Companies in Asia, and in particular Southeast Asia, are starting to have a major impact on the global scene as they gradually make their presence felt through consolidation and expansion. At the same time, they are moving up their value chain to compete head-on with the multinationals that have dominated the market for decades.
The evidence is clear in a study by Boston Consulting Group of 100 emerging-market companies with annual revenues of $1 billion or more, at least 10% of which came from outside their home markets. It found that their revenues have risen by an average of 16% annually over the past four years and they have added 1.4 million jobs, against a backdrop of a gloomy global economic outlook in the developed markets.
These "Global Challengers", as BCG terms them, are now fully fledged competitors to the established multinationals and some are making game-changing moves that have been altering global industries from aircraft manufacturing to medical devices and e-commerce.
To give one small example from the smartphone market, where Apple and Samsung are perceived to reign supreme, the Ascend D1 Quad from Huawei Technologies of China is now one of the fastest-selling smartphones in the world.
Aloke Lohia - Indorama
BCG, which has been compiling the list annually since 2006, said the first list was meant to be a "wakeup call" to the executives of the multinationals. But in the intervening seven years, these companies from emerging markets have become lucrative customers and potential partners across the world.
The latest list contains eight companies from Southeast Asia, four of which are from Thailand: Charoen Pokphand Foods Plc (CPF), Indorama Ventures Plc (IVL), PTT Plc and Thai Union Frozen Food Plc (TUF). All have taken advantage of the growth strategy of acquiring assets when the global markets were in a tailspin but have now started to consolidate their assets and turn them around.
South Korea, Japan, Taiwan and Singapore were not included in the study as they are categorised as developed countries and not emerging markets.
Most of the companies on the list started to acquire assets at low prices during the 2008-09 global economic crisis, completing hundreds of cross-border acquisitions that provided them with international assets and new management expertise.
While the number of deals has fallen in recent years, the average deal size in 2012 was $1.1 billion, compared with $484 million in 2007.
The companies that have grown have been following the strategy of "expanding in the turmoil, integrating after the crisis and retraining at home", Michael Meyer, a partner and managing director in the Singapore office, who is also the co-author of the report, said in a telephone interview.
Thiraphong Chansiri - Thai Union Frozen
The leaders among the acquirers were companies from China and India. Chinese companies made deals worth $7 billion in the two years prior to the crisis, rising to $30 billion during the crisis and settling to $23 billion in the past two years.
Acquisitions by Indian companies, on the other hand, rose to a peak of $26 billion before settling to $3 billion in the past few years.
The four Thai companies on the list were all active acquirers. PTT used its exploration and production unit (PTTEP) to acquire assets in Africa and other regions, while TUF and IVL have been acquiring assets in mature markets and are now starting to reap the benefits.
Today TUF is the world’s largest tuna producer with enough leverage to have a presence in all major markets, similar to IVL which is the world’s largest polyester chain maker, thanks to the acquisitions it made at bargain prices from 2008-10.
"Indorama is a prime example of company that took advantage of the opportunities overseas and have managed to make them effective," Mr Meyer said. He also noted that that the companies that took advantage of opportunities outside their home turf managed to weather the global financial crisis, while others continue to reel from the problems faced in their domestic markets.
There was a trend by Asian companies to continue to take advantage of opportunities abroad as the US and European markets continue to face economic problems.
But the key, he warned, was for acquirers to be very vigilant in their due diligence or else they could lose out.
"A lot of times acquisition is not value addition but a good acquisition requires in-depth due diligence, good valuation and good integration, and one of the companies that has done this successfully is Indorama," Mr Meyer said.
Acquisitions by companies from emerging markets have gradually helped push them away from being just low-cost producers to become more innovative. Those in China and India, which formerly relied heavily on low cost and huge volume, have increased innovation and tripled their annual R&D spending since 2007.
BCG said that today’s challenge for companies is to remain innovative. Again it cites Huawei, where 46% of the 150,000 people it employs are in R&D units. But the overall trend of R&D in Southeast Asia has been relatively low, Mr Meyer conceded.
"Innovation and R&D in Southeast Asia has not been on par with the rest of the world, and government and the private sector need to rethink ways to improve this," he noted.
It is estimated that as many as 270 million new households in emerging markets will have the discretionary income that will make the market look more attractive to consumer-related companies, many of which are on the Global Challengers list.
Among fast-moving consumer goods companies, Godrej of India was a good example, BCG said. Its recent acquisition of Megasari Makmur in Indonesia will help the Indian conglomerate grow in a new market of 240 million people.
Apart from this, these companies have been adapting their products and services to local needs. Godrej, for example, makes Chotu Kool or "little cool" refrigerators that have good insulators and use very little power, keeping in mind the frequent electricity outages in India.
China-based Alibaba Group was also cited as an innovator with its e-commerce payment system called Alipay. The escrow system, in which buyers need not release payment until they have received and validated the merchandise, encourages people to use its services more and overcomes the very high distrust many people have of online commerce.
Despite the high demand in China and India, most companies in these countries that are looking abroad have opted to go to frontier markets such as Africa, Southeast Asia and Latin America.
Africa, with a billion people and an economy of about $3 trillion, is a market larger than Brazil or Russia.
Southeast Asia will see the entry of about 100 million new consumers by 2015, mostly in Indonesia, the Philippines, Thailand and Vietnam. This is forecast to push consumer spending to rise by as much as 12%, Mr Meyer said.
As companies in the region become bigger they have become formidable competitors to the multinationals. Out of the 100 companies on BCG’s list, 30 are from China and 20 from India, with four from Thailand, and two each from Malaysia and Indonesia. The BRIC (Brazil, Russia, India and China) economies accounted for 69 of the 100 companies, down from 84 in the past.
To remain competitive, Mr Meyer said, companies needed to have good management in place. While countries such as China produce a large number of management graduates annually, the most commonly cited problem there is the lack of human resource talent in management.
He said that governments needed to pay a positive role in human resource development, A good example is Malaysia, which has been setting up public institutions including technical schools, industrial training institutes and skill development centres for the industrial sector. Such hubs can help encourage investments into the country and help create jobs.
About the author
- Writer: Umesh Pandey
Position: Editor for Asia Focus