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CHAPTER 1

Who's Next?

How emerging multinationals you've never heard of could eat your lunch, take your job, or possibly be your next business partner or employer

For a few minutes, I held the future in my hand. Suddenly my Blackberry looked like a Model T Ford. I was trying out a prototype of a new third-generation cell phone. It certainly looked stylish, but more intriguing was the fact that this was a video phone that actually let me see the person on the other side of the line. And that was not all: on a bright screen that easily fit in my pocket, I could check local traffic, watch breaking TV news, and play interactive group computer games. Naturally, I could access the Internet, email, update my calendar, and listen to downloaded CDs. This was a smart phone indeed.

Was I visiting Verizon, Apple, or Nokia? No, it was January 2005 and I was standing in the research lab of High Tech Computer Corp. (HTC), a Taiwanese company that with its 1,100 research engineers had invented the iPAQ, sold it to Hewlett Packard, and gone on to make a successful series of state-of-the-art handhelds and smart phones for the likes of Verizon, Vodafone, Palm, and HP. All around me were young, smart, ambitious engineers from Taiwan and China, hard at work testing everything from sound in a sophisticated acoustics studio to new antennas, drop impact, and the scratch resistance of new synthetic materials. Designed in Taiwan, these high-tech video phones would shortly be mass produced, and one day soon sold around the world.

I was not just looking at the prototype of a new smart phone, but making a pilgrimage to the prototype of a new kind of company -- savvy, global, high-tech (as its name suggests) and, most importantly, well ahead of its nearest competitors even in the United States and Europe. My experience at High Tech was not as unusual as you might expect. For thirty years I had been visiting little known companies all over Asia, Latin America, Eastern Europe, and Africa, convinced of the long-term potential of these unknown markets and companies even if few firms or economies were as yet globally competitive. Managing an investment portfolio that has since grown to over $16 billion has only confirmed my belief that just as conventional wisdom wrongly depreciated emerging markets twenty-five years ago as "Third World," today's all too common error is to underrate the leading companies from these markets. Largely unnoticed in the mature economies, the firms profiled in this book have succeeded against the odds and become battle-hardened survivors of tough crises and Darwinian competition. With the rising power of China, India, and other emerging markets, and the resultant shift of consumer demand from the West to these markets' exploding middle class, we have now formally entered the Emerging Markets Century.

THE EMERGING MARKETS CENTURY

Instead of being peripheral, as they have been since the first Industrial Revolution, key economies of the former Third World will soon reemerge as the dominant economies of the future. In about twenty-five to thirty years, the combined gross national product (GNP) of emerging markets will overtake that of the currently mature economies (see table). Although comprising about 85 percent of the world's population, low per capita incomes in many emerging markets have kept their share of global GNP to about 20 percent. But this ratio is bound to change as the emerging economies continue to grow at a rate nearly twice as fast as their more mature cousins. This second industrial revolution will constitute nothing less than an economic landslide, causing a major shift in the center of gravity of the global economy -- away from the developed to emerging economies.

According to Goldman Sachs projections, just four of the largest emerging markets (known as BRICs, for China, Brazil, India, and Russia) will overtake the seven largest industrialized countries, the G7 (United States, Japan, Germany, France, UK, Italy, and Canada) by 2040. Including the next group of eleven major emerging markets, the fifteen leading emerging markets will together be larger than the G7 soon after 2030. Their combined GNP is projected to reach $41 trillion, compared with the G7's $43 trillion after taking account of a probable slowing in China to less than half its current growth rate. Adding in the remaining developed and emerging nations, my own projections show that emerging markets as a group will overtake the developed world by around 2030-35. By the middle of this century, the emerging markets, taken in aggregate, will be nearly twice as large as the current developed economies.

A new breed of companies will play a critical role in producing this shift, a select number of which truly deserve to be regarded as world class. In the face of these firms' vigorous emergence onto the world stage, there will be a temptation to go into protective panic mode, as some American politicians began to do after Chinese companies made a few runs at long-established Western brands, and as European politicians did after Mittal Steel, the world's largest steel group with its Indian-born CEO, made a strong takeover bid for #2 steelmaker Arcelor, a major European conglomerate. But if we fall prey to a defensive response, we do ourselves a profound disservice by ignoring potentially attractive opportunities for business partnerships and investments. Anyone who wants to play in this global game needs to know the strengths and weaknesses of the players on the opposing team.

