari, Sisecam, is the largest glass manufacturer in Turkey, with international plans, recently started in Bulgaria. Sisecam has advanced plans for presence in Russia, the Middle East, in flat glass for buildings, car glass, glass containers and glass fiber.
The first international name in Egypt is Orascom. In 2005, the subsidiary of Orascom, Weather, bought Wind, Italy third largest mobile operator, from Italian energy company ENEL, in a deal worth €12.2 billions. Weather then bought Tim Hellas, Greece third largest mobile operator, from private equity firms Texas Pacific Group and Apax, in a deal worth €3.4 billions.
The success of Orascom has created an interest for takeover from a number of European companies, including Deutsche Telekom, Vodafone, Spain Telefónica and France Telecom. Orascom Telecom operates in nine countries in Africa and the Middle East, with very high growth potential.
Fall from grace of South East Asia
Now China and India are the stars. Just until twelve years ago, South East Asia was the world fastest developing region, with the same sort of acclaim as now for the two giants. The five main economies, Indonesia, Malaysia, the Philippines, Singapore and Thailand, are still notable for the near absence of companies that could truly be called world class.
The region has about 600 million people. It had a head start in economic development over much of the rest of Asia. So why does it still have no global consumer brands of the stature of South Korea Samsung and LG? Where are its rising technology leaders, like Taiwan AU Optronics and Taiwan Semiconductor? Where are its equivalents of India world conquering Mittal, Tata, Ranbaxy, Wipro?
Many reasons have been given, none of them convincing. As major exceptions, there are three world companies in Singapore. Singapore Airlines is the world fourth largest international airline. Keppel and SembCorp are the two world largest makers of offshore oil drilling rigs.
Africa, the new prize
Poverty decreased everywhere in the world in the last 30 years, except in Sub Saharan Africa, where the number of the poors grew from 200 millions in 1980 to 400 millions in 2007.
Growth in Africa has been, and will be, constrained by infrastructural bottlenecks. However, these are not because of insufficient international funding. The bottlenecks are the result of weak political commitment, poor or non-existent planning and the standing conviction that a foreign donor or lender will always come to the rescue. In Africa the problems come from still limited skills, technology and most of all poor governance. The hope of the great African Union, with all 54 countries of Africa is put off to 2025, in the most optimistic case. The bottom millions are being increasingly marginalized.
This is not true everywhere however. Countries such as Gabon and Angola currently enjoy 20% annual growth, from almost nil, of course.
In their own specific ways, India and China put their stakes in Africa.
China and India both need and want access to African natural resources, and both see Africa as an outlet for their manufactures. The Indian approach is more subtle than that of China. China goes more after raw resources of all kinds. India is renewing its multi-secular tradition of trade with Africa, selling to Africa its high-tech products, particularly in cheap telephony and mobile Internet services.
The new interest for the Mediterranean
One third of the world container traffic already passes through the Mediterranean, bringing manufactured goods from China and South-East Asia to Europe and the east coast of America.
Now, in Morocco, there is the investment on Tanger Med, some €3.5 billions, to make an attractive stop point for international traffic. Goods will arrive to be broken down into smaller loads and sent around Europe. Manufacturers will set up factories in the planned tax-free zones, bring in components for assembly and serve the European markets across the water.
In recent years, Europeans have tended to see Southern Mediterranea as more a threat than as an opportunity, as a source of immigrants, young and illegal, mainly Muslim and generally unwelcome. Yet commerce is not a novelty in the Mediterranean. Millennia ago, the Middle Sea was a center of world trade. It was “mare nostrum” to the Romans, surrounded by the Empire.
There are many political projects to boost the area economies, policy and union, but none of them is yet anywhere. The economic trends are favourable. Most Mediterranean countries ran at an average 4-5 % growth for the last ten years.
The Southern and Eastern Mediterranean now gets large quantities of foreign direct investment, on a scale second only to China among emerging economies. More capital is coming from private-equity funds, indicating the rising interest of international capital, export markets, lower wages. The wave started by 2000, and now private-equity groups and large investment funds from the oil rich Gulf States are joining in.
The offshore investors are firms attracted by oil and gas. They are offshore in the sense that they ship in all their labour, equipment and supplies. They pay the State for the resources they extract, but have little further effect on the local economy.
The second group consists of European companies, mainly French, also Spanish and Italian. These investors usually form joint ventures or buy local small and medium enterprises.
The third are a new group, the Gulf funds. Their billions tend to go to the huge resorts springing up along the coast. Investors from Dubai have a €10 billion project in southern Tunis, a €3 billion development in Algeria and €600m site in Morocco.
The fourth group, also newcomers, is of investors from emerging markets. Several Indian companies came in the region. Tata has invested in motor manufacturing and outsourced information technology work in Morocco. Wipro Technologies does IT work. Ranbaxy Laboratories has factories there. Gujarat State Fertilisers and Coromandel Fertilisers from India are investing in a Tunisian factory to make phosphoric acid from the local reserves of phosphorus. South Korean investors are coming, for instance with a car parts factory in Tunisia and hotels in Syria. These industrial investors sometimes take over local companies.
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