Good Hand for Emerging Giants

 Mergers and acquisitions that took place in recent years point to the fact that a new type of multinational firm has emerged. The process we are living through emphasizes developing countries as pioneers of this type. However, the developing countries which were included in the multinational structure by the West due to such attractive aspects as low costs and potential workforce have already reversed that process. By acquiring prestigious brands or firms of developed countries or by entering into partnerships with big companies with large shares, they seem to say, “Now we are in the game, too.” The countries which are mentioned most often in that trend are; India, China, Brazil and Mexico. When India is brought into focus Tata Group, one of the largest conglomerate in the country, stands out with a market volume of 75 billion dollars and sales revenue of 28.8 billion dollars. Operating in many fields like automotive, food and energy the group is known in recent years especially in information technologies and automotive industry. Nowadays Tata Motors, a sub-unit of Tata, seeks to buy the two most prestigious brands of Britain; Land Rover and Jaguar. Guaranteeing 15-thousand-force-British employment, Tata has got ahead of other suitors for Jaguar and Land Rover. While one of Tata’s rivals is the Indian-based Mahindra&Mahindra, the other is U.S. private equity firm One Equity Partners.  

When the matter is looked at from Britain’s viewpoint, it cannot be so easy to accept the fact that two of your important brands are bought by a former colony. But after experiencing in 2006 the second worst year in its history since 1992 and putting down 12.7 billion dollars to loss, Ford seemed to be forced to make these sales. So much so that, while Ford bought Jaguar and Land Rover in 1990 and in 2000 respectively, each for 3 billion dollars, it agreed to sell them now for one-thirds of the purchase price. Closely after Tata’s supporting that big step it has taken in automotive sector with the Nano, which is the cheapest car in the world (2,500 dollar) and which it produces on its own, another important development took place again in India. Bajaj Auto and Mahindra&Mahindra, which are involved in heavy commercial vehicle production, introduced the small city vehicles they plan to produce by 2010. In order to compete with Tata’s Nano, Bajaj and Mahindra&Mahindra started works to introduce its new 3,000-dollar model, Chinese-based Cherry its 3,800-dollar model and Chinese-based Gelly its 4,300-dollar model into the Indian market. And this situation is a significant proof that developing countries now create their own markets with their conditions and initiate competition. 

A research by Boston Consulting Group also supports this evidence. The study shows that Tata is not the only brand which originates from a developing country and operates at global level. The research suggests that in 2006 overall 100 companies with total assets of 520 billion dollars are based in developing countries. This total assets size is currently larger than the total assets of world’s 20 largest automakers. In addition to that, according to a ranking based on the size of overseas assets which was prepared at the United Nations Conference on Trade and Development (UNCTAD) in 2004, 5 companies from Asian developing countries ranked among the first 100 companies and more than 10 companies were among the first 200. 

A New Style in Business World

Total Foreign Direct Investment (FDI) into developing economies amounted to 174 billion dollars by 2006. While the share of developing countries in the total global FDI was only 5%, it reached 14% today. It seems current conjuncture allows developing countries to be the pioneers of a new trend. These countries come to have their own giant companies and introduce a new style to the world of business by transferring their investments both to developed regions and to less-developed ones. Having realized this new guest in the world economy recently, global giants and developed countries have become party to many cross-border agreements either willingly or out of the fear of patronage. The merger of the Indian-based Mittal with French company Arcelor is undoubtedly the most famous one among agreements. The agreement has continued to make headlines for days and even for weeks. Mittal, the world’s largest steel producer, has struggled much to buy Europe’s number one steel producer; Arcelor. Mittal’s owner, Lakshmi Mittal, had a lot of talks with many top-level managers to buy Arcelor which was created in 2002 out of the merger of Spain’s Aceralia, Luxembourg-based Arbed and France’s Usinor groups.

And finally he bought 59% of its shares for 32 billion dollars in July 25, 2006. The new company born out of the merger was named Arcelor Mittal. Now Arcelor Mittal controls 10% of global production in its category, with a total production of over 100 million tonnes. In addition to these mega mergers which attracted media attention all over the world, developing countries conclude agreements also among themselves that allow for organic growth and so they are taking huge steps toward assuming leadership within some specific sectors. Wipro, Infosys and Tata Consulting Services (TCS) of India have created an outsourcing industry in IT sector. The autonomy, which comes to India with fiber optic lines and which enables it to cooperate with Western companies, has allowed many Indians to be really independent as to work for whom, how and where. This group which came to provide services at global level thus extending beyond borders closely follows such global giants as, Accenture and IBM… Naturally India is not the only country that follows the steps of these giants. Lenovo, a Chinese brand, has concluded a historic agreement with IBM on cooperation. With this long-term and comprehensive agreement between Lenovo and IBM, Lenovo has become now the supplier preferred by customers of PCs bearing IBM brand. Having obtained a key position in the firm’s cooperation network after acquiring the PC division of IBM, Lenovo now bears the title of the third largest PC supplier in the world. Many other companies which have grown in developing countries and which now have a high potential to become a global company, are under focus. Cherry Automobile, China’s leading exporter in automotive industry is one among those that are kept under watch by Western analysts. The company plans to build facilities in Europe, the Middle East and South America. Countless others such as; Hong Kong-based Johnson Electric, Mexican-based cement producer Cemex, world’s third largest aircraft manufacturer the Brazilian-based Embraer and again the Brazilian food companies Sadia and Perdigao which have exports over 6 billion dollars are all planning to come on the scene. 

