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The 2009 BCG 100 New Global Challengers
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The 2009 BCG 100

New Global Challengers
How Companies from Rapidly Developing Economies
Are Contending for Global Leadership
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1/09

The 2009 BCG 100
Marcos Aguiar
Cameron Bailey
Arindam Bhattacharya
Thomas Bradtke
Jesús de Juan
Jim Hemerling
Kim Wee Koh
David C. Michael
Harold L. Sirkin
Carl Stern
Andrew Tratz
Kevin Waddell
Bernd Waltermann
January 2009
bcg.com
© The Boston Consulting Group, Inc. 2009. All rights reserved.
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Contents
Note to the Reader 4
Introduction 6
The Challengers’ Rapid Rise to Global Leadership 7
How the Challengers Are Achieving Leadership 9

Early Advantages 9
The Ambition to Go for Global Leadership 10
A Willingness to Reach Outside for Rapid Growth 11
The 2009 New Global Challengers 13

Newcomers to This Year’s List 13
Our 2009 Challengers by Home Country and Industry 17
The Challengers’ Six Tried and Tested Globalization Strategies 17
A Snapshot of the BCG 100 18
How the Challengers Are Adapting to Pressure 22

Significantly More Volatile Costs 22
Changes in Government Priorities 23
The Need for International Brand Recognition and World-Class R&D Capabilities 24
What Does the Future Hold? 27

Future Directions for Challengers 27
Guidelines for Challengers 28
Guidelines for Incumbents 30
Looking Ahead 33
For Further Reading 34
The 2009 BCG 100 New Global Challengers 3

Note to the Reader
The emergence of rapidly develop- We welcome your comments and Minji Xu, Ning Xu, Sam Zhou, Zheyu
ing economies (RDEs)—Brazil, Chi- would be pleased to discuss the im- Zhou, and Nisrine Zogaib.
na, India, Mexico, Russia, and oth- plications of our findings for your
ers—needs no introduction. These business. We would also like to thank our
RDEs are experiencing a wave of colleagues Barry Adler, Katherine
growth in gross domestic product Acknowledgments Andrews, Gary Callahan, Kim
(GDP), trade, and disposable income We would like to thank the execu- Friedman, Pamela Gilfond, and Sara
that is unprecedented in the history tives of the global challenger compa- Strassenreiter for their contributions
of industrialized nations. Accompa- nies who agreed to be interviewed to the editing and production of this
nying the rise of the RDEs is the as- for this report. These interviews publication.
cendancy of global challengers— provided firsthand insights into the
local champions, based in RDEs, that global challengers’ strategies, ambi- For Further Contact
are rapidly globalizing their business- tions, and challenges. They were in- This report was sponsored by BCG’s
es and challenging the established valuable in deepening our under- Global Advantage Initiative. For in-
“incumbent” leaders in their indus- standing of these companies. quiries about the activities of the
tries. Global Advantage Initiative, please
The research and analysis that went contact any of its three leaders:
In this report, we first look at the into this report were conducted by a
challengers’ rapid rise to global lead- global team of BCG consultants Arindam Bhattacharya, a partner
ership and what has propelled many based principally in RDEs around and managing director in the firm’s
of them into leadership positions the world, under the direction of New Delhi office
around the globe. Then, as in our pri- Andrew Tratz. The team also had
or two reports on new global chal- the support of senior BCG advisors Jim Hemerling, a senior partner and
lengers, we present our list of the in both RDEs and developed mar- managing director in the firm’s San
2009 BCG 100 new global challeng- kets. We would like to acknowledge Francisco office
ers. All these companies either have the particularly valuable contribu-
attained global leadership positions tions made by our colleagues Bernd Waltermann, a senior part-
or have demonstrated credible ambi- Samantha Albuquerque, Ana Azuela, ner and managing director in the
tions and abilities to achieve sizable Nicolas Baise, Andrea Chang, Joshua firm’s Singapore office
global footprints. We examine the Copp, Laurent de Vitton, Flora Fan,
strategies employed by this group of Jalaj Garg, Bart Janssens, Laszlo If you would like to discuss our
global challengers to help us under- Juhasz, Lukasz Kowalczyk, Ewald observations and conclusions,
stand the fundamental reasons for Kreid, Kathleen Lancaster, Irina please contact one of the authors,
their success. And we assess how Lazukova, Melissa Lee, Yue Liu, listed below:
they have adapted and strengthened Fernando Machado, Onchuma Mee-
their businesses in response to in- wongukote, Michael Meyer, Chris- Marcos Aguiar
creased pressures. Finally, we set out toph Nettesheim, Konstantin Pol- Partner and Managing Director
the implications of these significant unin, José Quintana, Imron Rosyadi, BCG São Paulo
developments for challenger compa- Fang Ruan, Viviane Sales, Camille +55 11 3046 3533
nies and incumbents alike. Saussois, Chris Suradejvibul, Evelyn [email protected]
Tan, Angela Tsang, Douglas Woods,
4 The Boston Consulting Group

Cameron Bailey Harold L. Sirkin
Partner and Managing Director Senior Partner and Managing Director
BCG Moscow BCG Chicago
+7 495 258 3434 +1 312 993 3300
[email protected] [email protected]
Arindam Bhattacharya Carl Stern

Partner and Managing Director Chairman of the Board
BCG New Delhi BCG Chicago
+91 124 459 7000 +1 312 993 3300
[email protected] [email protected]
Thomas Bradtke Andrew Tratz

Partner and Managing Director Project Leader
BCG Dubai BCG Beijing
+971 4 509 6700 +86 10 8527 9000
[email protected] BCG Los Angeles
+1 213 621 2772
Jesús de Juan [email protected]
Senior Partner and Managing Director
BCG Monterrey Kevin Waddell
+52 81 8368 6200 Senior Partner and Managing Director
[email protected] BCG Warsaw
+48 22 820 36 00
Jim Hemerling [email protected]
BCG San Francisco Bernd Waltermann
+1 415 732 8000 Senior Partner and Managing Director
[email protected] BCG Singapore
+65 6429 2500
Kim Wee Koh [email protected]
Partner and Managing Director
BCG Singapore
+65 6429 2500
[email protected]
David C. Michael
BCG Beijing
+86 10 8527 9000
[email protected]

Introduction
I
n our discussions with the CEOs and other senior To better understand these companies as a group, we
executives of industry-leading companies around have selected a sample of 100 global challengers for the
the world, there has been little surprise that a new 2009 BCG 100 New Global Challengers list. These compa-
wave of global challengers has emerged onto the nies represent a diverse group from many regions and
world stage. What has been a surprise—and often industry sectors. We interviewed many of their CEOs and
a shock—is that they have achieved leadership so quickly other senior executives to get an inside perspective on
in so many industries. In just two years, from 2006 to their international expansion strategies, future directions,
2008, the number of companies based in Brazil, China, and current challenges. This perspective, augmented by
India, and Russia on the FT Global 500 list more than additional research, has shaped our view into how chal-
quadrupled, from 15 to 62. And, like those high achievers, lengers are growing and changing in response to the cur-
many other companies based in rapidly developing econ- rent turbulent times in the global economy.
omies (RDEs) have set their sights on global markets.
The process by which RDE-based companies are attain-
The tremendous diversity of industries represented, busi- ing scale and moving into global markets is just begin-
ness models deployed, and strategies adopted by the ning. But the competition between global challengers
global challengers makes it difficult to generalize about and industry incumbents is already heating up. There
these companies. However, most challengers exhibit sev- will be winners and losers in both camps, particularly in
eral core characteristics that have played a key role in view of the current economic instability, volatile prices,
their development into contenders for global leadership. fluctuating exchange rates, and keen competition for cus-
These characteristics include their favorable starting posi- tomers, suppliers, raw materials, talent, and brand recog-
tions in RDEs―which gave them early privileged access nition. Those challenger companies that adapt fastest to
to high-growth markets, natural resources, and low-cost these tough times will find themselves in an advantaged
talent pools, as well as freedom from the burdens of cost- position as they continue on the path to leadership. Some
ly and aging legacy assets typical of companies in high- will end up being defeated by the powerful incumbents
cost, low-growth economies. The challengers’ ability to that dominate their industries—or displaced by new chal-
reach an initial position of strength in their home mar- lengers that are just setting out on their journey to be-
kets has provided a solid platform for growth. come global companies. Others will be unable to sur-
mount the tremendous risks of rapid global expansion or
A second shared characteristic of most challengers is the to repay the debt incurred in financing their aggressive
vision and will of their ambitious owners and founders, growth. The incumbents, for their part, must be vigilant
who have taken enormous risk in pursuit of global lead- about the competitive threat that the global challengers
ership. A third characteristic is the ability to reach outside pose to their businesses and must continually seek new
their home markets, to learn fast, and to adapt their busi- sources of advantage to sustain and enhance their leader-
ness models as needed. In the process, many choose in- ship positions.
ternational mergers and acquisitions (M&A) as a quick
path to developing globally competitive businesses.

The Challengers’ Rapid Rise
to Global Leadership
T
he new global challengers are formidable Gazprom (Russia) is the leading producer of natural gas,
competitors. In many industries, they have and MISC Berhad (Malaysia) is the leading shipper of liq-
already reached global leadership positions: uefied natural gas. China Petroleum & Chemical Corpora-
several on our list rank among the top five tion (Sinopec) and PetroChina, a subsidiary of China Na-
in their industries in worldwide market tional Petroleum Corporation (CNPC), (both China) are
share. Moreover, it would be a misconception to assume among the top ten energy companies in the world in
that they have done so only by developing low-margin, terms of revenue.
export-oriented businesses. Many have succeeded in
highly sophisticated industries traditionally dominated Huawei Technologies and ZTE (both China) have
by large, incumbent multinational corporations (MNCs) emerged among the top telecommunications equipment
based in developed countries. Building on their RDE- manufacturers, and China Mobile (also China) is the top
based strengths, the challengers have moved boldly to telecommunications network provider in the world in
establish strong global operational footprints and distri- terms of subscriber base. In electronics manufacturing,
bution networks. Galanz Group, Johnson Electric, and Midea Group (all
three China) hold leadership positions in microwaves,
The rise of global challengers as industry leaders has small electric motors, and electric fans, respectively.
broad implications in their competition with incumbents.
This competition extends beyond just battling for market The challengers are no lightweights when it comes to lo-
share to include competing for talent and other resources gistics, either. Cosco Group (China) is one of the largest
across both developing and developed economies, her- shipping companies in the world; it also owns a sizable
alding a new era of what BCG has called “globality”—the stake in challenger China International Marine Contain-
current, radically different competitive environment that ers Group (CIMC) (China), the world’s largest manufac-
is being shaped in part by the arrival in global markets of turer of shipping containers. China Shipbuilding Industry
lean, ambitious, resourceful RDE-based companies that Corporation (CSIC) (China) is one of the world’s biggest
are largely unfettered by legacy issues or traditional ways shipbuilding companies. Likewise, China Communica-
of doing business.1 So it is critical to understand how chal- tions Construction Company’s subsidiary Shanghai Zhen-
lengers are rising to leadership positions in such a diverse hua Port Machinery (China) leads in manufacturing con-
array of industries and at such a rapid pace. Toward that tainer cranes.
end, take a look at some of their achievements.
Although none of the automotive challengers has yet be-
Some of the challengers are among today’s world leaders come a world-leading passenger-vehicle OEM in terms of
in the natural resources sector. Vale (Brazil) is the world
leader in iron ore and pellets. Basic Element (Russia) and
the Aluminum Corporation of China (Chalco) (China) are 1. For a groundbreaking discussion of globality, see Harold L. Sirkin,
James W. Hemerling, and Arindam K. Bhattacharya, Globality: Com-
world leaders in alumina production. Votorantim Group peting with Everyone from Everywhere for Everything (New York: Busi-
(Brazil) is among the top five producers of zinc globally. ness Plus, 2008).