During that same multiweek tour through Asia, I visited a number of other corporations that would surprise those who still regard "Third World" companies as raw material producers or imitative makers of cheap electronics. I toured Bumrungrad hospital in Thailand where patient information is entirely paperless (in sharp contrast to even the most advanced hospitals elsewhere in the world) and to which hundreds of thousands of patients from all over the globe flock each year for treatments ranging from heart operations to cosmetic surgery, all obtainable at a fraction of the price in the United States. I spoke with petrochemical engineers no longer interested in producing cheap polyester but focused on developing sophisticated new synthetic materials. I listened to researchers speak excitedly about applying nanotechnology to flexible computer screens that could be folded and rolled up. And most importantly, I tested out a whole host of new products that based on the quality of their design, sophistication of function, and durability, were equal if not superior to competing products made in the United States, Japan, or Europe.

The broader phenomenon I had witnessed during my sojourn to the future could, of course, be loosely labeled with the tired term "globalization." But as Moises Naim, editor of Foreign Policy magazine, not long ago observed to me, "Globalization is not an abstract notion but driven by real actors who are pushing these changes." He has a point. It was plain as day that a number of the companies I visited on my last trip were no longer bit players, but leading actors, even budding international superstars, on this new global stage.

By now we have all heard ad nauseam about globalization, the startling rise of the Asian Tigers, China and India as economic powers, outsourcing and offshoring, both pro and con. Yet in the "West" (as the developed nations of the United States, Europe, Japan, Australia, and New Zealand continue to be conveniently, if not correctly, called) we go on clinging to the comforting notion that at least "our" top companies continue to lead the world -- in global presence, in technology and design, and above all, in brand recognition and marketing prowess. But is this still true? Are the leading corporations headquartered in Korea, Taiwan, China, India, Brazil, Mexico, and Russia really so far behind their counterparts in the industrialized West? Can we consider our complacency -- occasionally shattered by periods of anxiety verging on panic -- justified at a time when:

• Korean Samsung's powerful global brand is now better recognized than Sony's, its R&D budget is larger than Intel's and its 2005 profits were higher than those of Dell, Nokia, Motorola, Philips, or Matsushita.

• The regional jets we fly are made by Embraer in Brazil.

• Mexico's CEMEX has become the largest cement company in the United States, the second largest in the UK, the third largest globally, and the leader in many other markets.

• Computers are now not just made but largely designed in Taiwan and China.

• We get most of our advice about how to fix those computers from India.

• Russia's Gazprom's gas reserves are larger than those of all the oil majors combined and its market capitalization rivals that of Microsoft. Europe would freeze in the winter without its gas supplies, as was pointedly demonstrated when it briefly turned off the tap. Meanwhile, Russian Lukoil's gas stations (bought from Getty Oil) can be found near the White House, the New York Stock Exchange, and all along the East Coast.

• Modelo, a Mexican company, sells more beer (Corona) to Americans than Heineken. And a Brazilian CEO became head of Inbev-Ambev, the world's largest beer company, in a merger in which "old" European beer companies were amazed at the efficiency of their Brazilian partners.

That is not all -- not by a long shot. Today, Korean engineers are helping U.S. steel companies modernize their outdated plants. New proprietary drugs are being developed in Indian and Slovenian labs no longer content to compliantly turn out high volumes of low-cost generics for resale in the mature economies. New inventions in consumer electronics and wireless technology are moving from Asia to the United States and Europe, as opposed to the other way around.