How the Process was Reversed

How come all these countries which have served global giants as labor force started to reverse the process? According to Bosphorus Consulting Group (BCG), developing countries adapt their products and sales to global conditions. These countries whose national markets already offer many advantages to them can obtain the means to put the savings they have collected through national markets to use abroad. However, it is not easy to become a global giant in many developing countries. It is a much more laborious undertaking to bring about such initiatives in a developing nation than to create a brand in a developed country. Managers who try to achieve something with scant resources have to be more flexible in these conditions. It can be claimed that the local problems they are having also allow their abilities to become keener.

These opportunities born out of weakness and chaos together with resulting efforts toward liberalization have placed these countries in a position to compete with multinational companies. Ratan Tata, the chairman of Tata Group, is best example for this situation… Tata has spent the ten years before entering foreign markets on trying to arrange the Indian business world which was disorganized and faltering. This faltering local system which has been going on for years could acquire the power to resist foreign pressures after the national mergers. India’s success in IT and outsourcing was imitated also by textile and pharmaceuticals industries in the course of time. Companies like Ranbaxy which has become a global brand in pharmaceutical industry are the results of that period. 

Strategies to Get Your Voice Heard Across the World

Of course, just as it is with every achievement this current success of developing countries results from a certain strategy. According to BCG, developing countries have 5 basic strategies. New global giants emerge by adopting one of these 5 strategies. The first of these strategies is; to carry a local brand to global level. China’s 3.3 billion-dollar consumer-electronics group Hisense is among the companies that can be given as best examples of the application of this strategy. The company which moved to global markets while it held 10% of the local market after adding air conditioners, PC and TV sets to its product range now sells over 10 million TV sets and around 3 million air conditioners in more than 40 countries where it operates. Hisense, which assumed the title of most selling brand in flat screen TV sets in some countries like France, currently produces in Algeria, Hungary, Iran, Pakistan and South Africa. Such advantages as; the availability of low-cost production offered by the Chinese market, its classy designs and its R&D center appear as important factors in this company’s moving to global arena. We can see another strategy at Embraer: To use local engineering capacity for bringing innovations at global level. Supported by the Brazilian government and having been privatized to a great extent, Embraer became the number one regional jet plane manufacturer in the world getting ahead of Canada’s Bombardier. Amount of total sales by the company was 3.8 billion dollars in 2006 and 95% of its sales revenue come from exports. As can be inferred from that amount, it is the largest exporter of Brazil. Its advanced R&D center plays an important role in its assuming that position. 

Specializing in a Certain Area

While some companies try to build a presence in a wider context by expanding their product range and fields of expertise, some others seek for global leadership by specializing in a certain category to provide the best service. Two Chinese companies have a definite superiority in this field which is defined as a different strategy. One of them is the battery producer BYD. Adopting a labor-intensive production system, the company obtains a competitive advantage thanks to lower labor costs. Another company is the Hong Kong-based Johnson Electric which produces mostly in China. The company is specialized in producing small electric motors for cameras and cars. For those who wonder how much a company can grow in this field, the answer is ready: In an average BMW there are more than 100 small electric motors to move mirrors and seats; the company produces approximately 3 million units a day and exports most of them. Companies which include also marketing and distribution functions into their strategy in addition to the quality of the product, get closer to success. The greatest advantage of these companies is the natural resources existing in their local markets. Sadia and Perdigao process poultry products and cereals, which are available in Brazil in large amounts, using low-cost labor and sell them through their global organizations. 

Apart from these companies which grow by filling the gaps in production, marketing and distribution and which come close to being a global giant, there is another company which adopts the strategy to serve more than a single market by creating a wholly original business model: Mexican-based Cemex, the largest supplier of the world in ready-mixed concrete. The company’s turnover in 2006 is 18 billion dollars. It is apparent that cement and similar construction materials are heavy and naturally transportation costs are quite high. According to Cemex, it is meaningless to carry cement from Mexico to Europe. Investments and know-how can be transferred to a closer market which can bring more value added. When Cemex saw companies which are specialized in this field sell their products to developing countries, it decided to design that process the other way around. So it started construction works in Colombia, Panama, Venezuela, Indonesia, Thailand and Philippines. With this approach being embraced in the world, Cemex gave its name to the process and caused it to be called as “The Cemex Way.” All companies within this structure are closely connected to each other and they form their own systems using standardized procedures and supporting this system with an advanced IT division. When multinational companies from developing nations are looked at, some common features emerge. Most of these companies are family businesses and this aspect undoubtedly enables them to have a swift decision making mechanism. While companies devise their strategies, governments also assume roles. These companies usually grow by obtaining cheap finance from public banks. 