market share, many have carved out valuable niches For example, in 2002, Mexichem (Mexico) had a mostly
within automotive component manufacturing. Wanxiang domestic operational footprint and annual sales of
Group (China) is the leader in universal-joint bearings, $200 million. (For consistency, all monetary sums in this
and Bharat Forge (India) has a similar position in chassis report are cited in nominal U.S. dollars unless otherwise
components. Marcopolo (Brazil) is among the top manu- noted.) Over the next five years, it launched and conduct-
facturers of bus bodies and components. ed a massive international expansion campaign, based
primarily on outbound M&A. In 2007, its revenues had
There is no shortage of challengers building sizable posi- grown to $2.1 billion, representing a phenomenal com-
tions in fast-moving consumer goods as well—including pound growth rate of 60 percent per year. During this
Coteminas (Brazil) in home textiles, JBS-Friboi (Brazil) in time, Mexichem firmly established itself throughout the
meat exports, Tata Tea (India) in tea, Perdigão (Brazil) in Western Hemisphere, with the acquisitions of Petro-
poultry, and United Spirits (India) in spirits. química Colombiana ($250 million) in South America,
Grupo Amanco ($500 million) in Central America, and
The list goes on, with challengers building sizable posi- Bayshore Vinyl Compounds ($16 million) in the United
tions in many other industries. BYD Group (China) has States. This impressive string of acquisitions has given
achieved a world-leadership position in rechargeable bat- Mexichem a number one or number two market position
teries and is expanding in the automotive OEM business. in polyvinyl chloride (PVC) and plastic pipes throughout
Embraer (Brazil) has reached the top position worldwide much of Latin America.
in regional jets. Reliance Industries (India) leads in poly-
ester fiber, and Tata Chemicals (India) is among the top Suntech Power (China), a solar-power company, was little
producers of soda ash worldwide. known outside its home market in 2004, when it had
sales of just $85 million. However, propelled by low pro-
Perhaps even more remarkable than the prominent posi- duction costs in China and a commitment to innovation,
tions some of these challengers have obtained is how fast the company grew rapidly to achieve $1.3 billion in sales
they have achieved them. Clearly, incumbents need to be just three years later.
ever vigilant about the possibility of new entrants into
their industries. The emergence of new challengers is a This is an extraordinary catalog of achievement. The ques-
trend that shows no sign of abating. tion naturally arises, how have the challengers done it?

How the Challengers Are
Achieving Leadership
T
he paths that challengers have taken to con- outdated assets or technologies left over from the past
tend for leadership have been as diverse as wave of globalization. Similarly, they have not generally
the challengers themselves. But a number been bound by entrenched agreements with suppliers,
of characteristics common to many chal- distribution channels, or labor unions. Moreover, they
lengers offer insights into the powerful forc- have been able to pick which (if any) high-cost, slow-
es underlying the emergence of these companies on the growing developed markets to enter: this advantage has
global stage. These characteristics include early advan- given them a great deal of flexibility in charting their fu-
tages as a result of their location in RDEs, the ambition ture course.
and determination to go for global leadership, and a will-
ingness to reach outside for rapid growth. Access to Low-Cost Labor Pools. RDEs benefit from low
labor costs, which give labor-intensive businesses based
Early Advantages there an often significant cost advantage over rivals based
in developed countries. Moreover, as some of the largest,
The business environments in the challengers’ countries fastest-growing, and most exciting companies in their
of origin have played a key role in their development. home countries, challengers typically provide compelling
The early advantages that the challengers have enjoyed career opportunities for new recruits, and some have de-
include privileged access to high-growth markets and re- veloped the ability to hire and train at lower costs than
sources, freedom from legacy assets in high-cost, slow- competitors.
growing countries, and access to low-cost labor pools.
Dr. Reddy’s Laboratories (India) cites several drivers for
Privileged Access to Markets and Resources. Protected attracting and retaining the best talent, including offering
or highly regulated market environments have given a better learning experience, giving people a sense of em-
challengers access to valuable natural resources or rap- powerment, and having a company culture that is valued
idly growing markets where there was initially little or no by employees. Providing career opportunities is also key;
threat from global competitors. Many challengers have Sinomach (China National Machinery Industry Corpora-
enjoyed success in their home markets (or export mar- tion) (China) states that, as a large-scale enterprise, it can
kets) by mastering their sources of competitive advantage offer employees the opportunity to make a real impact in
before globalizing their operations. They have been able the industry, which is an important attraction for re-
to “ride the wave” and rapidly build the scale necessary cruits.
to contend for leadership at a global level. Their govern-
ments have also, in some cases, provided some defense Global challengers also have the ability to hire and train
against incursions by global incumbents or challengers at lower cost than competitors. Nowhere is this more evi-
from other RDEs into their home territory. dent than in the IT sector in India, where talent manage-
ment is one of the critical levers of competitive advan-
Freedom from Legacy Assets. Unlike their established tage. For example, to attract the new employees it needs
rivals, the challengers have not needed to contend with in order to continue its impressive growth, Wipro (India)

actively recruits beyond traditional engineering and com- there are diverse shareholder groups, the influence of
puter science disciplines, seeking talented individuals founders or family members can still remain strong, as is
who have majored in other sciences. The incremental the case with many Indian challengers.
training costs that the company incurs are less than the
salary premiums commanded by many engineering grad- These tightly controlled ownership structures strongly
uates. Similarly, Tata Consultancy Services (TCS) (India) influence the challengers’ ambitions and ability to con-
builds partnerships with local universities to provide in- tend for global leadership―providing them with a large
school training. In addition, TCS has appetite for risk, a low perceived cost of
launched an IT skills training program for Something compels capital, and an effective defense against
science graduates. takeovers.
the global
The Ambition to Go challengers to play A Large Appetite for Risk. Expanding

for Global Leadership in a higher-stakes overseas is always a risky proposition. So
the entrepreneurial spirit embodied by
The allure of going for global leadership is game. many owner-founders can make a key dif-
truly compelling. It provides a strong mo- ference in a company’s success or failure.
tivating force for many companies aiming to accelerate Furthermore, because the owners of many challenger
their growth, become more diversified, and increase their companies have a large proportion of their wealth tied to
international recognition. However, the risks are also their companies, their attitudes toward diversification
great, and so it takes an unusually ambitious challenger can vary significantly from those of institutional inves-
to even begin this journey. tors. This explains why some of the challengers have de-
veloped into diversified conglomerates, including Koç
Privileged access to high-growth markets and resources, Holding (Turkey) and the Tata Group (India).
freedom from legacy assets in high-cost, slow-growing
countries, and large pools of low-cost labor provide the Low Perceived Cost of Capital. In financing growth,
basic platform for globally competitive companies—but MNCs typically consider both the cost of debt and the
these advantages alone are not enough to make a global cost of equity―representing the actual cost of debt and
challenger. Indeed, many companies that enjoy these ad- the expected return for shareholders, respectively. By
vantages are content to be major players in their home contrast, state owners of companies can have agendas
countries without moving abroad. Not so the global chal- that extend beyond shareholder returns―for instance,
lengers. Something compels them to go further, to play in securing access to natural resources or reducing unem-
a higher-stakes game. Often the ambition and risk toler- ployment―which lower the expected rates of return they
ance underlying their bold moves can be traced directly require on their investment. Similarly, family-owned chal-
to the aspirations of their founders and leaders. lengers with long-term investment objectives may make
decisions that appear inconsistent with their cost of capi-
More than half of the global challenger companies pro- tal. This different way of viewing the cost of capital can
filed in this report are led by the company’s founders, enable challengers to be more aggressive than estab-
their family members, or individuals who have been in- lished competitors when bidding for acquisition targets
strumental in growing the company from its early begin- or making other overseas investments.
nings. Similarly, only 23 percent of challengers are ac-
countable to highly diverse shareholder groups; the rest Effective Defenses Against Takeovers. Few challengers
are privately held or effectively controlled by a limited are vulnerable to hostile takeovers, thanks to the concen-
number of shareholders. tration of equity holdings in the hands of family mem-
bers or governments. In fact, among challenger compa-
Of the countries with companies on our list, China has nies, boardroom coups by rival family members are far
the most concentrated shareholding; the government more common than hostile-takeover attempts. The ben-
owns most of the China-based challengers on our list. efits of being protected from hostile takeovers are debat-
Challengers based in India, by contrast, tend to have a able, but it is certain that managers protected in this way
more diverse set of shareholders. However, even where can feel emboldened to take greater risks.

A Willingness to Reach Outside ough due diligence and planning as critical to reducing
for Rapid Growth the risk of M&A failure.
Despite the aggressive expansion plans of the challenger Challengers are also increasingly working with outside
executives and their high tolerance for risk, few challeng- partners such as private-equity firms to make the most of
ers have adopted a go-it-alone strategy in their quest their M&A activity. These partnerships can constitute a
for global leadership. Most recognize the tremendous win-win relationship, with challengers providing opera-
opportunities available in the form of part- tional expertise and private-equity firms
nerships with incumbents and with other assisting with financing and regulatory ap-
challengers, acquisitions of companies be- Managing the M&A proval. Teaming up with a partner can also
yond their borders, and international man- process to maximize help overcome negative public relations
agement talent. The ability to reach beyond from a perceived foreign takeover. How-
home markets to leverage international ex-
value creation ever, such partnerships are no guarantee
perience and resources is a critical success is no easy task. of success. Huawei Technologies teamed
factor for many challengers. up with Bain Capital (United States) in a
bid for the U.S. networking-equipment
Partnering to Build World-Class Capabilities—Fast. company 3Com but was unable to win regulatory ap-
Often, the challengers fill any gaps in their capabilities by proval for the deal.
forming international partnerships with incumbents and
other challengers. These partnerships can range from Actions that companies take following the acquisition are
technology-transfer arrangements to sales and distribu- also critical. Wang Guoliang, CFO of Chinese oil company
tion agreements. Effective use of partners can help chal- CNPC, states that 20 percent of the risk occurs during the
lengers quickly overcome entry hurdles and tap into M&A process, whereas 80 percent comes during the post-
global markets. acquisition period. Accordingly, challengers adopt a vari-
ety of approaches to integrating companies once the
Using Acquisitions as a Quick Path to Global Leader- deals have closed. Some challengers prefer to minimize
ship. With their high tolerance of risk, challengers often disruption to acquired businesses, keeping existing man-
look to international M&A as a preferred way to gain agement teams in place and conducting limited, if any,
footholds overseas quickly. formal integration among existing companies. Tata
Group’s “light touch” strategy exemplifies this approach:
Of the 100 new global challengers in our list, those in the it relies on buying businesses with solid management
natural resources and metallurgy sectors and in the ser- teams already in place and minimizing interference in
vice sector were most likely to use M&A as a way of grow- company operations. This strategy has been one of the
ing the business. Challengers in those sectors conducted keys allowing Tata Group to grow into the largest RDE-
an average of 9.5 and 5.3 outbound deals, respectively, based diversified conglomerate in the world. Similarly,
between January 2000 and mid-2008. By contrast, chal- Vedanta Resources (India) does not conduct formal post-
lengers in the consumer durables sector (excluding auto- merger-integration activities but relies on executive dis-
motive OEMs and component suppliers) tended to rely cussions, workshops, and audits to ensure that subsidiar-
mostly on organic growth, with only 1.4 average deals per ies perform consistently with best practices developed
company during this time period. (See Exhibit 1.) within the group.
The global challengers’ hunger for value-creating M&A At the opposite end of the spectrum are companies that
deals is clear. However, while successful overseas M&A adopt a philosophy of systematically integrating acquired
can provide a launching pad for global leadership, failed companies, seeking to maximize synergies and share best
acquisitions can halt an otherwise promising challenger practices between acquiring and target organizations. For
in its tracks. Effectively managing the M&A process to example, Nemak (Mexico) has recognized the benefits
maximize value creation is no easy task. Grupo Bimbo that increased integration can confer. It launched an ini-
(Mexico), a baking company that relies heavily on acquisi- tiative in 2007 to integrate its previously acquired compa-
tions to grow its brand portfolio abroad, identified thor- nies under one roof.

