Emerging markets are the scene of the growth of major companies in diverse sectors. Some, like those profiled here, are taking on the established global giants.

Gerdau

Brazil

The Gerdau group may be more than 100 years old but the family-run speciality steel company is at the forefront of corporate social responsibility practices, even as it continues its aggressive international expansion – sales increased 58% last year to 11bn reals ($3.8bn).

It recently merged its operations in Canada and the US, forming a new company called Gerdau AmeriSteel Corporation, the second largest producer of long steel in the region with assets of $1.6bn. This allowed it to access the large US market efficiently and avoid the US government’s trade curbs on steel imports. In 2002, it exported record amounts of its long steel to Asia, while the resumption of demand in its Chilean operations helped to offset the lack of growth in its Uruguayan and Argentine units. In the past three years, its return on equity continued to rise, from 19% to 22%.

“The growth of the Gerdau group is based on values that have been part of our history for more than 100 years and on a vision focused on steel-making. We seek customer satisfaction, the personal and professional growth of everyone involved in our operations, total safety in the workplace, quality in all areas, a commitment to our stakeholders and profit as a measure of performance,’’ says president Jorge Gerdau Johannpeter.

Although the company foresees making further acquisitions, it faces the challenge of having a limited number of attractive opportunities in its sector. This may mean it expands into other areas.

“The future of the Gerdau group is tied to the trend towards consolidation in the steel sector throughout the world and especially in the Americas. We seek new investments that will add value while minimising financial risk to our shares,’’ said Mr Gerdau. “With our management experience, we are able to invest in companies that may have weak operations and convert them into efficient, lucrative organisations. Our strategy is simple: profitable growth that adds value for our shareholders.’’

Peter Matt, global head of metals at CSFB, says the company has an excellent position in the Americas. “The challenge will be to continue to find attractive growth opportunities in a consolidating market, in its core areas or in related products.”

Orascom Telecom

Egypt

Cairo-based Orascom Telecom (OT) has established itself as a nimble player in the GSM mobile and internet services markets in the Middle East and Africa and is fast expanding into high growth potential areas such as Pakistan and Algeria. At year-end 2002 the total number of subscribers reached 4.3 million, an increase across the group of 1.5 million subscribers (52% on an annual basis), which is healthy growth by international standards.

This growth came despite the divestiture of Orascom Telecom’s Jordanian subsidiary, Fastlink, and the six operations in OT’s African subsidiary, Telecel, based in Benin, Gabon, Burundi, Zambia, Uganda and Central African Republic.

OT’s chairman, Naguib Sawiris, says 2002 was a turnaround year, when major restructuring efforts and divestitures took place to affect the bottom line, improve OT’s debt position and create long-term shareholder value. “The new strategy is to concentrate on countries with a high population, low mobile penetration and high business growth potential,” he says.

In 2002, the new subscribers in Pakistan subsidiary Mobilink grew by 535,342 (128%), in Egyptian subsidiary Mobinil by 422,000 (23%) and the new Algerian subsidiary, Djezzy, added 315,040 subscribers in less than a year. OT believes the large subscriber growth expected from Djezzy (which has 70% market share) in 2003, along with continued expansion in Egypt and in the new Tunisia subsidiary (OT won the second GSM licence in Tunisia for $454m in March 2002) will easily offset the loss of subscribers from the sale of Jordanian subsidiary Fastlink, an operation that had already become mature with a high subscriber penetration rate. Mr Sawiris says the Tunisia subsidiary has added 200,000 subscribers in the first four months of this year and that Pakistan, with a population of 140 million, offers tremendous potential.

On financials, pro forma revenues (excluding Fastlink and the six African operations) rose 45% to LE3506m ($583m) while consolidated EBITDA (earnings before interest, taxes, depreciation and amortisation) on a pro forma basis rose 57% to LE1384m. Net profit for the year was LE1047m. The sale of Fastlink last December for $423m was the largest divestiture in the mobile sector in the Europe, Middle East and Africa region last year. It enabled OT to reduce net debt by $475m by repaying around $300m and removing $175m from its consolidated balance sheet. OT now appears to be better geared and well placed in growth markets so it can face the future with considerable optimism.

MTN Group

South Africa

“An African solution to Africa’s problems” is a favourite catchphrase at MTN, the mobile telecommunications group that is expanding its services across the continent. Launched in South Africa in 1994 and listed on the Johannesburg Stock Exchange, the MTN Group is now active in six African countries: Cameroon, Nigeria, Rwanda, Swaziland, Uganda and South Africa.

