Donald Sull is a professor at the London Business School. Earlier this year, we discussed with him the concept of managing by commitments rather than through power or processes, as well as how leaders could develop an organization run via commitments. Today he talks about a new wave of companies from volatile emerging markets — including China, India, South America, and the Middle East — that are snagging global leadership positions in key industries.
BNET: What got you interested in studying players from emerging markets and their ability to compete on a global scale?
Sull: Emerging markets really heighten the elements of “Darwinian selection” in business. They are very difficult places to compete. You‘ve got major multinationals seeking to sell products there. You have local low-cost competitors that are becoming more and more sophisticated. And you‘re exposed to exchange-rate shifts and often find it more difficult to access capital. These are very complicated markets, and as a result the leadership positions tend to flip-flop amongst competitors. Most emerging market competitors get “killed”; then they obviously can’t expand beyond their domestic markets. But the companies that do emerge are absolute world-beaters. We’re talking about companies in steel, brewing, IT, aerospace, and other areas that are very quickly rising to a position of leadership globally.
BNET: How might this wave of companies from emerging economies behave differently than other waves of competitors entering the markets of more developed countries?
Sull: Some in the west have said, “This isn’t like the rise of ‘Japan, Inc.’” I think this is a comfortable but misleading comparison for western managers. If you look at the Japanese expansion in the eighties, they were basically all pursuing the same business model. They were in consumer electronics and manufacturing and a little in banking. They were also coming out of a very safe and protected home market. With these emerging market champions, you have a lot of heterogeneity when it comes to country of origin, business models, and industries. And they are often survivors of extremely volatile and turbulent domestic markets. This poses a much bigger threat to western management than Japan ever did. People focus on China and sometimes India, but it’s much broader than that. We see interesting companies coming out of Mexico, Brazil and the Middle East.
BNET: When you teach this, do western managers take offense — or have they seen the strength of these competitors for themselves?
Sull: When I started teaching this stuff ten years ago, there was a lot of pushback: “That could never happen.” “Not in my industry.” But now there are very few industries where we haven’t seen extremely credible and competitive players coming from emerging markets. There’s a lot less skepticism and complacency than there was ten years ago. I do think there’s a misconception, though, about how strong some of these companies can get. I’ve worked with a couple of the steel companies, and there still in shock that Mittal-Arcelor [from India] is the biggest steel company in the world. Five years into it, they still can’t believe it. There’s still a temptation to say [about emerging market champions], “Yeah, yeah, they’ve gained a little market share. They’re nipping away at a couple of our customers.” But I don’t think managers have internalized this. And as we move toward an era where cross-border competition will be even more important, these emerging market competitors will have an even greater advantage.
Next week, we’ll discuss what exactly makes this new wave of competitors so effective and what kinds of lessons managers from western companies can learn from the success of these world-beating emerging market players.
