Issue Report 09-09

Notable Global Companies from

Emerging Economies

JUNG MOO-SUP

SEPTEMBER 2009
 ABSTRACT

An increasing number of large companies in emerging economies have succeeded in

turning themselves into global players on the back of rapid economic growth in their
countries. An analysis of 200 global companies in three country groups -- emerging
economies, industrialized countries and newly industrialized economies -- showed
that they performed better than others in terms of growth and profitability.

Although in many cases their rapid growth is attributable mainly to domestic factors
such as ample natural resources and strong government support, some established a
prominent presence in the global market on the back of improvement in essential
capabilities, including independent technologies and international M&A competency.

Among the 200 global emerging-economy companies, this paper selected eight
leading companies who are superior to others on the basis of independent technology
capabilities, global capabilities and reputation in capital markets in order to identify
the core engines driving their competitiveness.

Along with the rapid growth of the global companies in emerging economies,
Korean companies are now in a “sandwich” position: they are burdened with
catching up with their counterparts in industrialized countries while being chased
closely by rivals in emerging economies. Against this backdrop, more attention
should be given to the secrets behind the success of the companies in emerging
economies, including technology and M&A capabilities and marketing in niche
markets. At the same time, a strategy should be developed to take advantage of the
growth and capabilities of these companies.

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 TABLE OF CONTENTS

I. Emerging Economies and Corporate Breakthrough ............................................................ 4

II. Analysis of Performance by Global Companies in Emerging Economies .......................... 6

1. Key Features.................................................................................................................... 6

2. Performance of Global Companies in Emerging Economies .......................................... 9

III. Major Global Companies in Emerging Economies .......................................................... 11

1. Source of Competitiveness ............................................................................................ 11

2. Case Studies on the Eight Major Companies ................................................................ 13

IV.Implications ...................................................................................................................... 16

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I. Emerging Economies and Corporate Breakthrough

Companies in emerging economies are breaking out along with their country’s
growth.

The voice and status of emerging economies1 are rising on the back of their rapid
economic rise. Emerging economies, including the so-called BRICs, achieved an
annual economic growth of 6.3% (on the basis of purchasing power) from 2000
through 2008, much higher than the world economy’s 3.9% growth. The share of
emerging economies in the world’s GDP shot up to 44.8% in 2008 from 37.0% in
2000 and is likely to rise to 50.7% in 2014, exceeding those of industrialized
countries.2 Against the backdrop of their stellar growth, the emerging economies are
producing an increasing number of companies capable of competing worldwide.
The number of emerging-economy companies, which is listed on the “Fortune
Global 500,” had a three-fold jump to 69 in 2009 from 23 in 2003 (and 56 in 2008).
Companies from the BRICs (Brazil, India, Russia and China) accounted for 58 in
2009 from 19 in 2003.

Figure 1. No. of Emerging-Economy Companies in Fortune Global 500

Note: As of 2009, other emerging economies consist of Mexico (4), Malaysia (1), Hungary
(1), Poland (1), Saudi Arabia (1), Thailand (1), and Venezuela (1)

1
According to the IMF classification standard, all countries other than developed economies
are considered emerging economies. In this paper, South Korea, Taiwan, Hong Kong and
Singapore, are excluded from the emerging economies list since they are in a different
development stage as Newly Industrialized Economies.
2
IMF (2009). World Economic Outlook.

4
Source: Fortune Global 500,

The global financial crisis and recession have hobbled companies in industrialized
countries. However, their peers in emerging economies have managed to maintain
growth momentum and strengthened their position with sharply rising market
capitalization.

In particular, from September 2008, when the global financial crisis was rapidly
building up steam, to the end of June 2009, the emerging economies’ proportion of
total global market capitalization jumped from 15.0% to 19.1%. As of July 15, 2009,
the Chinese stock market’s capitalization was US$3.21 trillion, overtaking Japan’s
US$3.2 trillion to become the world’s second-largest behind the US (US$11.2
trillion).3

Figure 2. Shares of Emerging Economies in Global Market Capitalization

Source: World Federation of Exchange

Considering that the global companies in emerging economies will likely to continue
to grow, emerging as rivals or potential partners of their Korean counterparts in the
global marketplace, more interest and analysis on these companies is imperative.

