Not long ago, such worries as declining competitiveness, overengineered products, and a double-dip recession cast a pall over Germany as it struggled to pull out of its worst economic downturn in decades. But in a year of sometimes wrenching adjustment to the global economy, many of Germany Inc.'s blue-chip companies provided something of a beacon for the rest of Europe. The renewal process under way inside those traditional giants helped point Germany toward the global recovery that is taking hold from Europe to Japan and that is building on the expansion in the U.S. and in booming Southeast Asia.

BUSINESS WEEK's seventh annual Global 1000, which ranks the world's largest companies by market value, reveals a solid 30% gain for Germany Inc., which added five new companies to the list and $72 billion in total market capitalization. Powerful individual performances by auto makers BMW and Daimler Benz and capital-goods maker Mannesmann speak for a cyclical upturn in Europe's biggest economy.

ALTERED STATES. The German rebound also provides a thematic thread that weaves through much of the list. As recovery rolled outward from the maturing U.S. expansion, investors followed the restructuring trend that took root in the U.S. years ago. But this year, they moved offshore to seek out solid companies that were remaking themselves for global competition. The U.S. itself had just a middling year, losing 24 slots in the rankings while clinging to the lion's share of market value with just a 1% gain vs. last year. Top honors went to General Electric Co., No.3 on the list, up from No.5 last year.

The Global 1000, compiled by Geneva-based Morgan Stanley Capital International, tracks some 2,700 companies in 22 countries. The publicly traded companies are ranked on a worldwide basis, using market value and other data measured as of May 31, 1994. All valuations are translated into U.S. dollars from local currencies.

Morgan Stanley has also compiled for a second year a list of market values for the top companies in emerging markets. It's clear that, even after a tumultuous year from Buenos Aires to Taipei, investors aren't easily scared off. For the second year in a row, Telefonos de Mexico tops the list of the developing world's most valuable companies.

While investors sought out quality restructuring plays, the list shows they also frequently parlayed the privatization trend sweeping the globe. Privatization burnished the allure of Lufthansa, which as the world's biggest freight carrier also stands to gain from cyclical expansion. And the continuing rush into telecommunications companies took on even broader appeal with a dash of privatization thrown in. Italy's average share price jumped a healthy 31%, helped in large part by the 100% rise in the share price of SIP, the telephone operating company that the government is privatizing, valued at $16 billion.

The expanding scope of digital networks and the services they can provide through phone networks "drew a lot of investors to take a look at overseas telecoms," says S.G. Warburg Securities (Japan) Inc. analyst Chuck Goto. Japan's Nippon Telegraph & Telephone Corp. maintained top honors on the list with a market value of $128.9 billion, and expectations of more relaxed regulation could move the shares higher. AT&T, digesting this year's pending $12.6 billion takeover of McCaw Cellular Communications Inc., fell from second place to seventh, with $73.9 billion.

AUTO RALLY. Overall, investors made a broad-based revaluation of telecom stocks that boosted the sector's market value 10%. Vibrant investor interest in the digital communications age also made for some spectacular debuts on this year's list. Privatization took Singapore Telecommunications, with a market value of $34.8 billion, onto the list and straight to 26th place. Canada's Newbridge Networks Corp., a startup eight years ago, also drove the fast lane, racing to 689th.

With the dollar strengthening less than 3% vs. the German mark and weakening less than 2% vs. the yen during the compilation period, the list provides a glimpse of investor preferences relatively free from currency distortions. From that vantage point, the restructuring of German auto companies made them pacesetters for a cyclical upturn that is just now kicking in. "A lot of restructuring benefits are flowing to German companies," says Thomas R. Holmes, managing director for research at Frankfurt private bank Schruder Munchmeyer Hengst. Such verve was little in evidence in Britain and France, however.