Exhibit 1. The Global Challengers Most Active in M&A Are Those in Natural Resources
and Metallurgy
Outbound M&A deals by the 2009 BCG 100 Global Challengers,

January 2000–mid-2008
Number of deals
500 57 14 490
111
400
119
300
189
200
100 ~ 39% of total deals
0
Natural Industrial Services Fast-moving Consumer Total
resources goods consumer durables2
and and goods and
metallurgy automotive retail
Deals per company 9.5 4.0 5.3 3.0 1.4 4.9
Average size of deal1

898 501 359 301 316 595
($millions)
Sources: Thomson Financial; BCG analysis.

1
These data refer only to deals for which the value of the deal was disclosed.
2
This category excludes automotive OEMs and component suppliers.
Building Management Teams with a Global Outlook. ization acting in a governance role. Agility cites this ap-
Many challengers are working to globalize their manage- proach as a key source of competitive advantage, allow-
ment team by tapping into talent beyond their domestic ing the company to take on projects in emerging markets
markets. The boards of directors of challenger companies that competitors would find difficult to pursue. The trend
are already as international as those of most developed- toward international management teams is likely to con-
country MNCs, despite the fact that many challengers tinue as challengers globalize further. In the future, RDE-
have entered international markets only quite recently. based challengers are likely to surpass many incumbents
Some, such as Lenovo Group (China) and Tata Steel (In- in terms of the international character of their boards of
dia), have truly embraced the benefits of having interna- directors.
tional management teams and have integrated talent
from acquired companies into their top ranks. Agility (Ku- To better understand how the new challengers will affect
wait) has also built a highly international management the global business landscape, we look first to some of
team distributed across multiple headquarters around the front-runners among the global challengers—100
the world. These international managers are empowered companies that are aggressively contending for global
to take on risks and make big bets, with the central organ- leadership.

The 2009 New Global
Challengers
T
his year, as twice in the past, BCG has se- ◊ Agility (Kuwait) is one of the world’s top ten logistics
lected a list of 100 global challengers that service providers, with 2007 revenues of $6.3 billion, a
are already quite large, actively expanding presence in 100 countries, and very active cross-border
their businesses into overseas markets, and M&A activity. The company is composed of three in-
accessing global resources. We look to these terrelated business groups: Global Integrated Logistics,
companies’ innovative business models and recent suc- Defense & Government Services, and Investments.
cesses—as well as the challenges they face and the set- Agility has grown 127 percent annually since 2004,
backs they have overcome—to help us understand how when its revenues totaled $541 million.
challengers in general are growing and changing. (See
Exhibit 2.) ◊ Camargo Corrêa Group (Brazil) is one of the largest
conglomerates in Brazil, with activity in construction
In selecting this year’s list, we again went through a rigor- and engineering, footwear, textiles, infrastructure,
ous screening process to identify 100 companies that best building materials, and real estate; 2007 revenues of
exemplify the characteristics of global challengers. (For $6.4 billion; and a significant presence across Latin
details on that process, see the sidebar “Methodology for America, Spain, and Africa. Camargo Corrêa doubled
Selecting the 2009 BCG 100 New Global Challengers.”) in size from 2005 to 2007, and its international reve-
nues are estimated to be increasing even faster.
Newcomers to This Year’s List
◊ China National Chemical Corporation (ChemChina)
Regular readers of this report will note that 19 new com- (China) is a chemical company with estimated 2007
panies have displaced others from last year’s list. In most revenues of $14.5 billion. The company has experi-
cases, the companies that no longer appear on this year’s enced rapid growth at home and abroad, driven in part
list continue to be powerful contenders within their re- by significant overseas acquisitions. In 2007, ChemChi-
spective industries but are not growing their internation- na purchased Fibres Worldwide (United Kingdom) and
al businesses as rapidly as others on the list. Nonetheless, Rhodia Silicones (France). It also launched a multibil-
on average, the removed companies have continued to lion-dollar bid for Nufarm (an Australian farm-chemi-
grow revenues faster than their developed-country peers, cals group), which was not completed.
although some have been less aggressive overall in con-
tinuing their international growth. And a handful of com- ◊ Dalian Machine Tool Group (DMTG) (China) is the
panies that have undergone or are undergoing major re- largest machine-tool company in China, with 2007 rev-
structurings or potential changes in control have been enues of $1.4 billion. It has been actively buying and
removed from the list until their future structures become partnering with overseas machine-tool companies to
clear. gain access to proprietary technologies. DMTG pur-
chased two divisions from Ingersoll International USA
The 19 new additions to the BCG 100 New Global Chal- and acquired a majority stake in German machine-tool
lengers list for 2009 are the following companies: manufacturer F. Zimmermann.

Exhibit 2. The 2009 BCG 100 New Global Challengers Include 19 New Entrants
Argentina ◊ Johnson Electric ◊ Grupo Bimbo

◊ Tenaris ◊ Lenovo Group ◊ Mexichem★
◊ Li & Fung Group ◊ Nemak
Brazil ◊ Midea Group
◊ Camargo Corrêa Group★ ◊ Shanghai Automotive Industry Russia
◊ Coteminas Corporation (SAIC) ◊ Basic Element1
◊ Embraer ◊ Sinochem ◊ Evraz Group★
◊ Gerdau ◊ Sinomach (China National ◊ Gazprom
◊ JBS-Friboi Machinery Industry Corporation) ◊ Lukoil
◊ Marcopolo ◊ Sinosteel★ ◊ Severstal
◊ Natura ◊ Suntech Power★ ◊ Sistema★
◊ Odebrecht Group1 ◊ Techtronic Industries
◊ Perdigão Thailand
◊ VTech Holdings ◊ Charoen Pokphand Group
◊ Petrobras ◊ Wanxiang Group
◊ Sadia ◊ Thai Union Frozen Products
◊ ZTE
◊ Vale Turkey
◊ Votorantim Group Hungary ◊ Koç Holding
◊ WEG ◊ Gedeon Richter★ ◊ Sabanci Holding
Chile India United Arab Emirates
◊ CSAV ◊ Bajaj Auto ◊ Dubai World★
◊ Falabella★ ◊ Bharat Forge ◊ Emaar Properties★
◊ Crompton Greaves ◊ Emirates Airline★
China ◊ Dr. Reddy’s Laboratories
◊ Aluminum Corporation of China ◊ Etisalat★
◊ Hindalco Industries
(Chalco) ◊ Infosys Technologies
◊ Baosteel Group ◊ Larsen & Toubro
◊ BYD Group ◊ Mahindra & Mahindra
◊ Chery Automobile ◊ Reliance Industries
◊ China Communications ◊ Suzlon Energy
Construction Company (CCCC)1 ◊ Tata Chemicals★
◊ China International Marine ◊ Tata Communications
Containers Group (CIMC) ◊ Tata Consultancy Services (TCS)
◊ China Minmetals ◊ Tata Motors
◊ China Mobile ◊ Tata Steel
◊ China National Chemical ◊ Tata Tea
Corporation (ChemChina)★ ◊ United Spirits★
◊ China National Offshore Oil ◊ Vedanta Resources★
Corporation (CNOOC) ◊ Videocon Industries
◊ China National Petroleum ◊ Wipro
Corporation (CNPC)1
◊ China Petroleum & Chemical Indonesia
Corporation (Sinopec) ◊ Indofood Sukses Makmur
◊ China Shipbuilding Industry ◊ Wilmar International2★
Corporation (CSIC)
◊ China Shipping Group Kuwait
◊ COFCO ◊ Agility★
◊ Cosco Group Malaysia
◊ Dalian Machine Tool Group ◊ MISC Berhad
(DMTG)★ ◊ Petronas
◊ FAW Group
◊ Galanz Group Mexico
◊ Gree Electric Appliances ◊ América Móvil
◊ Haier ◊ Cemex
◊ Hisense Group ◊ Femsa
◊ Huawei Technologies ◊ Gruma
★This company is new to the BCG 100.
Source: BCG analysis.

1
This entry replaces a subsidiary that appeared on the 2008 list: Odebrecht Group replaces Braskem, China Communications Construction Company
replaces Shanghai Zhenhua Port Machinery, China National Petroleum Corporation replaces PetroChina, and Basic Element replaces United Company
Rusal.
2
Wilmar International is headquartered in Singapore.

Methodology for Selecting the 2009 BCG 100 New Global Challengers
As in past years, we generated this year’s BCG 100 list by fewer resources with which to mount aggressive globaliza-
employing a rigorous screening process. Our goal was to tion efforts. We looked at companies’ globalization poten-
identify companies that exemplify the characteristics of tial, seeking companies that already have track records of
global challengers. The countries of focus for this year’s globalization (as demonstrated by international revenues
report are located in Asia, Central and Eastern Europe, or large cross-border M&A deals) and companies with
the Commonwealth of Independent States (CIS), the Mid- credible aspirations to build truly global footprints rather
dle East, and Latin America. We did not include either the than pure export-processing models. We used several
newly industrialized economies in Asia (the “Asian Ti- scoring criteria to determine globalization potential, in-
gers”) or South Africa in the scope of this report. cluding each company’s international presence, the num-
ber and size of the international investments it had pur-
After defining the geographic scope of our search, we cre- sued over the past five years, its access to capital for
ated an initial master list of more than 3,000 companies financing international expansion, the breadth and depth
drawn from local rankings of the top companies based in of its intellectual property, and the international appeal of
each of these countries. We excluded joint ventures and its value propositions. Last, we looked at the size of each
companies with significant overseas equity holders. We company relative to other challengers and to incumbent
decided to include for consideration a few companies that MNCs in its industry in order to ensure that all the com-
are headquartered in financial capitals—London, Hong panies on our list are credible contenders for leadership
Kong, and Singapore—on the condition that these com- positions in their industries.
panies’ operations take place primarily in RDEs. These
companies were classified under the RDE in which their This process yielded a substantial list of candidate com-
operations are primarily located. panies. We based our selection of the final 100 on a com-
bination of the companies’ scores on our initial criteria
Next, we applied a set of quantitative and qualitative cri- and input from BCG’s industry experts around the world.
teria to the resulting list of companies. We deemed com-
pany size an important factor, as smaller companies have
◊ Dubai World (United Arab Emirates) is a diversified China, India, Saudi Arabia, and other countries. It fo-
holding company focused on transport and logistics, cuses primarily on emerging markets but entered the
drydocks and maritime, urban development, and in- United States in 2006 with the $1 billion purchase of
vestment and financial services, with more than 80 John Laing Homes.
companies operating in more than 100 countries. In
2006, Dubai World’s port-operating company DP ◊ Emirates Airline (United Arab Emirates) is a passenger
World purchased the P&O Group for $6.8 billion, mak- airline with a modern fleet, substantial international
ing it the fourth-largest port operator in the world. In growth, a rising position among global airlines, and
2007, Dubai World’s investment arm Istithmar World 2007 revenues of $10.6 billion. Except during its first
purchased prominent U.S. retailer Barneys and invest- three years in operation, Emirates has never recorded
ed significantly in the MGM Mirage. Its equity invest- an annual loss since its founding in 1985. As of Octo-
ment exceeds $2.6 billion. Dubai World’s real-estate ber 2008, it had 122 aircraft in service and firm orders
developer Nakheel built the iconic Jumeirah Palm in for another 174—a clear indication of its aggressive
Dubai and is currently adding more than 1,000 kilome- growth ambitions.
ters of coastline to Dubai with its projects.
◊ Etisalat (United Arab Emirates) is a telecommunica-
◊ Emaar Properties (United Arab Emirates) is a FT Glob- tions services provider with operations in 16 countries
al 500–listed real-estate and development company spanning Africa, Asia, and the Middle East, with 2007
with a highly global approach and 2007 revenues of revenues of $5.8 billion. Its continued acquisitions,
$4.8 billion. Emaar frequently uses joint ventures in its such as the 45 percent stake in Swan Telecom in India
investments; it has applied this strategy successfully in that it recently acquired for $900 million, clearly dem-

