When Terry Gou began making cheap plastic switches for black-and-white 1970s
television sets in a garage he was just another workaholic Taiwanese
entrepreneur with big hopes. In the early 1980s, however, his company, Hon
Hai, began to make a name for itself producing components for the fledgling
personal-computer industry. Over the next two decades, it grew explosively,
signing deals with IBM, Apple, Dell, Sony and Nokia.
Today Hon Hai is the world’s largest contract-electronics maker, valued at £18
billion. Gou is Taiwan’s second-richest man, with a castle in the Czech
Republic and a personal fortune of $5.5 billion (£2.8 billion), according to
Forbes magazine. Ruthlessly efficient, he continues to base Hon Hai in a
grimy concrete factory in a part of Taipei known as Dirt City.
While Gou was busy starting a global electronics giant, Zhang Ruimin convinced
Chinese Communist party officials to let him take control of a struggling
fridge maker, Qingdao Haier, in 1984. To prove a point about shoddy
workmanship, he started taking dozens of flawed fridges off the production
line and invited the workers to smash them up with sledge-hammers. Thanks to
his zeal about quality and innovation, Haier has since become the leading
producer of white goods in China and the fourth biggest in the world.
What unites Hon Hai and Haier is their membership of a hungry new pack of
world-beating companies from dynamic, emerging-market economies. According
to Antoine van Agtmael, the guru of emerging markets, they are on the brink
of global domination. In a new book — The Emerging Markets Century, How a
New Breed of World Class Companies is Overtaking the World — he places Hon
Hai and Haier among 25 “innovative superstars” from less-developed countries
that are “threatening to dominate global markets and out-smart their western
rivals”. These are the blue chips of the 21st century.
Van Agtmael says he invented the term “emerging markets” as a “positive and
invigorating” alternative to “Third World” in 1981 while launching a fund
for the International Finance Corporation, part of the World Bank. Today, he
has his own investment firm, Emerging Markets Management. He challenges the
assumption that corporate success in emerging markets depends on cheap
labour and abundant natural resources. On the contrary, their executives
learnt from foreign companies before outpacing them.
“What explains their business success is their intuition as much as the
numbers,” Van Agtmael said last week. “These are companies that are prepared
to take unconventional approaches rather than following textbooks. At a very
early stage, many had the guts to test themselves against the best in the
world rather than taking the easy option and staying in their protective
shells. They take risks.”
Van Agtmael’s list of corporate superstars includes: High Tech Computer, the
Taiwanese company; Korean group Samsung, which has already taken the
mobile-phone market by storm and leads the world in memory chips and flat
screens; the Brazilian mining group CVRD, owner of the world’s
single-largest iron-ore deposit; and the Mexican media group Televisa, which
has grown explosively by cornering the market in “tele-novela” soap operas;
the privately-owned Indian conglomerate Reliance Industries; Ranbaxy, an
Indian generic-drugs manufacturer; and Embraer of Brazil, the world’s
fourth-biggest aircraft producer.
Some are obscure, yet huge. Few western businessmen or consumers will have
heard of Yue Yuen, part of the Taiwanese group Pou Chen. Yet if someone buys
a pair of Nike trainers in Britain, there is a good chance they were made on
Yue Yuen’s huge production line in China. For more than a decade it has been
the leading supplier of trainers and athletic shoes to Nike, Reebok, Adidas
and other leading brands. It produces 186m pairs, or one in six of all
athletic shoes sold globally.
Most on the list are manufacturing companies and, significantly, none can
challenge the new high-tech American market leaders like Google, Microsoft
or Apple; and there is only one media company, Mexico’s Televisa.
Some other new global giants are absent, like Russia’s Gazprom and Mittal
Steel, run by the London-based Indian, Lakshmi Mittal. Neither is considered
a world leader by Van Agtmael. He says that those which make the cut share
an ability to “take ambitious and disciplined gambles, an obsession with
quality, immense flexibility and a willingness to challenge conventional
thinking and established business models”. In one striking example, Morris
Chang, founder of Taiwan Semiconductor Manufacturing Company (TSMC) decided
to create a stand-alone factory to make silicon chips — an unheard-of
approach given the tradition of electronics firms making chips in-house.
Gordon Moore, founder of Intel, the computer chip giant, dismissed this as a
“bum idea” but has been proved wrong: TSMC is now a £27 billion company.