The era of emerging markets companies being nothing more than unsophisticated makers of low-cost, low-tech products is rapidly coming to a close. Something different and dynamic is happening in these new economies, blessed with robust rates of growth our mature economies can only envy. What is often overlooked when people speak glibly of globalization is that a new kind of firm is fast arising and flexing its muscles in the nations of the former Third World. These companies frequently serve dual roles of competitor and business partner with established First World multinationals. It would be naïve for us to dismiss them for deriving their competitive advantage "unfairly" from "cheap labor." More often than not, factors other than price or cost have been the prime determinants in their arduous climb to world-class status. Chief among these "man-made" factors are: (1) an obsessive focus on quality and design, (2) brand building, (3) logistics, (4) being ahead of competitors in adapting to changing market trends, (5) acquisition savvy, (6) sustaining an edge on competitors in information technology, (7) clever niche strategies, and (8) unconventional thinking. These companies and their leaders represent the next big economic superstars of the Emerging Markets Century.

THE INVISIBLE CHAMPIONS

It is time to start getting used to the idea that the household names of today -- whether we are speaking of IBM, Ford, and Wal-Mart in the United States; Philips, Shell, and Nestle in Europe; or Panasonic, Honda, and Sony in Japan -- are in danger of becoming the has-beens of tomorrow. After all, most of us were blissfully unaware that companies from emerging markets were already playing a major part in our lives. They make much of what we eat, drink, and wear, in addition to providing us with energy and raw materials. Fifty-eight of Fortune magazine's top 500 global corporations are headquartered in emerging markets. Many of these are not less but more profitable than their peers in the United States, Europe, or Japan. Emerging world-class multinationals have a number of things in common. They

• Are widely recognized as leaders in their industry on a global, not just national or regional basis.

• Have a truly global presence in exports and, often, production.

• Have a top-three market share in enough countries to be a global player.

• Are globally competitive not just in price but in quality, technology, design, and management.

• Can be benchmarked against the biggest and best in the world.

Ten years ago, I would have been hard put to name even one such company, but today there are at least twenty-five emerging multinationals that are already world-class. And within a decade, I expect this number to grow to well over 100. In succeeding chapters, I will focus on themes -- from building global brands to turning the outsourcing model upside down -- which explain the secrets behind their success and are often unique to emerging markets. Each year, more and more of these world-class companies emerge into the mainstream. Among these new entrants are producers of some of the basic commodities on which all of us in the world economy depend, from oil and gas to iron ore, pulp, steel, and cement. But also among these new entrants are emerging-markets-based representatives in a broad range of technology-oriented, capital-intensive industries represented in the Fortune 500 list. Some industries boast more than one company that can be classified as "world-class" (Korean Samsung and LG in electronics, for example, or Indian Infosys and Tata Consulting in IT services). For the sake of clarity and cohesion I have chosen to include only the leader in each industry. The list also excludes a number of smaller niches in which emerging market companies happen to excel, from pianos to textiles.

One reason that emerging multinationals have remained below the radar of so many executives, as well as the general public, is that companies such as Yue Yuen and Hon Hai remain deliberately hidden in the shadows cast by better-known brands such as Nike, Dell, or Nokia. Even though they are the actual producers of products for those companies, bigger brand names continue to control the distribution and marketing. When will they emerge from the shadows? These firms' prevailing invisibility -- a conscious stealth strategy in some cases -- does not mean that they are powerless, less profitable, or that they will be content to take the low-profile road forever. It won't be long before the biggest companies you have never heard of become household names.

Companies like Samsung, LG, and Hyundai began by making products efficiently and cheaply but now have recognized brand names, a high quality image, world-class technology, and appealing designs. China's Haier and others are following in their footsteps. In fact, they are already better known than GE, Sony, or Toyota by hundreds of millions of consumers in China, India, and other emerging nations. Some are bound to find the ways and means to distribute their products globally without having to rely on the big brand names to handle the consumer end. As time goes on, more emerging-markets firms will take over long-established Western companies, including those they now supply. We are seeing this trend played out as global supply chains turn upside-down, with Western companies selling components and services to global giants from emerging markets. General Electric sells jet engines to Brazilian plane builder Embraer. Other smart firms will soon follow suit.

TIME TO FACE REALITY --
AND EXPLOIT ITS OPPORTUNITIES

Our ever-shrinking world is poised on the threshold of a new period of competitive threat, but also one of thrilling opportunity, when the global playing field is not just leveling (as Tom Friedman has persuasively argued in his book The World Is Flat) but tilting away from its former owners. Tracing the contours of this tilting field is the subject of The Emerging Markets Century. While globalization has achieved enormous prominence as a social and economic trend, our profiles of the twenty-five emerging multinationals can teach us valuable lessons about the real actors in this new world.