onstrate its vision to become a Top 20 global telecom- duce steel—rather, it supplies minerals, machinery,
munications company by 2010. and value-added services to the iron and steel industry.
Sinosteel launched the first-ever hostile takeover bid
◊ Evraz Group (Russia) is one of the largest vertically by a Chinese state-owned enterprise, culminating in
integrated steel and mining companies in the world, the $1.3 billion purchase of Midwest, the Australian
with a significant presence in Europe and North Amer- iron-ore miner.
ica and 2007 revenues of $12.8 billion. Evraz complet-
ed several major overseas acquisitions ◊ Sistema (Russia) is the largest non-nat-
from 2005 to mid-2008, including the ural-resource conglomerate in the CIS,
$2.1 billion purchase of Oregon Steel Some challengers with a focus on telecommunications, other
Mills (United States), the $414 million take a “multilocal” consumer services, and high technology. It
purchase of Claymont Steel Holdings has experienced significant growth in Eu-
(United States), and the acquisition of
approach to rope and Asia and earned 2007 revenues
IPSCO (Canada) for $2.9 billion. Those global expansion. of $13.7 billion. Its Mobile TeleSystems
acquisitions made Evraz the second- subsidiary is the largest mobile operator in
biggest large-diameter pipe manufac- Russia and the CIS. Sistema owns a major-
turer in North America. ity stake in Shyam Telelink, an Indian telecommunica-
tions company. The company sees India as a potential
◊ Falabella (Chile) is a fast-growing Latin American re- beachhead for the long-term development of its busi-
tailer with diversified interests, including department ness, including possible diversification into other fields
stores, supermarkets, home improvement, retail finan- in which the corporation has accumulated significant
cial services (such as credit and insurance), malls, and expertise, such as real estate, retail, tourism, high tech-
travel services, with 2007 revenues of $6.6 billion. Like nology, film production, and mass media. But the first-
some other challengers, Falabella takes a “multilocal” priority market for Sistema’s telecommunications
approach to expansion, seeking to adapt products and business is still Russia and the CIS.
services to local market preferences while retaining
consistent global management systems. ◊ Suntech Power (China) is one of the world’s largest
solar-photovoltaic manufacturers, with 2007 revenues
◊ Gedeon Richter (Hungary) is one of the leading inde- of $1.3 billion. Nearly all of Suntech’s revenues come
pendent pharmaceutical companies in Eastern Europe, from exports to major solar-energy markets around
producing both generic and original drugs, with the world. In addition to achieving rapid organic
$1.2 billion in 2007 revenues. From 2000 through 2007, growth, Suntech Power has acquired MSK Corporation
Gedeon Richter’s revenues grew at a 25 percent com- in Japan and KSL-Kuttler Automation Systems in
pound annual growth rate, driven mostly by increased Germany.
international sales.
◊ Tata Chemicals (India) is an inorganic-chemicals
◊ Mexichem (Mexico) is a chemical company that has producer with a significant global market share in
undertaken a major inorganic growth campaign soda ash; plants in Kenya, the Netherlands, the United
throughout Latin America to build a sizable position Kingdom, and the United States; and 2007–2008 fiscal-
in PVC and fluorite, with 2007 revenues of $2.1 billion. year revenues of $1.5 billion. The company’s 2008 pur-
The company has vertically integrated its operations; chase of General Chemical Industrial Products for
it now operates a salt mine for its vinyl-chlorine chain $1 billion made it the world’s second-largest producer
business and the world’s largest fluorite mine for its of soda ash.
fluorine chain business.
◊ United Spirits (India), formerly known as McDowell &
◊ Sinosteel (China) is a metallurgical and mineral re- Company Limited, is the spirits arm of the UB Group.
source development and trading company active in The history of the company dates back to 1826, when
purchasing overseas resources. The company achieved it was established as a proprietary business before be-
2007 revenues of $16.3 billion. Sinosteel does not pro- ing acquired by UB in the 1950s. In 2007, its purchase

of Whyte & Mackay, the leading Scotch-whiskey com- Our 2009 Challengers by Home Country
pany in the United Kingdom, catapulted the company and Industry
into the number three position by volume in the glob-
al spirits industry, after incumbents Diageo and Per- The 2009 BCG 100 new global challengers represent a
nod Ricard. tremendously diverse group. They are based in 14 RDEs:
Argentina, Brazil, Chile, China, Hungary, India, Indonesia,
◊ Vedanta Resources (India) is a U.K.-listed holding com- Kuwait, Malaysia, Mexico, Russia, Thailand, Turkey, and
pany with major subsidiaries operating the United Arab Emirates. Some of them
in copper, zinc, aluminum, and iron ore, are headquartered in Hong Kong, London,
and with 2007–2008 fiscal-year reve- The 2009 global and Singapore; we have included them on
nues totaling $8.2 billion. Vedanta has challengers are the basis of their significant operating
operations in Australia, India, and Zam- presence in, or historical association with,
bia. In 2004, Vedanta acquired copper
a tremendously RDEs. (See Exhibit 3.)
mines in Zambia and in 2008 bid for diverse group.
the operating assets of Asarco, the third- In terms of the number of companies
largest copper producer in the United based in each country, China remains in
States. Vedanta Resources relies on a lean production the lead with 36 companies on this year’s list, followed by
model achieved through low labor costs and fully cap- India (20), Brazil (14), Mexico (7), and Russia (6). These
tive power plants to improve the profitability of min- five economies continue to be fertile breeding grounds
ing assets. for the types of large, fast-globalizing companies that are
candidates for inclusion on this list. Two RDEs—the Unit-
◊ Wilmar International (Malaysia/Indonesia) is a Singa- ed Arab Emirates and Kuwait—have representatives on
pore-headquartered agribusiness group founded by the list for the first time, reflecting the rapid globalization
two entrepreneurs from Singapore and Indonesia. Its of service and development companies based in these
integrated business model focuses on the processing countries.
and merchandising of palm oil, oilseeds, and grains,
and earned first-half 2008 revenues of $15.0 billion. The industries represented by the new global challengers
Wilmar has a network of more than 160 processing are also very diverse. The natural-resources and metal-
plants and conducts operations in more than 20 coun- lurgy sectors, with 20 companies, represent a sizable por-
tries across four continents, principally in Indonesia, tion of the list, as do food and beverage companies (13)
Malaysia, China, India, and Europe. It is one of Asia’s and automotive OEMs and component suppliers (10).
leading agribusiness groups.
The Challengers’ Six Tried and Tested
In addition, we have added to this year’s list the parent Globalization Strategies
companies of four challengers that we profiled in our
prior reports on new global challengers and have there- In our 2006 report, we identified six globalization models
fore removed the names of the subsidiary companies that challengers adopt when seeking to expand:
from this year’s list. The four parent companies are Basic
Element, the diversified industrial holding company be- ◊ Taking RDE brands global
hind United Company Rusal, insurance company Ingoss-
trakh, and automotive producer GAZ Group, among other ◊ Turning RDE engineering into global innovation
assets; China Communications Construction Company
(CCCC), an international construction contractor that ◊ Assuming global category leadership
owns a controlling stake in Shanghai Zhenhua Port Ma-
chinery; CNPC, the state-owned majority shareholder of ◊ Monetizing RDE natural resources
publicly listed PetroChina; and Odebrecht Group (Brazil),
which controls a global construction contracting compa- ◊ Rolling out new business models to multiple markets
ny, Construtora Norberto Odebrecht, as well as petro-
chemical company Braskem. ◊ Acquiring natural resources

Exhibit 3. The Global Challengers Represent 14 Countries and Many Industries
2
10 Consumer durables
Other1 17
◊ Food and beverage: 13
Fast-moving ◊ Textiles: 2
Russia 6 19 consumer goods
and retail ◊ Other: 4
Mexico 7
Brazil 14 Natural resources ◊ Mining and metals: 13

20
and metallurgy ◊ Fossil fuels: 7
India 20 ◊ Logistics: 5
20 Services ◊ Telecommunications: 5
◊ Other: 10
◊ Automotive: 10
China 36 Industrial goods
31 ◊ Chemicals: 5
and automotive
◊ Electrical equipment: 5
◊ Other: 11
Source: BCG analysis.

Note: The data refer to our sample of 100 new global challengers.
1
The countries in question consist of Argentina (with 1 challenger on our list), Chile (2), Hungary (1), Indonesia (2), Kuwait (1), Malaysia (2), Thailand (2),
Turkey (2), and the United Arab Emirates (4).
2
This category excludes automotive OEMs and component suppliers.
These strategies continue to be the primary methods by had created in less turbulent times. Nonetheless, they
which the challengers have expanded internationally. It continued to grow revenues rapidly in 2007 and early
is important to note that these strategies are not mutu- 2008 while maintaining superior levels of profitability.
ally exclusive―some of the challengers effectively em- They also wielded hefty purchasing power and exhibited
ploy several of them in their quest for global leadership. a healthy appetite for M&A deals, as well as a bold atti-
tude toward risk in general.
More than half of the new entrants to this year’s list em-
phasize the importance of turning RDE engineering into Value Creation During Economic Turbulence. The
global innovation or rolling out new business models to year 2008 was difficult for the challengers in terms of
multiple markets. Clearly, these remain prominent choic- value creation, as global economic turmoil took its toll on
es for emerging challengers as they go global. The new the companies’ formerly soaring stock prices. (See Ex-
natural-resources companies on the list globalize by ac- hibit 4.) The first ten months of the year saw the challeng-
quiring natural resources. Several challengers are assum- ers’ performance on total shareholder return (TSR) lag-
ing global category leadership in their fields, including ging behind their developed- and emerging-market peers,
Tata Chemicals, which achieved the number two position as measured by a market capitalization–weighted com-
globally in soda ash in 2008. United Spirits exemplifies a posite index of the 78 challengers that are publicly traded
company taking RDE brands global as it continues to ex- on major stock exchanges. Much of the underperfor-
pand the distribution of its portfolio of spirits brands in mance can be attributed to the significant declines in
both developed and emerging markets worldwide. stock prices of a few very large challengers, while the re-
maining challengers continued to perform well relative
A Snapshot of the BCG 100 to their peers. Many of the factors that contributed to the
challengers’ rapid growth over the past few years, such as
As a group, the 100 companies on this year’s list had a high leverage, are presenting new challenges as these
tough time creating the kind of value in 2008 that they companies adapt to highly volatile economic conditions.

Exhibit 4. The Global Challengers’ TSR Has Been Reduced Significantly
Owing to Economic Turbulence
Ten-year TSR comparison, One-year TSR comparison,

1998–2008 November 2007–November 2008
Total shareholder return Total shareholder return

index (Base = 100) index (Base = 100)
1,500 125
1,200 100
900 75
600 50
300 25
0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Nov Jan Mar May Jul Sep Nov
2007 2008 2008 2008 2008 2008 2008
Dec Feb Apr Jun Aug Oct
2007 2008 2008 2008 2008 2008
1
Challengers MSCI EMI S&P 500
Sources: Thomson Financial Datastream; BCG analysis.

