Key Force in Shaping Global Competitive Landscape - Example

Over The Next Several Decades Multinationals From Emerging Economies Are Likely To Become A Key Force In The Shaping Of The Global Competitive Landscape. Discuss the Validity of This Statement Using Company Examples from At Least Three Emerging Economies Table of Contents Introduction 3 MNCs from Emerging Economies 3 MNCs of Emerging Economies as Key Force in Shaping Global Competitive Landscape 4 4 MNCs of China as a Key Force in Shaping Global Competitive Landscape 6 MNCs of India as a Key Force in Shaping Global Competitive Landscape 9 MNCs of Brazil as a Key Force in Shaping Global Competitive Landscape 11 Conclusion 14 References 15 Introduction Due to the influence of globalisation, the international competitive landscape has become more varied and active. For numerous decades, the United States, Japan, the United Kingdom and other European countries have ruled the global trade and development activities. Even the concept of multinational corporations (MNCs) has been mostly related with brands from these countries, for instance, McDonald’s from the United States, Sony from Japan and BMW from Germany among others. However, over a certain period of time, the emergence of a significant number of rising markets as well as ostensible deterioration in developed markets have been observed. Nowadays, a huge exodus of MNCs from developed economies to emerging economies has been observed. A majority of MNCs have found favourable working conditions and are establishing themselves in the developing economies. In this effect, MNCs from developing economies are bound to become a major force in determining the international competitive landscape (Roach, 2007). Considering this aspect, the discussion is based on evaluating the validity of the statement that in next several decades, MNCs from emerging economies are likely to become a key force for shaping the global competitive landscape. MNCs from Emerging Economies In order to recognise the role of MNCs from emerging economies, there is a need for underlining the characteristics which differentiate emerging economies from developed economies. It has certain basic characteristics. An emerging economy is characterised by fairly recent economic and political liberalisation. Furthermore, in emerging economies, the debt rating is below investment ranks according to the major global rating organisations. MNCs from emerging economies usually obtain leverage from inexpensive labour, favourable trade principles and overall inducements to expand the business itself. Apparently, not just the MNCs are impacted by international expansion, the host nation’s economic environment and organisational experience are also impacted by MNCs. A proliferation of MNCs from emerging economies can lead to increased competition, augmented innovation in markets, better rearrangement of resources and increased job opportunities (Ernst & Young Global Limited, n.d.). MNCs of Emerging Economies as Key Force in Shaping Global Competitive Landscape In present days, emerging markets serve as an inducer of economic growth for entire world. The emerging economies have stronger potentiality of growth in terms of Gross Domestic Product (GDP) at Purchasing Power Parity (PPP). According to the estimation of World Bank, the market size of E7 economies will become 64% larger in comparison to present G7 (PricewaterhouseCoopers LLP, 2011). A significant convergence has been observed between E7 and G7 in recent times, which was accelerated by international economic recession of 2007. In 2007, the total GDP at PPP of G7 nations was almost 60% bigger than E7 nations. In 2010, it has been observed that the gap between GDP at PPP had shrivelled by 35%. The major drivers for growth of E7 nations are China and India (PricewaterhouseCoopers LLP, 2011). The following table shows the GDP at PPP in 2009 and estimation at 2050: Rank in 2009 Country GDP at PPP in US$ billion Rank in 2050 Country GDP at PPP in US$ billion 1 US 14256 1 China 59475 2 China 8888 2 India 43180 3 Japan 4138 3 US 37876 4 India 3752 4 Brazil 9762 5 Germany 2984 5 Japan 7664 6 Russia 2687 6 Russia 7559 7 UK 2257 7 Mexico 6682 8 France 2172 8 Indonesia 6205 9 Brazil 2020 9 Germany 5707 10 Italy 1922 10 UK 5628 Source: (PricewaterhouseCoopers LLP, 2011) From the above table, it can be observed that the most noticeable change in GDP at PPP in 2050 is the ranking or positions of China and India at the top two locations beyond the United States. In addition, the other prominent change is the ranking of Brazil, mounting above Japan with respect to GDP at PPP. The appearance of MNCs from emerging economies has brought new challenges to the global competitors. MNCs of emerging economies such as China, India and Brazil are characterised by motivated leaders, inexpensiveness, attractive products and services and up-to-date facilities which can drastically reinvigorate international industries and markets. These MNCs will challenge other competitors with respect to competition for suppliers, talented employees, innovation and acquisition. Nowadays, a handful of MNCs from emerging economies have grasped the responsiveness of media that are aggressively expanding the business beyond the national market. Already, these MNCs have started assuming dominant positions in profitable developed markets and have established strong bases. The fast moving globalisation forces are encouraging this tendency of rise of MNCs from emerging economies. These forces comprise intense growth in inexpensive communication technologies and economic reorganisations in emerging economies (Wilson & Purushothaman, 2003). Furthermore, the