At the start of this year, the total number of MTN subscribers exceeded 6.6 million, reflecting a 17.7% rise over the previous quarter and a 39.5% increase since April 1, 2002, the start of that financial year. On June 19, MTN announced a 97% increase in adjusted headline earnings per share for the financial year to March 31, 2003. Consolidated revenues increased by 56% to R19.405bn ($2.63bn) from R12.432bn the previous year.

Huge opportunity beckons. In Nigeria, with a population of 124 million and a tele-density of less than two telephone lines per 100 people, MTN signed up one million subscribers in just over two years. Average revenue per user (ARPU) is just shy of $60. This is far more attractive than in MTN’s home market of South Africa, where the blended ARPU – reflecting the 81% proportion of less profitable pre-paid customers – is closer to $25. Unsurprisingly, EBITDA margins are running at a healthy 37% in Nigeria, well ahead of the 29% in South Africa.

What sets MTN apart? It has been more aggressive in its African expansion than its historical (and bigger) South African rival Vodacom. Earnings from outside South Africa now account for just less than a third of total earnings. MTN Uganda holds 65% of the entire telecommunications market there and 83% of the mobile market.

The group is also showing its skill at managing African risks and obstacles. In Nigeria it beat rivals to market by more than a year, leading analysts to predict it can secure up to 40% of the market there, estimated at 10 million subscribers in the next 10 years. In the absence of available and reliable terrestrial transmission links, MTN Nigeria built its own microwave backbone route to provide the necessary transmission infrastructure to support traffic flow routes in Nigeria.

A Deutsche Securities research note highlights MTN as offering some of the best growth prospects in the emerging Europe, Middle East and Africa region but also draws attention to its currency sensitivity and debt position.

MTN Group chief executive officer Phutuma Nhleko says: “While the lack of existing infrastructure in Africa is often cited as a barrier to investment, it gives telecoms firms an opportunity to create new networks that boast the latest technology. The success of groups like MTN in Africa demonstrates strong consumer demand for reliable goods and services, where innovation is a key business strategy for providing Africa with products that are relevant and cutting-edge.”

Haier

China

A “Made in China” label may indicate cheap, low-quality or pirated goods in many parts of the world. However, Haier, is determined to change this image and is succeeding. After nearly two decades of hard work, it has evolved from a near-bankrupt manufacturer producing sub-standard washing machines to being the world’s fifth-largest producer of white goods. “Our near-term goal is to be the third largest,” says Wang Shiping, a Haier spokeswoman at the firm’s headquarters in the former port city of Qingdao in eastern China.

Haier has established the base for the next stage of ambitious expansion. It has a formidable manufacturing capacity that can produce 86 categories of electrical appliances with 13,000 specifications, Last year, it churned out 2.8 million refrigerators and 2.1 million air conditioners. It is now beginning to produce non-white goods, such as mobile phones, computers and pharmaceuticals.

The company’s empire reaches most corners of the world, thanks to strategic corporate alliances and more than a dozen overseas factories. Last year, the 30,000-staff company had a turnover of Rmb72.2bn ($8.7bn), generating profits of Rmb2.2bn.

Haier owes its success first to its president and CEO Zhang Ruimin, who set the target (and succeeded) for the company to become China’s first multinational firm. Mr Zhang, a former bureaucrat in charge of overseeing state factories, has been called the Jack Welch of China and a Confucian capitalist for his success in innovation and motivating his workers. He instils his staff with the idea that each should operate like an individual company accountable for its finances. He adopts well-tested ideas like the Japanese-style just-in-time system for procurement, delivery and logistics control, and he aggressively acquired rival producers nationwide to beat the competition and secure more market share quickly.

What distinguishes Haier most from other mainland corporate giants is its aim to be not only a powerhouse at home but a global force. It has forged alliances with overseas partners, such as Sanyo of Japan and Sampo of Taiwan, to sell each other’s products in different markets. It has also focused much of its energy on exports, with the aim of exporting two thirds of its production eventually.

Allen Ng, executive director of BOCI Research Limited, under the Bank of China group in Hong Kong, says it is too early to say if Haier could become as well-known as Sony or Samsung. “Haier is still a relatively young company and its edge is its cheap labour costs. It is doing well only in sectors that Sony and other multinationals have dropped out of in their pursuit for higher margins,” he says.