Competition is becoming fierce in the emerging markets and domestic players are becoming more resilient but eventually bigger international players will come in and consume the smaller entrants.
That is the future of the developing world according to EM economist and Global Success Advisors’ president, Nenad Pacek.
Speaking at Citywire Switzerland 2017, Pacek said many EM multinationals are concerned about medium-sized companies from the US and Europe expanding into their territory.
'In a recent meeting, one of our clients said these companies had muddied the waters in terms of competition. These clients have an interest in good products in a niche areas but US and euro multinational companies are making it difficult.
'The markets are becoming more dynamic, but eventually the big fish will eat the small fish, so they will eat the small and medium-sized players as they are able to establish good export markets around the world, particularly in developing countries.'
Pacek said these disruptive companies are partly motivated by simply finding growth and accelerating.
'In the last survey we did over the summer with our multinational clients, 92% of the companies said that competition is getting worse, and this is an interesting point of view.
'They have said that it’s not only that typical multinational competitors are getting more aggressive in developing markets, but it’s also other types of competition.
‘This is even more worrying for them and it’s the rise of the so-called EM multinationals, which is where all of you delegates said you would be investing.'
Buying up market breakers
Investing in the equities of emerging market companies, is something Pacek said is a good idea, as ultimately many bigger brands have started to fish out smaller EM players.
‘Global boards of the biggest companies in the world are thinking about acquiring these players because they cannot find enough organic growth. They are proactively setting up, or they have already placed resources in acquisition teams.
‘These teams are scanning Asia, Latin American, Eastern Europe, the Middle East, Africa and are trying to buy some of the local players, buy market share – with a keen interest in buying brands that are not on top of the pyramid in terms of premium products.’
Pacek said these companies are keen on buying brands in the second tier of the market, businesses that are placed in the middle of the value pyramid.
'They do this to give them volume and a sudden jump in growth. This is something that will be received extremely well by investors and global boards.
'This has meant that the emerging market multinationals have become a major disruptor for your typical multi nationals, as they tend to be more localised players in wide spanning markets.'