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Monday, July 10, 2006

The RDE Champions In A Flattening World

I earlier covered the BCG report of the top performers of the RDE 100 – that’s "rapidly developing economy." Of these, 70 are from Asia (China has 44, India 21) and 18 from Latin America.These are really big corproations - look at the impressive numbers :RDE 100 companies’ portfolios contain $520 billion in fixed assets, and, in 2004, they employed 4.6 million people with a payroll of $20 billion – purchasing $200 billion a year in raw materials and energy, $50 billion in parts and components and $40 billion in services. Typically these companies adopts these six models to make it to the top.

- Model one: Taking RDE brands global

- Model two: Turning RDE engineering into global innovation

- Model three: Assuming global category leadership

- Model four: Monetising RDE natural resources globally

- Model five: Rolling out new business models to multiple markets

- Model six: Acquiring natural resources

Companies from the rapidly developing economies may broadly fit into one of the six strategies. But there is a rider: while these strategies are distinct in principle, they often overlap in practice. The RDE 100 also have some features in common. First, all of they build on positions of low cost — a key competitive advantage of rapidly developing economies. Virtually all the companies are adept at learning and adapting. This is what enables them to learn the lessons of established companies. Moving forward, that might be their biggest strength.

Who amongst the RDE’s are doing well - Lets look at the data: The RDE 100 companies grew at 24 per cent year-on-year from 2000-04 while the India 21 grew even faster — 30 per cent. The RDE companies also earned operating margins of 20 per cent over sales, compared to 16 per cent for US S&P 500 companies and 10 per cent for Japan’s Nikkei companies. The India 21 beat the crowd again with operating margins of 25 per cent.

One classic case looks impressive : Mahindra & Mahindra , the Indian headquartered automobile major. So how does M&M venture into foreign markets? "We are trying not only to leverage cost, but we are also trying to give value and build a brand. Doing it alone requires more financial investment, but we are using more than one model," says Parthasarathy. For instance, in the bigger markets like the US, M&M rides alone. In smaller markets like Sri Lanka or Serbia it uses distributors. In China, which requires a far greater local knowledge in terms of the market and the legal framework, M&M has a joint venture where it holds 80 per cent. For utility vehicles and pick-ups, the company has entered South Africa. The company also has a fool-proof checklist for global forays. This ranges from guidelines on prioritising global markets according to the size and attractiveness of market opportunities, to the micro issues of taking the brand abroad. Generally speaking brands from unknown entities learn faster and are quick on the uptake – so long as their bearings and alignments are right, they tend to do better than peers – that may include well established global majors.

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