We can learn from these upstarts in emerging markets about:

• Competitiveness

• Process innovation

• Adaptation to new markets

• Future industry trends

• The types of jobs we should be training for

• The future of trade deficits

• Strengthening basic research and infrastructure

• New ways to deal with the aging of populations, and

• Shifts in political and economic power

World-class emerging multinationals are the foot soldiers in today's global competitive battle. Just as the rise of the United States after the Industrial Revolution turned American companies from imitators into innovators, emerging market multinationals will increasingly do the same. In the nineteenth century, during the first industrial revolution, aristocrats looked down on the new entrepreneurs and emerging middle class in America and Europe without comprehending that a new era had begun. As we now face a second industrial revolution, analyzing the evolution of the twenty-five companies discussed in this book can be a first step toward insuring that we don't make that same mistake again.

REVERSAL OF ROLES

Decades of good times created innumerable legacy problems for many long-established multinationals, but brutal crises in recent years squeezed out many emerging markets companies that had pinned their hopes on protection. The ensuing Darwinian struggle for survival left only battle hardened survivors still standing. As newcomers, emerging multinationals had to fight for shelf space and against preconceived notions of inferior product quality (not always without justification). In the end, the world-class companies described in this book carved out leading roles. These are not overnight wonders.

THE THREE WAVES

There have been, in my opinion, three distinct waves defining the commercial relationships between the former First and Third Worlds in the past century.

Wave 1: Foreign Direct Investment in Overseas Plants

During the postwar period, an American, Japanese, or Western European company would set up a manufacturing plant in an emerging market and import virtually everything except labor from the home country, including its own managers, machinery, capital, technology, and management techniques. They would operate copper mines or oil fields, assemble cars, run agri-businesses or make televisions or disk drives. Their purpose was to turn out inexpensive products for export using low-cost local labor and raw materials, while participating in the growing local market for their products. It was the logical business model for its time because homegrown companies in emerging markets typically had little or no track record, the technology on which they depended needed to be imported, there were few trained managers available, local capital markets were nonexistent, and banks would only lend to them on a short-term basis. Some played up these overseas plants as crucial modernizers who brought much needed capital and technology to the Third World. Others decried them as neo-colonialist outposts who operated in splendid isolation and simply substituted commercial for political and social control. Ideologues on both sides of the debate misunderstood their real impact. Over time, these overseas plants familiarized a local labor force with global technology, trained local managers, set rigid standards for efficiency and service, and introduced management methods that spread quickly to their local suppliers and competitors. All of which, in turn, set the stage for...

Wave 2: Outsourcing and Offshoring

Over the past two decades, many traditional multinationals realized that it was no longer necessary to set up overseas subsidiaries: local corporations enjoy easy access to the capital markets, and could easily buy the latest technology themselves and learn how to operate sophisticated machinery in huge plants. Local schools and universities produce an ample supply of skilled workers and engineers. At a later stage, the Internet allowed instant communications and easy dialogue. Long-term business relationships developed the trust needed to rely on overseas suppliers rather than in-house operations. First a single component or cheap, low-tech part, then whole modules or products, then finally the design of entire sophisticated, high-tech products, were increasingly "offshored." True, the client in the United States, Europe, and Japan remained in the driver's seat and this symbiotic relationship seemed to remain between the mother ship and its dependent partners. Yet even as multinationals distributed and stamped their brand name on the products, they in turn became dependent on the process technology of the companies to which they "offshored." In the meantime, the outsourcing companies were able to earn excellent margins, often higher than those of their clients.

Wave 3: Peer-to-Peer Emerging World-Class Competitors

We are now entering the early years of Wave 3: the emergence of world-class multinationals from emerging markets. In some cases, a powerful emerging markets firm, a Samsung or High Tech in consumer electronics, a Modelo in beer, or an Embraer in aviation, has risen to a status that thrusts it into the same class as traditional multinationals. India's Infosys (IT) or Argentina's Tenaris (oil pipes) rank as global competitors. Brazil's Companhia Vale do Rio Doce (mining) and Mexico's CEMEX (building materials) have learned how to cleverly become global players without losing the particular advantages of their location in low-cost markets.