COMPANIES in emerging markets have adopted a variety of strategies in their
fight for domination. At one extreme, Samsung has built its brand from
scratch; at the other, China’s computer-maker Lenovo paid $1.5 billion to
buy IBM’s ailing PC business, partly because it wanted to gain control of
the ThinkPad brand.
“The era of emerging-market companies being nothing more than unsophisticated
makers of low-cost, low-tech products is rapidly coming to an end,” says Van
Agtmael. “What is often overlooked when people speak glibly of globalisation
is that a new kind of firm is fast rising and flexing its muscles in the
nations of the former Third World.”
In short, unless they shape up, some of the iconic businesses in the developed
world — from America’s Wal-Mart and IBM to Japan’s Sony and Panasonic — are
“in danger of becoming the has-beens of tomorrow”.
Mark Mobius, president of Templeton Emerging Markets, agrees. He said: “There
are still too many people who sit in boardrooms in the West and look at
Russia and think ‘We are not going there, the place is run by gangsters’, or
think China looks far too risky. For too long there has been a feeling in
America and Britain that we are the centre of the world. That mindset has to
change.”
Ominously for their western rivals, many emerging-market companies have been
battle-hardened by economic crises — from the 1994 Mexican peso crisis to
the 1997 financial meltdown in Asia. These crises also led to structural
reforms. Their countries started to embrace market economies, boosting
competition and growth.
Though 85% of the world’s population lives in emerging markets, their share of
the global-economy’s gross national product was a mere 21% in 2005. In about
25 to 30 years the combined GNP of emerging economies is expected to eclipse
the developed countries and to go on growing. By 2050, according to Van
Agtmael, the combined value of the emerging economies will be $138 trillion
— almost double that of current developed economies.
Mobius said: “The numbers are so much in favour of emerging markets — they
have huge, captive populations, natural resources and an immense land mass.”
In a race for global supremacy, the new powerhouses have cranked up their
ambitions and gained the firepower to pull off big deals after gaining
access to cheap funding. Two weeks ago, India’s Tata Steel won a fierce
auction to buy Corus, the Anglo-Dutch steel group, for £6.7 billion, beating
off competition from Brazil’s CSN. SOMETIMES there is resistance. Two years
ago CNOOC, the state-owned Chinese oil company, made a $16 billion bid for
Unocal, an American rival, sparking howls of protest from US politicians
about threats to national security. Though the bid was withdrawn, it
signalled in the clearest terms the growing ambition of emerging-market
companies.
“Every 10 years or so there emerges a new bogeyman to frighten companies in
developed countries,” said Don Sull, associate professor of management
practice at the London Business School. “In the 1980s it was Japan that was
going to take over the world. In the 1990s it was the threat of the dotcom
boom. Now it is emerging-market companies.”
This time, however, they could succeed. While Japan’s assault on world markets
was engineered by the trade ministry and targeted just a handful of
industries, the emerging-market tigers are fighting across many sectors —
steel, high-tech gadgets, aircraft, cement and beer. “The punch line is that
they are getting bigger, bolder and better and are going to eat the
established companies’ lunch,” said Sull.
Jim O’Neill, head of global-economics research at Goldman Sachs, said: “The
global entities that are sufficiently open-minded and dynamic will be able
to face down the new competitors and survive and thrive. Those that fail to
expand in emerging markets will be vulnerable to becoming dinosaurs. But it
will be fascinating to watch.”
Mobius argues that in 20 years’ time there are likely to be between 300 and
400 emerging-market companies in the Fortune 500 list of the world’s biggest
firms, compared with the present 58. But he also said: “It is a mistake to
say that emerging-market companies will just take over companies in
developed countries. It will be a two-way street.”
While they may appear to have a fair tail-wind, the new corporations face big
challenges. For a start, there is the threat of political instability at
home, highlighted last year by the coup in Thailand on a wave of resentment
at the power and wealth of the prime minister, Thak-sin Shinawatra, and his
business associates.
For Mobius, the most serious danger isa return to western protectionism: “One
day a government may wake up and say too many jobs are being lost, too many
of our companies are being bought. If that prompts a rejection of the
market-econ-omy model, then we would see problems.”
Then there is the threat of growing competition in emerging countries’ home
markets — not only from smaller rivals offering cut-price goods but also
from multinationals determined to expand in the new fast-growing markets.
Tesco has expanded aggressively into Thailand, China and South Korea. France’s
Carrefour, the world’s second-big-gest grocery chain, plans to open in
Russia this year.
