The New Global Champions: Road to Glory Leads to Emerging Markets

The most successful companies know how to reap the rich harvest of globalization. A.T. Kearney identified 25 of the world’s 2,500 largest international corporations as the best of the best: They are the A.T. Kearney Global Champions (see figure). Not only have these companies successfully balanced global expansion and value growth, but they also clearly out-performed their marketplace peers.

These Global Champions represent 11 industries ranging from food-and-beverage to transportation, and most are thriving in high-growth emerging markets. About half are based in emerging countries, and only three fall into the ranks of the world’s 100 largest companies.

And the Winner Is: ArcelorMittal

The world’s largest and most integrated steel company, ArcelorMittal tops the Global Champions list. The company generated revenues of $105 billion in 2007 and its market capitalization stood at $110 billion at year-end 2007. From 2003 to 2007, ArcelorMittal’s compound annual growth rate was 29 percent while its shareholder value growth reached an impressive 159 percent.
Not only is ArcelorMittal performing well in absolute terms, but also relative to its competitors: Its output is more than three times that of Japan’s Nippon Steel, the second-largest producer. And though second in crude-steel output, Nippon Steel barely outperformed the third-, fourth- and fifth-ranked steel producers. Meanwhile, smaller steel producers, such as Russia’s SeverStal and Germany’s Salzgitter, have also emerged as Global Champions.

Runner-Up: Apple

U.S.-based Apple ranks second among the Global Champions. In 2007, Apple had approximately $25 billion in sales and $179 billion in market capitalization. And with sales outside the United States accounting for 41 percent of its total sales, the company’s success has clearly stretched beyond U.S. borders.

Apple followed a very different path to value growth than ArcelorMittal. While Arcelor-Mittal pursued a strategy of consolidation and integration, Apple’s rapid growth is due to continuous innovation. Between 2003 and 2007, Apple increased spending on R&D by 66 percent and thus was able to offer more cutting-edge technologies to ever more sophisticated consumers. The company has earned high praise for its ability to integrate a user-friendly interface in its personal computers, iPods and iPhones.

Natural-Resource Companies Perform Well

Natural-resource companies are prominent among the Global Champions. Collectively, the energy, steel, metals and mining industries represent nearly 19 percent of the sample’s market capitalization. The sharp increase in commodities prices, much of it resulting from China and India placing pressure on world markets, is well known. However, a close look at the change in two benchmarks—MSCI World Index and MSCI Emerging Markets Index—compared with the change in resource commodities, reveals that prices in industrial metals have not outpaced the MSCI Emerging Markets Index. 1

Natural-resource firms that are either based or operating in emerging markets have solid growth in revenue and value creation, with mergers-and-acquisitions activity further fueling expansion. Interestingly, mining firms, such as Switzerland’s Xstrata and Brazil’s Vale, have outperformed larger established rivals, partly due to their ambitious global consolidation strategies. However, in the energy sector, not one of the major oil giants has earned a spot on the Global Champions list.

Outlook

As emerging markets continue to grow more rapidly than developed markets, the world order will see significant upheaval in the years to come. Future Global Champions will not only have to implement state-of-the-art strategies, but also have a global awareness to anticipate macro trends and the inevitable tectonic shifts that result in disruptive change. Indeed, companies in the BRIC countries, including Africa, are positioned to move quickly into the top 100—and usher in the transformation of the global corporate sector.2 Studying today’s Global Champions offers invaluable lessons on how companies can prepare for—and succeed in—the future.

1MSCI World Index and MSCI Emerging Markets Index are indices created by Morgan Stanley Capital International (MSCI) to measure equity market performance in global emerging markets.
2BRIC (Brazil, Russia, India and China)