EM challengers disrupt corporate world

Companies in emerging markets are tracking growth booms in their respective national economies and pushing established multinational firms (MNCs) out of key industries, fresh data show.

"The number of emerging-market-based companies with at least $1 billion in annual sales-the global challengers, as we call them-has more than tripled, to roughly 1,700 over the past decade," Boston Consulting Group (BCG) said in a report on Wednesday.

While emerging market firms are smaller than MNCs in size, BCG notes they are growing much faster.

Following an analysis of global competition in three industries - automotive supply, construction equipment and chemicals - BCG found that emerging market players (EMPs) are on the verge of overtaking the reigning MNC champion in each sector.

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"In one scenario, which explores aggressive EMP growth and is based on the assumption that EMPs are able to maintain the growth rate of the past five years, EMPs would represent three of the five largest companies globally in terms of sales in the foreseeable future in all three industries," it said.

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Chemicals leading the way

In the chemical industry, MNCs and EMPs are at near parity in terms of revenues, according to BCG. The average annual revenue for the top ten EMPs in chemicals is $29 billion, versus $33 billion for MNCs.

But despite slightly lower revenue, several EMPs are now market leaders, the report said. China's Sinopec, the world's second biggest oil refiner, reaped $450 billion in revenue last year, compared with Dow Chemical's net sales of $58.2 billion.

"Global demand trends are likely to continue to favor EMPs, especially those based in Asia," the report said, adding that Asia could account for 53 percent of global chemical sales by 2020, with shares of North America and Western Europe projected to shrink to 21 and 15 percent, respectively.

EMPs get another boost from being more aggressive in mergers and acquisitions. The average size for an EMP outbound acquisition stands at $881 million, nearly nine times larger than the average MNC outbound deal, BCG said.

Construction catching up

Construction is another sector where EMPs are nipping at multinationals' heels.

As developed markets were licking their wounds from the global financial crisis, emerging markets witnessed an infrastructure boom that spurred an explosion in demand for construction machinery, the report explained.

Despite a controlled economic slowdown in China, the world's No.2 economy, the country's largest construction-machinery EMPs - Zoomlion and Sany- have reached $5 billion in annual revenues, making them bigger than longtime incumbents Metso and JCB, thanks to expansion into other emerging markets, such as Latin America, the report said.

But the Chinese firms' attempt to seize share in Western markets has stumbled as customers there tend to value branding, quality and established distribution systems more highly, BCG notes.

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Automotive supply

The shift to emerging markets has yet to be reflected in the size of automotive suppliers, with MNCs still in the lead, but the report notes that EMPs are growing four times as fast. During 2008-2014, EMPs averaged 21 percent revenue growth annually, well ahead of MNCs.

Many MNCs could face a threat to their component segments, especially as more light vehicles are manufactured in emerging markets, it said. For example, China's Fuyao Group is now the leading maker of automotive safety glass, such as windshields, the report added.

But to overtake MNCs, EMPs will have to first close the technology gap by increasing research and development investment amid rising global standards for fuel efficiency, it noted.