3
Given that market capitalization grows in tandem with the increase in the number of listed
companies and the increase in stock prices (on the back of corporate profits and growth
potential), it is a proxy variable, reflecting both quantitative and qualitative growth of
emerging-economy companies.

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II. Analysis of Performance by Global Companies in Emerging Economies

1. Key Features

Samsung Economic Research Institute (SERI) conducted a comparative analysis of

200 global companies in three country groups – emerging economies, industrialized
countries and newly industrialized economies. Selection was based on level of
globalization, business scale, profitability and growth potential.4 SERI classified the
companies as the 200 emerging-economy companies, the 200 industrialized-country
companies, and the 200 NIEs companies, to identify the features that the companies
possess.

Figure 3. Breakdown of Global Firms by Each Country Group

The comparative analysis showed that the 200 emerging-economy companies have
already overtaken those of NIEs in terms of corporate sales and market capitalization.
In light of average per-company sales, the 200 industrialized-country companies

4
The industrialized countries herein refer to 24 countries which were classified as high income
countries among 211 countries included in the World Bank DB. Eighteen out of 122 middle income
countries (excluding those in the brackets of high income and low income countries) are considered
emerging economies based on GNP growth, the weight of trade, and the growth pace in the weight of
foreign direct investment. Korea, Taiwan, Hong Kong and Singapore are classified as newly
industrialized countries.

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came on top with US$48.6 billion, followed by the 200 emerging-economy
companies with US$6.9 billion and the 200 NIEs companies with US$6.2 billion.
Even in terms of average market capitalization, the 200 industrialized-country
companies were positioned at the top with US$71.4 billion, followed by the 200
emerging-economy companies with US$13.8 billion and the 200 NIEs companies
with US$5.9 billion, indicating a more than two-fold gap in business scale between
the 200 emerging-economy companies and the 200 NIEs companies.

Among the 200 emerging-economy companies, 21% (42 firms) of them, including
12 out of top 20 sales performers, are (engaged) in resources and energy. Twelve
firms are engaged in electric/electronic business, one of main interests for South
Korea, nine in transportation vehicles and equipment, and 22 in steel/metal products.

Table 1. Top 20 Sales Performers Among 200 Emerging- Economy Companies

Vis a vis
2008 Company Sales (US$
Country Industry Samsung
Ranking name 100 mil.)
Electronics
1 Sinopec China Resources/energy 2,085 214%
2 Gazprom Russia Resources/energy 1,152 118%
3 Petrobras Brazil Resources/energy 938 96%
4 Koç Group Turkey Resources/energy 363 37%
5 Reliance India Resources/energy 340 35%
6 Tata Steel India Steel/metal products 328 34%
7 Vale Brazil Resources/energy 308 32%
8 Baosteel China Steel/metal products 294 30%
9 Polski Koncern Poland Resource/energy 267 27%
10 CCCC China Construction 263 27%
11 America Movil Mexico Telecommunication 250 26%
12 ONGC India Resources/energy 240 25%
13 MOL Hungarian Hungary Resources/energy 186 19%
14 Severstal Russia Steel/metal products 183 19%
15 Gerdau Brazil Construction 183 19%
16 CEMEX Mexico Resources/energy 176 18%
South
17 Sasol Resources/energy 166 17%
Africa
18 China Shenhua China Resources/energy 157 16%
19 Shanghai China Transportation 154 16%

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 Automobile
20 Hindalco India Steel/metal products 149 15%
Note: Samsung Electronics’ 2008 sales amounted to US$97.3 billion
Source: Thomson One Banker

