The World's Top 25 Emerging Market Multinationals

by: Nicholas Vardy, CFA

Emerging markets are the Rodney Dangerfield of the investment world -- "they don't get no respect." Hard at work to correct that misconception is Antoine van Agtmael, founder, chairman, and chief investment officer of Emerging Markets Management, LLC. Agtmael is one of the pioneers of emerging markets. He, in fact, coined the term while working at the IFC in 1981. His most recent book, The Emerging Markets Century: How A New Breed of World-Class Companies is Overtaking the World, profiles the dramatic rise of 25 world-class emerging market multinationals.

The Emerging Markets Century: The "Greatest Shift"

Agtmael argues that the rise of emerging markets signals the greatest shift in global economic power since the Industrial Revolution. Think of where the BRIC countries were just 20 years ago. Brazil was an economic basket case, Russia was behind the Iron Curtain, India was a socialist country, and China was just emerging from the Cultural Revolution.

Yet emerging market economies are set not only to emerge, but also dominate the economic future of the world. In 10 years time, they will add one billion consumers to the global marketplace. In another 30 years, the combined GNP of emerging markets will overtake that of developed economies. In 50 years, emerging markets will be nearly twice the size of today's economic leaders.

The rise of emerging market stock markets has been equally impressive. In 1981, the total value of all stocks in emerging markets was $80 billion-less than the market cap of Samsung alone in 2005. In the past 25 years, the total value has risen to over $5 trillion. In 1988, there were just 20 companies in emerging markets with sales of over $1 billion. By 2005, there were 270 with $1 billion+ sales -- and 38 had sales over $10 billion.

The Emerging Markets Century: The Top 25

Agtmael calls the Top 25 World Class Emerging Multinationals the "new breed taking over the world." His criteria? Each company must be recognized as a global leader and have a global presence; it must be competitive not only in price but also in quality, technology design and management; and it can be benchmarked against the biggest and best in the world. Ten years ago, there wasn't one such company. In a decade, argues Agtmael, there will be over 100.


Agtmael's list shatters some myths. First, only a handful of the Top 25 rely on natural resources and cheap labor as a competitive edge. Second, the leading companies headquartered in Korea, Taiwan, China, India, Brazil, Mexico and Russia have in many ways leapfrogged their Western counterparts in terms of technology and business practices. Third, top companies can be found not only in Asia (14), but also in Latin America (10) and South Africa (1).

Korea's Samsung is now a better recognized global brand than Sony; its R&D budget is larger than Intel's and its 2005 profits are higher than Dell, Nokia, Motorola, Phillips or Matsushita. Brazil's Embraer is the world leader in regional jet aircraft. Mexico's Cemex has become the largest cement company in the United States, the second largest in the United Kingdom, and the third largest globally. Model, a Mexican Beer company, sells more beer (Corona) to Americans than does Heineken. Taiwan's Han Hai manufactures Apple's much-vaunted iPhones.

Emerging Markets Century: The Future Just Isn't What it Used to Be

Indeed, the progress of emerging markets companies has been impressive. But Agtmael falls into the slightly sensationalistic trap of portraying emerging markets companies as the next economic bogeyman, ready to eat the West's economic lunch.

First, the "spreadsheet economics" of long-term projections are misleading. Economic growth rates inevitably slow down. The advantages of cheap labor will wane -- as they already have in India and in Eastern Europe. And, the most important events of the next 50 years are the ones we cannot predict. I'd venture that Agtmael predicted neither the collapse of the Soviet Union nor the rise of the Internet when he founded his firm in 1988.

Second, the zero sum game -- "if you manufacture refrigerators more cheaply, that means I can't" -- line of thinking is spurious. It ignores the law of comparative advantage. Here's a better way to look at it. If you do something better than I do, I can concentrate on something I do better -- and the economic pie gets bigger for both of us. Consider the growth prospects of GE, Procter & Gamble, DuPont and General Motors without the rise of the middle classes in Bangalore, Buenos Aires and Prague. These Western multinationals expect more than half of their future growth to come from emerging markets. That's why it's unfair of Agtmael to compare the West to "aristocrats looking down on the new emerging entrepreneurs and middle class without realizing a new era has begun." They are very much aware -- and are profiting substantially from it.

Third, Agtmael -- like many others focused purely on global investing -- implicitly underestimates the dynamism of developed countries. Yes, France may look the same as it did 20 years ago. In contrast, since the "big bang" deregulation of 1986, the City of London has transformed from a domestic gentlemen's club to a global financial center.

Nor has the United States been standing still in the past 30 years. Consider that Nike didn't exist in the 1960s, Dell wasn't around in the 1970s, and Nokia didn't make its first mobile phone until the 1980s. And Google, Yahoo, eBay, and Starbucks are barely a decade old. So when Agtmael says the household names of IBM, Ford, and Wal-Mart in the United States, Shell and Nestle in Europe, and Panasonic Sony, and Honda in Japan are in danger of becoming the "has beens" of tomorrow, he both overstates his case -- and states the obvious. Creative destruction is a sign of the vibrancy of Western market economies -- not their failure.

In light of the massive changes in emerging markets companies -- over 80% of the top 100 companies in emerging markets from 15 years ago have disappeared -- compiling a list of "The Top 25 World Class Emerging Multinationals" seems slightly quixotic. Here's my prediction. Fewer than five of 25 companies on Agtmael's list will be there in 2025. In the meantime, though, there is plenty of money to be made by investing in some of today's heroes.