Beware of America’s new challengers

how he sees it

Beware of America’s new challengers

By HAROLD L. SIRKIN

McClatchy-Tribune

Imagine: 100 companies, many virtually unknown in the United States, with combined 2006 revenues of $1.2 trillion.

Imagine next: You’re sitting in corporate headquarters in Atlanta, Chicago, Los Angeles, New York, Seattle or some other U.S. city — and you realize these companies are coming at you from everywhere: Argentina, Brazil, Chile, China, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Poland, Russia, Thailand, Turkey.

Twenty years ago we dismissed many such places as Third World countries. Today, the 14 countries listed above are major centers of economic activity, attracting $245 billion in foreign investment in 2006 and producing more than 17 percent of the world’s entire gross domestic product.

The countries are increasingly home to America’s competition. They are also home to current or potential customers, suppliers and partners for U.S. companies.

Welcome to the global economy, circa 2008.

Unfamiliar companies from rapidly developing economies (RDEs) are now challenging some of the biggest and best companies in the world. If you require confirmation, just ask employees of the Canadian mining company Inco, which was bought in 2006 by Brazil’s Companhia Vale do Rio Doce for $17.8 billion. Or ask employees of Ford Motor Co.’s Jaguar and Land Rover divisions, which soon may become subsidiaries of India’s Tata Motors.

RDE-based companies are on the hunt for new markets, advanced technology, raw materials and world-class brands. In 2006, the 100 most promising of companies enjoyed profit margins of 17 percent, 20 percent higher than the average profit margin of the companies included in the S P 500.

This gives them cash and cash gives them clout. With lots of money, the challengers are spending hundreds of billions of dollars each year — not only on goods and services, but on companies. In 2006, the 100 leading global challengers completed 72 major merger and acquisition deals involving foreign companies, paying nearly $1 billion, on average, for each acquisition.

While a few of the new global challengers already are prominent internationally, others are just now emerging from the shadows. Consider a few of the relative unknowns: Brazil’s Marcopolo company, the world’s third-largest manufacturer of bodywork and components for buses and vans; China’s Nine Dragons Paper Holdings, one of the largest paperboard-packaging manufacturers in the world; and India’s Suzlon Energy, one of the world’s leading wind-energy companies, with manufacturing facilities in China, Europe and the United States.

Warp speed

The new global challengers all have one thing in common: Like many of the 14 countries in which they are headquartered, they are growing at warp speed.

U.S. executives and policy-makers need to mobilize for action. If anything, the competition will probably intensify in the years ahead. Based on current revenues, if the 100 global challengers grow at the same rate they did from 2004 to 2006, they will have combined revenues of $3.4 trillion by 2010 and $11.8 trillion by 2015. Meanwhile, hundreds of other RDE-based companies also will attain the size and capabilities to challenge today’s leaders.

Bucking this trend won’t be easy.

Our advice to U.S. executives is to start thinking more like challengers and less like global leaders. This might lead them to consider several strategies: attacking the challengers on their home turf; acquiring fast-growing RDE companies; and turning challengers into partners and customers.

General Electric CEO Jeff Immelt has shown the way. According to a major U.S. business magazine, Immelt has instructed his leadership team to identify those challengers GE could sell to and buy from, and those it would have to compete with. “Our goal for this group is to have lots of customers, lots of suppliers — and no competitors,” he reportedly said.

Making this happen won’t be easy. But who said business is easy?

X Harold L. Sirkin is a Chicago-based senior partner of The Boston Consulting Group and head of its global operations practice. Distributed by McClatchy-Tribune.