In Japan, declining interest rates and a Nikkei average 50% above its August, 1992, low boosted values among lenders such as Mitsubishi Bank Ltd. and Industrial Bank of Japan Ltd. Taken together, Japanese banks maintained their grip on 6 of the top 12 spots on this year's list. The country's modest 8.5% gain in overall market value belies strong showings resulting from restructuring at exporting giants and a new consumer dynamic at work in the domestic market.

China's booming economy put the focus in non-Japanese Asia on property and infrastructure development. Hong Kong's ongoing property boom pushed the Hang Seng index up some 50%. That helped at such companies as Henderson Land Development and Wheelock & Co., which jumped 73% and 105% respectively.

DRUG BUST. Still, the billions of dollars that foreign investors poured into Hong Kong as a safe investment in the China market could now prove fickle, figures analyst Nicholas Wong at James Capel Asia. He fears a sharp outflow as China's economy faces threats from soaring inflation and a bitter political succession struggle. In contrast, South Africa's political transition went relatively smoothly, helping to boost such stocks as Anglo-American Corp. It posted a 53% rise in share price, lifting the country's performance by 43%.

For some corporate giants, the year provided little to celebrate. Pharmaceuticals-sector investors grew skittish as governments tried to cut down drug bills and U.S. health-care reform bogged down. Britain's Glaxo Holdings, plagued with management reshuffling and new generic rivals to its antiulcer drug Zantac, sank to No.56 from No.31.

And in a generally buoyant electronics sector that enjoyed a 30% market value gain, Apple Computer Inc.'s problems with cutthroat competition in personal computers sent it skidding 418 slots, to No.745, as its market value shrank 48%, to $3.47 billion. But giant Microsoft Corp. leaped nine places to become the 33rd-largest global company, at $30.5 billion. Even IBM, which has been under fire for the past few years, climbed up a few rankings, to No.24, with a $36.7 billion market capitalization.

Deep restructuring's payoffs is one of the keys to this year's list. As the cyclical upturn spreads, the benefits of boosting productivity, honing market strategy, and plugging in to the digital age should continue to multiply for the giants of the Global 1000 everywhere.

      Billions of U.S. dollars
              1       ITOCHU         $184.2
              2       MITSUI & CO.    168.6
              3       MITSUBISHI CORP.165.1
              4       SUMITOMO CORP.  162.4
              5       MARUBENI        149.0
              6       GENERAL MOTORS  119.7
              7       FORD MOTOR      108.5
              8       EXXON           99.2
              9       NISSHO IWAI     98.4
              10      TOYOTA MOTOR    97.6
      Billions of U.S. dollars
              1       EXXON                   $5.28
              2       ROYAL DUTCH/SHELL GROUP  4.50
              3       GENERAL ELECTRIC         4.42
              4       AT&T                     4.26
              5       PHILIP MORRIS            3.57
              6       HSBC HOLDINGS            2.73
              7       BRITISH TELECOM          2.67
              8       FORD MOTOR               2.53
              9       GENERAL MOTORS           2.47
              10      SEARS ROEBUCK            2.41
      Percentage change from 1993 in U.S. dollars
              1       MICRON TECHNOLOGY       183.6%
              2       NOKIA                   142.3
              3       SKAND. ENSKILDA BANKEN  137.8
              4       TECHNOLOGY RESOURCES    113.3
              5       WHEELOCK                105.4
              6       COMPAQ COMPUTER         104.3
              7      CITY DEVELOPMENTS        102.2
              8       SIP                     100.1
              9       EMC                     96.4
              10      SAP                     92.0
              1       DORDTSCHE PETROLEUM      229.5%
              2       RENTOKIL GROUP           87.3
              3       AVON PRODUCTS            81.1
              4       UST                      75.7
              5       EMC                      72.5
              6       SMITHKLINE BEECHAM       65.9
              7       CUC INTERNATIONAL        59.7
              8       WOLTERS KLUWER           58.2
              9       LEGAL & GENERAL GROUP    56.6
              10      CISCO SYSTEMS            55.2
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