Table 2. Major Emerging-Economy Companies by Industry and Country

No. of major No. of major

companies by countries by Company name
industry country

BYD, Suntech Power, LDK Solar, Yingli Green

China(4)
Energy

Electric/electronics India(1) Videocon

(12)
Brazil(1) WEG SA

Turkey(1) Arcelik

Shanghai Automobiles, Sino Truck, Yangzijiang

China(4)
Shipyard
Transportation
(9) India(2) Tata Motors, Mahindra

Brazil(2) Embraer

India(7) Tata Steel, Hindalco Industries, ESSAR STEEL

China(4) CIMC, Baosteel, Angang Steel

Steel/metal
products Brazil(3) Usinas Siderurgicas
(22)
Argentina(2) Ternium

Russia(1) Severstal

Resources/energy South Africa(9) Sasol, Anglo Platinum, Anglogold Ashanti

(42)
China(7) Sinopec, Shenhua Energy, China Molybdenum

Russia(5) Gazprom, Lukoil

India(4) Suzlon Energy, ONGC, Reliance

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 Mexico(4) CEMEX

Brazil(2) Vale, Petrobras

Note: The companies in bold are the subject of case studies in this paper.

2. Performance of Global Companies in Emerging Economies

Robust performance in both profits and growth

As for corporate performance, the 200 emerging-economy companies outpaced the

other country groups in terms of growth and profitability. Backed by a strong capital
base, the emerging economy companies have rapidly pursued globalization. The
sales growth of the 200 emerging-economy companies averaged at 29.5% in 2005-
2007, about 1.5 times higher than the 20.1% posted by the 200 NIEs companies and
three times more than the 11.6% by the 200 industrialized-country companies. In
terms of market capitalization, the 200 emerging-economy companies grew 47.1% in
2005-2007; nearly double the 25.4% by the 200 NIEs companies and nearly three
times more than 16.8% for the 200 industrialized-country companies. Even in terms
of operating-profit-to-sales ratio, the 200 emerging-economy companies
outperformed. It rose 18% on average per company in 2005-2007, much higher than
the 7% posted by the 200 NIEs companies and 13% by the 200 industrialized-
country companies.

The high profits and growth expanded the capital base of the emerging-economy
companies and ramped up their globalization through direct foreign investments such
as M&As. Over the past 10 years, the 200 emerging-economy companies saw their
globalization index shoot up to 40.5 in 2007 from 14.1 in 1998.

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Figure 4. Globalization Index for the 200 Emerging-Economy Companies (1998-2007)

Despite the shock of the global financial turmoil, the 200 emerging-economy
companies maintained both high growth and high profit trends. The 200 emerging-
economy companies kept their sales growth rate in the 10% range in 2008 with an
average estimated at 10.8%, much higher than the 200 industrialized-country
companies’ 8.7% and the 200 NIEs companies’ 5.5%. Despite the global financial
crisis, the emerging-economy companies maintained 10% growth in their operating-
profit-to-sales ratio, outperforming those of other country group companies. Even in
the first quarter of 2009, the emerging-economy companies posted sales growth of
35.2%, dwarfing those of industrialized-country companies (3.1%) and NIEs
companies (-7.7%).

Figure 5. Business Performance of the 200 Emerging-Economy Companies in 2007-

2008 (Before and after the Global Financial Crisis Began)

Sales Growth Operating Profit to Sales Ratio

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III. Major Global Companies in Emerging Economies

1. Source of Competitiveness

The solid performance of global companies in emerging economies can be explained

by a mixture of several factors: favorable external environment in which countries
pursue globalization in earnest, competitive edges of emerging economies, and the
strength of businesses. In terms of external environment, globalization since 2000
have propelled increases in trade and direct investment, rising prices of raw materials,
and easy access to technology and funding, fueling opportunities in emerging
economies. Domestically, emerging economies’ competitive edge such as dominance
in their protected domestic market, cheap labor force, natural resources, and
government’s support have contributed to the stellar corporate performance.
Accumulation of strategic competence of companies was also a factor behind their
success. Technical power strengthened by cross-border merger and acquisition
(M&A) and their own research and development, finding niche markets, and
financing capability contributed to the strategic competence.

