Rising Giants: Companies Welcome

Gabriel White flickr

The landscape of global business is changing. While World 1 economies still dominate the global business landscape, more and more companies based in World 2 and even World 3 are making their presence known on a worldwide scale.

These rising giants are not only serving — and in some cases dominating — their home markets, but they also are increasingly seeking to expand into other markets, both from other emerging economies and from developed economies. The growth and expansion of companies from emerging economies will dramatically transform the global business landscape in the next two decades.

In October 2013, McKinsey Global Institute (MGI) released a study that maps the geographic locations of today’s large companies (worldwide companies with $1 billion or more in annual revenue) — and projects how that map of the global business landscape might change by 2025.

The report, Urban World: The Shifting Global Business Landscape, anticipates that by 2025, the number of billion-dollar companies will nearly double; the number of these companies with headquarters in emerging economies will triple; and nearly half of the Fortune Global 500 could be based in emerging economies.

3 FACTS ABOUT CITIES THAT SPECIALIZE

  • In the United States, large companies are widely dispersed — much more widely than in northeast Asia (Japan and South Korea). Yet large US companies tend to cluster around cities that “specialize” in specific industries: Detroit for the auto industry; Houston for oil and gas; Los Angeles for construction and entertainment; and San Jose, pictured above, for high tech. The corporate landscape has already begun to shift. The number of Chinese companies on the Fortune Global 500 list, for example, has jumped from just 12 in 2000, to 54 in 2010, and to 89 in 2013.
  • In addition, clusters of large companies are already forming in some medium-size cities in China, probably as a result of the country’s rapid, broad-based urbanization. For example, Hangzhou, seen above, has 22 billion-dollar companies in sectors ranging from manufacturing to pharmaceuticals.
  • Cities have also begun competing for large-company business from emerging economies. London, for example, has announced intentions to turn Royal Albert Dock, above, into a business park aimed at Chinese and other Asian businesses hoping to set up headquarters in Europe.

3 BUSINESS IMPLICATIONS

  • In the newly transformed global business landscape, corporate leaders and managers will need to be able to respond to customer needs in an increasingly complex environment throughout the world. McKinsey suggests that this warrants rethinking such established organizational models as the traditional single-headquarters model, which may be inadequate to address these new complexities. Companies may want to consider establishing a secondary headquarters or splitting head office functions (as Unilever, GE, Dell, Halliburton, and Caterpillar have already done).
  • Depending upon their location decisions for secondary headquarters or split functions, companies will need to step up recruitment for the best local leadership talent in emerging economies. The capabilities of current company leadership may not be best suited for different business cultures and environments. Recruitment and cultivation of local leadership talent might begin with attempts to attract executives from emerging companies that have succeeded in reaching the billion-dollar threshold, which may provide excellent training grounds for multinationals looking to tap into local talent.
  • To achieve continued success in this transformed global business landscape, today’s large companies, especially B2B companies, may be forced to rethink their current organizational structures and explore new ways of optimizing their sales forces. B2B markets will shift significantly, with their customer base becoming much more diverse and geographically dispersed.69 B2B companies will need to reassess and redeploy their sales networks in order to serve a broader base of emerging business hubs — and will need to dedicate resources to continually monitoring and redeploying increasingly mobile and nimble sales forces in response to continuous change.

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