That is more than four times the proportion in high-income countries, where the top 10 percent captures only percent of all net economic profit. But the penalties for failure are larger, too: the bottom 10 percent of companies in outperformer emerging economies accrues losses equivalent to percent of the total, compared with 31 percent of the respective profit pool for top large companies in advanced economies.
The emerging-market companies that survive this rite of passage emerge as hardened and formidable competitors on the global stage. They cover a wide range of sectors, with significant differences depending on the structure of national economies. Between and , large, publicly listed companies in the outperforming countries grew their net income each year four to five percentage points faster than those in other emerging economies.
Institutions, resources, and internationalization of emerging economy firms
On a global level, they contributed about 40 percent of the revenue and net income growth of all large public companies from to , even though they accounted for only about 25 percent of total revenue and net income in More than of these companies have joined the Fortune Global list since The best-performing companies also outdid companies in advanced economies on a key performance indicator: total returns to shareholders.
Between and , total returns to shareholders from the top quartile of outperformer companies was 23 percent on average, compared with 15 percent for top-quartile companies in high-income countries and 13 percent in non-outperformer emerging economies. To understand the contribution of these big companies more fully, we surveyed executives from more than 2, companies across seven countries and ten industries. Three characteristics stand out:.
Top companies in emerging economies devote more attention to innovation, deriving 56 percent of their revenue from new products and services, eight percentage points more than their peers in advanced economies. They invest almost twice as much as comparable businesses in advanced economies, measured as a ratio of capital spending to depreciation.
They are also faster in assigning resources: on average, they make important investment decisions six to eight weeks faster than similar companies in advanced economies. That amounts to about 30 to 40 percent less time. Finally, the most successful large companies in emerging economies are 27 percentage points more likely than their peers in high-income countries to prioritize growth outside their home markets—and in doing so, have become powerful global competitors.
The Thai conglomerate Charoen Pokphand Group is one example. Global conditions are changing. Manufacturing seems to be peaking earlier than it used to in developing countries, for example, and cross-border trade flows have lost some of their dynamism since the financial crisis. With these changes come not only challenges but also new opportunities for emerging economies in both manufacturing and services.
We highlight three fundamental changes in the global landscape that all emerging economies will have to navigate:. Demographic changes are already affecting the global economy. A decline in the working-age population in some countries, such as Germany and Japan, for example, is acting as a drag on growth. At the same time, we see a powerful countertrend in the form of rising urbanization in emerging economies, which is boosting consumption as people move to cities and join the burgeoning consuming class.
For the first time in history, developing economies are participating in more than half of the global trade of goods.
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Overall, the share of goods trade among emerging markets, both south-south and China-south, have risen from 8 percent in to 20 percent in China is a significant driver of this south-south trade. We estimate that automation has the potential to increase productivity in developing economies by 0. Digital technologies have already enabled new business models and opened new markets. In Kenya, for example, M-Pesa allows mobile money transfers, while in Indonesia, GoJek, a motorcycle-hailing application, has opened new frontiers in transportation.
Against this backdrop of changing trends, manufacturing has been a powerful engine of economic growth and employment in outperforming economies over the past three decades, and it will continue to play an important role. Our analysis shows that more than 20 countries can still increase both manufacturing and value, based on likely trends in labor cost alone. For their part, services account for more than 60 percent of GDP and more than half the total jobs in emerging economies, but in most countries the service sector has not historically been a significant contributor to productivity growth.
That is now changing, partly thanks to technology, which enables providers ranging from call-center workers to radiologists to more easily compete around the world. The share of services as a proportion of total global exports has risen from 19 percent in to 24 percent today. The share of employment in services is also becoming more relevant at an earlier stage of development. What would happen if the 53 emerging economies with middling or underperformance could match the historical productivity gains of the 18 outperformers?
It would require them to lift their annual average productivity growth from the 1. To estimate the impact, both for the emerging economies and for the global economy, we simulated this increase using a macroeconomic model. The effects are striking: for developing economies, the overall per capita GDP growth rate could rise to 4. This could push their average per capita GDP more than 50 percent above the consensus forecasts for and lift million people to the consuming class and million more people out of poverty—an increase of almost two full percentage points of the global population.
The global economy would experience a bounce, growing at an average of 3. How credible is such a scenario? Tripling productivity growth rates is certainly an ambitious goal, but the precedent has already been set: this is what the 11 recent outperformers achieved between and compared with the baseline period of to Geographic regions all have strengths and weaknesses in common—and all have the potential to strengthen their pro-growth cycles. Across the varied global landscape, we can identify some individual countries that are aspiring newcomers to our list of outperformers.
These are countries that are putting in place and strengthening their economic fundamentals, in accordance with the elements of our heat map. Some of them are already achieving GDP per capita growth that exceeded 3. These countries have moved into the top quartile of our economic performance scores, reflecting improvement in key productivity, income, and demand drivers, but they have not yet achieved consistent 3.
Finally, two other countries achieve the 3.
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For the 18 outperformers we identified, meanwhile, congratulations are in order—but complacency is not. Even the best-performing regions in our analysis have room for economic improvement across a range of indicators. As the global landscape evolves, developing countries will face changing trends that may make their passage to outperformance more challenging than, and in any case different from, the outperformers that went before them.
Yet we still see plenty of opportunity in both individual countries and whole regions. Companies can seize the opportunity, as can policy makers. For the sake of the global economy—and the hundreds of millions of people who continue to live in poverty and aspire to a more prosperous life, it is important that they do so. Download Outperformers: High-growth emerging economies and the companies that propel them , the full report on which this article is based PDF—3.
Featured McKinsey Global Institute Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. McKinsey Quarterly Our flagship business publication has been defining and informing the senior-management agenda since Featured McKinsey Academy Our learning programs help organizations accelerate growth by unlocking their people's potential. Editor's Choice Explore our featured insights. Subscribe Sign In. Outperformers: High-growth emerging economies and the companies that propel them. Future studies should also consider potential heterogeneity among EMNEs by integrating insights from institutional theory, network theory, political science, corporate governance, corporate social responsibility, and sustainable-development research.
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