JEDDAH: A group of companies from rapidly developing economies has begun to leapfrog past established multinationals in global industry rankings, The Boston Consulting Group (BCG) said in its new report titled "BCG Global Challengers 2011". About half of the 100 so-called global challengers could qualify for inclusion in the Fortune Global 500 within the next five years, the report added. The new global challengers replace those that may have suffered or lost their way during the Great Recession or that may not be expanding as quickly as this year's listed companies are, it noted. The 100 challenger companies grew annually by 18 percent and averaged operating margins of 18 percent from 2000 through 2009. During this period, the annualized total shareholder return of the global challengers that were publicly listed was 17 percent. Overall, the global challengers generated revenues of $1.3 trillion in 2009. The 100 firms include Saudi Basic Industries Corporation, Global port operator DP World, Emirates, telecom major Etisalat and El Sewedy Electric in Egypt - the "hidden engines" of the global economy. If the challengers continue on their current growth path, they could collectively generate $8 trillion in revenues by 2020 - an amount roughly equivalent to what the S&P 500 companies generate today, BBCG report said. "The inclusion of Saudi Arabia, UAE and Egypt reflect the growing economic importance of the Middle East in general, and these countries in particular. The Middle Eastern champions clearly demonstrate that the region is well capable to diversify beyond its oil and gas endowment. Middle Eastern challengers succeed with unique business and operating models, technological strength or the ability to penetrate fast growing but difficult markets," said Thomas Bradtke, Partner and Managing Director in BCG's Dubai office. Although China, India, Brazil, Mexico, and Russia still dominate the list of home nations, countries in other regions are starting to foster world-class companies. In particular, Africa, with four global challengers this year (from South Africa and Egypt), is emerging as a region on the move. It is rich in natural resources, has emerged as a growth market for several industries, and demonstrates newfound ambition, the report said. "The global challengers should be seen by farsighted multinationals as potential customers and partners, to be worked with for mutual benefit. The global challengers certainly demonstrate strategies, capabilities and attitudes that are worth studying by the world's incumbents," Bradtke noted. "On the other hand, the Middle Eastern challengers can often still learn from their incumbent peers how to take operational excellence and customer care to the next level," he added. The global challengers have historically been well distributed across industries. Industrial goods, with 35 challengers, and resources and commodities, with 24, continue to lead the list. The construction industry (with six challengers) moved up the list, reflecting the growing importance of infrastructure in developing markets. The need to fuel growth in rapidly developing economies has set global challengers on the acquisition trail. From January 2006 through August 2010, challengers in the resources and commodities industry announced 154 cross-border mergers and acquisitions, far more than any other sector and nearly twice the 86 deals completed in the five previous years. But for the moment, many challengers are choosing to focus on solidifying their positions in fast-growing developing markets, rather than breaking into sluggish developed markets since the middle class in developing markets will make up 30 percent of the global population by 2020, the report further said. "Global challengers can generate tremendous growth by serving local and nearby markets," said David Michael, leader of BCG's Global Advantage practice. "Established multinationals will need to work extra hard to understand and break into these markets." Sharad Verma, a BCG partner and a coauthor of the report, added that "the global challengers are entering the new decade from a position of strength. So farsighted multinationals should view them as potential customers and partners and find ways to work with them for mutual benefit. As competition intensifies, the boundaries between these two distinct sets of companies will continue to blur."
