Five GCC Companies Named Among BCG’s 2016 List of 100 Global Challengers

A new study by The Boston Consulting Group (BCG) highlights 100 companies from emerging markets that have stood the test of time, moved into the global spotlight, and reshaped the landscape of their industries – and of key geographic markets.

The report titled Global Leaders, Challengers, and Champions: The Engines of Emerging Market marks the ten-year anniversary of the first publication of BCG's list of global challengers. 

Remarkably, the 2016 edition has the highest number of companies from the Middle East ever, five of which include GCC firms such as Emirates Global Aluminum, Etihad Airways, Etisalat, Qatar Airways, and SABIC.

“The global challengers are the leading edge of a much larger group of companies from emerging markets that, despite economic uncertainty, are powering ahead with confidence and ambition,” said Cristiano Rizzi, Partner and Managing Director in BCG's Dubai office. 

From 2009-2014, the 2016 global challengers from the Middle East have grown about 1.5 times in revenue size – and some companies such as Emirates Global Aluminum and Qatar Airways have even dramatically doubled in size. Overall, global challengers from the region have witnessed their revenues rise from approximately $80B to $133B – which constitutes nearly 6 percent of the Middle East’s $2.2T GDP (2014). Moreover, they have managed to maintain higher gross margins and revenue CAGRs than many emerging markets such as Latin America and Africa.

“Challengers from the Middle East have been particularly successful in delivering growth and profitability – and most have also managed to create exceptional shareholder value, especially compared to their local and global peers,” added Mirko Rubeis, Partner and Managing Director in BCG's Dubai office. “In fact, in terms of profits, between 2005 and 2014, global challengers from the region achieved a growth rate approximately 1.5 times greater than S&P 500 companies and global peers.”

In that very time frame, Middle East challengers generated an earnings before interest and taxes (EBIT) margin of 16 percent; in parallel, S&P 500 companies and global peers, achieved a margin of 12 percent and 11 percent, respectively.

In addition, challengers from the region have also effectively kept pace with local stock indices.

MIDDLE EAST CHALLENGERS SHOW CONTINUED GROWTH 

Among the Middle East challengers identified by BCG over years, 12% are graduates, 59% remain global challengers and 28% continue to be successful (they were either acquired or have gone local). In short, none of them declined in size.

This year, the Middle East is also home to two ‘graduate’ companies, Saudi Aramco and Emirates Airlines. These international players – both of whom were featured in the 2014 roster of ‘graduates’ – are becoming true global leaders in their respective fields. These graduates share five key attributes that include having an ambitious global vision, global culture, and commitment to global standards; a globally scalable operating model with an optimized footprint; globally competent leaders and a powerful global talent acquisition and development strategy; a go-to-market model with a clear globalization market plan; and the ability to place innovation and reinvention at the core of their business.

For example, Emirates Airlines has, since its founding, strongly emphasized innovation and global branding. It has become a world-class airline by providing a superior passenger experience. And it has reported a remarkable record of 26 consecutive profitable years. As for Saudi Aramco, it is, today, the largest integrated global petroleum enterprise in the world, with ventures all over the globe. 

The challengers from the GCC also all made it into the 2014 list. Saudi Arabian chemicals giant SABIC is the largest public company in the Kingdom operating in chemicals, polymers and fertilizers – it boasts more than 100 offices worldwide. This year marks the fifth time that SABIC achieved the status of ‘global challenger’. 

Abu Dhabi's Etihad Airways and Qatar Airways, two of the fastest-growing airlines in the Middle East also made both the 2013 and 2014 lists. In recent years, both airlines have succeeded in leveraging the region's favorable geostrategic location as a transportation hub at the crossroads of Asia-Pacific, Europe, and Africa.  

Etisalat, the region’s largest telecommunications operator, and Emirates Global Aluminum, the fifth-largest aluminum company, were included in BCG’s 2014 list of 100 Global Challengers. Etisalat is one of the largest corporations in the GCC; the company serves approximately 11 million customers in the UAE and operates in 17 countries. Looking ahead, Emirates Global Aluminum’s growth shows no sign of abating; the company has actually rolled out international expansion plans. 

SPOTLIGHT ON THE AIRLINE MARKET

Over the past decade, the list of challengers from the GCC indicates that air carriers from the region have a positively disproportionate share of the airline sector, especially compared to other emerging markets. The reality is, in the last ten years, Middle East carriers have led RDE revenue growth in the airline market.

“In the last decade, RDE carriers have increased their share from one fifth to one third of the global market – and from 2005-2014, they have essentially tripled their revenue from $80B to $240B,” explained Pablo Martinez, Partner and Managing Director at BCG Middle East. “This is all thanks to Middle East carriers who have largely benefitted from their hubs, which serve long-haul markets that were less affected by the global financial crisis,”

Today, Middle Eastern carriers make up a staggering 67 percent – versus 60 percent in 2013 and 50 percent in 2011 – of BCG’s airline-specific list of global challengers 

There are three main reasons why Middle East carriers have remained on a solid growth path: 

• Middle East airlines have a cost competitive structure: they basically have significant cost advantages in major categories as a result of the absence of income tax and access to cheap labor.
• They are committed to quality service and are consistently ranked among the top 10 in various airline rankings.
• They implement powerful marketing plans or campaigns and leverage sports sponsorship deals to increase brand awareness, boost loyalty and promote new destinations.   

THE CHAMPIONS BEGIN THEIR RISE 

As global challengers look to grow in a slower-growth world – one facing slowing economies and rising geopolitical risks – they will face increasing competition not just from multinationals but also from homegrown rivals.

BCG identified an impressive 103 companies based in the Middle East that, while not qualifying as global challengers, are still successful, growing, high-profit companies. These companies – the ‘champions’ – tend to be smaller than the challengers but still highly profitable and fast-growing. 

From 2005-2014, these Middle East champions have doubled their growth in revenue from $69B to $177B – which represents about 6 percent of the region’s overall GDP. Interestingly, in terms of annual revenue growth rates, these champions have also outperformed S&P 500 companies and global peers. In those nine years, they achieved an annual revenue growth rate of 11 percent versus 6 percent for S&P 500 companies and 4 percent for global peers.

Furthermore, Middle East champions have managed to maintain exceptionally high profit margins; between 2005-2014, they generated an EBIT margin of 29 percent.

These champions represent the next frontier of competition and value creation in emerging markets. If the last decade has been about the global challengers coming of age, the next decade will see a much broader range of companies arising as economic engines.