World Economy: Hungry Emerging-Market Firms Compete

Beijing, 26 Sep. Firms from developing nations are rising to the top of global business, even acquiring the biggest and best from the west.

Beijing, 26 Sep. Firms from developing nations are rising to the top of global business, even acquiring the biggest and best from the west.

At one time, developed economies and third-world economies were in entirely different realms. They had minimal trade between each other and ran largely independently. The developed nations didn’t even think of investing in them on a large scale, and some, like India and China, restricted the type of FDI.

Then, in 1981, Antoine van Agtmael coined the term “emerging markets” in an effort to make his “Third Wold Equity Fund” more marketable. Agtmael notes that “Third World” conjured up “an image rife with negative associations of flimsy polyester, cheap toys, rampant corruption, Soviet-style tractors, and flooded rice paddies.”

But today this perception has changed and no such euphemism is needed to hype up the potential of these nations. For decades, developed countries have been aggressively investing in these markets, and most have entirely opened up to inflows of FDI. Transfers of knowledge, technology, currencies, and even people have made the world a smaller place.

A decade or two ago these counties were “emerging” onto the global economic scene. Now many companies from these developing nations are actually leading in global business. More than just emerging, they are now leading. In fact, there are 62 companies within the Fortune Global 500 from emerging markets, up from 24 in 2002.

China’s Sinopec is ranked 16 on the Fortune Global 500 with revenue of $159.3 billion. State Grid, also from China, is ranked 24 with $132.9 billion in revenue. Others in the top ten list include China National Petroleum , Industrial & Commercial Bank of China, Pemex (Mexico), Gazprom and Lukoil (Russia), Petrobras (Brazil), Petronas (Malaysia), and Indian Oil (India).

Not only are these corporations just big – but some are aggressive and they are acquiring firms from developed nations. For example, India’s UB Group, run by billionaire Vijay Mallya, purchased 163-year old Scottish distiller Whyte & MacKay. When Scotch was first introduced to India in colonial times, who would have thought an Indian company would own one of these traditional distillers?

India’s Tata Motors Ltd. purchased Jaguar and Land Rover for almost $3 billion. This is another event which India must be proud of. One of the finest and most sophisticated British automobiles is now owned by Tata. The largest Indian acquisition, however, was the $12.9 billion deal when Tata purchased UK steel manufacturer Corus.

Chinese company Lenovo’s purchase of IBM’s personal computer business may not be the largest ($1.75 billion) but it might be the most famous, despite Lenovo being right at the bottom of Fortune 500, at 499. Lenovo felt it could make such a purchase given China’s rapid GDP growth rates and high savings. This nouveau-riche population is more than willing to spend money on the latest and greatest gadgets and luxuries.

Hot on the heels of the first-generation rich of China and other developing nations are the new masses of consumers who are not rich – but no longer poor. These mass-market Chinese and Indians – in the hundreds of millions – are demanding bare-bones versions of what the status quo is in the US or UK for example.

Many of the firms these Indian and Chinese companies acquire can now cater better to their local markets. Designers in California don’t know nearly as well how to develop a product to market to the masses in India or China. While it is doubtful we will see a stripped-down Jaguar sell for $2,500, Tata is selling cars for such a price because they know what their audience wants.

Lenovo is doing the same with its PC