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Business leaders in developed countries are encouraged to look out for RDEs, or rapidly developing economies, once known as Third World countries
Imagine 100 companies—many virtually unknown in developed countries—with combined 2006 revenues of $1.2 trillion and total 2006 purchases exceeding $500 billion.
Next, imagine you're sitting in corporate headquarters in London, Madrid, Paris, Rome, Frankfurt, New York, Chicago, San Francisco, Toronto, Tokyo—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 referred to many such places as Third World countries. Today the 14 countries listed above are major centers of economic growth, attracting $245 billion in foreign direct investment in 2006 and generating some 17.3% of total global gross domestic product.
The countries are increasingly home to your competition. They also are home to current or potential customers, suppliers, and partners.
Welcome to the global economy, circa 2008. Unheard-of companies from rapidly developing economies (RDEs) are challenging the biggest and best in the world. If you require confirmation, just ask employees of Canadian mining company Vale Inco, which was purchased in 2006 by Brazil's Companhia Vale do Rio Doce for $17.8 billion. Or ask employees of Anglo-Dutch steelmaker Corus, acquired in early 2007 by India's Tata Steel for $12 billion. Or ask the employees of Ford's (F) Jaguar and Land Rover divisions, which may soon become subsidiaries of India's Tata Motors.
Companies from RDEs are on the hunt for new markets, advanced technology, raw materials, and world-class brands. And many of them have access to plenty of cash. Last year alone, 100 of the top RDE companies, which Boston Consulting Group (BCG) partners and analysts recently identified from more than 3,000 candidate companies worldwide, enjoyed operating margins of 17%.
This was above the 14% average of the S&P 500, and more than double the 8% achieved by companies listed on Japan's Nikkei index and the 7% achieved by companies on Germany's DAX index.
In addition to their impressive profits, these companies—we'll call them the "BCG 100 New Global Challengers"—have been generating impressive growth, with total revenues increasing from 2004 to 2006 at a compound annual rate of 29%.
Their purchasing power is also rising fast. When the final 2007 numbers are in, we estimate the BCG 100 will have spent from $310 billion to $330 billion on raw materials and energy, $80 billion to $100 billion on parts and components, and $65 billion to $80 billion on services.
And it's not just goods and services they're buying. In 2006 the BCG 100 completed 72 major mergers and acquisitions involving foreign companies, paying an average of $981 million for each. Seven of those deals, including the two mentioned earlier, topped $1 billion.
Call to Action
So where does that leave developed-country executives? Obviously it leaves them with major challenges on their hands. No company can afford to ignore these challenges. No company is immune. And no company has any reason to be surprised.