Emerging markets provide next generation of leaders

Executives from emerging markets are preparing to take the reins at some of the world’s top consumer goods companies.

Global multinationals are looking to China, India, the Middle East, Russia and Latin America for sales and profits growth as their home markets in Europe and the US stagnate. Some believe this will force them to line up managers from developing markets as the next wave of chief executive officers (CEOs), since expertise in emerging markets will become essential in creating corporate strategies.

However, many companies will have to overcome ingrained corporate colonialism and a belief that for western businesses, only executives from the US and Europe are up to the job of leader. Even the most hidebound companies are being forced to revise their succession strategies after the dramatic rise in sales from developing markets. Rumours last week that Unilever is searching for a replacement for its French chief executive Patrick Cescau were triggered by a shake-up at the Anglo-Dutch consumer goods company which put two Indian executives in pole positions for the succession.

In a re-organisation last month, Unilever promoted Indian born executives Vindi Banga and Harish Manwani, who have both worked in its Hindustan Unilever Indian subsidiary, to top positions in the company. A spokesman dismisses talk of a search for a new chief executive as “froth”. But he says Banga and Manwani will be strong contenders to replace Cescau “when the time comes”.

Meanwhile Coca-Cola’s next global CEO will be president and chief operating officer Muhtar Kent, who has dual US and Turkish nationality. He will replace Irishman Neville Isdell, who relinquishes the role in July though stays on as chairman. Arch-rival PepsiCo appointed Indian born Indra Nooyi as chief executive last year. And at the end of 2007, Citigroup, the US financial giant which owns Egg, appointed Vikram Pandit, an Indian who moved to America as a teenager, as chief executive.

In spite of these moves, some believe that many global corporations have been slow to promote executives from emerging markets to top positions. Nirmalya Kumar, professor of marketing at London Business School, says: “Global corporations from the UK, US and Europe have not done a good job at integrating managers from emerging markets into their top management. These companies love to say they are global but they are not. In the next ten years sales and profits will increasingly come from India, China, the Middle East and Russia. Do the corporations see people from these markets as simply consumers of their products or part of the talent pool?

“People in India and China will say, we are good enough to buy your products but is our talent good enough to run your companies? Is there something genetically wrong that makes us unacceptable? You have to look at the practices in those companies that stop Indian and Chinese executives rising to the top.”

Kumar believes that US corporations are ahead of the UK on promoting executives from developing markets, but that European companies are “far behind”. He says it is advantageous for multinationals to have emerging market CEOs to deal with the challenges presented in those markets.

For instance, he says Vodafone has benefited from having Indian born chief executive Arun Sarin in place when it acquired India’s Hutchison Essar last year for £5.5bn. A Vodafone spokesman says: “I’m sure it did help the acquisition along,” though he points out that Sarin is a naturalised US citizen who moved to the US to study for his Msc.
Another trend is catapulting emerging market executives to the top of global consumer goods giants. The growing economic power of companies in the BRIC markets – Brazil, Russia, India and China – has enabled them to acquire western brands. Tata Corporation, under chairman Ratan Tata, is close to buying the Jaguar and Land Rover brands and has already purchased steelmaker Corus and Tetley Tea. However, Tata insists that the company’s philosophy is to leave the brands’ management largely intact and he says it will not “Indianise” them by putting in its own managers.

One of the world’s top brewers, Inbev, was formed through the merger of Brazilian giant AmBev with Belgium’s Interbrew. The combined company is largely run by
Brazilian managers. Chief executive Carlos Brito, a Brazilian citizen, comes from the

AmBev side of the business and has surrounded himself with senior AmBev executives.

At the same time, it should be remembered that sovereign wealth funds run by governments such as China and Dubai are opportunistically snapping up western brands, while powerful Russian oligarchs are looking to buy brands in the UK and other western countries.

While globalisation has created a massive and rapid shift of emphasis for multinational corporations away from mature western markets, this has yet to be reflected in the executive boards at many companies.

At Procter & Gamble, developing market sales have doubled over the past seven years to $20bn (£10bn), about a quarter of the total and accounting for over one-third of sales growth. However, the company has no executives from emerging markets among its most senior managers, although five of its top 45 executives are from India, Africa and South America.

Companies put much store by their policies on diversity. A spokesman for Nestlé says: “Nestlé is perhaps one of the most diverse companies in the world. There are nine nationalities on the executive board and seven on the board of directors including an India-born woman, Mrs Naina Lal Kidwai. There are about 90 nationalities at Nestlé’s headquarters in Switzerland and 42% of managers in developing countries are local.”

Yet Nestlé’s executive board – from which a future chief executive would be drawn – contains no women and not one is from an emerging market. The company says about 30% of food and drink sales are from developing markets.

Unilever has an even greater share of sales coming from developing markets, some 44% of its turnover, up from 36% five years ago. Its recent management shake-up has left no UK or Dutch executives in top positions for the first time. Out go European president Kees van der Graaf, a Dutch man, and home and personal care president Ralph Kugler, a British executive.

Central and Eastern Europe is being combined with Asia and Africa to create an expanded region. This will be put under the control of Harish Manwani, currently president of Asia and Africa. Personal care and food is being combined under Vindi Banga. The spokesman says: “Both Vindi and Harish are very close contemporaries and have spent a lot of their careers growing up together. You would assume they are potential candidates for the top job as and when the time comes.

“The days of developed world executives being a shoo-in for the chief executive’s post are gone. Until ten years ago, it would have been unthinkable that it wasn’t a Dutch or British executive. But since the late Nineties, the culture has changed at Unilever. Patrick, being a French man, broke the mould. He is setting the pattern for the future.”

White European males once ruled the corporate globe, but the centre of gravity is shifting. Global corporations will lack the talent necessary to appoint emerging market CEOs unless they start promoting promising executives now. They could find that the world is changing faster than they are.