development of markets in emerging economies also acts as a strong enabler for the formation and evolution of internationally ambitious organisations. Once, the markets of emerging economies had started to develop, several organisations realised that there is a requirement for expanding the business beyond domestic markets in order to create worth and sustain long run competitiveness. Markets such as China, India and Brazil are adequately large and rapidly increasing to support big domestic organisations to become global (Aguiar & et. al., 2006). MNCs of China as a Key Force in Shaping Global Competitive Landscape The most important emerging economy where MNCs are bound to become a major force in shaping international competitive landscape is China. China is one of the quickly growing economies globally. In recent years, the international investments made by China have increased significantly. In the year 2000, the government of China had announced ‘Going out Strategy’ which serves an essential element in encouraging the Overseas Foreign Direct Investment (OFDI). The amount of OFDI in China had increased from US$2.5 billion in 2002 to US$56.5 billion in 2009, representing a growth of almost 2000%. During the same period, the export of China also enhanced by above 50%. In present days, Chinese MNCs are headed towards becoming global leaders which can help to make the international economy to grow (Wenbin & Wilkes, 2011). The economic growth of China has occurred due to the increase in the number of MNCs. In recent years, China has become one of the largest markets for several products. The nation also claims of having among the top MNCs in the world. China is also experiencing a robust growth in the middle income group people. This growth has generated a strong requirement for consumable goods. The business-to-business (B2B) market of China has also increased significantly. The slackening of trade rules has caused immense growth of B2B market in China and also demanded MNCs to arrange their business outside China (Cui & Liu, 2000). In recognition of the rapid rise of Chinese economy, Chinese MNCs have also started to place their stranglehold in the international stage. The Chinese MNCs are ready to move outside of the comfort zone and establish themselves in that position of other MNCs. The international presence of Chinese MNCs had increased significantly from 2002 to 2011. The level of mergers and acquisitions performed by Chinese MNCs had also increased by about 30% between these years. Since the international markets in recent years have struggled due to economic slowdown, the global role of Chinese MNCs will continue to expand. It had been expected that the amount of Foreign Direct Investment (FDI) made by Chinese MNCs will increase by 15% from 2010 to 2020. Chinese MNCs are also generating millions of employment opportunities in the foreign nations. In the year 2010, the foreign employments generated by Chinese MNCs had increased to 780,000 (The Boston Consulting Group, 2012). According to the report of Boston Consulting Group (BCG), there are several MNCs from emerging markets such as China, India and Brazil which have become international competitors. The Chinese MNCs which compete effectively in the international market with MNCs of developed economies have annual sales of almost US$180 million to US$300 billion. These MNCs represent China in industrial goods, consumer products, natural resources, and healthcare technology along with telecommunication industries. BCG has listed 50 Chinese MNCs which play a considerable role in shaping the global competitive landscape. Most of these MNCs have successfully established their presence in the international markets by accumulating a considerable market share (The Boston Consulting Group, 2012). One such example of Chinese MNC which has made significant progress in the international market is China National Chemical Corporation (ChemChina). ChemChina operates in natural resources industry. In the year 2007, the revenue of ChemChina was recorded to be US$14.5 billion. The organisation has experienced a significant growth in China as well as in foreign markets. The growth of ChemChina is driven by a considerable number of acquisitions of foreign organisations. In the year 2007, ChemChina had acquired a British organisation named Fibres Worldwide. In the same year, ChemChina also acquired a French organisation named Rhodia Silicons (Aguiar & et. al., 2009). The other vital example of a Chinese MNC which has played a major role to shape the international competitive landscape is Suntech Power. It is considered as one of the biggest solar photovoltaic producers, having had returns of almost US$1.3 billion in 2007. A majority of returns of Suntech Power arrive from exports of its products to solar energy market. Apart from accomplishing quick business growth, Suntech Power has also acquired a Japanese organisation named MSK Corporation and a German organisation named KSL-Kuttler Automation System (Aguiar & et. al., 2009). In past ten years, Chinese MNCs have expanded the business quicker in comparison to other MNCs of developed economies. It has also been observed that the sales growth of Chinese MNCs have increased by 20% in a year on an average in comparison to 7% for the other MNCs. Due to this reason, Chinese MNCs have become a key force in shaping the international competitive landscape (The Boston Consulting Group, 2012). MNCs of India as a Key Force in Shaping Global Competitive Landscape Alike China, India has also contributed towards influencing the global competitive landscape. India has a wide market and it is also known as one of the fastest growing economies in the