A much more global World Cup

Watching the World Cup football in the wee small hours, I have been struck by something (other than the horrific refereeing and those damn horns): the tournament sponsors.

This Cup may go down as the real turning point in the global economy where emerging market brands (i.e. those from non-First World nations) stepped out into the public eye. Look at the list of official FIFA partners and sponsors (the ones exciting me are in green):
– Adidas (Germany)
– Coca-Cola (US)
– Emirates (UAE)
– Hyundai-Kia (South Korea)
– Sony (Japan)
– Visa (US)
– Budweiser (US-Belgium-Brazil)
– Castrol (UK – it’s BP-owned)
– Continental (Germany – auto parts and tyres)
– McDonalds (US)
– MTN (South Africa – telecoms)
– Mahindra Satyam (India – IT and consulting)
– Seara (Brazil – foodstuffs)
– Yingli Solar (China – solar/energy)

This contrasts very markedly with the list from just 4 years ago: Adidas, Budweiser, Avaya, Coca-Cola, Continental, Deutsche Telekom, Emirates, Fujifilm, Gillette, Hyundai, MasterCard, McDonald’s, Philips, Toshiba, and Yahoo!.

The BRICS firms (well, actually BICS) have stood up in joining the Emirates on the scrolling billboards etc. Building powerful, recognised brands will be the next important step for firms from these emerging giants.

Of course, hosting the tournament is a big rite of passage also (Brazil’s up next), and brands can piggyback on this opportunity. Disappointingly the local South African sponsors (beyond MTN – they are listed on the FIFA link) have not been particularly interesting or international in their focus.

I’m sure we’ll see more familiar brands come Brazil 2014 – Havaianas anyone?

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The Aussie Big’uns

You might have noticed I’m a bit of a fan of lists and rankings. I have done work with Fortune magazine’s Global 500 (i.e. the largest firms in the world). Forbes magazine goes even deeper, ranking the 2000 largest.

The latest list is out, and it gives us a chance to look how Australia’s homegrown big boys stack up. Rather than focusing on year-on-year changes (which are strongly determined by exchange rate changes), I thought I’d compare the Aussie performance relative to 2003 (the first year Forbes produced such lists).

Back then Australia had 37 listings. This year it was 46 (including the UK-Aussie pairings of BHP Billiton and Rio Tinto). You could also make a strong case for two more – Lihir Gold and Oil Search – both of whom are effectively managed out of Australia while being officially headquartered in Papua New Guinea. An argument about ‘roots’ might also extend to News Corp which shifted to a US HQ a few years back.

If we take the 46 number, then we’re looking at a 24% increase in representation since 2003 . At the same time, traditional powerhouses such as the US (down 29% to 551 firms), Japan (down 13% to 288 ) and the UK (down 23% to 102) have stumbled.

The big movers? Can you spell BRIC?

Brazil: 13 → 31 (up 138%)
Russia: 6 → 28 (up 367%)
India: 20 → 47 (up 135%
China: 13 → 91 (up 857%!!) If we included Hong Kong the numbers would be 43 → 133 (209%)

So, turning back to Australia, what should we make of this state of affairs? We have the tenth most list members while being the 14th largest economy in the world by unadjusted GDP. On this simple count front we are outperforming bigger economies like Italy (41), Spain (33), Russia (28) and Mexico (18). The only nation to ‘pass us’ relative to GDP ranking is South Korea (61). A couple of northern neighbours are outperforming their GDP status also: Taiwan (45) and Hong Kong (42).

In terms of the top end, there are 12 Aussie firms in the top 500 and five between 501-1000. Back in 2003, the count was 7 and 12. We are slightly ‘underweight’ in these upper echelons.

Who are the biggest Aussie players then?

The big four banks (Commonwealth, nab, Westpac, ANZ) split the prize with our two aforementioned mining giants (BHP Billiton & Rio), and are followed by Telstra, the diversified Wesfamers and retail fave Woolworths.

The biggest winners over the six years:

BHP Billiton (up from #133 to #52)
Rio Tinto (232 → 69)
Commonwealth Bank (141 → 59)
Woolworths (666 → 284)
Wesfarmers (866 → 266)
QBE (834 → 378)
Brambles (1155 → 684)
Insurance Australia Group (1568 → 979)
Woodside Petroleum (1933 → 762)
Origin Energy (nowhere → 732)

Biggest Losers:

Amcor (731 → 1342)
Foster’s (853 → 1389)
CSR (1113 → nowhere)

Most of the big winners have pretty extensive international operations, and I dare say almost all have increased the extent of their internationalisation over the 6 year period (anyone want to check?). Two of the losers have made some pricey and questionable commitments to the US market (much of Amcor and Fosters’ falls happened over the past 12 months).