Note: The data refer to our sample of 100 new global challengers. The TSR index is based on 78 RDE companies or their subsidiaries listed on the
following exchanges: Budapest, Bursa Malaysia, Dubai Financial Market, Hong Kong, Indonesia, Istanbul, Kuala Lumpur, London, Mexico City, Milan,
Moscow, Mumbai, RTS, São Paulo, Singapore, Thailand, and Toronto. The data are as of November 8, 2008.
1
MSCI Emerging Markets Index.
There will be both winners and losers from the list of 100 notably higher than the 14 percent average operating
challengers, and economic turmoil can provide a crucible profit of the S&P 500 companies. This high profitability
for defining those that will ultimately achieve and sustain plays a vital role in enabling the challengers’ overseas
global leadership positions. expansion.
Robust Revenues and Profits. The challengers’ revenues Hefty Purchasing Power. The global challengers are
grew at the impressive rate of 29 percent per year from making an impact along their entire supply chains. Many
2005 to 2007, reflecting their aggressive expansion. This companies that serve as their partners and suppliers are
outstanding performance significantly outpaced constitu- also benefiting tremendously from their rise. In view of
ents of the S&P 500, Nikkei 225, and DAX 30. (See Exhibit these 100 challengers’ $1.5 trillion in revenues, it is not
5.) In total, the challengers’ sales reached a combined surprising that they are also very large buyers of every-
$1.5 trillion dollars in 2007, of which more than $600 bil- thing from iron ore to paper clips. In 2007, these challeng-
lion represented sales outside their domestic markets. ers spent an estimated $600 billion to $800 billion on raw
This trend continued into the first half of 2008, when the materials, parts, and components, as well as $80 billion to
challengers’ revenue growth soared by close to 32 percent. $100 billion on services. This represents a significant in-
However, with the credit crisis constraining some chal- crease over their 2006 spending, caused in part by higher
lengers’ ability to finance new acquisitions, these growth commodity prices during this period.
rates will be difficult to sustain over the near term.
A Tremendous Appetite for M&A. In 2007, these 100
Moreover, challengers are not just competing for market challengers conducted at least 88 outbound M&A trans-
share at the expense of profits. In 2007, these 100 chal- actions—a significant increase from the estimated 19
lengers had an average operating profit of 17 percent— such deals they conducted in 2000. The average value of

Exhibit 5. The Global Challengers Have Grown Revenues Faster and Earned Higher Profits
Than MNCs in Developed Markets
Revenue growth in dollars, 2005–2007 Profitability, 2007
Average operating
CAGR (%) margin (%)
40 30
25
30 29
20
17
20 15 14
17 17
10 8 8
10
5 5
0 0
BCG 100 S&P 500 Nikkei 225 DAX 30 BCG 100 S&P 500 Nikkei 225 DAX 30
Sources: Thomson Financial Datastream; Infinancials; BCG analysis.

Note: The data refer to our sample of 100 new global challengers.
the 2007 deals for which value was disclosed was quite bankruptcy. As of November 2008, 18 of the challengers
large, at nearly $600 million. (See Exhibit 6.) (Greenfield had either debt-equity ratios more than 30 percent above
investments and organic expansion also played a signifi- their industry peers or very low solvency ratios. Some
cant role in the challengers’ overseas growth, contribut- sustained sizable foreign exchange losses owing to the
ing approximately 70 percent of their international rev- sudden appreciation of the U.S. dollar in late 2008. These
enue growth in 2007.) factors, combined with tightened credit markets caused
by the economic crisis, threaten the very existence of
The target regions for the challengers’ outbound M&A some of the challengers that relied on high leverage to
deals vary widely. Europe is the M&A destination of sustain their growth during the boom years. Accordingly,
choice for challengers based in India and Russia, whereas it is likely that some challengers will need to restructure
Chinese challengers’ outbound M&A targets have been their businesses significantly in order to survive during
more geographically diverse, with 26 percent of their these difficult economic times.
deals in Europe, 26 percent in the United States and Can-
ada, and the rest widely distributed around the world. Often, challengers seek to minimize the risks inherent in
(See Exhibit 7.) Interestingly, however, despite the many M&A deals by purchasing minority stakes rather than ob-
examples of high-profile outbound deals from China, the taining outright control of acquired companies. The per-
36 challengers based there are less acquisitive as a group centage of challengers’ outbound deals resulting in a
than either their 20 Indian or their 6 Russian counter- majority stake declined from a high of nearly 84 percent
parts. Brazilian and Mexican challengers have made more in 2004 to just below 68 percent in 2007. M&A deals lead-
outbound M&A deals in Latin America than other chal- ing to minority stakes were most common in the natural-
lengers, and Brazilian challengers are also major acquir- resources and metallurgy sectors and in service sectors
ers in the United States and Canada. such as telecommunications. In many cases, companies
can fulfill their strategic objectives through minority-stake
A Bold Attitude Toward Risk. International expansion purchases without having to overcome the additional
is not without its risks, which most challengers have em- regulatory and integration hurdles that result from an
braced in their quest for global leadership. However, dur- outright acquisition. Outbound M&A is always risky, but
ing difficult economic times, this attitude toward risk can pursuing minority stakes can mitigate the possibility of a
easily backfire, sending companies into retreat or even failed postmerger integration.

Exhibit 6. The Global Challengers Have Increased the Pace and Value
of Their Outbound M&A Deals
Outbound M&A deals by the Disclosed value of deals by the

2009 BCG 100 Global Challengers, 2000–2007 2009 BCG 100 Global Challengers, 2000–2007
Numbera Average deal
of deals value ($millions)
100 1,500
86 88
1,209b
80
68
1,000
60
49 50
45
599
40 35
500 457 414
19 294
20 207 232
158
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007

a
Only deals for which the deal value was disclosed, according to Thomson Financial Datastream, are included.
b
The 2006 data include three deals worth more than $10 billion each.
Exhibit 7. The Regions in Which the Global Challengers Conduct Outbound M&A Deals
Vary Widely
Locations of outbound M&A targets for the 2009 BCG 100 Global Challengers
based in BRIMC countries, January 2005–mid-2008
Number of deals
80
67 65
60
43
40
40
29
20
0
Russia-based India-based China-based Brazil-based Mexico-based
challengers challengers challengers challengers challengers
Europe United States and Canada Latin America Asia Others1

Note: The BRIMC countries are Brazil, Russia, India, Mexico, and China.
1
Others comprise Africa, Australia and Oceania, and the Middle East.

How the Challengers Are
Adapting to Pressure
I
ncreased pressures on several fronts—including tails higher freight costs, but production of synthetic soda
significantly more volatile costs, changes in gov- ash uses more energy. Tata Chemicals’ strategy has paid
ernment priorities, and the need for international off, as high energy prices in 2007 and early 2008 put in-
brand recognition and world-class R&D capabili- cumbents focused on synthetic soda ash at a cost disad-
ties—have not deterred the challengers from their vantage.
growth ambitions. As a group, they are responding to all
these pressures by adapting and strengthening their Similarly, high energy prices have caused other challeng-
businesses. ers to look more closely at opportunities to improve en-
ergy efficiency. Severstal states that energy efficiency is
Significantly More Volatile Costs beginning to play a very significant role in its business;
the company has several initiatives under way designed
From 2005 to early 2008, the challengers saw their oper- to improve on this dimension. Basic Element, too, has
ating margins buffeted by rising costs in several catego- launched a series of initiatives to improve energy effi-
ries. As a result, their average operating margins declined ciency at its production facilities.
from 18 percent in 2005 and 2006 to 17 percent
in 2007. Many RDEs registered significant increases in labor costs
in 2007 and 2008, and some regions experienced labor
Commodity price increases affected nearly every global shortages during this period. In response to these devel-
challenger in 2007 and early 2008, increasing costs for opments, some challengers, such as Basic Element, are
most and boosting profits for a select few. Many resource creating new educational programs to help attract and
owners benefited from record high prices, although some retain skilled manufacturing workers.
encountered significant profitability challenges. In 2007,
challengers in the manufacturing sector faced signifi- But it is nevertheless important to note that despite the
cantly higher costs for many materials, such as plastics recent wage increases in RDEs, the gap in labor costs be-
and steel, which they could not always pass on through tween RDEs and developed countries is still wide and
price increases. As commodity prices fell in late 2008, unlikely to close anytime soon. So RDEs should remain
concerns about high resource prices were supplanted by highly competitive as sites for labor-intensive industries.
the impending challenges posed by global economic in- Productivity gains in RDEs have also offset some of the
stability. labor-cost increases.
Challengers adopted various strategies to hedge against In addition to rising costs, currency appreciation in some
commodity price volatility. Tata Chemicals, for example, RDE countries hurt challengers’ international sales in
chose to produce a higher proportion of natural soda ash 2007. Some challengers’ currencies, such as the Chinese
to synthetic soda ash (60/40 compared with the world yuan, are governed by strict currency controls that
average of 30/70)―a clear departure from the strategy limit the challengers’ ability to address this risk through
typically pursued by incumbents. Natural soda ash en- financial hedges. The currency appreciation issue has af-

fected challengers in different RDEs to varying degrees. er, allowing it to maintain a competitive advantage for
Similarly, the sudden appreciation of the U.S. dollar in OEM customers seeking low cost and global delivery. In
late 2008 also underscored the significance of currency other cases, productivity improvements are driven by ex-
risk, as many challengers did not take sufficient hedges ternal forces, such as the Chinese government’s desire to
against their exposure. transition its economy to higher-value-added sectors. Ve-
danta Resources also identifies productivity as a key lever
While many of the underlying cost pressures cited to offset rising labor costs.
above are beyond individual companies’
control, challengers are adopting strategies Passing Costs on to Others. Despite the
to respond to them and to mitigate their Challengers are potential risk to sales, some challengers
impact. These strategies include diversify- attempting to are finding it prudent to raise prices in re-
ing geographically, optimizing supply sponse to macroeconomic cost increases.
chains, improving productivity, passing
mitigate the impact The success of this strategy is, of course,
costs on to others, and seeking govern- of cost pressures. highly dependent on specific market con-
ment support. ditions.
Diversifying Geographically. The challengers’ geo- Seeking Government Support. In some cases, challeng-
graphic expansion acts as an indirect hedge against both ers with strong support from national governments have
rising labor costs and exchange rate fluctuations. For in- used these relationships to help buffer their profits against
stance, although Lenovo is based in China, its manufac- cost increases. Sinopec, as the largest refiner in China,
turing plant network spans Europe, North America, South was able to offset some of the profit it lost because of
America, and Asia, effectively containing its risk from price controls on refined fuels thanks to government-
possible appreciation of the yuan. Similarly, Severstal bal- supplied subsidies. The opposite effect takes place in
ances its growth between developed and emerging mar- some developed countries, where politicians may seek to
kets as part of its risk-management approach, tapping impose windfall profits taxes on local incumbents in the
into the growth and cash-generation potential of the fossil fuels industry.
emerging markets as well as the stability and capability
development available from competing in the developed Changes in Government Priorities
markets.
One ever-present consideration in any RDE is the possi-
Optimizing Supply Chains. The challengers seek ways bility of changes in government policies. RDE-based gov-
to optimize their supply chains in order to reduce costs, ernments frequently revise their policies on trade, foreign
variability, and risk of disruption. Strategies may include direct investment, domestic subsidies, and industry re-
relocating manufacturing or assembly operations to low- structuring or consolidation. Challengers that are aligned
cost regions or closer to end customers. Some challengers with current government priorities stand to gain, while
opt to produce low-complexity components in low-cost those that are not must operate with caution.
regions and use plants in high-cost countries to produce
more complex components that require frequent interac- Most recently, as the global financial crisis began to un-
tion with customers. fold in late 2008, governments around the world respond-
ed by abruptly launching a range of regulatory programs.
Improving Productivity. Challengers are improving the These programs will have direct effects, both positive and
productivity of their operations both by investing in new negative, on challengers’ competitive positions. Indeed,
technologies and by reducing their labor resources or re- most challengers must respond simultaneously to multi-
allocating them to more effective use. Wipro, for example, ple government programs at home and abroad. Given the
has applied lean-manufacturing concepts to software de- extent of the financial crisis and the multiplicity of gov-
velopment, often generating efficiency improvements of ernmental responses, whole industries will be reshaped.
10 percent or more on individual projects. Thai Union It will be imperative for all challengers, regardless of
Frozen Products (Thailand) cites its continuous drive for home country or industry, to navigate these complex new
operational excellence as key to being a low-cost produc- circumstances effectively.

