Emerging Markets Are Starting to Unravel for Some Companies

Company chiefs also are being pressed in unprecedented ways by so-called rising “global challenger” companies that are taking more share in their domestic emerging markets and even venturing more boldly than before into western markets.

Coca-Cola and McDonald’s are the latest global firms to experience the slowdown taking place in emerging markets where U.S.-company CEOs have put a great deal of effort recently. Company chiefs also are being pressed in unprecedented ways by so-called rising “global challenger” companies that are taking more share in their domestic emerging markets and even venturing more boldly than before into western markets.

“Stagnation in emerging markets is wreaking havoc on American firms.”

Over the last several years, European and American CEOs have spread their wings in the BRIC—Brazil, Russia, India and China—markets and other emerging countries as a way to tap into where consumer spending was growing and as insurance against the maturation and relatively slow growth of the western economies of North America, Japan and Europe.

But a funny thing happened: These emerging markets haven’t fully emerged, and some have regressed. China has come through on projections, but not so much elsewhere. And very recently, China’s economic growth has cooled while India, Brazil and especially Russia have proven even less dependable.

As a result, the stagnation in emerging markets is catching up with companies like McDonald’s, where CEO Don Thompson is coping with major issues stateside, and Coca-Cola, where CEO Muhtar Kent is trying to reverse a secular decline of massive proportions in consumption of the company’s main product. These are not isolated incidents, however. Rather, they are emblematic of a wider problem that is afflicting more and more companies.

McDonald’s’ problems may be episodic, including a meat-supplier scandal in China and government interference with some of its outlets in Russia that helped drive same-store sales down by 9.9% in the chain’s Asia/Pacific, Middle East and Africa regions in the third quarter.

For Coke, third-quarter consumption contracted in developing markets, where carbonated beverages generally have been soft, as well as developed markets where, increasingly, they’re being blamed for the obesity epidemic. Coke consumption actually contracted in both China and Brazil, long-time growth engines, by 1%, and fell by 3% in its geographic unit, including Russia.

“Exacerbating the problem is the fact Fortune 1000 companies are now competing against emerging market competitors on American soil.”

Exacerbating problems for western CEOs who are depending on these increasingly shaky emerging markets is the fact that many of these global Fortune 1000 companies are now competing on their home turf against competitors from those emerging markets.

Boston Consulting Group recently published a list of 100 rapidly globalizing companies from emerging markets, which it called “global challengers.” It’s the sixth such list since 2006. The consulting firm said that the latest list is characterized by challengers “that are acquiring more sustainable advantages beyond a large home market and low-cost labor.” Also, they are emerging in new consumer categories, such as fast foods, and wine and spirits.

And more of these home-market challengers are becoming overall leaders in their global industries, presenting the greatest type of threat to western-company CEOs. They include Mexico’s Grupo Bimbo, the world’s largest baker, and two Chinese companies, Huawei Technologies, the world’s largest telecom-equipment supplier, and Lenovo Group, the world’s largest PC maker.

Western-company CEOs have plenty of challenges these days. But their emerging-market difficulties comprise an arena of strife that most of them hadn’t bargained for and now have to face.

" Dale Buss : Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other business publications. He lives in Michigan.."