Turkey’s Global Companies

The crisis in 2001 has become a turning point for Turkey… This crisis has forced Turkey’s large companies to analyze themselves more. The real growth in total turnover of the first 500 companies of Turkey on year-over-year basis in 2002 was 2.9%. In 2003, these companies could show an 8.5% real growth performance. In 2004, however, turnovers of Turkey’s large companies exploded in a sense and the total real growth in turnover of the companies included in the ranking came to be %42. Total turnover of the first 500 companies grew by 4.5% in 2005. The continuous growth in total turnover has made the race among the giants more serious. Because, it is easier to reach the world when you are big enough. Particularly in countries like Turkey where costs of financing are quite high, it is utterly important to have a certain size based on balance sheet and to have a considerable share of the domestic market for securing finance from the national markets or from abroad. Just as most of the large companies from other developing countries have an advantage of being family businesses, we also observe holding structure in Turkey.

The opportunity to use the resources created within the group again within this same group provides the largest resource for growth. Another advantage of having a large size is the availability of the option of moving a part of production abroad. For countries like Turkey which face uncertainties, this is a significant competitive advantage. For instance; in the growth of a company like Vestel which is among the largest companies in Turkey, export is the most critical factor. As Turkey became integrated into the global economy, companies developed new growth strategies jus as in other countries. While some companies export to unsaturated, nascent markets others decided to grow in their main fields of activity through vertical integration. When looked from this perspective it is seen that Turkey also is quite aware that being a local giant has no value in the context of globalization and so Turkey is focused on global giants quickly adapting to this new trend. Now Turkish brands are also in the global race and they are talked about with their big acquisitions and mergers. For example; Ülker’s acquisition of the 80-year-old Belgian luxury chocolate icon Godiva for 850 million dollars had serious international repercussions. After this development Ülker achieved its goal of becoming a global player. We can give also other examples of big acquisitions that were talked about much. Hürriyet Publishing has recently bought for 336.5 million dollars 67.3% of shares of Trader Media East (TME) which is the leading advertisement publication company in Eastern Europe and Russia.

Turkey’s two leading groups, Sabancı and Koç groups have also participated into the process. Beko Electronics, one of Koç Group companies, bought the remaining 50% share of Alba in German giant Grundig and came to wholly own the company. After that acquisition Koç has attained enormous strength in Europe with respect to both brand value and technology. Koç Group’s flagship company Arçelik, however, progresses confidently after buying white goods giant Bloomberg, Elektra Bregenz, Leisure, Flavel and Arctic. On the other hand, Sabancı Group came to wholly own Dusa Inernational which produces nylon industrial yarn and cord and which it jointly owned with the U.S. chemicals giant DuPont. After paying 108 million dollars for DuPont’s 50% shares, Sabancı renamed Dusa International as Kordsa International. As a result of this acquisition Sabancı became a global giant in industrial nylon yarn and cord production. Important news came also from two companies which are giants in their own fields. Eczacıbaşı bought 51% of the floor tile division of famous ceramics company Villeroy&Boch and its net sales rose to 300 million euros with that partnership. Efes Breweries International, however, bought 92.34% of Russia’s Krasny Vostok Beer Group for 390 million dollars. Sabancı Holding, Koç Holding, Vestel and Şişecam are the Turkish companies appearing on the list of 100 companies ranked by the BCG, based on the speed of growth and which are termed as “having the potential to threaten even the largest U.S. companies in the near future.” Turkish companies are particularly successful in the field of household appliances which is classified under the category of consumer durables.

 These large companies have already formed their expectations for 2008. In the coming period, one of the most significant issues on these companies’ agenda in addition to investments will be innovation. These holdings which will make investments to develop new products plan to make a difference with these new products both in domestic and foreign markets thus having competitive advantage. The chief demand of holding managers from the government is the continuance of political stability and the implementation of structural reforms in the first half of the year. Despite all its positive aspects, this great leap made by developing nations will have a meaning only if it assumes a permanent character. Just as it is emphasized by the analysts who monitor companies trading on the Istanbul Stock Exchange (ISE), sometimes it is more difficult than enlarging a company to carry large companies into the future which may have difficulty with focusing due to engaging in more than one business. At this point, what developing countries should be careful about is, to keep away from “enlarging the large company” syndrome. Although change is the primary condition for survival of companies, the road to success entails understanding what should not change and together with placing it at the center. New multinational giants from developing countries quickly approach toward becoming the key players in a peculiar new economic world by remaining loyal to this principle.