Insight June 8, 2009, 2:15PM EST

Recession Will Boost Challengers from China and India

From autos to outsourcing, these companies can operate at low cost in tough markets. They're likely to survive the downturn and thrive

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In what seems like the blink of an eye, companies little known in the U.S. and Europe just a few years ago have become global leaders. Their common attribute is this: They all come from the rapidly developing economies (RDEs) of Asia, Latin America, the Persian Gulf, and Central and Eastern Europe. They are what the Boston Consulting Group calls the "Global Challengers."

Some financed their global expansion by borrowing heavily in the years just before the downturn became apparent and now face a day of reckoning. For others, cash-rich or with access to capital through government programs, the recession creates new opportunity.

As a general rule, RDE companies with healthy balance sheets and access to capital will fare better than those with heavy debt burdens. Indian outsourcing services should gain, as these companies take advantage of Westerners' efforts to slash personnel and overhead costs. Companies that produce consumer essentials, such as food, will do better than those providing things people can forgo during a downturn: aircraft, automobiles, home appliances, building materials, machine tools, shipping products and services. Those with incomes derived largely from their domestic markets will do better than those dependent on exports for growth. And Chinese and Indian companies, with economies that are still expanding (albeit at a much-reduced rate), should do better than companies in contracting markets.

Many Variables

Not all Chinese and Indian companies will gain during the recession. And not every RDE company that gains will be Chinese or Indian. There are too many variables.

But there will be winners. China's largest state-owned nonferrous metals provider, China Minmetals, for example, has offered to purchase Australia's OZ Minerals—hard hit by tumbling commodity prices—for $1.2 billion. Minmetals President Zhou Zhongshu told China's Xinhua News Agency that the deal, scheduled for a vote by OZ shareholders on June 11, would not only give his company control of the world's second-largest zinc producer, but would enhance Minmetals' capabilities. "We need their experience in mining exploration and management," he said.

Other Chinese firms also are positioned to take advantage of the global downturn. Sichuan Tengzhong, a truckmaker from China, has signed a preliminary agreement to buy Hummer from General Motors. Geely Automotive, one of China's top domestic automakers, is reported to be a leading candidate to purchase Ford's (F) Volvo division, a global leader in safety technology, and GM's Saab. And ZTE, a leading manufacturer of telecom equipment that has become the world's No. 6 maker of cell phones, on May 22 announced it will receive a $10 billion credit line from China's Import-Export Bank to help its overseas expansion; earlier this year the company received a $15 billion credit line from the China Development Bank.