Nonetheless, the new tigers charge onwards. Last week, Ignacio Ortiz, the UK
president of Cemex, the world’s third-larg-est cement manufacturer, was
welcomed in Tilbury, Essex, where he signed a £27m deal to construct a new
“ecological” plant to provide cement for the Olympics and London Gateway
infrastructure.
This venerable Mexican company (founded in 1906) has transformed itself by
overseas acquisitions from a low-tech “Third World” enterprise into an
efficient and much-admired multinational.
Cemex now operates in 50 countries and, as Agtmael points out, Wired magazine
has placed it just behind Google — and ahead of eBay and Microsoft — in a
survey of companies reshaping the global economy. British companies, please
note.
The Emerging Markets Century, by Antoine van Agtmael, is published by Simon &
Schuster
THE 25 INNOVATIVE SUPERSTARS THAT ARE THREATENING TO DOMINATE GLOBAL MARKETS
SAMSUNG
South Korea Electrical goods manufacturer. It is the global leader in
memory chips and flat screens for computers and televisions. Market
value £46 billion
CVRD
Brazil Iron-ore producer with the world’s largest reserves. CVRD is
also the world’s No2 manganese producer and No5 copper producer. Market
value £41 billion
TSMC
Taiwan The world’s largest dedicated semiconductor foundry was formed
as a joint investment between the Dutch electronics giant Philips and the
Taiwan government in 1987. Market value £27 billion
AMERICA MOVIL
Mexico Telecommunications company. Established in 1947, it offers both
fixed-line and mobile services in Mexico and Latin America. Market
value £26 billion
RELIANCE
India Petrochemicals producer. India’s largest private-sector business
works in the exploration, refining and marketing of oil and gas. It is the
largest polyester yarn and fibre producer in the world. Market value
£22 billion
PETROBRAS
Brazil The partly state-owned company is the largest oil and gas
producer in Latin America and 15th largest in the world. Market value
£20 billion
HON HAI
Taiwan Computer and electronics manufacturer that makes products used
in Nokia mobile phones, Sony Playstations and Dell computers. It is the No1
electronics producer in Taiwan. Market value £18 billion
POSCO
South Korea Pohang Iron and Steel Company is one of the largest steel
companies in the world. Market value £16 billion
INFOSYS
India IT services provider that is a leading player in global
outsourcing. Market value £15 billion
TENARIS
Argentina Maker of products and services used in oil and gas
production. It has operations on four continents. In 2006 it produced 6m
tonnes of steel piping. Market value £14 billion
CEMEX
Mexico Cement producer whose acquisition of RMC doubled its revenues
and made it the No1 producer in America. Market value £14 billion
SASOL
South Africa The world’s largest producer of synthetic fuels, and the
only company that uses coal-to-liquid technology. Market value £11
billion
HYUNDAI MOTOR
South Korea Carmaker. With its affiliate Kia, it sold more than 3m
vehicles worldwide in 2005, making it the world’s seventh-largest car
manufacturer. Market value £8 billion
TELEVISA
Mexico The largest media company in the Spanish-speaking world. It owns
four TV networks. Market value £7.4 billion
HYUNDAI HEAVY
South Korea World’s largest shipbuilder. Market value £6
billion
MISC
Malaysia The global leader in shipping liquefied natural gas (LNG). Market
value £5.2 billion
EMBRAER
Brazil The world’s fourth-largest aircraft maker. Market
value £4.1 billion
HIGH TECH COMPUTER
Taiwan Producer of the iPaq PDA. Its Windows CE based PDAs account for
more than 50% of the global market. Market value £3 billion
YUE YUEN
China/Taiwan Sports-shoe maker that produces one out of six pairs of
sports shoes in the world. Market value £3 billion
RANBAXY
India Drug company that has manufacturing operations in seven
countries. Market value £1.8 billion
MODELO
Mexico Maker of Corona beer. It has 62% of the Mexican beer market and
exports to more than 150 countries. Market value £1.8 billion
LENOVO
China It acquired IBM’s Thinkpad in 2004, making it the world’s No3 PC
producer. Market value £1.7 billion
ARACRUZ CELLULOSE
Brazil Pulp producer that has 30% of the global market. Market
value £1.5 billion
CONCHA Y TORO
Chile Wine maker. South America’s leading wine brand. Market
value £649m
HAIER
China Refrigerator maker. Has 34% of the Chinese appliance market. Market
value £281m