Figure 6. Growth and High-Profit Factors of Global Companies in Emerging Countries

Domestic External
Environment Environment
Corporate
· Consumption · Expansion of
strategy and
base: protected free trade and
competence
market, strong FDI
·Technological
growth · Rising prices
competence
· Resources base : of raw materials
· M&A activities
human and natural · Expansion of
· Niche market
resources environmentally
· Government -friendly
support

Strong growth and revenue of global companies in emerging economies

Attention should be paid more to the companies with fundamental core competency

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 It is useful to focus more on the companies with fundamental core competencies
rather than the ones that grew based on domestic benefits such as natural resources.
Among the 200 emerging-economy companies, eight leaders considered to have
fundamental business competence were selected for a case study.

Table 3. Analysis of the Source of Competitiveness of Eight Leading Companies

Business Strategic Competence Factors Country Factors

Company
Internation
Name Technology Find Niche Overseas Domestic Natural Government
alization
Competence Markets Financing Market Resources Support
(e.g., M&A)

Embraer ◎ - ◎ - ○ - ○

Sasol ◎ ○ ○ - - ◎ ○

Suzlon
○ ◎ - - ○ - -
Energy

CEMEX ○ ◎ - ○ ◎ - -

TCS ◎ ○ ○ - - ◎ -

CIMC ○ ◎ - - ◎ - ○

Vale ○ ◎ - ◎ - ◎ ○

LDK Solar ◎ ○ - ○ ○ ◎ -

Note: ◎ is a core factor, ○ is a main factor.

Table 4. Source of Competitiveness

Company Name Company description and Source of Competitiveness

▷ World’s fourth-largest aircraft manufacturer

Embraer - Established a niche in small- and medium-sized jet planes that
many aircraft manufacturers neglected

▷ World’s largest maker of synthetic fuel

Sasol
- Developed a unique technology to liquidate gas and coal

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 ▷ Asia’s largest and world’s fifth-largest company in wind power
Suzlon Energy generation
- Securing advanced technology through cross-border M&A

▷ World’s third-largest cement and aggregate maker

CEMEX
- Creating a conglomerate by merging or acquiring foreign competitors

▷ Global IT service provider with 142 offices in 42 countries

TCS - Accumulating technological strength by securing and training highly
qualified IT workforce.

▷ Emerging as the world’s largest container maker

CIMC - Achieving economies of scale and a dominant market position
through aggressive M&As

▷ World’s largest iron ore producer

Vale
- Carrying out cross-border M&As by raising overseas capital

▷ World’s second-largest maker of wafer, photovoltaic cell parts

LDK Solar - Accumulating technology by inviting competent workers from
overseas

2. Case Studies on the Eight Major Companies

Embraer (Brazil): A leading player in aircraft manufacturing business

Embraer started as a state-run company manufacturing light aircraft designed for

spraying pesticides in 1969. It is now a top player in small- and medium-sized jets
with 70-110 seats. The company gained a foothold in technology by absorbing
highly qualified engineers from Brazilian Aeronautics Technological Institute (ITA)
and adopting the basic research system of the Brazilian General- Command for
Aerospace Technology (CTA). Its success lies in targeting niche markets that
competitors in industrialized countries neglected. While rivals focused on making
large planes for international travel. Embraer targeted the market for small jets used
for domestic flights.

Sasol (South Africa): Leading synthetic fuel market with unique technology

Sasol (South African Coal, Oil & Gas Corporation Ltd.) has grown into the world’s
largest maker of synthetic fuel with market capitalization of US$39.8 billion. The
company’s core competency is its proprietary technology for liquefaction of gas and

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coal. Its success lies in its development of technology that resolves pollution by
using abundant coal reserves instead of oil, which is harmful to the environment and
destined to be depleted.

