Rise of emerging markets multinationals |
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| Written by Adrie van der Luijt | |
| Tuesday, 24 June 2008 | |
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The process of globalisation within emerging economies is driving the growth of domestic companies into emerging multinationals.
A report by Cambridge University reveals the impact of internationalisation strategies of manufacturing companies in Brazil, Russia, India and China. Capgemini released an in-depth report from Cambridge University’s Institute for Manufacturing (IfM), into the role of emerging multinationals in global trade. New breed The report highlights the threat to western business growth from a new breed of companies emerging onto the global stage. These companies have ambitious internationalisation strategies, pursued increasingly through mergers and acquisitions, some of which have targeted well-known western companies. The report investigates the growth profiles of a cross-section of manufacturing organisations within the key emerging markets of Brazil, Russia, India and China - the BRIC nations. The study identified a number of key trends, such as the fact that the process of globalisation within emerging economies is driving the growth of domestic companies into emerging multinationals (EMs), which are challenging the traditional model of western business. Bridge-head to growth Expansion approaches for these companies include international investment in green-field operations, joint ventures and mergers and acquisitions, with the latter an increasingly popular strategy. Companies from the BRIC nations can grow by entering markets with offerings in products and services which would be unattractive for western businesses because of low prices, but these may be a bridge-head to growth into more profitable segments. The growth of these EMs was studied by the Cambridge’s researchers in the context of historical, political and economic factors with particular reference to outward foreign direct investment (FDI). The four countries studied have very diverse economic backgrounds and these factors have created similarly individual contexts for growth and development. Nonetheless, each is exhibiting strong growth and acceleration in outward FDI which reflects the internationalisation of its EMs. Sheltered environment Nick Gill, global automotive and manufacturing leader at Capgemini, said that there had strong, sustained growth of the global economy in recent years. He pointed out that a large part of this had been due to the performance of the emerging market countries. Gill said that the report indicated this actually poses a challenge to western multi-national corporations as they face significant competition from organisations which were initially able to grow within a sheltered environment. “Established corporations will seek to understand the internationalisation strategies of organisations in these emerging markets, since many of them will become the multinational corporations of tomorrow,” Gill added. Brazil Following the stabilisation of the economy in recent years, Brazil has seen a recent surge in outward FDI mostly in the form of M&A deals, alongside fluctuating GDP and inward FDI, which is currently growing slowly after a recent fall back. At present, 12 Brazilian firms are on the list of the top 100 emerging multi-nationals from the BRIC nations and the majority of the 40 international Brazilian firms are in the manufacturing industry. Russia A new generation of multi-national corporations (MNC) is developing the steady economic growth, which Russia has experienced since the turn of the century. Heavy industrial production dominates the Russian manufacturing industry, however, there is still some way to go in encouraging free competition and grass root entrepreneurship across all industries. In 2006, Russia was in fourth place for the highest outward FDI amongst the developing nations. India The government has begun to prioritise manufacturing to provide employment resulting in an increased growth in GDP which has averaged 8.5 per cent since 2006. Other key factors are the influence of citizens returning after completing a western business education, the increased exposure of India’s economy to global markets and pressures, and the relaxation of controls on outward investment. Recently there has been a surge in international M&A activity - particularly in the pharmaceutical industry. China Only one-third of the economy is directly state-controlled. It has become the main provider of manufactured goods for the world. Although a lot is written about the operations of foreign companies in China, some domestic manufacturing companies have achieved very impressive scale and they are beginning to invest overseas. This increase in outward FDI has followed China’s admission to the World Trade Organisation in 2001 and the introduction of the ‘Going Out’ policy by the government to raise its global economic profile. Related articles
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