BRIC Manufacturers: Growing Threat to Western Business

A new report from Cambridge University “highlights the threat to western business growth from a new breed of companies emerging onto the global stage.”

The report, produced by Cambridge’s Institute for Manufacturing in conjunction with Capgemini, looks at the growth profile of a number of manufacturing firms in the emerging markets of China, Russia, India and Brazil. Some of its findings:

• “The process of globalisation within emerging economies is driving the growth of domestic companies into emerging multinationals (EMs), which are challenging the traditional model of western business.
• Expansion approaches for these companies include international investment in Green-field operations, Joint Ventures and Mergers and Acquisitions, with the latter an increasingly popular strategy.
• Companies from the BRIC nations can grow by entering markets with offerings in products and services which would be unattractive for western businesses because of low prices, but these may be a bridgehead to growth into more profitable segments.”

“Methods and motives” for internationalisation “appear to have been varied, including:

• Exports to new markets (all companies)
• International investment greenfield facilities, joint ventures or mergers and acquisitions to facilitate access to new markets (virtually all of the companies)
• Upstream investment to secure raw materials (e.g. Petrobras, Vale and Aditya Birla)
• Downstream investment to improve value capture and secure routes to market (e.g. Aditya Birla, Norilsk Nickel)
• Escape from restrictive legislation in the home market (Aditya Birla)

Many of the companies made their early international investments in other developing markets often with cultural or political links to the home economy (e.g. Birla, Haier and TCL in Southeast Asia, Ranbaxy in sub-Saharan Africa, and MTS in the former Commonwealth Independent States).

One clear trend… is the recent reliance on mergers and acquisitions; this fits with the companies’ increasingly strong financial positions, their increasing access to capital and the global surge in M&A activity. Recent examples (in 2007) include Brazil’s Vale (RIO) purchase of Inco for US$17bn and India’s Hindalco (Aditya Birla Group) purchase of Novelis for US$6.4bn.

The report, Emerging Multinationals: Manufacturing in a Rapidly Changing Global Environment can be downloaded free of charge.

Comments

[razoroccam]

Ironic that the report talks about Ranbaxy as an emerging pharmaceutical giant - and Ranbaxy got bought out by a Japanese company.

[Boubou]

The word 'threat' should be avoided.
We abroad get a sick feeling that the word 'threat' preceeds US bombs.