Suzlon Energy (India): A promising company in wind power through M&As

Suzlon Energy, world’s fifth largest and Asia’s biggest company in wind power
generation, was founded in 1995 by Tulsi Tandi, who serves as CEO, and became a
global company in just 10 years. It provides integrated solutions related to
harnessing wind power. Its market capitalization is US$9.8 billion. From 2004 to
2008, it recorded an average sales growth of 104%, and operating profits-to-sales
ratio of 17%. In 2008, its sales amounted to US$3.4 billion, up 71% from a year
earlier, and maintained its operating profits-to-sales ratio at 12%. The company
achieved strong growth and revenue by acquiring advanced technologies through
cross-border M&As. It obtained wind turbine-producing technology from the R&D
department of Sudwind (Germany), a joint venture that it acquired in late 1990s, and
by permanently acquiring Rotor Blade-producing technology from Enron in 2001. In
2006, it also purchased Hansen Transmission (Belgium), the world’s second-largest
maker of a wind turbine gear box. In 2007, it bought 91% of the shares of Repower
System, a German wind power company, for US$1.6 billion.

CEMEX (Mexico): The third-largest cement maker with aggressive M&As

CEMEX, which started as a local cement maker in 1906, has grown into the third-
largest cement maker in the world by relentlessly pursuing M&As. Its deal-making
compulsion has been driven by its belief that it would be taken over by a bigger
company if it did not expand. It took over two main cement companies in Spain in
1992, and acquired RMC, a British cement maker with the third-largest market share
in Europe, in 2005. Furthermore, it transformed itself into a highly-efficient
company commensurate with high-tech brands. CEMEX established an advanced IT
system that enables users to check not only financial data but also ingredient
information at all production bases in real time through satellite telecom network
called CEMEXNet. It also set up service system that delivers a ready-mix concrete
within 30 minutes after the order, and expanded it to all bases.

TCS (India): Largest IT service provider in India nurtures brain power

TCS (Tata Consultancy Services), founded by Tata Group in 1968, is the largest IT
service provider in India which generates over 90% of sales overseas (56% in the US,

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29% in Europe). It is a global company with 142 offices in 42 countries. From 2002
to 2008, it had 36% sales growth and an average annual operating profit-to-sales
ratio of 25%. In 2008, it saw its sales increase by 32%, while its operating profit-to-
sales ratio stayed at 24%. The company engineered robust growth and high revenue
by securing technological strength through investment in educational training, and
by using India’s abundant qualified IT workforce. It continues to invest over 6% of
revenues in education, learning and development while maintaining close relations
with universities and educational institutions to participate in the latest R&D.

CIMC (China): Domestic Dominance to World’s Largest Container Maker

CIMC has grown from only 59 employees in 1990 to be the world’s largest container
maker. In 2008, it had 60,000 employees, 55% of the global market and US$6.8
billion in sales. The company emerged as a global company after dominating the
domestic market, sealing M&A deals, and achieving cost competitiveness. In 1994, it
acquired about 10 companies located at major ports, securing cost competitiveness
through economies of scale. After 1995, it signed a joint venture with special
container manufacturers like Graaff, Clive Smith Cowley, bought shares of the
companies, and adopted technologies on the way to sustainable growth as cargo
volume increase.

Vale (Brazil): World’s Largest Iron Ore Producer by Raising Overseas Capital

Vale (formerly known as CVRD) is the world’s second-largest mining and metal
company, next to BHP Billiton, and the world’s largest iron ore producer. It started as
a state-run company in 1942 and became privatized in 1997. After Roger Agnelli
became the chairman of Vale in 2000, he laid the foundation for rapid growth. As a
result, sales and net profit increased 16.3% and 11.8% year-on-year in 2008 to mark
US$38.5 billion and US$13.2 billion, respectively. The company now accounts for
35% of the global iron ore market. Vale has grown rapidly by pursuing cross-border
M&A deals and raising overseas capital that focuses on Brazil’s rich natural
resources. In particular, it recorded the largest market capitalization of US$93.4
billion in Latin America by listing the company in the global stock exchange markets
and executing M&A with the capital it raised through the bourses.

