America: Power Performerby
The contrast could hardly be more stark: Corporate America vs. Japan Inc. In the U.S., rising productivity, soaring profits, and growing international revenues are sharply boosting the market value of companies, especially in computers, drugs, and consumer products. But the superstrong yen and weak financial system are hammering Japanese companies, sending profits and market capitalization plunging.
These are the dramatic results of BUSINESS WEEK's eighth annual Global 1000. While U.S. companies boosted collective market value by almost 20%, profits by 34%, and return on equity by 13%, Japanese companies lost 24% of their market value, measured in yen. They also saw profits in yen drop 10% and struggled with a mediocre 5% return on equity--far less than the average 20.8% for U.S. companies. The Global 1000, which is compiled by Geneva-based Morgan Stanley Capital International, tracks some 2,700 companies in 21 countries. The publicly traded companies are ranked on a worldwide basis, using market value and other data measured as of May 31, 1995.
The 1995 rankings reflect this year's currency swings, since all valuations are translated into U.S. dollars from local currencies. The yen's strength against the greenback, therefore, masks Japan's terrible performance somewhat. A double-digit drop in market value moderates to only a 6.4% slide in dollar terms, for example, while profits rise by 12%. Likewise, French and German companies recorded almost no market value gains in their local currencies--but got boosts of 13% and 18%, respectively, in dollars.
For the third year, Morgan Stanley has also compiled a list of market values for the top companies in emerging markets. The data reflect world-class performances at companies from South Korea to South Africa.
In the developed economies, this year's surprise was the strength of the U.S. A year ago, analysts feared American corporate profits would soon start sagging. Instead, many U.S. companies have gained in the rankings, especially in high tech. Microsoft Corp. advanced from No. 33 on the list to 20, while microprocessor titan Intel Corp. moved from 48 to 21. Meanwhile, Coca-Cola Co. jumped from 14th place to 6th as it added $26.4 billion to market value, the most for any company. A big jump in Coke's international profits pushed the company into the top 10.
Japan could use such a jump in profits. Analysts figure gains in export profits will remain elusive at a rate of 84 yen to the dollar, below the estimated breakeven point of many manufacturers. At home, Japanese lenders of all sorts are hard hit with $1 trillion in restructured or nonperforming loans on their books. Comments Andrew Shipley, an economist for Lehman Brothers Inc. in Tokyo: "We are facing a crisis of confidence in the credit system."
But the story does not belong exclusively to the U.S. and Japan. For example, Finland's Nokia Corp. enjoyed an almost fivefold profit gain, thanks to its worldwide success in digital cellular phones. Germany's SAP, a leading maker of client-server software with a strong U.S. business, saw its net income almost double. In Britain, takeovers had their effect too. Glaxo Holdings PLC's acquisition of a controlling stake in Wellcome PLC secured Glaxo a No.2 spot in the British rankings. Takeover speculation has also fueled the 45% market value jump for Zeneca, the old pharmaceuticals division of Imperial Chemical Industries PLC that was spun off in 1993.
In Britain, the globalization of demand for such Western products as ice cream, detergent, and beauty aids boosted results for Unilever PLC, the Anglo-Dutch consumer-products giant. The company received kudos for its performance in India, China, and Brazil. The Netherlands' Heineken, which is pushing its key beer brand worldwide, also used its marketing savvy to increase profits. And France's LVMH Mot Hennessy Louis Vuitton, purveyors of champagne, perfume, and luggage, recorded big profit gains from a booming export business. The newly affluent of Asia in particular are snapping up luxury goods.
CURRENCIES AND POLITICS. The smaller economies turned in widely differing performances, depending on such variables as currencies and local politics. The devalued krona, for example, powered Swedish exports, boosting profits for the drugmaker Astra and the telecom supplier L.M. Ericsson. Yet in Italy, in spite of dramatic export gains for companies such as Fiat, political turmoil and the fear of inflation generally offset the beneficial effects of the weaker lira on company stocks. In Canada, a general rise in commodities prices advanced the profits of mining companies such as Barrick Gold, Alcan Aluminum, and Noranda.
In contrast to countries with weak currencies, Germany's blue-chip industrials, such as Daimler Benz, Volkswagen, and Siemens, felt the negative impact of the mark's 16% appreciation against the dollar. Here, fear of the future created a big disjuncture between recent profits and stock prices. Major restructuring boosted German results overall. Yet investors feared the imminent impact of the mark on exports, as well as the cost of a generous wage settlement with the unions in March.
Overall, this year's mixed results reflect a growing worry about prospects for recovery in Japan and Europe. Fortunately for the global economy, they also show the surprising strength of many individual companies operating around the world.