NEWS,23.1.2013

Emerging world challenges multinationals

The battle in emerging markets is heating up as competition between multinational companies and firms from the developing world increases, a report said.According to a report published by the Boston Consulting Group found that a new generation of global challengers consisting of 100 fast-growing and fast-globalising companies from the developing world, is on track to becoming global leaders in their respective industries. To keep up, Western conglomerates will have to know when to compete and when to work together with the new kids on the block. The report said the global challengers were not "mere curiosities operating in distant regions" but rather were "full-fledge competitors that would shape the global economy in the next decade".  These global challengers includ South African media giant Alibaba, China's largest e-commerce company; Trina Solar, the fourth-largest solar panel manufacturer in the world; Indian carmaker Tata Motors and software group Infosys; Russian firms Lukoil and Gazprom as well as Chile's Latam Airlines.  "If ever there was a wake-up call for business leaders in the West, this is it," David C Michael, coauthor of the report, was quoted as saying. "We have been monitoring the rise of global challenger companies for nearly a decade, and the ambition of these companies - what we call the accelerator mindset - has never been stronger," said Michael.  The report goes on to say that global challengers already outpace their competitors from the developed world in growth, job creation and productivity.  Their average revenue was $26.5bn in 2011, compared with $21bn for the S&P 500 nonfinancial companies.  In addition, in the last five years global challengers added 1.4 million jobs, while employment at nonfinancial S&P 500 companies remained flat, the report said.  Chinese and Indian companies dominate the list of global challengers but companies from Egypt, South Africa, Saudi Arabia and Qatar are fast catching up, with the span of industries also widening.  The rise of emerging market companies presents opportunities that could be mutually beneficial to both sides, the report said.

Davos heads seek trillions in new revenue

Business leaders in Davos have plenty to worry about, from the eurozone to global geopolitical upheavals, but at heart their problem is simple: how to find new revenue in a low-growth world.Half a decade on from the financial crisis, investors want to see earnings driven by more than just cost cutting. Their focus now is on a return to sales growth, which presents the world's largest corporations with a $5 trillion challenge.That is the amount of extra revenue the 1 200 top global companies need to find each year simply to meet analysts' expectations, according to consulting firm Accenture. "The trouble is that stock markets' expectations of the ability of companies to grow far exceeds the underlying macroeconomic growth rates," said Mark Spelman, Accenture's global head of strategy. "So companies need to get beyond just thinking about emerging markets and rising middle classes and start to look at those segments where you are seeing significant consumer change, because there is a lot of latent growth in those segments." Increasingly, companies are seeking specific pockets of opportunity for sales growth. They remain cautious about major new investments, however, with confidence among managers in the near-term outlook for their businesses still weak. The annual PricewaterhouseCoopers survey of more than 1 300 chief executives worldwide found only 36% were "very confident" of their firm's prospects for revenue growth in the next 12 months, down from 40% a year ago.    The mismatch between the sputtering global market for goods and services predicted by macroeconomists and the lofty numbers forecast by analysts following individual companies is striking. In all regions, analysts' forecasts for company revenue growth are well above prevailing views on underlying economies. While the World Bank last week cut its 2013 global growth forecast to 2.4% - and just 1.3% in advanced economies - analysts see company revenues expanding by 7.8% in Asia outside Japan, 3.8% in the United States and 2.4 in the eurozone, according Thomson Reuters data. And consensus forecasts call for 2014 sales to pick up even further, especially in the US, where a recovery, it is hoped, could be spurred by rapid growth in shale oil and gas supplies. Companies in the middle of the current hoped-for recovery are wary, as reflected in results from two of Europe's biggest manufacturers on Wednesday. Siemens warned that industrial demand was weakening, while Unilever said economic conditions were "tough", though it had countered this by faster innovation in its products.  Longer term, CEOs are more optimistic, but there are bound to be questions over delivery, given that only around a tenth of companies in the S&P Global 1200 index have seen revenue growth outstrip economic growth in each of the past three years. In the fight to buck the slow-growth trend, nimbleness is key as companies move away from broad-based bets to more targeted strategies that they hope will win market share. "Uncertainty is itself becoming more of a certainty," said Jonas Prising, who heads Manpower's operations in the Americas and southern Europe. "In this new environment, strategic flexibility becomes all important."    Mergers and acquisitions would be one way for corporations to buy growth but CEOs remain reluctant to undertake large-scale deals, despite cheap credit and relatively low valuations. In fact, the focus of CEOs on M&A is at the lowest level in six years, according to the executives surveyed by PwC. "M&A activity is going to be very focused, very targeted and certainly nowhere near the levels that we saw over the past several years," said PwC International chairperson Dennis Nally. The calamitous nature of some bold deals from the recent past, such as those of miner Rio Tinto, whose CEO was sacked last week, will do nothing to encourage boldness by other business leaders. An important focus for companies now is on smarter ways to serve sections of their existing markets, while placing selective bets on new openings. For many, this involves embracing digital technology to keep pace with changes in how consumers buy goods and services - from shifting more resources to online sales to greater use of new tools to analyse behaviour. But new opportunities come in many guises. Luxury goods companies, for example, are aggressively growing their retail networks, especially flagship stores, particularly in growth markets, while companies in many sectors are chasing new service contracts that can lock in profits for years. Geography, too, remains a vital lever for managers to pull as they chase new sales. For Spanish companies struggling with a dire home market, Latin America has become a prime target because of their language advantage, helping the likes of telecoms giant Telefonica. Others are betting that the US market will indeed surge back this year, including German carmaker BMW and fashion house Hugo Boss. With $5 trillion to find, the world's business leaders can afford to leave no stone unturned.  

Swiss aims to ban 'mercenary' firms

The Swiss government said on Wednesday it aims to ban any companies offering mercenary services in conflict areas, in a bid to preserve Switzerland's cherished neutrality and ensure it respects international law. "The Federal Council wants to ban from Switzerland companies offering mercenary services," it said in a statement."The new law would make it illegal for security companies based in Switzerland to directly participate in hostilities within the context of an armed conflict abroad," it added.In the proposed law, which will need parliamentary approval before it can take effect, all companies headquartered in Switzerland would be required to declare all their security-linked activities abroad, the government said.This would allow Swiss authorities to determine whether the activities fell within the law or whether they should be banned, it said.The new rule would apply not only to companies that offer security services in Switzerland and abroad but also holding structures of firms that only do their business overseas."Security companies will not be permitted to carry out activities susceptible to enabling serious human rights violations," the government said, adding that firms would for instance be blocked from running prisons in countries known to use torture.The Swiss government had said it was necessary to regulate private security firms after Britain's Aegis Group Holdings, one of the world's biggest security companies operating in crisis or conflict zones, moved its headquarters to Basel in 2010.Around 20 security companies in Switzerland offer similar services.It will likely take another two to three years before the new law passes through both houses of the Swiss parliament, and it could take another year or so after that before it goes into effect, government spokesperson Luzius Mader told AFP.