There is a whole lot more that could be discussed out of these rankings. It really is a rich data source. For now, it does offer some support for an argument that Australian multinationals aren’t doing too badly, but could perhaps learn a lot from their emerging market counterparts.

Following up on cars and caring

Further to two posts from last week (on the Australian auto industry subsidy package and on the collapse of childcare giant ABC Learning), two relevant articles have popped up in the business press.

This piece in The Economist provides valuable insights into the growth of car manufacturing in emerging markets, in particular the BRICs (Brazil, Russia, India & China). It does highlight the huge pull towards these markets for the major global car manufacturers, and also the limited scope to truly globally integrate their operations. The attraction of untapped consumer markets have pulled the firms into each market. Trade barriers and the need for product adaptation have played a major role in these MNEs manufacturing in each of these countries also. The output levels (and more importantly the growth rates) talked about here far swamp those in Australia (around 2.5m cars per year in Brazil, 6m in China, 1.5m, 2m in Russia compared with 1m in sales in Australia, but only about 300,000 vehicles produced).

And on the ABC Learning front, every journalist worth their salt is now calling on their immense powers of hindsight to demonstrate why the firm was bound to fail. This article makes a couple of interesting points regarding the failure of the childcare firm to achieve any economies of scale from consolidation, and the illusory nature of growth generated via acquisitions.

I’m not so convinced that firm wasn’t able to lower some of it labour costs or “achieve economies of scale in purchasing power or marketing power”. I also struggle to take any journo seriously who tries to use this downright fallacious argument to support his case: “Corporate farming has never overtaken family-run operations because a family will run their business on a much tighter budget and will endure leaner returns than any corporation just to ensure their survival.” Not sure what his definition of overtaken is, but corporate farming (and childcare) has certainly been growing at a faster rate that family-run operations in Australia for quite a while now.

Not a good beer year

The merits of global scale and reach are an ongoing source of debate in the International Business world (among researchers and practitioners). On one side of the coin is an argument that operating across a range of markets should allow firms to build huge economies of scale (in terms of sourcing inputs, in R&D, in production, in distribution and in marketing). The counter argument is that the world is not really one big market, and that consumers will demand such different types of products, or infrastructure will differ so considerably, that the pressures to adapt will outweigh any gains from scale. Thus, we arrive at a potential trade-off between global integration and local responsiveness.

One industry that has seen substantial international consolidation in recent years has been beer. Several very large players have emerged, predominantly via cross-border acquisitions. The big idea has been that these firms would achieve the aforementioned scale advantages, and also tap into the growth in under-serviced markets in the developing world. The high population, fast growing BRICs have been a big target.

This Wall Street Journal (WSJ) reveals the difficulty these big brewers are facing with the current economic downturn. Folks are not drinking enough of the stuff, especially in these developing nations, where beer is a luxury good. This highlights one underestimated aspect of country difference – demand elasticity. Put simply, consumers in particular countries may be more or less sensitive to shifts in their income (and/or in prices). This is a far tougher issue for the multinationals to overcome, as it isn’t about their responsiveness, but rather an error in assessing the size and growth rate of the global market.

This has left these brewers wondering what to do next. A further aspect of internationalisation is the scope to arbitrage advantages across markets. Maybe they should be looking to acquire brewers in highly profitable markets with little competition, and then use these profits to fund further international growth. US/Canadian brewer Molson Coors has taken a tentative interest in Aussie firm Fosters. That shouldn’t surprise when you look at the profit data in the WSJ article – Australia was the 8th most profitable beer market in the world in 2007 and has none of the big global players involved. Looks like the big guns might want a taste of the oligoply action.

Everybody’s going surfing… surfing R.U.S.S.I.A!

Aussie surfwear behemoth Billabong has announced it is opening stores in Moscow and St.Petersburg, Russia. This continues the expansion of this Australian firm into markets further and further away from the sun and surf of Queensland.

Russia is a BRIC and the 11th largest economy in the world. This certainly makes it attractive to any vendor of consumer products. As an economy embracing consumerism at breakneck speeds (after years of brand deprivation), it is clear why Billabong has entered the market. The question remains whether surfwear is an appropriate product offering to a cold country with little accessible (or warm) coastline.