[Management strategy] 2012: the year of emerging-market multinationals
The last five years have witnessed a sharp rise in the global activities of firms based in emerging economies. They have invested more than one trillion dollars outside their home countries, both in developed and developing countries. They presently account for more than half of all new foreign direct investment in the world, both in the form of greenfield establishment and acquisitions. And they now account for nearly 10 percent of new patents granted worldwide.
When historians examine the early years of the twenty-first century, they will most likely point to the rise of emerging-market multinationals as the most significant and consequential change. By comparison, the crisis of the euro or the financial implosion of 2008 will be regarded as minor events.
During 2012, emerging-market multinationals will continue to rewrite the rules of global competition. They have taught us very important lessons about the importance of efficiency, scale, niche thinking, political capabilities, and a host of other matters. They have applied these capabilities to both traditional and high-tech industries, ranging from food processing and beverages to mining, cement, steel, electronics and aircraft.
One of the most likely trends for the new year is a spike in mergers and acquisitions by emerging-market multinationals. There are several contextual factors that make it likely. First, emerging-market multinationals need more technology and know-how to sustain their expansion and move up the value chain. Second, they are eager to increase market access and market share in the most developed countries. Third, they tend to operate in industries that are relatively mature, some of them ripe for consolidation. And fourth, the large current account surpluses and increasingly strong currencies of emerging economies make it easier for their firms to invest abroad.
This phenomenon should trigger several kinds of soul-searching in developed countries. First, the rise of the emerging-market multinationals means that established multinationals are losing ground, at least in relative terms. Therefore, it is imperative that their sources of competitive advantage be identified, studied, and, whenever possible, emulated. Second, alliances and other types of agreements between emerging-market and established multinationals need to become more balanced. It is no longer the case, as in the recent past, that they only make sense when the former offer low costs and the latter the design and the technology. Alliances can now become a source of two-way learning. Third, established multinationals from developed countries must expect their emerging-market counterparts to compete for their managerial resources. The year 2012 will witness the beginning of a global race for managerial talent, with emerging-market multinationals being in a position to offer attractive jobs to the best managers because of their high-growth potential and financial resources.
The global economy of the twenty-first century is a far cry from the one we inherited from the twentieth. The rise of emerging-market multinationals will undoubtedly challenge most of our assumptions about global competition. This does not mean that the established multinationals from developed countries will be displaced by the emerging-market multinationals across the board. What it means is that the playing field has been fundamentally altered. New competitors and new ways of competing have transformed the global economy.
Mauro F. Guillen is the Director of the Lauder Institute at the Wharton School.