o many Americans, names like Ranbaxy, Reliance and L&T probably don’t ring a bell. For that matter nor do Enbraer, Cemex or Galanz. But then a host of Japanese (Toyota, Honda) and South Korean (Samsung, LG) companies were largely unknown in the 1960s and 1970s and were dismissed as no-hopers by their competitors from the developed world.

The next wave of corporate success stories is going to come from a number of largely unknown Brazilian, Chinese, Indian, Malaysian, Thai and Turkish companies. Their competitive edge is no secret: they are delivering low-cost, high-quality products and services. In fact, many companies from these rapidly developing economies (RDEs) have already “arrived”. Others operate below the radar, largely because they manufacture things for other companies that put their own brand names on the products.

This is the cornerstone of a recently released report by the management consultancy Boston Consulting Group (BCG). The report is titled “The New Global Challengers: How 100 Top Companies from Rapidly Developing Economies Are Going Global - and Changing the World”. These companies based in developing economies are winning in global markets, making major acquisitions, and emerging as important customers, business partners, and competitors to the world’s largest companies.

In the report, the consultancy names 100 companies - the “RDE 100″ - that are poised to become important 21st-century multinationals. They “will radically transform industries and markets around the world”.

To develop its list, BCG sifted through data on more than 3,000 companies from a dozen truly indigenous companies in developing countries. For instance, foreign joint ventures and subsidiaries of multinational corporations were left out. Only companies with a turnover of more than US$1 billion as of 2004 were considered - that’s the threshold required to drive serious globalization campaigns.

If the international presence was less than 10% of revenue, the companies were struck out - with exceptions. Companies that were close to hitting the 10% mark and whose international business activity had grown swiftly in the recent past were considered.

International presence, indicated by owned and operated subsidiaries, sales networks, manufacturing presence, research-and-development facilities and international investments, including mergers and acquisitions, was considered. Equally important were the company’s access to capital for international expansion, the breadth and depth of its technologies, its intellectual-property portfolio, the international appeal for its existing offerings, and value propositions.

Taken together, these companies accounted for $715 billion in revenue last year, 28% of which came from international sales. They also boasted $145 billion in operating profits, a half-trillion dollars in assets, and a combined $9 billion in R&D spending. Plus, they have grown at an average rate of 24% for the past four years.

The RDE 100’s total shareholder return from January 2000 to March 2006 increased more than 150%, while that of S&P 500 companies declined. RDE 100 companies’ portfolios contain $520 billion in fixed assets, and in 2004 they employed 4.6 million people and had a payroll of $20 billion. They purchase $200 billion a year in raw materials and energy, $50 billion in parts and components, and $40 billion in services.

When the top 100 was published this May, Asian companies formed 70% of the list. Not surprisingly, China and India, the world’s two emerging economic superpowers, have the most companies on the list, with 43 and 21, respectively. They include some obvious names, such as China’s Lenovo, which recently acquired IBM’s notebook PC business; China National Offshore Oil Corp (CNOOC), the Chinese oil company that failed in its bid for California-based Unocal; and the Indian information-technology-services giants Infosys, Tata Consulting and Wipro.

In consonance with the Asian story, the story from Brazil and Russia story is also alive. There are about a dozen from Brazil. They include Embraer, which has zipped past Canada’s Bombardier to become the world’s biggest producer of regional jets; oil company Petrobras; and food processors Sadia and Perdigao. Russian resources companies such as LUKoil and Gazprom also have big global ambitions.

Why the surge of interest? “The reality is that we are seeing a lot of companies from developing nations playing on the world stage,” said Hal Sirkin, a BCG senior vice president who leads the firm’s worldwide operations practice. “It has become an issue in US boardrooms, where executives see they have new competitors and must address them in a number of ways.”

# Companies in the RDE 100 are in nearly all sectors: industrial goods (auto equipment, basic materials, engineered products); consumer durables (household appliances and consumer electronics); resource extraction; technology and business services. Seventy are from Asia (43 from China and 21 from India), and 18 are from Latin America. The rest are from such countries as Russia and Turkey. Some examples are: BYD (China), the world’s largest manufacturer of nickel-cadmium batteries; it has 23% share of mobile-handset battery market.
# Bharat Forge (India), the world’s second-largest forging company.
# Embraer (Brazil), surpassed Bombardier as market leader in regional jets.
# Chunlan Group (China), has a 25% share of Italy’s air-conditioner market.
# Johnson Electric (China), the world’s leading manufacturer of small electric motors.
# Wipro (India), the world’s largest third-party engineering services company.
# Pearl River Piano Group (China), the global volume leader in piano manufacturing.
# Ranbaxy Pharmaceuticals (India), among the world’s top 10 generic pharmaceutical players.