The current financial crisis aside, incumbent MNC com- The Need for International Brand
petitors often highlight the advantages RDE governments Recognition and World-Class R&D
offer to their national champions. These include tax Capabilities
breaks, reduced financing costs, subsidies of various kinds,
privileged access to resources, and trade barriers against Many challengers are still struggling to develop interna-
external competitors. However, not all challengers receive tionally recognized brands and world-class R&D capa-
such preferential treatment from their governments. In- bilities, while others have already gained significant lever-
deed, some have been adversely affected age in these areas.
by regulatory changes at home. For exam- Challengers have
ple, China sought to scale back and mod- Building Brands with International Rec-
had only limited
ernize its domestic aluminum industry ognition. Managing and developing strong
because the large number of inefficient, success building brands remains one of the biggest hurdles
subscale aluminum smelters was draining strong global facing the global challengers. Many have
the growing nation’s precious electricity built formidable brands in their home
resources. Toward that end, the govern- brands. markets but remain little known or
ment cut value-added-tax (VAT) rebates plagued by perceptions of low quality
and power subsidies for the aluminum industry and im- abroad. Changing those perceptions will be critically im-
plemented a minimum-scale directive on aluminum portant as they seek to expand the global reach of their
smelters. The Aluminum Corporation of China (Chalco), product lines—particularly as many are choosing to move
China’s largest aluminum producer and the second-larg- up market, not only into developed economies but also
est worldwide, responded by increasing its efforts to into premium segments, where branding forms the basis
boost the productivity of its domestic assets, limiting its of sustainable competitive advantage.
domestic greenfield investments, and actively expanding
its footprint abroad. In 2008, Chalco formed a joint ven- To date, global challengers have had only limited success
ture to create a 1-million-ton aluminum plant in Saudi in building strong global brands. China Mobile, Haier
Arabia; it also joined with Alcoa in purchasing a $14 bil- (China), and Lenovo have all succeeded in gaining inter-
lion stake in Rio Tinto. national recognition for their brands, while others have
acquired well-known brands from abroad: for instance,
In addition to its desire to shift to higher-value-added Grupo Bimbo has bought overseas brands such as Plus
industries, China has sought to improve working condi- Vita and Orowheat. Thai Union Frozen Products recog-
tions. In early 2008, China introduced a broad set of la- nized that to build a sustainable competitive position, it
bor law reforms, including open-ended work contracts needed to be more than just an OEM. In line with this
and severance pay for workers. These reforms have add- strategy, it purchased the well-known Chicken of the Sea
ed costs to labor-intensive manufacturing industries in brand of tuna, solidifying its position in the industry and
China. giving it a significant market share in the United States.
However, these companies are the exception rather than
Gedeon Richter also saw a major shift in government the rule. When it comes to branding, there is a sizable gap
support. After the fall of the Communist regime in Hun- between challengers and their established rivals.
gary, the company had to build up its distribution net-
works with limited assistance from the government. A The challengers on our list are pursuing four main brand
new pharmaceutical law established in 2006 further cut strategies: acquiring established local brands in other
into the industry’s profits, lowering prices for generics by RDEs, acquiring established local brands in developed
30 to 50 percent and imposing an extra 12 percent tax countries, acquiring established global brands, and taking
burden. RDE brands global. Acquiring established brands pro-
vides rapid access to other markets, whereas building
Challengers can take a proactive approach by establish- global brands organically permits greater flexibility in the
ing diligent regulatory processes and campaigns across brand’s positioning. The challengers that seek to build
their organizations to more effectively engage with stake- their own brands organically overseas have generally fo-
holders at multiple levels of government. cused on differentiation and high quality. Haier, for ex-

ample, has taken this route in developed markets, where RDE-based companies are not generally recognized as be-
it remains a relatively new entrant and must overcome ing at the forefront of R&D. Many suffer from insufficient
preexisting consumer perceptions and lack of familiarity enforcement of intellectual property rights in their home
with its brand. countries, which effectively reduces the value of R&D in-
vestments that target domestic markets. However, the
The cost of global branding should not be understated. status quo is changing. The number of patent applica-
Tata Tea’s acquisition of The Tetley Group cost more than tions from major RDEs is growing quickly, although it is
$400 million, and Haier spends nearly $100 still dwarfed by applications from devel-
million every year on advertising costs re- oped economies. (See Exhibit 8.)
lated to its brands. For this reason, scale is Challengers often
a key success factor in achieving interna- use partnerships to Challengers such as Huawei Technologies
tional brand recognition. are adopting comprehensive intellectual-
access world-class property strategies and filing increasing
To mitigate the risks inherent in such large technology. numbers of patent applications both at
investments, many challengers are adopt- home and abroad. In 2008, the World In-
ing transitional branding strategies. Leno- tellectual Property Organization recog-
vo, for example, licensed the IBM brand for five years fol- nized Huawei Technologies as the fourth-largest patent
lowing its purchase of the latter’s personal-computer applicant in the world. However, many other challengers
business but phased in its own brand name after only need to focus significantly more resources in this area to
three. Similarly, Bajaj Auto (India) has a partnership with reach parity with the standard practices of incumbent
Kawasaki whereby a series of coproduction and distribu- MNCs. In addition, investing in intellectual property pro-
tion deals give both companies greater access to a number tection can narrow and ultimately reverse the “royalty
of key markets worldwide and help improve Bajaj Auto’s gap” by allowing challengers to become net exporters of
reputation for quality and value. Both challengers chose innovation.
to leverage the more established incumbent brands while
seeking to develop reputations for high-quality products. Rather than develop innovative products entirely from
scratch, challengers often use partnerships and acquisi-
Using World-Class R&D to Compete as an Innovator. tions to access world-class technology. Wind-power spe-
The global challengers’ R&D spending is on the rise, but cialist Suzlon Energy (India) bought REpower Systems,
significant gaps need to be closed between challenger Germany’s third-largest wind-turbine manufacturer, to
and incumbent R&D spending if challengers want to be gain access to the latest technologies in wind power and
competitive at a world-class level. Many challengers are expand its base of talented engineers. DMTG has adopted
only just beginning to embark on this journey but have a similar strategy, purchasing F. Zimmermann and two
the potential to reshape their industries as they embrace divisions of Ingersoll International USA to obtain access
the values (and nuances) of innovation. The learning to advanced machine-tool technology that can be incor-
curve is steep, however. Challengers with the determina- porated into DMTG’s product line. This approach has
tion and long-term vision required to be successful at in- proved challenging in some instances because of regula-
novation will ultimately be among the global champions. tory or other hurdles. For example, regulations in Ger-
many required Suzlon Energy to increase its minority
As Erik Bogsch, CEO of Gedeon Richter, points out, the stake in REpower Systems to a majority stake to guaran-
biggest winners in the generic pharmaceutical industry tee access to the company’s core technology.
are the companies that are making money from innova-
tion. G.V. Prasad, CEO of Dr. Reddy’s Laboratories, ex- Given the lower labor costs in RDEs, the leverage for R&D
pressed a similar view, highlighting that the line between investments there is significantly higher than it is for
“generic player” and “innovator player” is blurring. CNPC similar investments in developed countries. In many
identifies innovation as a key strategic priority, with new RDEs, challengers can hire local scientists and engineers
developments in deep-water oil extraction and coal bed for a fraction of the cost similarly trained people would
methane as offering significant potential for future command in developed markets. This cost discrepancy
growth. makes the competition for scientific and engineering tal-

ent even more critical in RDE markets. In addition to at- tors have sport shoes.” Today Richter is putting strong
tracting qualified talent, companies such as Gedeon Rich- efforts into original R&D and generic development,
ter also recognize the need for continued investments in spending one of the highest amounts on R&D in the Cen-
R&D infrastructure; otherwise, according to CEO Erik tral and Eastern European region.
Bogsch, “it is like running barefoot while your competi-
Exhibit 8. Despite Fast Growth in Patent Applications, RDEs Still Lag Far Behind
Developed Economies
Developed economies RDEs

Number of patents obtained
in the United States
45,000
+6%
40,000
35,000
+2%
10,000
+6% +12% +9%

5,000
+48% +20% +12% +10% –4%
0
Japan Germany United Canada France China India Russia Brazil Mexico
Kingdom
2005 2006 2007 Growth
Sources: United States Patent and Trademark Office; BCG analysis.

What Does the Future Hold?
T
he challengers find themselves at a cross- they face will more closely resemble those of the incum-
roads. They are expanding and building bents than those of other emerging challengers. Some
global businesses, while at the same time may go even further, creating a new definition for a glob-
their established MNC competitors are seek- ally transformed business.
ing a deeper foothold in the challengers’ at-
tractive home markets. Pressures are building, and the Segment Leadership. Many challengers may not be-
allure of entering developed markets—with their high come global leaders in the near future but will carve out
profit margins, high consumption levels, and wealth of profitable segments in which they can sustain competi-
talent and technologies—is counterbalanced by the tre- tive advantage in the long run. Some companies have
mendous growth opportunities in emerging markets, already benefited from the advantages that segment
both at home and abroad. Accordingly, challengers must leadership can bring, and they can build from these posi-
accelerate their decisions about where they want to build tions of strength. For example, while challenger Nemak
defensible competitive positions and where they want to trails behind automotive component titans such as Del-
become leaders. Failure to make these hard choices may phi and Bosch in overall revenues, it has built a leader-
leave them in an unsustainable position—neither glob- ship position in aluminum engine heads and blocks.
ally strong nor locally competitive.
A Defined Geographic Focus. Some challengers will fo-
Future Directions for Challengers cus either on other emerging markets or on developed
markets. Others will choose to develop strong regional
The choices that challenger-company executives make leadership positions and not to expand beyond those re-
about investing their scarce resources into both domestic gions. Sinomach currently focuses mostly on emerging
and overseas markets will drive their companies down markets, where its low-cost position gives it an advantage
very different paths. Accordingly, challengers should when it bids against developed-market competitors for
choose their aspirations carefully. Most will move toward projects. Suntech Power, in contrast, currently takes the
one of five outcomes: global industry leadership, segment opposite approach, exporting most of its solar-energy
leadership, a defined geographic focus, a return to the modules to developed countries that have strong markets
domestic market, or partnerships or other combinations for solar products.
with incumbents to build global powerhouses.
A Return to the Domestic Market. For many challeng-
Global Industry Leadership. Several challengers have ers, RDEs continue to be significant growth markets.
already joined the ranks of global leaders in their indus- Some may choose to refocus their efforts on capturing
tries; for many others, global leadership remains the goal. domestic market share before continuing their aggressive
Vale is already the global leader in iron ore and pellets, expansion abroad. In some cases, this choice will reflect
supplying steel companies all over the world. Similarly, a strong ambition to grow; in other cases, it will be a re-
Tata Tea is the number two producer of tea worldwide. sponse to a direct competitive threat by an incumbent or
As these companies continue to evolve, the challenges another challenger.