Emerging Multinationals Benefit from Role Reversal

• Just as good times create bad habits, serious crises leave only battle-hardened survivors.

• Decades of experience easily turn into the burden of "legacy" and without this burden, emerging market companies sometimes leapfrog.

• The "home market" advantage is shifting to faster-growing emerging markets with more middle-class consumers than in the West.

• Suddenly, China is more admired by many in Asia than the "West."

• A new world of consumers is making its presence felt.

FROM HEADWIND TO TAILWIND

We all sense -- and those who travel frequently know from experience -- that the pulsing center of the 24/7 global economy is shifting rapidly away from the cosmopolitan cities of London, Paris, and New York to the equally cosmopolitan cities of Shanghai, Mumbai, Seoul, and Mexico City. Today, while the so-called industrialized nations continue to produce 80 percent of the world's gross national product, they represent a mere 15 percent -- a small and shrinking fraction -- of the world's population. As a consequence of these unalterable demographic facts, the ongoing dominance of the former First World (for so long an immutable economic given) can last only so long as the rest of the world remains poor. Who truly believes that this deep disparity is likely to continue indefinitely, or that it would be desirable in the long run to maintain it?

While so many in the poor countries remain poor, today there are far more middle-class consumers in the world's emerging market nations than in the West. Their combined purchasing power, sophistication, and confidence are growing by the day. Middle-class educated consumers in Shanghai, Seoul, and Bangalore in Asia, Moscow and Prague in Eastern Europe, Sao Paulo, Buenos Aires, and Mexico City in South America -- to name just a few emerging metropolises -- are confidently buying more cell phones, refrigerators, televisions, or beer than their middle-class counterparts in the West. U.S. multinationals like General Electric, Procter & Gamble, DuPont, and General Motors soberly expect more than half of their future growth to come from emerging markets. For so many decades, these markets were peripheral to these companies, but they are counting on them over the next decade to keep their shareholders content. Jeff Immelt at GE, a bellwether U.S. conglomerate if ever there was one, has committed his firm to doubling its revenues derived from emerging markets from its current 15 percent ($25 billion) to 30 percent by 2010.

This sometimes boisterous yet dynamic state of affairs stands in sharp contrast to the anemic growth forecasts by mainstream economists for many products in traditional markets. If current growth trends continue unchanged, China and India will be solidly diversified middle-class economies well before mid-century, much as Korea and Taiwan are today. Could travelers landing at New York's bedraggled JFK Airport in recent years, flying in from sleek modern airports in Shanghai, Seoul, or Singapore, be forgiven for wondering whether they have just landed in an underdeveloped country or a developed one?

IT IS THE NEW ECONOMIES, STUPID!

Only a decade ago, it was the fervent conviction of many a long-range visionary in the United States and Europe, from former AOL Time Warner chairman Steve Case to Vivendi Universal's grandiose Jean-Claude Messier, that the world-class companies of the future would exclusively arise from the bright and shining "new economy." Today, as the reality of the current global dynamic gradually sinks in, it is more likely that many if not most of the world-class firms of the future will come from the "new economies" of Asia, Latin America, and Eastern Europe -- perhaps even the Middle East and Africa.

CHINA AND INDIA: NEW MEGA-MARKETS SPROUT NEW MULTINATIONALS

Before the middle of the twenty-first century, China's economy alone will be not only the largest in the world (as it was before the Industrial Revolution) but this time around it will not live in splendid isolation but will become the anchor economy of the world -- the leading global importer, exporter, as well as trendsetter. China will not only dominate its region but also become an important investor overseas, rather than the largest destination for foreign investment as it is today. With the gap between rich and poor countries fast eroding (even if disparities within countries remain), the industrial nations led by the United States will no longer be the exclusive arbiters of taste, standards, and technology. Just as third-generation mobile telecommunications will flourish in Asia before the United States, new fashions in clothing and retailing will begin to move from East to West rather than the other way round. In China, for the young set, Korean rather than Western cosmetics, clothing styles, video games, and rock bands are now "cool." Hyundai cars, LG air conditioners, and Samsung refrigerators have become leading brands in China. While the best-selling Chinese cars today are still largely made by multinationals or are copycats, within a decade the Chinese will export well-engineered cars to Europe and the United States.