Emerging global companies from RDEs are going global because they’re focused on organic growth but find that their home markets don’t have the scale or the resources to allow them to deliver the levels of shareholder value and competitive advantage they want to achieve.

They aim globally to tap into new profit pools or gain long-term access to raw materials. Eighty-eight of the RDE 100 are seeking the former, 12 the latter. For instance, Baosteel, China’s biggest steelmaker ($19.5 billion), is focused solely on the China market and has operating margins well above the industry average; its international expansion is designed to secure stable iron-ore supplies. Hence its purchase of part of CVRD’s Auga Limpa complex in Brazil.

Emerging companies from RDEs are good at international expansion in part because of the discipline they attained succeeding in their difficult home markets. They learned to sell profitably to low-income customers; deal with immature logistics and distribution environments; navigate ambiguous legal situations; handle rapid external change; and manage despite shortages of management talent. They also learned from foreign-based multinationals operating in their markets.

“A company that has addressed these challenges in their home market will have the advantage when seeking to grow in similar markets abroad,” said Hal Sirkin, BCG senior vice president and co-author of the report.

What then are the factors behind their success stories? Let’s have an Indian perspective. India has a traditional disadvantage in terms of lack of experience of the global scene, given that very few Indian companies ventured abroad in years past. Indeed, the Indian companies were initially reluctant to go abroad and always exhorted the government to put up high entry barriers, mostly through tariffs.

But things are changing. Indian companies now have global ambitions (aided in equal measure by falling tariffs leading to increased international competition). Moreover, their relative lack of global experience can be turned to India’s favor, given the rapidly changing global arena, where new ideas and fresh perspectives can make all the difference.

Indian global strategy can typically be categorized into the following:
# Building and leveraging success in the home market.
# Accessing multiple foreign markets through exports.
# Building a multinational skill set and adding local value in international markets. Success would depend on the ability of the Indian companies to focus on developing softer assets as they build traditional “hard” business assets.

An analysis of the Indian success stories brings forth the following models of success:
# Companies that have leveraged India’s comparative advantages of knowledge.
# Companies that have grown through acquisitions.
# Companies that have occupied a niche segment and built a best-in-class competency.
# Companies becoming scale players like Reliance.

Indeed, the rules of the game are changing, and changing very fast. Americans, Japanese and Europeans ought to take these emerging players seriously. It is true that Western companies enjoy certain advantages, such as brand recognition and loyalty, patent and trademark protections, long-standing traditions of innovation and established distribution channels. However, most of the challengers are cash-rich, and they’re ready to exploit advantages of their own. The following should be the key driving factors:

Cost edge. As anybody who has followed the globalization story already knows, labor costs in rapidly developing economies are typically 80-90% lower than comparable costs in the West. A skilled factory worker might cost the company $1-$5 per hour, vs $20-$25 per hour in North America, Japan or Western Europe. Construction and equipment costs, and in many cases even raw materials, also are significantly less expensive than in the West.

Modern and efficient plants and equipment. Recent rapid growth in the RDEs means they have newer plants and equipment. The average age of such assets for Chinese companies is just 7.2 years vs 16.9 years in the United States.

Access to huge talent pools. By 2010, China and India combined will graduate 12 times the number of engineers, mathematicians, scientists and technicians as the US.

The right products for the times. As BCG senior vice president Michael Silverstein points out in his highly acclaimed new book Treasure Hunt, the same US consumers who buy up when they demand premium quality trade down when they want value for their dollar. As their quality has improved, the low-cost consumer products produced by RDE manufacturers are uniquely suited to meet the needs of these consumers.

Indeed, globalization is entering an important second phase, the era of the RDE challengers, as BCG points out.

It’s of course unlikely that all of the 100 companies will be global powers a decade from now. However, this is only the tip of the iceberg. Thousands of other companies from the developing world also have global dreams and are investing accordingly. Executives who don’t take these new rivals seriously risk getting blind-sided.