Partnerships or Other Combinations with Incum- Don’t concede the innovation high ground. Few chal-
bents to Build Global Powerhouses. Challengers may lengers have mastered the use of innovation as a means
choose to sell large equity stakes in their businesses to of obtaining competitive advantage. But those that suc-
incumbents, with the goal of creating global powerhouse ceed at innovation will be well positioned to become
companies. This approach can help the new company global leaders in their fast-changing industries.
benefit from the advantages of challengers and incum-
bents—leveraging the low-cost, flexible capabilities of In addition, challengers must never allow themselves to
challengers and the financial muscle, strong brands, and become complacent about developing comprehensive
top-notch innovation capabilities of the incumbents. This intellectual-property strategies. Those that proactively
approach was adopted by Ranbaxy Laboratories CEO protect their investments will be rewarded by reduced
and promoter, Malvinder Mohan Singh, in 2008, when he royalty expenditures, new sources of royalty revenue, and
sold a majority stake to Daiichi Sankyo, a Japanese phar- protected access to markets.
maceutical company. (See the sidebar “Combining with
an Incumbent: the Ranbaxy Deal.”) Find opportunities in turbulent times. Today challeng-
ers face many pressures on the bottom line. They should
Guidelines for Challengers not pursue reactive strategies. Instead, they should plan
very carefully to make the right deals, invest in the right
In view of the wide array of issues and opportunities they projects, and enter the right markets. At the same time,
face, how should challengers chart the best possible they should ensure that they effectively leverage their
course for the future? What can they do to accelerate valuable resources, minimize their costs, and look for op-
their business transformation? We suggest that they ob- portunities to buy distressed companies and assets at
serve the following six guidelines. home or overseas.
Combining with an Incumbent: the Ranbaxy Deal
In June 2008, Japanese pharmaceutical company Daiichi markets. There will also be a convergence of the “generic”
Sankyo announced the purchase of a majority equity and “innovator” business models, enabling companies to
stake in Ranbaxy Laboratories, India’s largest manufac- better serve various customers and stakeholders in differ-
turer of pharmaceuticals. This deal marked the first sale ent markets. As strategic preparation for this convergence,
of a majority stake to an incumbent by any of the BCG 100 Ranbaxy decided to forge ahead and “shape the menu
new global challengers. We met with Malvinder Mohan rather than waiting and being forced to pick [a partner]
Singh, CEO and managing director of Ranbaxy, to better out of a limited set of options,” Malvinder Singh told us.
understand the strategic rationale for this deal.
Daiichi Sankyo was exactly the kind of partner Malvinder
Ranbaxy was the first multinational pharmaceutical com- Singh was looking for. Both companies recognized the tre-
pany based in India. It began to look overseas as early as mendous potential and synergies that a combination
the 1970s, when India’s economy remained largely closed could bring. Ranbaxy could leverage Daiichi Sankyo’s
and few pharmaceutical capabilities existed. The former deeply innovative R&D capabilities and its commercial
CEO of Ranbaxy, the late Parvinder Singh, recognized that presence in Japan and other developed markets. Daiichi
globalization was imperative if his young company were Sankyo would benefit from the low cost, efficiency, and
to develop a substantial position, given that the Indian global reach offered by Ranbaxy. To make this combina-
market constituted less than 1 percent of the global phar- tion successful, the companies decided to preserve each
maceutical market. Today, Ranbaxy has achieved an im- other’s strengths while collaborating on specific areas of
pressive global footprint with ground presence in 49 coun- synergy. As a result, Ranbaxy will continue to operate in-
tries, 2007 sales of $1.6 billion, and a formidable position dependently following the combination.
in the generics markets in the United States and Europe,
as well as in many emerging markets. Other challengers should weigh the benefits and risks of a
strategic combination with a developed-country incum-
The next wave of globalization, according to Malvinder bent, especially in industries in which global scale and
Singh, will see innovative products produced in emerging reach are critical to success.

Protect core RDE markets. As they grow globally, chal- Manage risks to the business. Challengers, like all com-
lengers must not become complacent in their home mar- panies, must be constantly aware of the risks their busi-
kets. It is nearly impossible for a challenger to achieve a nesses face. These risks come in many shapes and sizes—
sustainable global-leadership position if its domestic mar- including raw material prices, exchange rates, and legal,
ket is coming under attack from an incumbent or another regulatory, environmental, and other risks. Ignoring these
challenger. The RDE middle markets—the market space risks can put the challengers’ core levers of competitive
between entry level and premium—are projected to grow advantage under tremendous pressure.
at phenomenal rates over the next ten years; sluggish
growth in the home markets of established MNCs may Challengers that successfully plan and manage for these
drive many of them to tailor their products and services risks will be less likely to fail because of unanticipated
in order to gain market share in RDEs. challenges. Perhaps most important, challengers should
ensure they do not fall victim to their success by taking
Make productivity improvements a top priority. Im- on more leverage than they can handle. (See the sidebar
proving productivity—of both physical assets and human “Adopting a World-Class Risk-Management System.”)
resources—will be a critical lever for challengers in main-
taining their cost competitiveness during turbulent times. Develop globally recognized brands. Companies seek-
Making significant and lasting improvements will require ing to achieve category leadership abroad, particularly in
taking a balanced approach to investment, training, and the consumer sector, must continue to build and develop
targeted cost reductions to achieve world-class productiv- their brands or find other ways to achieve similar results.
ity levels. Challengers that manage their businesses for Challengers seeking to develop brands that are recog-
productivity will find new sources of advantage that ex- nized internationally for quality or value need to focus
tend well into the future. especially closely on this area.
Adopting a World-Class Risk-Management System
Recent volatility in the global financial and commodity ◊◊ Clearly defined governance and responsibilities for each
markets and rapidly changing business environments are aspect of risk management
placing many challengers in precarious situations that
they had not fully anticipated. The issues posed by the ◊◊ Executive information systems that provide an inte-
challengers’ rapid expansion further compound the risks grated view of risks
they face. Regardless of the success of their underlying
business models, challengers need to develop world-class Companies can use strong enterprise risk management
enterprise risk-management systems to systematically to drive significant value creation. For instance, they can
identify risks (financial, legal, political, and other), evalu- use risk management to reduce the overall volatility of
ate their potential business impact, and develop mitiga- cash flows, allowing more effective use of capital and low-
tion strategies. Companies that do not develop such capa- ering the possibility of a financial crisis. In fact, risk man-
bilities remain exposed to issues that threaten to curtail agement can generate a net increase in cash flows overall,
their impressive growth. as events with negative value implications can be antici-
pated and actively managed. Incorporating risk manage-
A world-class risk-management system encompasses five ment practices can also play a strong role in defining com-
key characteristics: pany strategy, as executives have a clearer picture of
risk-return tradeoffs when making critical decisions.
◊◊ A clearly articulated risk policy that is aligned with com-
pany strategy
◊◊ Appropriate tools to quantify each risk and prioritize

efforts toward risk management
◊◊ Management mechanisms for different types of risks

Guidelines for Incumbents training and development. Similarly, natural resources
companies such as Sinosteel, Vale, and Vedanta Resourc-
Established MNCs face many of the same pressures now es compete head-on with MNC incumbents in their race
confronting challenger companies—compounded by the to tap into the world’s mineral resources.
issues of legacy assets and the threats posed by current
and emerging challengers. What can incumbents do to Competitive threats of this kind will only accelerate as
sustain and grow their global leadership positions? more and more RDE-based companies aim for global
leadership positions.
As incumbents prepare for the rise of glob-
al challengers, they should be wary of pos- Challengers are Incumbent MNCs should be aware of
sible industry disruptions, evaluate their altering the global warning signs that industry disruption is
potential exposure, “challenger-proof” likely or already in progress and should
their businesses, and gain advantage dur-
competitive develop strategies to protect investments
ing difficult times. landscape. and maintain growth. Incumbents should
conduct assessments of their exposure
Be wary of possible industry disrup- along two dimensions: the vulnerability of
tions. Ten years ago, most global challengers were still their industry and the vulnerability of their individual
small, domestically focused dynamos with big visions for company. (See the sidebars “Assessing Your Industry’s
the future. The rapid emergence of these challengers and Vulnerability” and “Assessing Your Company’s Vulnera-
their ascendance to positions of global leadership threat- bility.”)
en to disrupt many industries—and to change their es-
tablished order. In some industries, this shift is already If these questions indicate that disruptive change is likely
happening or poses an immediate threat; in others, the in the industry, incumbents should further evaluate their
risks are only now becoming apparent. current positions: are they especially vulnerable, or well
positioned to benefit from the change?
Disruptions by challengers can take various forms. Some
challengers are changing competitive landscapes in their All too often, companies become aware of disruptive
home countries, preventing incumbent MNCs from gain- changes only when it is too late to take effective action.
ing strong footholds in fast-growing local markets. (Also Accordingly, incumbents need to remain constantly aware
contributing to this exclusionary effect are innovative lo- of emerging RDE-based competitors with global aspira-
cal companies, which we have described elsewhere as tions. One major incumbent in the industrial goods sector
local dynamos.)2 tracks its local competitors in China and India on the ba-
sis of the quality of their products—ranging from copycat
Challengers are also altering the global competitive land- to innovative—as well as the geographic scope of their
scape. Embraer’s leadership in the regional jet market activities.
has fundamentally changed that sector’s playing field.
Tata Motors’ (India) entry-level cars represent a signifi- Of course, the established MNCs should also be aware of
cant threat to automotive MNCs competing in emerging the moves their global rivals are making in RDE markets.
markets. The enviable cost structures built by some chal- While a landmark deal by any measure, IBM’s 2004 sale
lengers, such as Nemak, can have game-changing implica- of its personal-computer business to Lenovo was not im-
tions for their industries. mediately disruptive to the industry leaders Dell and
Hewlett-Packard, which essentially traded an incumbent
These examples all refer to direct competition for cus- competitor for a challenger. In 2007 and 2008, Dell and
tomers. But challengers are competing with incumbent Hewlett-Packard remained the industry leaders, and
MNCs for talent and resources as well. To attract talented Lenovo slipped to fourth place in market share behind
engineers in the competitive Indian job market, chal-
lenger companies such as Wipro and Infosys Technolo-
2. The BCG 50 Local Dynamos: How Dynamic RDE-Based Companies Are
gies are changing the basis of competition for talent by Mastering Their Home Markets—and What MNCs Need to Learn from
using nonfinancial incentives, such as opportunities for Them, BCG report, March 2008.

Assessing Your Industry’s Vulnerability
Not all industries are equally vulnerable to the challeng- tional positions, using either organic expansion or out-
es posed by RDE-based competitors. To assess your in- bound M&A?
dustry’s vulnerability, ask yourself the following ques-
tions: ◊◊ Do regulations make global product rollouts difficult?
◊◊ Is cost critical as a basis for competitive advantage? Can ◊◊ Are middle and lower-tier segments growing faster than
a low-cost competitor enter the market? high-end segments, lowering barriers to entry for non-
branded competitors?
◊◊ Are RDEs driving most industry growth, and is this
growth disproportionately benefiting local players? ◊◊ Is the pace of innovation relatively slow in the sector,
reducing the competitive advantage of established in-
◊◊ Is there a trend toward increasing diversity of customer cumbents?
needs and preferences across international markets?
◊◊ Are there incumbent competitors that could be take-
◊◊ Is there a risk that the value chain in the sector could over targets for fast-growing challengers?
be deconstructed or altered?
◊◊ Are new business models emerging in RDEs that could

enable new entrants?
◊◊ Have companies based in RDEs already built interna-
Assessing Your Company’s Vulnerability
It’s likely that your company is already competing with ◊◊ How flexible is the company’s organization in reacting
one or more RDE-based challengers for market share at to new competitive threats?
home or abroad. To assess your company’s vulnerability
to disruption, ask yourself the following questions: ◊◊ Does the company have compelling value propositions
for the “next billion” consumers entering the middle
◊◊ Is the company’s cost structure competitive with chal- markets in RDEs?
lengers?
◊◊ How well developed is the company’s ability to acquire
◊◊ Is the company’s manufacturing footprint aligned with and integrate other companies in international
best-cost locations? markets?
◊◊ How well does the company understand RDE markets,

and how significant is its sales footprint in high-growth
markets?
◊◊ Is there an effective plan to respond to emerging chal-

lengers in the industry, as competitors, partners, or po-
tential customers?
◊◊ How well is the company tapping into the lower-cost

pools of scientific and engineering talent in RDEs?

