Recession Will Boost Challengers from China and India

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Not every company or industry will be so lucky, and not all companies that gain will be Chinese. China's COSCO Group, for example, one of the largest shipping companies in the world, and China International Marine Containers, the world's largest manufacturer of shipping containers, may be hit by the recession as overseas shipping comes to a grinding halt. Grupo Bimbo, on the other hand, Mexico's largest wholesale baking company, will emerge strong after purchasing the U.S. operations of Canada's George Weston, which includes such popular brands as Entenmann's pastries and Thomas' English muffins.

Up and Coming Rapidly

When the Boston Consulting Group published its first report on the emergence of the Global Challengers in 2006, few Western executives, journalists, or political leaders had heard of most of the 100 companies we then identified as ready to compete globally. That's hardly the case today.

India's Tata Motors (TTM), for example, one of the original "challengers" we identified, now owns Jaguar and Land Rover, two of the world's premier auto brands. China's BYD has become a world leader in rechargeable batteries, and its auto subsidiary, established just six years ago, was the talk of the North American International Auto Show in Detroit earlier this year, where it displayed a prototype electric car with more power and greater range than most of its likely competitors. Russia's Gazprom is the world's leading producer of natural gas. Malaysia's MISC, then known as Malaysia International Shipping, is the leading shipper of liquefied natural gas. And China's Guangdong Galanz is the world's leading manufacturer of microwave ovens.

Despite the sharp economic downturn, with the International Monetary Fund predicting world economic growth slowing to no more than 0.5% this year (and announcing in early February that even that may be high), RDE challengers have certain advantages over many of their competitors, since they are used to operating at low cost, in tough markets, and improvising on the fly. That's how many achieved their rapid growth; and that's why most are likely to survive and thrive.

The 2009 BCG 100 New Global Challengers report, published in January, indicates that the challenger surge is far from over. The combined revenues of the 2009 BCG 100, for example, grew by 29% per year from 2005 through 2007, with 2007 sales reaching a combined $1.5 trillion.

A Trend Gathering Speed

Two-thirds of the 2009 challenger companies come from Asia, with China again leading, with 36 companies. The 13 other RDEs with 2009 challengers include India (with 20 companies); Brazil (14); Mexico (7); Russia (6); United Arab Emirates (4); Chile, Indonesia, Malaysia, Thailand, and Turkey, each with two companies; and Argentina, Hungary, and Kuwait, with one each. The five Persian Gulf companies—none of which is involved primarily in energy production—were all new to the list, as were 14 others, including four from China (China National Chemical, Dalian Machine Tool, Sinosteel, and Suntech Power [STP]); three from India (Tata Chemicals, United Spirits, and Vedanta Resources); and one, a Malaysian/Indonesian company, headquartered in Singapore (Wilmar International).

The 2009 Asian challengers represent a wide range of industries, some of which—including autos and auto equipment, aerospace, logistics and transportation services, machine tools, and metallurgical and mineral resource development—are being hard hit by the recession. Others are likely to be less affected: agribusiness, chemicals, food and beverages, and pharmaceuticals.

Recession or not, the emergence of global challengers is far from over. This isn't going away. The game is on, and the pace is picking up; in truth, we are still at the beginning of the trend, not the end. Challengers will continue to ascend to global leadership positions at breakneck speed, disrupting the established order in many industries. Although volatile financial markets and other risks present obstacles, challengers will learn quickly to manage these hurdles—and build stronger businesses in the process.

Some challengers will falter, owing to the shortcomings of their business models or their inability to weather the current economic storm. Others will succeed—some beyond their wildest expectations—and take their places among the world's leading businesses.

David Michael is managing director of the Boston Consulting Group's Beijing office. James Hemerling is a BCG senior partner based in San Francisco and co-author, with Harold L. Sirkin and Arindam K. Bhattacharya, of Globality: Competing with Everyone from Everywhere for Everything (Business Plus, 2008).

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