GROWING INDUSTRIAL INTERCONNECTIONS AND GLOBALISED COMPANIES
INTERNATIONAL CONFERENCE ON
GLOBALISATION OF KNOWLEDGE DEVELOPMENT AND DELIVERY
THIRD ANNUAL CONFERENCE OF THE FORUM FOR GLOBAL KNOWLEDGE SHARING
NEW DELHI OCTOBER 17-18 2008

Françoise Pardos, Pardos Marketing

Strategies of the new globalized companies

As a rule, the main strategy of the new emerging world companies is to prefer acquisitions to the top, rather than organic growth, much slower and uncertain.

According to BCG, thousands of companies are expanding sales and production internationally, for many reasons:

Their home markets offer several base advantages.
Rapid growth gives companies scale and spare cash to invest abroad.
Costs are low.
The difficulties of operating in an emerging market have made managers adaptable and resilient.
Gradual liberalization in the home markets, as in India since the early 1990s, has exposed them to competition from multinationals.

But some companies simply believe they can be the biggest and best in their industries, worldwide.

There are a number of strategies or combinations thereof, as analyzed by the Boston Consulting Group.

The first strategy is to take brands from local to global.

This is the most obvious strategy, pursued by 28 of the 100 companies analyzed by the BCG, which are going abroad with brands that have been established at home. Often, they begin selling their products in neighboring countries before launching them in the US or Europe.

Examples are Chinese appliance and consumer electronics companies Haier, Hisense, Galanz, and Skyworth.

Another example, in India, is Bajaj Auto, a developing country brand going global. It is India biggest maker of two- and three-wheeled vehicles. Its sales have more than doubled since 2000, to $2.3 billions, mostly to South-East Asia.

A second strategy is to turn local engineering excellence into innovation on a global scale

An example is Embraer in Brazil. Supported by the Brazilian government and later privatised, Embraer has passed Canada Bombardier to become the world leading maker of regional jet aircrafts. By 2006 over 95% of its $3.8 billion sales were outside Brazil. It is one of Brazil biggest exporters, combining low-cost manufacturing with advanced R & D. In addition, Embraer has a joint venture with China Aviation Industry Corporation II, a Chinese consortium of aircraft manufacturers. In this it was even ahead of Boeing and Airbus, both now trying to transform themselves from rich world exporters into global producers, with long, difficult-to-manage supply chains throughout the world.

Another example is Wipro of India, which has used its engineers to become a world leader in software and engineering services.

Still another example is Huawei of China, with thousands of engineers, and gaining respect as innovator of low-priced telecom equipment.

The third path to international success is going for global leadership in a narrow product category.

One example of this strategy is BYD, from China, a battery maker. It uses a more labour intensive production system than the Japanese firms it competes with to take advantage of low labour costs.

Another example is Johnson Electric, of Hong Kong, that now produces mainly in mainland China. It makes tiny electric motors for products such as cameras or cars. This was an industry that used to be run by American and European companies. Factories in Europe have moved to China. A number of acquisitions, such as parts of Lear and ArvinMeritor, helped that strategy. Johnson Electric now has plants in America and Western Europe and R&D centers in Israel, Italy, Japan and America.

Pearl River, of China, has used a similar strategy to become the world biggest manufacturer of pianos.

Ranbaxy, of India, is now expanding its reach in the global market for generic drugs by buying up smaller producers worldwide.

Keppel Corp of Singapore is the world largest top offshore oil drilling rigs maker, and is looking for acquisitions in Asian shipbuilding yards.

The fourth strategy is to have a new or better business model, for many different markets.

This is the approach of CEMEX, of Mexico, one of the world biggest suppliers of ready-mixed concrete. Its annual sales were $18 billions in 2006. Industries such as cement and other building materials are usually considered territorial goods, as they are bulky, basic and too expensive to transport over long distances. This vision has changed. Although it will never be worth shipping cement from Mexico to Europe, know-how and investment can be used into any market. As rich world cement companies, such as Lafarge and Saint-Gobain, are investing in developing countries, CEMEX has the same strategy in reverse. CEMEX went unnoticed until it bought the British company RMC in 2005. By that time, 80% of sales were already coming from outside of Mexico. CEMEX had bought or built businesses in Colombia, Panama, Venezuela, Indonesia, the Philippines, Thailand and the United States, before entering Europe. All are successes, because of the development of an own style of managing acquisitions, with systems, dependent on standardised procedures, built around highly developed IT systems.

The last and oldest strategy is to acquire natural resources

Energy is the one sector where emerging economy countries dominate. The vast majority of the world resources are located in developing nations.

Saudi Aramco has the world largest share of oil reserves, followed by the National Iranian Oil Company, the Iraqi National Oil Co., and the Kuwait Petroleum Corp. The big integrated oil companies, such as Exxon Mobil, have direct access to just 16 % of the world reserves.

In gas, Gazprom, the giant Russian oil and gas company, has the world largest reserves of natural gas, followed by the National Iranian Oil Co. and Qatar Petroleum.

And a growing number of emerging multinationals are using access to those resources to their advantage.

Examples include Brazilian food processors Sadia and Perdigao, taking advantage of natural resources at home, and boosting them with first-class marketing and distribution. They operate everything from farms to branded ready-to-eat meals and export half of their combined $4 billions in annual revenue.

Metals manufacturers such as Brazil iron giant Companhia Vale and the Russian companies RUSAL, in aluminium, Lukoil, in petroleum, and Gazprom, are using natural resources to go global.

Many companies were once content to operate in their home markets. The new ease of global communication and air travel, the world availability of management and communication expertise, rapidly helped them to manage complex multinational operations.

A very positive aspect, worldwide, is that most of these companies have low cost structures and will be able to offer their goods and services at lower prices.

Most of the new comers of recent years have been successful.

Often, they have reacted well to difficult starts.

One generation ago, South Korea and Taiwan had demonstrated how impoverished economies can make their way into the world stage, and do it within a single generation.

TCL, a Chinese consumer electronics company, broke into Europe by buying the very ailing French Thomson TV brand.

CEMEX started investing in America when its cement exports were hit by anti-dumping suits. It became the market leader.

Lenovo bought the IBM PC business partly to acquire management talent, and went on to create a firm that blended the best of the two businesses.

Indian multinationals are reversing the usual brain drain by calling on non-resident Indians back from branch offices in America and Europe, where they have gained experience that could be useful at the centre.

More newcomers may also have the Mittal strategy, acquiring businesses in all parts of the world, with a strong base in both developing and rich countries. There will certainly be more companies with Mittal strategy, not just like Tata or Chery, emerging from giant, booming domestic markets, but entirely newcomers, getting out of nowhere to become majors.

It is unlikely, of course, that all of the 100 companies analyzed by BCG will be global powers ten years from now. But they are just the tip of the iceberg. Thousands of other companies from the developing world also have big global dreams and are investing accordingly.

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