Taipei-based Acer, following the latter’s acquisition of still significantly lower than in developed countries. In-
Packard Bell and Gateway. Incumbents in other indus- cumbents should, therefore, continue to look for oppor-
tries are also increasingly likely to find themselves com- tunities to use RDE resources to lower their own costs.
peting simultaneously with incumbent peers and global This process often takes multiple iterations, as was the
challengers. case with Emerson Electric. In the 1980s, in response to a
slowing market and the emergence of low-cost competi-
Challenger-proof your business. Most incumbents al- tors from Brazil, Emerson embarked on a “best cost” ini-
ready have favorable starting positions tiative to develop products with high qual-
when compared with the challengers. But ity and low cost anywhere in the world. As
those that fail to adapt quickly may find Incumbents that fail a result, it grew its head count and sourc-
their advantage overturned. Companies to adapt quickly may ing activity significantly in “best cost” loca-
must adequately protect their business tions from 2000 to 2007.
models or move fast to find new bases for
find their advantage
competing with emerging challengers. overturned. Adapting Business Models to RDEs. The busi-
ness models underlying established MNCs’
Incumbents can respond to the rise of success often meet with challenges in the
challengers that compete with them directly in one or RDEs. Different consumer needs, regulatory environ-
more of four ways: ments, and competitive landscapes necessitate a tailored
approach. Nokia has exemplified this flexibility in markets
◊ Reinforcing traditional MNC strengths, such as brand- such as China, where the company has used a multitiered
ing and innovation distribution strategy to reach deep into Chinese tier 4 cit-
ies and rural locations. Moreover, Nokia’s product line is
◊ Leveraging RDE-based opportunities to improve the tailored to RDE customer needs. For example, Nokia’s
cost base of their core business broad range of products includes the 1000 series, espe-
cially designed for use in rural locations. Nokia invests
◊ Adapting business models to RDEs heavily in understanding the needs of diverse customer
segments in RDEs, developing the products to serve them
◊ Transforming their businesses globally and creating the sales channels to reach them.
Reinforcing Traditional MNC Strengths. Established MNCs Transforming the Business Globally. The steps outlined
still hold several competitive advantages that should not above may not be enough to guarantee success in the
be discounted. Chief among them are the existing posi- evolving competition with challengers. Some MNCs are
tions they have built with their brands, as well as existing exploring more radical approaches to tapping into RDE
investments in R&D and innovation that challengers can- markets and resources fast—even to the extent of relocat-
not easily replicate. In these two categories, the differ- ing entire divisions there. While the risks of this approach
ences between challengers and incumbents remain strik- should not be understated, these bold moves may also be
ing. Incumbents should not abandon these investments just what is needed to keep up with the rapid growth
in the rush to compete with new challengers from abroad; achieved by the global challengers operating in these
rather, they should reinforce them and position them as markets.
a core part of their response strategy. This approach will
become especially important as incumbents and chal- Gain advantage during difficult times. Rather than be-
lengers clash increasingly in middle markets—those of- coming overly preoccupied by short-term business pres-
ten underserved market spaces between the high-end sures caused by difficult economic times, incumbents
premium segments historically dominated by incumbent should recognize the tremendous opportunity that such
MNCs and the low-cost value segments in RDEs often times represent. These are the times when the rules of
occupied by challenger companies. the game can be changed.
Leveraging RDE Opportunities to Improve Your Cost Base. Incumbents should look for opportunities to buy attrac-
Although costs in many RDEs are rising, those costs are tive challengers or other RDE-based companies in order

to gain a foothold in these high-growth markets. However, first step to entering RDEs. Every one of the automotive
given the large number of state- and family-owned com- OEM challengers on our list has significant joint ventures
panies among the challengers, incumbents seeking to with foreign automakers.
acquire must also be very clear about the value proposi-
tion for both sides. In 2008, Daiichi Sankyo acquired a Looking Ahead
majority stake in global challenger Ranbaxy Laborato-
ries, creating a combined company that can leverage The emergence of global challengers is far from over: we
Daiichi Sankyo’s strength in innovation and recognized are still at the beginning, not the end, of a trend. Chal-
brand and Ranbaxy’s low-cost research and production lengers are continuing to ascend to leadership positions
capabilities. In other cases, the value proposition will at breakneck speed, disrupting the established order of
be driven by financing considerations, as some challeng- many industries. Although volatile financial markets and
ers have taken on too much leverage in their rush to other risks present obstacles to the challengers, they are
global expansion. The time is opportune for incumbents learning quickly to manage these hurdles—and building
to acquire or partner with challengers on incumbents’ stronger businesses in the process. Incumbent MNCs
own terms. would be well advised to pay attention to the challengers
and prepare themselves for what is a fast-changing busi-
Even if no such acquisition targets are available, incum- ness climate. The game is on, and the pace is picking up.
bents should still look for opportunities to go on the of-
fensive. Many incumbents remain confined to the pre- The companies profiled in this report represent only one
mium segments within the RDEs; but they should look subset of the broad universe of new global challengers.
for ways to tap into the rapidly growing middle market in Many other challengers are out there, all with grand glob-
these countries. al ambitions. Some are at earlier stages in their globaliza-
tion efforts, while others have limited their goals to local
The importance of challengers as a business opportunity markets for the time being. But many have the same
should also not be underestimated. Challengers can be characteristics as the 100 companies profiled in this re-
particularly valuable partners and customers, as they are port, and they may have similar potential to contend for
located in fast-growing markets with significant strategic global leadership positions. We expect to see many more
importance to incumbents. Some incumbents have al- challengers emerge in the coming years. Some will fail
ready been taking advantage of this opportunity. For ex- owing to the shortcomings of their business models, and
ample, Schlumberger built a full suite of capabilities that others will not survive during times of economic crisis.
cater to the national oil companies based in the RDEs. However, some will certainly succeed and ultimately take
Other incumbents have partnered with challengers as a their place among the ranks of global leaders.

For Further Reading
The Boston Consulting Group Globality: The World Beyond Aligning Talent for Global
publishes other reports and articles Globalization Advantage: How Top Companies
BCG Perspectives, July 2008 Develop the Right Talent in the
that may be of interest to senior Right Places
executives engaged in globalizing Oil Retail: What It Takes to Win A Focus by The Boston Consulting Group,
their operations. Recent examples in the BRIC Countries September 2007
include: A Focus by The Boston Consulting Group,
July 2008 Winning the Hearts and Minds
of China’s Consumers
A Focus by The Boston Consulting Group,
Mexico’s Evolving Sweet Spot September 2007
in the Globalization Landscape
A Focus by The Boston Consulting Group, Sourcing from China: Lessons
April 2008 from the Leaders
A Focus by The Boston Consulting Group,
The BCG 50 Local Dynamos: July 2007
How Dynamic RDE-Based
Companies Are Mastering Their Sourcing in Central and
Home Markets—and What MNCs Eastern Europe: An Overlooked
Need to Learn from Them Opportunity
A report by The Boston Consulting Opportunities for Action in Consumer
Group, March 2008 Markets, September 2006
Winning Over the Next Billion Organizing for Global Advantage

Consumers in Brazil: A Guide in China, India, and Other Rapidly
for Growth Developing Economies
A Focus by The Boston Consulting Group, A report by The Boston Consulting
February 2008 Group, March 2006
Eyes Wide Open: Managing the The New Economics of Global

Risks of Acquisitions in Rapidly Advantage: Not Just Lower Costs
Developing Economies but Higher Returns on Capital
A Focus by The Boston Consulting Group, Opportunities for Action in Operations,
January 2008 July 2005
Winning the Localization Game: Navigating the Five Currents

How Multinational Automotive of Globalization: How Leading
OEMs and Suppliers Are Realizing Companies Are Capturing Global
the Strategic Potential of China Advantage
and India A Focus by The Boston Consulting Group,
A report by The Boston Consulting January 2005
Group, January 2008
Ringing In the Next Billion A Recent Book by BCG Authors

Mobile Consumers: A Road Map
for Accelerating Telecom Growth Globality: Competing with
in India Everyone from Everywhere
A report by The Boston Consulting for Everything
Group, December 2007 By Harold L. Sirkin, James W. Hemerling,
and Arindam K. Bhattacharya
(New York: Business Plus, 2008)

The Boston Consulting Group (BCG) is a global manage-
ment consulting firm and the world’s leading advisor on
business strategy. We partner with clients in all sectors
and regions to identify their highest-value opportunities,
address their most critical challenges, and transform their
businesses. Our customized approach combines deep in-
sight into the dynamics of companies and markets with
close collaboration at all levels of the client organization.
This ensures that our clients achieve sustainable compet-
itive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private
company with 66 oﬃces in 38 countries. For more infor-
mation, please visit www.bcg.com.
For a complete list of BCG publications and information about how to obtain copies, please visit our Web site at
www.bcg.com/publications.
To receive future publications in electronic form about this topic or others, please visit our subscription Web site at
www.bcg.com/subscribe.
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The 2009 BCG 100 New Global Challengers

The 2009 BCG 100

Abu Dhabi Cologne Lisbon New Delhi Stockholm

Global Challengers Jan 09_Covers_ACME.indd 1 1/8/09 8:05:57 AM

Global Challengers Jan 09_Covers_ACME.indd 2 1/8/09 8:06:08 AM

For information or permission to reprint, please contact BCG at:

The Challengers’ Rapid Rise to Global Leadership 7

How the Challengers Are Achieving Leadership 9

The 2009 New Global Challengers 13

How the Challengers Are Adapting to Pressure 22

What Does the Future Hold? 27

For Further Reading 34

The 2009 BCG 100 New Global Challengers 3

4 The Boston Consulting Group

Arindam Bhattacharya Carl Stern

Thomas Bradtke Andrew Tratz

The 2009 BCG 100 New Global Challengers 5

6 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 7

8 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 9

The Ambition to Go challengers to play A Large Appetite for Risk. Expanding

10 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 11

Outbound M&A deals by the 2009 BCG 100 Global Challengers,

100 ~ 39% of total deals

Deals per company 9.5 4.0 5.3 3.0 1.4 4.9

Average size of deal1

Sources: Thomson Financial; BCG analysis.

12 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 13

Argentina ◊ Johnson Electric ◊ Grupo Bimbo

★This company is new to the BCG 100.

Source: BCG analysis.

14 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 15

16 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 17

Brazil 14 Natural resources ◊ Mining and metals: 13

Source: BCG analysis.

18 The Boston Consulting Group

Ten-year TSR comparison, One-year TSR comparison,

Total shareholder return Total shareholder return

Sources: Thomson Financial Datastream; BCG analysis.

The 2009 BCG 100 New Global Challengers 19

Revenue growth in dollars, 2005–2007 Profitability, 2007

Sources: Thomson Financial Datastream; Infinancials; BCG analysis.

20 The Boston Consulting Group

Outbound M&A deals by the Disclosed value of deals by the

Sources: Thomson Financial Datastream; BCG analysis.

Europe United States and Canada Latin America Asia Others1

Sources: Thomson Financial Datastream; BCG analysis.

The 2009 BCG 100 New Global Challengers 21

22 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 23

24 The Boston Consulting Group

The 2009 BCG 100 New Global Challengers 25

Developed economies RDEs

+6% +12% +9%