Competition: Rising Faster Than Japan; Forget the skeptics. Chinese and Indian multinationals could emerge as major global players within three to five years.

Byline: Karen Lowry-Miller

No one could have predicted in the 1970s that Toyota would become one of the Big Three automakers. Or in the 1980s that a Finnish producer of rubber boots would go on to dominate the market for mobile phones. Or that Nokia would be overtaken by a Korean chip maker, Samsung. Investors have been watching ever since for the next disruptive newcomer, and the Swiss business school IMD, which last week released its annual World Competitiveness survey, thinks it knows where to look. "Everyone is talking about losing jobs to China and India, but this is just a transition period," says IMD researcher Stephane Garelli. Before the West knows it, he says, Chinese and Indian companies that are now making goods or doing service work for Western brands will become major global players: "The moment we feel them, it will be too late."

While many analysts are still skeptical of the near-term prospects for Indian and Chinese multinationals, IMD predicts they will rise faster and prove even more disruptive to certain industries than the Japanese who came before. Garelli thinks the Indians and Chinese will start to claim a significant share of key global markets within three to five years. Those markets are now much more open to newcomers, especially in the United States, where giant discounters distribute cheap products nationwide. Wal-Mart is already familiarizing consumers with mini-refrigerators from Haier, the poster child for Chinese potential. (The first Japanese cars attracted so little interest from American dealers that they had to sell through repair shops.) In China, says Garelli, the companies to watch out for are appliance makers like Haier and Midea, and electronics firms such as TCL. India offers a wider spectrum, including software companies like Wipro and Infosys and pharmaceutical makers such as Reliance.

Consumers in the United States and Europe have developed new buying patterns in recent years, aggressively seeking bargains that China and India are well positioned to provide, says IMD. Japan's wages caught up with the West's within 15 years, but with much larger labor pools, wages in China and India could take ...