In India, at the Tata Institute of Fundamental Research in Mumbai, research on "string theory" -- the universal theory that proponents suggest can be used to explain black holes and the origin of the universe -- is among the most advanced in the world. India is also one of only six nations in the world capable of building and launching satellites. While ancient India was known for knowledge, innovation, and discoveries (including the mapping of planets and the solar system, as well as the invention of the zero), it took nearly ten more centuries for India to enjoy a second Golden Age, marked by internationally recognized software and pharmaceutical industries, which today no longer rely on the crude economics of sheer cost advantage but on intellectual capital to advance globally.

R&D activity in India is increasing rapidly, while improving laws on intellectual property rights offer protection for innovation to excel, particularly in the pharmaceutical industry. Private equity funding is now available in India, angel and seed funding are on the rise, and the government generously supports departments of science and technology as well as funding research at over forty high-tech institutes. In addition to pharmaceuticals and software -- currently the leaders of economic growth -- aerospace, defense (India's current president, Dr. A. P. J. Abdul Kalam, is best known as the father of India's missile program), and automobiles are increasingly driving new innovation and discovery.

A DRAGON UNLEASHED

In May 2005, after flying home to Washington, D.C., from Asia, I opened up The Wall Street Journal to read the announcement that IBM had agreed to sell its iconic PC Division and esteemed ThinkPad brand name to low-cost Chinese computer producer Lenovo. Curiously, the news elicited little more than a mild sense of unease in the business and policy communities, even though IBM was the company that had first mass-marketed a PC twenty-five years before, sparking a personal computer revolution that continues to this day. More attention was paid when -- in rapid succession -- the Chinese appliance maker Qingdao Haier Ltd., together with two American private equity funds (Blackstone Group and Bain Capital), sent the Maytag Corporation an indication of interest and the Chinese government oil company CNOOC made a bid for Unocal. Now Chinese companies were not only producing goods at low prices and even competing with American firms on their home turf, but they were trying to take over venerable American brand names and resources. Suddenly, what had been viewed as a convenience became seen as a threat. As The Wall Street Journal perceptively noted in July 2005:

Whether successful or not, Haier's emergence represents an inevitable push by Chinese manufacturers to get hold of well-known Western brand names. Having clawed into the marketplace with ultra-low-cost manufacturing, these companies are acquiring both the sheen and the substance of global players, and they increasingly have financing to realize their global ambitions.

The chorus of questions inevitably raised by Haier's surprise bid for Maytag -- Who was this Chinese appliance manufacturer? What did they want with Maytag? Was the storied Maytag repairman slated to lose his job to a counterpart from Shanghai? -- remained remarkably restrained, in part because it was so easy to cast Haier in the role of savior of this faltering icon as opposed to an alien invader seeking to steal a crown jewel from the heartland of America. As Andrew Ross Sorkin pointed out in The New York Times, "Haier was less likely than its earlier suitors to lay off the Maytag repairman, not to mention thousands of his co-workers, so that it could flip the firm to yet another private equity firm." Haier was also more likely to perpetuate "the Maytag brand, its culture and its legacy" than a domestic bidder. Only later, after venerable white goods brand Whirlpool entered the bidding war for Maytag, did Haier reluctantly fold its cards. This was not a sign that the Chinese hunt for brand names and resources was likely to slow down. The Chinese would learn from their mistakes, and polish their game for yet another run at key American companies and brands.