world. The government of India has developed favourable policies in order to attract the MNCs. Nowadays there are several Indian MNCs that compete effectively in the international market. These MNCs make major contributions towards reforming the global economic force (Chin & et. al., 2012). According to the listing of BCG, there are about 20 Indian MNCs which promote India in the international market. These organisations are significantly driving economic growth. From 2008 to 2011, the Indian MNCs had experienced a revenue growth of almost 16%. Indian MNCs also created about 1.4 million employment opportunities from 2006 to 2011. These MNCs had also recorded an investment of around US$330 billion. In addition, Indian MNCs are also characterised by a high level of customer oriented business and also are brave towards entering into new overseas markets. The high growth of Indian MNCs is driven by a significant level of mergers, acquisitions and joint ventures (Madhavan, 2013). A few of the examples of companies which contribute towards the shaping of global competitive landscape are described below. In India, Tata Group is recognised as one of the biggest and fastest growing MNCs. In the international arena, Tata Group has four major companies namely Tata Chemicals, Tata Consultancy Services, Tata Motors and Tata Steel. Together with these companies, Tata Group has made a business expansion in around six regions. In the year 2011, the revenue of entire Tata Group was almost US$83.3 billion, wherein 58% of its revenue arrived from international markets. Tata Group has navigated India’s gradient in the global market by its steady concentration on business improvement. Internationally, Tata Group provides employment to almost 425,000 employees (Tata Steel, 2012). Tata Group has engaged in a series of acquisitions of foreign organisations. For instance, in 2008, Tata Motors acquired British automobile brand named Jaguar and Land Rover. In the same period, Tata Chemicals acquired General Chemical Industrial Products and became the second biggest manufacturer of Soda Ash (Aguiar & et. al., 2009). The other Indian MNC which also had contributed to the shaping of international competitive landscape is United Spirits, also recognised as McDowell & Company Limited, a subsidiary of UB Group. This MNC has a significant influence in the spirits industry. In the year 2007, United Spirits had acquired a foremost British Scotch-whisky organisation named Whyte & Mackey which had catapulted the organisation into the third rank in the international spirits industry echelon with respect to the quantity of production (Aguiar & et. al., 2009). The other prevalent Indian MNC is Bharti Airtel which operates in the telecommunication industry. The MNC has millions of subscribers internationally and thus is recognised as one of the biggest telecom operators in the world. In the year 2010, Bharti Airtel had generated revenue of about US$8.8 billion representing 38% growth on an average of five years. In order to expand the business, the MNC has followed the acquisition strategy. The organisation has acquired a number of corporations from other developing economies. Presently, Bharti Airtel has its business presence in almost 19 nations (Verma & et. al., 2011). It can be observed that the Indian MNCs are not only reshaping their corresponding industries, but also are overtaking several established MNCs from the developed economies. Indian MNCs are recognised as among the high growth organisations which are quickly increasing their business to foreign shores and have a significant involvement in changing the competitive landscape. MNCs of Brazil as a Key Force in Shaping Global Competitive Landscape The other nation which is gradually becoming an attractive destination for foreign organisations is Brazil. The economy of Brazil has grown significantly in past few decades. One of the most prominent aspects of the development of Brazilian economy is the growth of FDI. From 2002 to 2007, outward FDI of Brazil had increased from US$12937 million to US$45151 million. This growth of FDI is driven by the activities of Brazilian MNCs in different industrial segments ranging from manufacturing to mining. According to United Nations Conference on Trade and Development (UNCTAD), the record of FDI maintained by Brazilian MNCs is considered as fourth biggest amid emerging economies. The public policies in Brazil have played an imperative role for the emergence of MNCs. By numerous microeconomic and macroeconomic strategic involvements, Brazilian government has ensured a strong growth of its domestic organisations. Brazil has undertaken an economic program named Import Substitution Industrialisation (ISI) which has resulted in a considerable structural transformation into becoming a mature industrial economy. ISI has facilitated the expansion of business for domestic as well as foreign organisations. The other noteworthy feature of ISI was the formation of State Owned Enterprises (SOEs) particularly in capital intensive segments. In this context, it is worth mentioning that two of the Brazil’s top three MNCs were established as SOEs (Brainard & Martinez-Diaz, 2009). The increasing importance of Brazilian MNCs has been strongly determined by the capability to produce, engross and position technology in a highly efficient manner. The following are the three vital MNCs which have influenced the international competitive landscape. A popular Brazilian MNC is Embraer which operates in aviation industry. Embraer is recognised as one of the highest profile aircraft manufacturers. This MNC has not only succeeded in maintaining its products and business procedures at the leading