They’re behind you
Friday, December 7, 2007
“WE STARTED out abroad as ?accidental tourists?,? says Anand Mahindra, managing director of Mahindra & Mahindra, an Indian maker of tractors and off-road vehicles. Owed money by a Greek manufacturing plant, it took an equity stake instead, and so Mahindra Hellenic was born in 1984.
Mahindra & Mahindra is now one of 100 companies from the developing world that Boston Consulting Group (BCG) thinks have the clout and ambition to upset the world’s multinationals. The consultants sifted over 3,000 companies from 30 countries, picking firms that had revenues approaching or surpassing $1 billion last year and are expanding overseas aggressively (not accidentally). They measure this expansionism by five criteria, including the firms’ international sales and assets, and the money they can tap for foreign raids and acquisitions.
The result is a list that cunningly appeals to the pride of the aspirants and the insecurity of rich-world incumbents. According to Fortune magazine, Jeff Immelt sent last year’s list to his underlings at General Electric, ordering them to identify the companies it could sell to and buy from, and those it would have to compete with.
Like parvenus everywhere, these emerging multinationals often buy their way into the top ranks. Supported by high share valuations, many have rejected organic growth in favour of bold acquisitions. The 100 firms on BCG’s list completed about 70 cross-border deals between them in 2006, seven of which were worth more than $1 billion. India’s Suzlon Energy, which builds wind farms, bought REpower of Germany in June, for example, thus combining REpower’s offshore-turbine technology with its own cheap components. This year, according to Thomson Financial, firms from developing countries have acquired assets in rich countries worth $171 billion, compared with a previous peak of $52 billion in 1999.
Some of these purchases have looked expensive. But, BCG points out, to this new breed of buyers a target company can appear very different from the way it looks to Western or Japanese eyes. A firm burdened with high costs and a declining domestic market may nonetheless have a brand, customers or know-how that emerging multinationals covet. High costs do not deter them. CIMC, a Chinese firm that makes shipping containers, dismantles entire production lines in expensive countries and rebuilds them back home.
The companies on BCG’s list have ventured overseas for different reasons. Sixteen of the 41 Chinese companies on the list are owned by an arm of the government dedicated to managing state assets. They break into foreign markets with the state’s help and its say-so. Ten companies (half of them from China) have left home in search of natural resources. And another 17 have sought to cash in on the high price of metals and other commodities.