Emerging-market multinationals

A new breed of multinational company has emerged

WHEN Ford Motor Company bought Jaguar in 1989 and Land Rover 11 years later, it marked a low point for Britain's ailing industrial heritage. Last year Ford concluded that it could not make money from the illustrious British marques. The two firms shortlisted to take the prize come from India. Their ambition and confidence is a sign of something new in global business: the arrival in force of emerging-market multinationals.

Tata Motors, the carmaking bit of Tata Group, India's biggest industrial conglomerate, has edged ahead of Mahindra & Mahindra, a sprawling group that makes tractors and off-road vehicles, to become the preferred bidder. Ford told Jaguar workers this month that it was “in substantive discussions” with Tata. The future of these two grand old badges will be shaped not in Coventry, cradle of the British motor industry, but in Pune, home of Tata Motors.

Another indication of this newcomer's growing strength was the unveiling this week of the revolutionary, cheap “one lakh” car, which will sell in India and South-East Asia for the equivalent of $2,500. Thus the Indian company, which launched its first saloon car barely ten years ago, is beating the industry's established giants in a new market segment in which sales will surely grow fast.

Tata is certainly not the only company from an emerging economy striding onto the global stage. A study by Boston Consulting Group (BCG) found 100 companies from emerging markets with total assets in 2006 of $520 billion, more than the world's top 20 car companies. By 2004 the UN Conference on Trade and Development (UNCTAD) even noted that five companies from emerging Asia had made it into the list of the world's 100 biggest multinationals measured by overseas assets; ten more emerging-economy firms made it into the top 200.

By 2006 foreign direct investment (including mergers and acquisitions) from developing economies had reached $174 billion, 14% of the world's total, giving such countries a 13% share (worth $1.6 trillion) of the stock of global FDI. In 1990 emerging economies accounted for just 5% of the flow (see chart 1) and 8% of the stock. Their slice of global cross-border M&A has been climbing. It reached 14% in value terms in 2006 (chart 2). That year they spent $123 billion in more than 1,000 cross-border deals.

Since UNCTAD's first analysis in the early 1970s there has been concern about the power wielded by companies from rich countries in poorer ones. Developed countries have had their bouts of anxiety too. In the 1960s the French fretted about le défi américain, as IBM, Ford, General Motors, Dow Chemical and ITT spread their tentacles across Europe; in the 1980s it was America's turn to squirm as Japanese firms bought up Hollywood and Manhattan.

The latest trend reflects a new, fundamental shift. In a more open world, emerging economies are spawning their own giants. UNCTAD is turning its attention to the new shape of global business: investment now flows increasingly from south to north and south to south, as emerging economies invest both in the rich world and in less developed countries. More...