LDK Solar (China): Photovoltaic cell parts maker armed with innovative
technology

LDK Solar, established in 2005, makes silicon wafers, a core part of photovoltaic

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 cells. Three years after its establishment, it has become the second-largest maker of
wafer in terms of production volume. Its sales soared from US$100 million in 2006
to US$1.6 billion in 2008 (market capitalization of US$1.2 billion dollars). The key
to success is securing technological strength based on affordable production at home
and competent R&D employees from overseas. The company combined various
resources efficiently by assembling a global workforce. They invited Americans for
R&D and Japanese people for production management, connecting them to
renowned Chinese universities and research institutes. The company also developed
a unique technology to manufacture wafers using raw materials and semiconductor
recycles.

In conclusion, global companies in emerging economies are already becoming strong

players in some industries with their own sources of competitiveness that are distinct
from those of companies in industrialized countries and Asia’s newly industrialized
economies. Global companies in emerging economies are aiming at niche markets
that competitors neglected taking a page from a Chinese classic book on military
tactics that says “attack the weak point of your enemy.” The prime examples are
Sasol, which specializes in liquefaction of gas and coal, and Embraer, which targets
small jet plane market for a short distance flight. Some companies are countering the
disadvantages of late comers in the market through M&As. A good example is
CEMEX, which secured competitiveness in the European market by unexpectedly
succeeding in acquiring major Spanish cement makers. Another key to success is
foresightedness that grabs promising business opportunities and entrepreneurship
that makes bold and risky investment for the future. For example, Suzlon Energy
seized the opportunity in renewable energy in the 1990s and CIMC anticipated an
increase in cargo volume with the rise of Chinese economy.

IV. Implications

With the rise of global companies in emerging economies, Korean companies are at
risk of being sandwiched between rivals in industrialized economies and those in
emerging economies. In short, they are facing the dual challenges of trying to catch
up with advanced companies in industrialized nations while trying to fend off
companies in emerging nations. As global companies in emerging countries are
highly likely to expand their influence in the future, burden on Korean companies
will also increase. Therefore, Korean companies need to take advantage of this threat
and turn it into an opportunity by closely scrutinizing and analyzing these companies.

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They need to focus on their peers’ secret of success and devise ways to emulate them.

More specifically, Korean companies need to pursue a win-win strategy that utilizes
the competencies of global companies in emerging economies. In other words,
Korean companies need to establish a win-win business structure that is based on
their know-how and experience accumulated during their greater number of years in
the industry concerned. For that to happen, Korean companies should establish a
win-win partnership where they help companies in emerging economies grow and
enhance their competitiveness and share the fruits of such a partnership. Korean
companies should also conduct M&A deals with the companies that have
complementary sources of competitiveness in terms of sales networks and
technologies. A good example is the takeover of Ranbaxy, India’s largest
pharmaceutical company, by Daichi-Sankyo, Japan’s third-largest pharmaceutical
company, to gain a sales network and technology.

Example of Enhanced Competitiveness Through M&A with Companies in Emerging

Economies

▷ Daichi-Sankyo, Japan’s third-largest pharmaceutical company, acquired Ranbaxy, India’s

largest pharmaceutical company, to exercise synergy in sales network and gain technology.

Ranbaxy founded in 1961 has sales network in 50 countries around the world as of 2008,
and Daichi-Sankyo bought 61% of its shares for US$4.9 billion.

The acquisition of Ranbaxy made Daichi-Sankyo one of the top 10 companies in generic
medicine market, combining its own technology and Ranbaxy’s technology related to
generic medicine.

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