Other companies from the BRICS are now building and leveraging their innovation capabilities: the development of ultra-deep water oil production technology by Petrobras that is being deployed in Africa, the Middle East and the Gulf of Mexico; Moscow headquartered Kaspersky Lab, which has developed sophisticated antivirus software supplied to clients such as Microsoft, IBM and Cisco and has offices in, China, France Germany, India, Japan, the Netherlands, Poland, Romania, South Korea, Sweden, UK and USA; and Indian firms such as Wipro and Infosys have pioneered innovative, global business models to deliver information technology services.
A second major development as BRICS companies go global is that they are starting to compete for greater control of entire value chains: from raw material through to final customer. Historically most companies from the BRICS focused on a few stages of the overall value chain, starting with low-cost assembly. Some will continue to do so, seeking to compete by achieving greater scale and efficiency. But today a significant number of companies from the BRICS are moving to become “value chain creators”: they are seeking to control the entire global value chain for their products and services. In some cases this shift is achieved by integrating forward from a strong resource base to gain control of value-added activities in processing, distribution and marketing. Russian companies have been in the vanguard of this trend. Norilsk Nickel purchased the US firm Stillwater to extend its value chain to deal directly with users and facilitate the sale of its metals in the US; the oil company Lukoil has used foreign acquisitions to provide the technology to move upstream into offshore exploration; Gazprom has gained control the natural gas value chain by acquiring pipelines (such that linking Russia to Bulgaria through the Black Sea) and acquired Automated Meter Reading of the United Kingdom in order to build the capacity to provide “smart” energy management both suppliers and end customers worldwide. In other cases, BRICS companies start from the middle of the chain and extend forward to reach end customers. Wanxiang, for example, has gradually expanded along the value chain from universal joints to other parts of the driveline, then to the braking system, and subsequently to the whole chassis. It is now investing in developing, manufacturing and commercializing all-electric school buses and commercial vehicles for multiple industries.
A third development is that some of the leading BRICS companies are using their distinctive advantages and managerial mind-sets to drive global consolidation in industries that are considered “mature” in developed economies, such as steel making and bulk chemicals. Despite the decline of these industries in developed markets, they remain growth businesses in the BRICS. So BRICS companies see opportunities to drive up productivity, gain economies of scale, and are willing to invest in restructuring and renewal. They see foreign acquisitions as a way to soak up islands of capabilities and technology that have been left “stranded” by the decline of production capacity in mature markets such as the US and Europe and to deploy these new capabilities in their operations both at home and in other emerging markets. As a result, they are ready to drive global consolidation by buying up foreign assets to become dominant players in these mature industries. This strategy has been adopted, for example, by Brazil’s Gerdau, in the steel industry and Votorantim Cimentos and Camargo Correa in cement, and by Indian companies including Tata Group in steel, chemical and beverages, the Aditya Birla group in copper and aluminium, and Mahindra’s in tractors.
While there is still a wide gulf in international experience and organisational maturity between most BRICS companies and established multinationals, executives and policy-makers around the world need to take notice of these developments. As BRICS companies bolster their innovation capabilities and access new capabilities by going global, the current technological gap with established multinationals will close much more quickly than many assume. BRICS companies are relentlessly moving to higher value-added activities, gaining greater control of global value chains, and playing an increasing role global M&A. They are also adopting “contrarian” strategies to drive global industry consolidation in mature industries. So instead of playing a game of “catch-up”, BRICS companies are now setting their sights on new horizons. The race between BRICS companies and incumbent multinationals to win in the global market of tomorrow has begun.
The author is Professor of International Management at the University of Cambridge, Judge Business School and lead editor of a new book, “The Competitive Advantage of Emerging Market Multinationals”.
Read the abstract version in Chinese: “走向全球”增添金砖成色（国际论坛）, source: People's Daily, author: Peter J. Williamson
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