One reason that emerging multinationals have remained below the radar of so many executives, as well as the general public, is that companies such as YueYuen and Hon Hai remain deliberately hidden in the shadows cast by better-known brands such as Nike, Dell, or Nokia. Even though they are the actual producers of products for those companies, bigger brand names continue to control the distribution and marketing. When will they emerge from the shadows? These firms' prevailing invisibility - a conscious stealth strategy in some cases does not mean that they are powerless, less profitable, or that they will be content to take the low-profile road forever. It won't be long before the biggest companies you have never heard of become household names.
Companies like Samsung, LG, and Hyundai began by making products efficiently and cheaply but now have recognized brand names, a high quality image, world-class technology, and appealing designs. China's Haier and others are following in their footsteps. In fact, they are already better known than GE, Sony, or Toyota by hundreds of millions of consumers in China, India, and other emerging nations. Some are bound to find the ways and means to distribute their products globally without having to rely on
the 'big brand names to handle the consumer end. As time goes on, more emerging-markets firms will take over long-established Western companies, including those they now supply. We are seeing this trend played out as global supply chains turn upside down, with Western companies selling components and services to global giants from emerging markets. General Electric sells jet engines to Brazilian plane builder Embraer. Other smart firms will soon follow suit....
REVERSAL OF ROLES
Decades of good times created innumerable legacy problems for many long-established multinationals, but brutal crises in recent years squeezed out many emerging markets companies that had pinned their hopes on protection.
The ensuing Darwinian struggle for survival left only battle hardened survivors still standing. As newcomers, emerging multinationals had to fight for shelf space and against preconceived notions of inferior product quality (not always without justification). In the end, the world-class companies described in this book carved out leading roles. These are not overnight wonders.
THE THREE WAVES
There have been, in my opinion, three distinct waves defining the commercial
relationships between the former First and Third Worlds in the past century.
Wave 1: Foreign Direct Investment in Overseas Plants
During the postwar period, an American, Japanese, or Western European company would set up a manufacturing plant in an emerging market and import virtually everything except labor from the home country, including its own managers, machinery, capital, technology, and management techniques. They would operate copper mines or oil fields, assemble cars, run agri-businesses or make televisions or disk drives. Their purpose was to turn out inexpensive products for export using low-cost local labor and raw materials, while participating in the growing local market for their products. It was the logical business model for its time because homegrown companies in emerging markets typically had little or no track record, the technology on which they depended needed to be imported, there were few trained managers available, local capital markets were
nonexistent, and banks would only lend to them on a short-term basis. Some played up these overseas plants as crucial modernizers who brought much needed capital and technology to the Third World. Others decried them as neo-colonialist outposts who operated in splendid isolation and simply substituted commercial for political and social control. Ideologues on both sides of the debate misunderstood their real impact. Over time, these overseas plants familiarized a local labor force with global technology, trained
local managers, set rigid standards for efficiency and service, and introduced management methods that spread quickly to their local suppliers and competitors. All of which, in turn, set the stage for. . .
Wave 2: Outsourcing and Offshoring
Over the past two decades, many traditional multinationals realized that it was no longer necessary to set up overseas subsidiaries: local corporations enjoy easy access to the capital markets, and could easily buy the latest technology themselves and learn how to operate sophisticated machinery in huge plants. Local schools and universities produce an ample supply of skilled workers and engineers. At a later stage, the Internet allowed instant communications and easy dialogue. Long-term business relationships developed the trust needed to rely on overseas suppliers rather than in-house operations. First a single component or cheap, low-tech part, then whole modules or products, then finally the design of entire sophisticated, high-tech products, were increasingly "offshored." True, the client in the United States, Europe, and Japan remained in the driver's seat and this symbiotic relationship seemed to remain between the mother ship and its dependent partners. Yet even as multinationals distributed and stamped their brand name on the products, they in turn became dependent on the process technology of the companies to which they "offshored." In the meantime, the outsourcing companies were able to earn excellent margins, often higher than those of their clients.
Wave 3: Peer-to-Peer Emerging World-Class Competitors
We are now entering the early years of Wave 3: the emergence of world-class multinationals from emerging markets. In some cases, a powerful emerging markets firm, a Samsung or High Tech in consumer electronics, a Modelo in beer, or an Embraer in aviation, has risen to a status that thrusts it into the same class as traditional multinationals. India's Infosys (IT) or Argentina's Tenaris (oil pipes) rank as global competitors. Brazil's Companhia Vale do Rio Doce (mining) and Mexico's CEMEX (building materials) have learned how to cleverly become global players without
losing the particular advantages of their location in low-cost markets.
Emerging Multinationals Benefit from Role Reversal
Just as good times create bad habits, serious crises leave only battle-hardened survivors.
Decades of experience easily turn into the burden of "legacy" and without this burden, emerging market companies sometimes leapfrog. . The "home market" advantage is shifting to faster-growing emerging markets with more middle-class consumers than in the West.
Suddenly, China is more admired by many in Asia than the "West."
A new world of consumers is making its presence felt.
Rights: Excerpted from The Emerging Markets Century by Antoine van Agtmael. Copyright c 2007 by Antoine van Agtmael. Reprinted by permission from Free Press, a Division of Simon & Schuster, Inc.
|
