Emerging-market companies focused on their home countries are thriving—and beating larger MNC rivals—thanks to deep insight and understanding of the growing consumer class in those markets. The Boston Cosulting Group (BCG) highlights 50 such companies, dubbed “local dynamos,” in a new report. The report, titled The 2018 BCG Local Dynamos: Emerging-Market Companies Up Their Game, is being released today.
These innovative and agile local dynamos have at least $100 million in annual revenue and generate enviable growth and shareholder returns. An index comprising the 38 publicly trad-ed dynamos showed that they generated total shareholder returns of 18% from 2014 through 2017, more than double the performance of the MSCI Emerging Markets (7%) and well ahead of the S&P 500 (12%). A key driver of local dynamos’ strong returns was robust top-line growth. From 2014 through 2017, that same group of local dynamos generated com-pound annual revenue growth of 15%, topping revenue growth posted by companies on the MSCI Emerging Markets Index (10%) as well as the S&P 500 (2%).
Local dynamos are capitalizing on four forces driving growth in emerging markets. These include:
- Population Growth. Emerging markets will be home to 900 million additional peo-ple by 2030, while developed-market populations will remain stable.
- Rise of the Consumer Class. Thanks to increased median incomes, spending in emerging markets has jumped by $7 trillion since 2007.
- Fast Urbanization. Since 2007, emerging-market urban centers have collectively seen their population increase by 500 million, with China accounting for nearly half of that growth.
- Digital First. The number of internet users in emerging markets has jumped by 1.8 billion since 2007. And most of these users are mobile natives.
A powerful driver of success for many of these companies has been the ability to target the rising expectations of the growing ranks of digitally savvy consumers in those markets—many of whom reside in expanding urban centers. “Private consumption has accounted for at least 50% GDP growth in emerging markets since 2010,” says Rahool Panandiker, a BCG partner in Mumbai and a coauthor of the report. “BCG’s local dynamos are close to consumers in their home markets. As a result, they are able to respond rapidly to changes in preferences while keeping costs low by adopting lean manufacturing and digital automation.”