Today’s turbulence in emerging economies’ equity markets has triggered a wave of obituaries for their growth miracles of recent decades. However, confusing short-term wobbles with terminal decline is a gross misreading of what is happening. The wave of industrialization and urbanization that is boosting the incomes of millions of people in emerging economies has not run its course.
Emerging market bears are missing an important new driver of continued growth in these countries: their increasingly powerful and dynamic companies. Emerging economies today are much more than a collection of new consumer markets and plentiful — and increasingly skilled — labor. They are also home to thousands of new companies, many of which are quickly becoming large, global leaders in their fields.
Twenty years ago, who would have guessed that Mumbai’s Tata Group would be the largest private-sector industrial employer in the UK; or that Mexican companies Cemex and Bimbo would become the US market leaders in cement production and breadmaking respectively; or that Beijing-based Lenovo would be on a par with Hewlett-Packard as the world’s largest seller of personal computers? Moreover, the transformation in the world’s business landscape is in its early stages and should bolster growth in emerging markets for years to come.
The MGI CompanyScope, a new database of all companies with revenue of US$1 billion or more, shows that there are about 8,000 large companies worldwide, three-quarters of which are still based in developed regions. However, by 2025, there are likely to be an additional 7,000 large companies, with seven out of 10 based in emerging regions. The share of global consolidated revenue generated by these emerging market corporate giants is set to increase from 24 percent today, to 46 percent in 2025.
The composition of the Fortune Global 500 is a case in point. From 1980 to 2000, the share of companies on the list that were based in the emerging world remained relatively flat at 5 percent. By this year, the figure had soared to 26 percent and even taking the most pessimistic assumptions for emerging market growth, we expect it to rise to 39 percent by 2025 and to as high as 50 percent on more bullish assumptions.
The shift in the business landscape so far has lagged behind the shift in the weight of global GDP toward emerging markets. Between now and 2025, the GDP of emerging markets could increase by a factor of 2.5, but the number of large companies based in these regions could more than triple. By 2025, some of the leading global names in many industries could be companies we have not yet heard of and some will likely be based in cities that few today could point to on a map.
We have mapped the MGI CompanyScope to Cityscope, our database of the world’s cities, giving us a detailed picture of where large companies locate their head offices and foreign subsidiaries. Headquarters are extraordinarily concentrated. The top 20 host cities are home to about one-third of all large companies’ headquarters and account for almost half of these companies’ combined revenue. Just five of these top 20 cities are in emerging regions today.
However, this too is changing fast. For example, the number of large companies’ headquarters in Sao Paolo is expected to rise more than threefold by 2025, while Beijing and Istanbul could have 2.5 times as many head offices as they do today. We estimate that about 280 cities — among the candidates are Campinas, Brazil; Daqing, China; and Izmir, Turkey — could host large companies for the first time. More than 150 of these up-and-coming business cities are likely to be in China. If we look at telecoms companies as an example, Bandung, Indonesia, and Hanoi, Vietnam, already host large firms’ headquarters — despite their GDPs being relatively small, at US$6 billion and US$12 billion respectively.
Fast-growing home markets have been the launchpad for globally competitive emerging market companies, partly because these firms have learned to compete at very different income levels. Moreover, they know how to work around inadequate infrastructure. McKinsey’s research suggests that these companies are growing more than twice as quickly as their counterparts in developed economies.
Emerging market large companies’ growing global clout is reflected in flows of foreign direct investment (FDI). As recently as 2001, only 5 percent of outward FDI came from countries outside the Organisation for Economic Co-operation and Development; by 2011, that share had soared to 21 percent. China’s outward FDI rose by almost 50 percent per year from 2004 to 2010, while Brazil, Singapore and Hong Kong have been major investors in Europe.
Those who have been writing obituaries for the emerging market boom should give serious consideration to these trends. The new breed of emerging market multinational is diversifying its revenue around the world. If growth in these companies’ home markets slows, they will diversify even more aggressively. The global economy is now their platform.
Richard Cooper is a professor of international economics at Harvard University. Jaana Remes is a partner at the McKinsey Global Institute, based in San Francisco.
Copyright: Project Syndicate
In the first year of his second term, US President Donald Trump continued to shake the foundations of the liberal international order to realize his “America first” policy. However, amid an atmosphere of uncertainty and unpredictability, the Trump administration brought some clarity to its policy toward Taiwan. As expected, bilateral trade emerged as a major priority for the new Trump administration. To secure a favorable trade deal with Taiwan, it adopted a two-pronged strategy: First, Trump accused Taiwan of “stealing” chip business from the US, indicating that if Taipei did not address Washington’s concerns in this strategic sector, it could revisit its Taiwan
In a stark reminder of China’s persistent territorial overreach, Pema Wangjom Thongdok, a woman from Arunachal Pradesh holding an Indian passport, was detained for 18 hours at Shanghai Pudong Airport on Nov. 24 last year. Chinese immigration officials allegedly informed her that her passport was “invalid” because she was “Chinese,” refusing to recognize her Indian citizenship and claiming Arunachal Pradesh as part of South Tibet. Officials had insisted that Thongdok, an Indian-origin UK resident traveling for a conference, was not Indian despite her valid documents. India lodged a strong diplomatic protest, summoning the Chinese charge d’affaires in Delhi and demanding
Immediately after the Chinese People’s Liberation Army’s (PLA) “Justice Mission” exercise at the end of last year, a question was posed to Indian Ministry of External Affairs spokesperson Randhir Jaiswal regarding recent developments involving the exercises around Taiwan, and how he viewed their impact on regional peace and stability. His answer was somewhat perplexing to me as a curious student of Taiwanese affairs. “India closely follows developments across the Indo-Pacific region,” he said, adding: “We have an abiding interest in peace and stability in the region, in view of our significant trade, economic, people-to-people, and maritime interests. We urge all concerned
In the past 72 hours, US Senators Roger Wicker, Dan Sullivan and Ruben Gallego took to social media to publicly rebuke the Chinese Nationalist Party (KMT) over the defense budget. I understand that Taiwan’s head is on the chopping block, and the urgency of its security situation cannot be overstated. However, the comments from Wicker, Sullivan and Gallego suggest they have fallen victim to a sophisticated disinformation campaign orchestrated by an administration in Taipei that treats national security as a partisan weapon. The narrative fed to our allies claims the opposition is slashing the defense budget to kowtow to the Chinese
RSS