Yet the complacency with which Americans greeted the IBM and Maytag bids was abruptly shattered in late June 2005, when the 70 percent state-owned Chinese oil company CNOOC made a strong bid for the U.S. oil firm Unocal -- founded in 1890 as the Union Oil Company of California -- in an attempt to top Chevron's rival $16.4 billion offer. At precisely this point, the supposedly level playing field suddenly seemed (to some) to be tilting too sharply toward Asia. Murmurings and rumblings about "national security" amplified into a howl of protest. Impolitic demands from the Chinese Ministry of Foreign Affairs for Congress to refrain from interfering in a "strictly commercial transaction" only served as a proverbial red flag waved before an onrushing bull.

Political grandstanding, irrational fears, and some undoubtedly valid concerns began to form an incendiary mix. Part of the outrage and protest was prompted by a sense of "how dare they?" based on antiquated twentieth century superpower notions as opposed to twenty-first century realities. When American oil companies were angling for control of Russia's Yukos as another "strictly commercial transaction," few concerns were raised on this side of the pond as to how a change in ownership of strategic Russian oil resources would play in Moscow. Lost in the rhetoric was also the fact that little of the oil from Unocal's wells ever reached American shores, or that the technology of deep water drilling was no longer an American preserve. Most of Unocal's reserves were, in fact, in Asia, and today the technology of drilling in 3,000 meters of deep water and a further 5-10 kilometers down into the rock is well mastered by Brazil's Petrobras. The drilling pipes used are as likely to come from the Japanese subsidiary of the Argentinean company Tenaris as from anywhere else. Even after the CNOOC bid was ultimately withdrawn as the political risk of a protracted national security review of the deal threatened to defer it indefinitely, it was no longer possible for Americans, along with others in the former First World, to ignore the issue. More recently, an international firm controlled by the government of Dubai gained control of the venerable British P & O, the largest operator of shipping ports in the world, sparking an artificially stoked outcry from politicians and the public. Many cooler heads viewed this as thinly veiled xenophobia masquerading as post 9/11 anxiety. The upshot was that Dubai Ports World agreed to sell off its American assets, rather than endure the suspicions of Americans regarding its ability to adequately secure vulnerable U.S. ports.

Despite occasional setbacks, takeover bids initiated by emerging multinationals, flush with money from higher commodity prices or eager to get access to technology, brands, or design, have been increasing steadily over the past years. French electronics giant Thomson was purchased by Chinese consumer electronics TCL. Taiwan's BenQ acquired Siemens Mobile. Turkish appliance maker Beko recently acquired the German brand Grundig. During 2005 alone, emerging multinationals spent a record $42 billion in takeover deals in Europe (more than twice the previous year) and another $14 billion (in ninety-six separate deals) in the United States, well above the $10 billion previous peak in 2000. It should be pointed out that this phenomenon is not confined to the United States or Europe. Canadian oil producers are being bought by the Chinese and Brazil's CVRD made a $17.6 billion takeover bid for Canadian nickel giant Inco, Ltd. Indonesian mining reserves have fallen into Chinese hands. China's Petrochina as well as India's Oil and Natural Gas Corporation (ONGC) are drilling in Sudan. Chinese firms are also buying mining and oil drilling rights all over Africa.

Interestingly, the largest buyers of U.S. assets have been Indian as opposed to Chinese companies, but the latter have finally arrived at a point when such transactions represent a logical strategic move and therefore a genuine competitive threat. Despite its huge local market, Chinese appliance maker Haier understands that it needs to be global and is following in the footsteps of Samsung by focusing on developing a global brand. Even as the latest rounds of bids failed, they were undoubtedly the leading edge of a trend. "The Chinese government has been preparing its top 100 to 150 companies to go overseas and expand," noted Jack J. T. Huang, chairman of the China practice at the large international law firm Jones Day. "The government wants to use [the recent bids] as a testing ground, to see how well the companies stand up to competition."

The response on the part of the target societies to the sudden emergence of powerful and competitive firms in the emerging markets can be regarded as remarkably reminiscent of Elisabeth Kubler-Ross's famed delineation of the sequence of emotional stages people undergo when confronting the prospect of life-threatening changes: First denial, then fear, then anger, then acceptance.