edge of international market, but also has become one of world’s two major manufacturers of airplanes. Having demonstrated its technical expertise and commercial capability, Embraer has embarked on a reflective stage of internationalisation. During the business operations, Embraer has engaged with a series of joint ventures and acquisitions with several foreign organisations. For instance, in the year 1970, the MNC had entered in a cooperative manufacturing agreement with an American organisation named Piper Aircraft, allowing manufacturing of light airplanes which is essentially used for private transportation. The other remarkable step of Embraer was the acquisition of a Portuguese organisation named OGMA, providing evidence of its strong market position in the international arena (Brainard & Martinez-Diaz, 2009). The other vital Brazilian MNC which has prominent existence in the international market is Odebrecht Group. Odebrecht is considered as one of the longest established construction organisations. According to Engineering News Record, Odebrecht is placed at the 29th position among other international construction organisations. Unlike Embraer, Odebrecht was not established as a SOE, rather, it was a family venture. Nevertheless, government played a vital role for its evolution and accumulation in technological abilities. The organisation had started its global business operation in 1979 in Peru. Furthermore, it has also enhanced the business in Latin America and Angola. Presently, Odebrecht successfully operates in European and American markets with other MNCs from developed nations. This indicates that the MNC has diversified both its business expertise as well as the geographical reach (Brainard & Martinez-Diaz, 2009). The other prevalent MNC from Brazil is Vale. Vale is considered as the second biggest diversified mining organisation in the world. Currently, Vale has its business presence in almost 38 nations. It is one of the successful examples of Brazilian MNCs which has exploited the domestic business expertise on international markets. It characterises internationalisation by acquisition and adoption of joint ventures with foreign organisations. Among other MNCs, Vale has a strong record of creating shareholder’s worth. The organisation has succeeded by strong management practices and technological capabilities. In the year 2009, 85% of Vale’s revenues were generated from outside of Brazil (Verma & et. al., 2011). In next few decades, it is expected that the emerging economies will become one of the most vital drivers for international economic growth. MNCs from these economies have successfully displaced the pervious roles which were played by the United States and Europe. Several reports state that international economy is quickly approaching to a position where emerging economies will represent a considerable portion of international GDP and growth (Levy, 2010). Since the key players in the international market are changing therefore the pressure which shapes the rules of competition is also changing. The MNCs from emerging economies are expanding the business across value chain. For instance, an Indian MNC Wipro has enhanced the business proficiency by acquiring an American organisation named Saic in 2012. Several MNCs are also learning to captivate new customers such as Bharti Airtel. The MNCs of emerging economies are also experimenting with innovative services. For instance, Chinese e-commerce organisation Alibaba Group has developed Alipay, where customers do not require payment until they receive and validate their purchased materials. In the year 2010, Alibaba Group had surpassed PayPal with respect to the number of users. These MNCs from emerging economies are capturing the digital opportunities, discovering the boundaries of quick business growth along with changing the business activities (Bhattacharya & et. al., 2013). Conclusion Today, emerging economies have reduced the stranglehold of more established global economies. The MNCs from emerging economies have been identified to be ensuring a considerable growth with respect to business reach as well as revenue. These MNCs are not only found to exploit the business expertise of homeland, but are also aggressively acquiring other MNCs from developed economies. These MNCs operate in diverse industries and successfully represent the virtue of their home nation. In this context, it can be observed that MNCs from India, China and Brazil have significant domination in the international markets and are effectively reflecting the international competition. They are entering in the new period to a position of market leadership. Not only these MNCs are financially capable to take advantages from their business ventures but are also capable of upholding competition against other established rivals in their respective fields of operations. The MNCs of emerging economies have developed innovative commercial practices and can better understand the international markets which act as among the major drivers for growth (Bhattacharya & Michael, 2008). Thus, the statement can be validated that over next several decades, MNCs from emerging economies are likely to become a key force in shaping the global competitive landscape. References Aguiar, M. & et. al., 2006. The New Global Challengers. The Boston Consulting Group. [Online] Available at: http://iis-db.stanford.edu/evnts/4326/New_Global_Challengers_May06.pdf [Accessed March 09, 2013]. Aguiar, M. & et. al., 2009. The 2009 BCG 100 New Global Challengers. Report. [Online] Available at: http://www.bcg.co.jp/documents/file20519.pdf [Accessed March 09, 2013]. 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