Companies in the developed world are increasing their commitment to emerging markets at a faster rate than ever before.

Faced with the prospect of stagnation (a combination of low growth and high inflation) – or worse – in the US, Europe and Japan, companies are plunging into the high-growth economies of Asia, eastern Europe, Latin America, and, increasingly, Africa.

“Emerging markets have inflation issues, environmental questions and social problems, but overall they have better economic growth. In the developed markets you have slow growth and the risk of a new sovereign debt crisis,” says Alain Bokobza, a strategist at Société Générale, the French bank.

In a study of European multinationals, Morgan Stanley, the investment bank, found that over the past two years, companies have diversified their exposure away from domestic markets more quickly than ever before. European companies now generate just 53 per cent of sales in developed Europe, while the share from emerging markets has leapt from 12 per cent in 1997 to 29 per cent.

US companies are also following this trend, with a host of leading businesses increasing their sales to emerging markets to above 50 per cent, including Avon Products, the cosmetics company, (52 per cent), Tupperware Brands, the food container business, (58 per cent) and tobacco group Philip Morris (68 per cent).

Admittedly, the average company is a long way behind these leaders in their exposure to emerging markets. HSBC, the banking group, estimates that British companies as a whole generate just 13 per cent of revenues from emerging markets. This figure is just 11 per cent and 7 per cent for Japanese and US companies respectively.

But there is no doubting which way the winds of change are blowing in sectors open to international development – and international competition. Despite the economic challenges in their home markets, developed world multinationals cannot afford to focus only on their domestic rivals.

This is also far from a one way street. Competitors from the emerging markets are breathing down the necks of established-market companies as never before. With the help of a recovery from the financial crisis that was much stronger than in the developed world, companies based in emerging markets are pushing into global markets at an unprecedented pace.

Before the crisis, in 2007, there were 17 Chinese and Hong Kong companies on the FT 500 list of top groups by market capitalisation. By the middle of this year, there were 45, putting China/Hong Kong in second place behind the US.

Emerging-market groups are becoming leaders in key industries. Two of the top five global wireless technology companies are from China – Huawei and ZTE. Mexico’s Cemex is the world’s largest building materials supplier, Brazilian-run Anheuser-Busch InBev is the biggest brewer, and three Indian groups – Wipro, Infosys and TCS – together are the top software exporters.

So how is this global competition changing companies?

First, businesses are having to respond faster than before. For example, a group with a Europe-wide pay freeze may have to be flexible enough to authorise salary increases to specialists and managers in developing countries, who are still able to jump ship for a better offer. Darryl Green, Asia president for Manpower Group, the recruitment agency, says: “Countries where people move easily – such as India – are seeing executive pay rising rapidly. The sight of [well-paid] expatriate foreign managers inspires local people to ask for more. Employers have to respond.”

Second, chief executives are focusing on a broader range of challenges and opportunities than ever before. With emerging-market companies as well as established multinationals as rivals, there is no time to waste. A case in point today is Africa, where rapid growth in key countries, notably Nigeria, has persuaded many business people that the continent’s time may finally have arrived.

Yum! Brands, the US group that owns Pizza Hut, Taco Bell and KFC, is expanding its established KFC chain in South Africa and opening up in Nigeria, Kenya, Zambia, Ghana, Angola and Malawi.

Unilever, the Anglo-Dutch consumer products group, recently created a new Africa division as part of its plan to increase emerging-market sales from 54 per cent last year to 70-75 per cent by 2020.

Multinationals are also moving core decision-making units into emerging markets. Microsoft, the US software giant, has its biggest development centre outside the US in China. Cisco Systems, the US computer networking group, has what it calls a second headquarters, Cisco East, in Bangalore, India.

With the internationalisation of operations comes the internationalisation of staff. For many groups this is now established practice. Even Japanese companies, famously conservative about promoting foreign staff, are changing. Manpower’s Mr Green says about half the new graduate recruits at big Japanese groups are not local, but mostly foreign graduates who have studied in the country and speak Japanese.

And growing numbers of executives with emerging-market roots are making it into the boardroom. Swiss food group Nestlé recently appointed the Mandarin-speaking Wan Ling Martello, a US citizen of Chinese and Filipina origin, as its chief financial officer.

The ultimate aim is to compete more effectively, especially in emerging markets, where the challenges are as great as the opportunities. Multinationals have learnt that price is not the only way of reaching emerging-markets customers. These buyers appreciate quality as much as rich-word clients, sometimes more so because a big purchase – such as a car – involves a much greater proportion of family income.

By operating in the fast-growing emerging markets, companies are forced to innovate and develop products and processes which may not have existed before in the developed world. Coca-Cola, the US beverages group, launched a juice-based drink in China called Pulpy, which it is now rolling out around the world. General Electric, the US industrial group, pioneered low-cost medical monitors now in demand in developed countries.

Emerging-markets innovation is not new. More than 20 years ago, Hindustan Lever, Unilever’s Indian affiliate, developed mini-sachets to sell soaps to poorer consumers. But what is new is the growing volume of such innovations. In outsourcing, Indian groups headed by TCS and Infosys have revolutionised information management by splitting work done by expensive on-site consultants from that carried out cheaply offshore.

The rivalry between developed-world and emerging-market companies is not a wholly clean fight. Western groups complain of unfair competition, in the allocation of government contracts for example, of a lack of transparency and of intellectual property theft, notably in China.

Emerging-market companies hit back with claims that developed-world markets are often protected by costly entry barriers, such as regulatory requirements. Nor is bribe-paying limited to the developing world.

But these concerns have not slowed the fundamental processes of cooperation and competition between companies, which is likely to continue into the future.

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