As of 2006, America and Western Europe have not quite arrived at the stage of acceptance of the Emerging Markets Century and the global ambitions of emerging multinationals. We have at last grudgingly accepted that these firms do exist, and that some of them are growing very strong, along with their governments. Yet we still have trouble coming to terms with the twenty-first century reality that the former First World no longer rules the global roost unchallenged. When it comes to emerging multinationals, we still lack knowledge. And where knowledge is lacking, fear, anger, and anxiety will rule.

THE COMPETITIVE THREAT IS ONLY HALF THE STORY

Those who can clearly recall the Cold War may be forgiven for entertaining a sense of déjà vu regarding the emerging threat of emerging multinationals, because the frisson of tension aroused by takeovers from the world's former basket cases is distinctly reminiscent of earlier anxieties prompted by the launching of Sputnik. After that fateful night in October 1957, fears arose that the Russians were winning the Cold War, or at least the space race. Two decades later, the overwhelming success of Toyota and Sony prompted a similar alarmed battle cry that "The Japanese are winning." Now, in the early years of the twenty-first century, it is the Chinese and the Indians who are winning. Yet those who speak exclusively of losers and winners clearly regard a global economy as a zero-sum game. What if, instead, the rise of emerging markets and emerging multinationals were to become a win-win for both sides?

Just as Sputnik touched off the creative response of the space program and all the products and technologies it spawned; just as the Paul Revere cry of "The Japanese are winning!" led American companies to adopt TQM (total quality management), Six Sigma, and just-in-time inventory processes, so today's cry of alarm, "The Chinese, the Indians, the Taiwanese, and the Koreans are winning!" may well induce in the formerly complacent, suddenly anxious nations of the former First World a comparably creative response. There is ample scope for such a response, not based on naïve internationalism or misplaced fatalism but on the well-justified belief that the global economic scene is not a zero-sum game.

Emerging multinationals are no longer interested in being perceived as Korean, Mexican, Taiwanese, or Chinese companies. They aspire to be truly global, to operate globally, think globally, manage globally, and grow globally. This goal is rapidly becoming a reality for many, a reality to which both the emerging multinationals and the rest of us are only gradually beginning to adjust. Many emerging multinationals are already owned by shareholders from all over the world: Samsung is owned 52 percent by international shareholders, CEMEX 71 percent, Hon Hai 57 percent, Infosys 54 percent, and the emerging multinationals as a group about 50 percent. Moreover, emerging multinationals are becoming significant employers in the United States and Europe and attractive prospective employers for business school graduates, designers, and scientists. The Mexican cement producer CEMEX ploys over 30,000 in the United States and Europe, more than it employs in Mexico.

CEMEX's management meetings are conducted in English, while more than half of the firm's employees worldwide do not even speak Spanish. Hyundai just opened a plant in Alabama employing 2,000, while its regional suppliers employ an additional 5,500 workers. Haier makes most of its refrigerators for the U.S. market in a plant in North Carolina. Embraer obtains many of the components for the planes it builds from the United States, Japan, France, Spain, and Russia. When I recently asked to interview the CEO of the Indian pharmaceutical company Ranbaxy, I found myself greeted by CEO Brian Tempest, from the UK. Since 1995, Samsung's Innovative Design Lab (IDS) has served as an in-house school where promising designers can study under experts from one of the top U.S. design schools, the Art Center College of Design in Pasadena.

As a long-time investor in emerging markets, I have seen these companies survive the crises that hit them when, in short order, Mexico and Asia devalued, went into deep recessions, and seemed to get lost on their road to success. I have seen them turn problems into platforms for global success. I have watched the best of them grow in front of my own eyes from small, second-rate producers of cheap goods to well managed, globally competitive, large-scale, state-of-the-art corporations that are leaders in their industries and top-ranked in their market niches. Many of the next Microsofts, General Electrics, and McDonald's are more likely to appear in emerging markets than in the United States, Europe, or Japan.

The Emerging Markets Century tells the stories of how twenty-five companies made it to the top of the global heap, and how others in the same industries and countries fell by the wayside. It details what it takes to become a world-class company in an emerging market and what we -- and other emerging market companies -- can learn from that often harrowing experience. Formulating a creative as opposed to a defensive competitive response to this dramatic and often painful shift of power has become the central economic challenge of our time.