Globalisation is entering a new phase, with emerging-market companies now competing furiously against rich-country ones.
GLOBALISATION used to mean, by and large, that business expanded from developed to emerging economies. Now it flows in both directions, and increasingly also from one developing economy to another. Business these days is all about “competing with everyone from everywhere for everything”.
One sign of the times is the growing number of companies from emerging markets that appear in the Fortune 500 rankings of the world’s biggest firms. It now stands at 62, mostly from the so-called BRIC economies of Brazil, Russia, India and China, up from 31 in 2003 (see chart 1), and is set to rise rapidly. On current trends, emerging-market companies will account for one-third of the Fortune list within ten years, predicts Mark Spelman, head of a global think-tank run by Accenture, a consultancy. There has been a sharp increase in the number of emerging-market companies acquiring established rich-world businesses and brands (see chart 2), starkly demonstrating that “globalisation” is no longer just another word for “Americanisation”. Within the past year, Budweiser, America’s favourite beer, has been bought by a Belgian-Brazilian conglomerate. And several of America’s leading financial institutions avoided bankruptcy only by going cap in hand to the sovereign-wealth funds (state-owned investment funds) of various Arab kingdoms and the Chinese government.
Lean and HungryTop five emerging-market M&AsYear Target Buyer Deal Value $BN| 06| IncoCanada| Companhia Vale do Rio Doce, Brazil| 18.7| 06| Rinker Group AUS| Cemex S.A de CVMexico| 16.7|
08| Rio Tinto 12% GB| Alcoa; Aluminum Corp of China US| 14.3| 06| Corus Group GB| Tata Group India| 13.0|
07| GEPlastics US| Saudi Basic IndustriesCorp, Saudi Arabia| 11.6|
One example of this seismic shift in global business is Lenovo, a Chinese computer-maker. It became a global brand in 2005, when it paid around $1.75 billion for the personal-computer business of one of America’s best-known companies, IBM—including the ThinkPad laptop range beloved of many businessmen. Lenovo had the right to use the IBM brand for five years, but dropped it two years ahead of schedule, such was its confidence in its own brand. It has only just squeezed into 499th place in the Fortune 500, with worldwide revenues of $16.8 billion last year. But “this is just the start. We have big plans to grow,” says Yang Yuanqing, Lenovo’s chairman. One reason why his company could afford to buy a piece of Big Blue was its leading position in a domestic market buoyed by GDP growth rates that dwarf those in developed countries. These are lifting the incomes of millions of people to a level where they start to splash out on everything from new homes to cars to computers. “It took 25 years for the PC to get to the first billion consumers; the next billion should take seven years,” says Bill Amelio, Lenovo’s chief executive.
The sheer size of the consumer markets now opening up in emerging economies, especially in India and China, and their rapid growth rates, will shift the balance of business activity far more than the earlier rise of less populous economies such as Japan and South Korea and their handful of “new champions” that seemed to threaten the old order at the time. This special report will argue that the age of “globality” is creating huge opportunities—as well as threats—for developed-world multinationals and new champions alike. The macroeconomic turbulence that the world is now going through after almost a decade of smooth growth will probably not alter the picture fundamentally, but it will complicate it. Despite all the talk of “decoupling”, emerging economies have recently been growing more slowly because of their exposure to increasingly cautious American consumers. Moreover, high oil and food...