The Globetrotters Take Over
Since BUSINESS WEEK first launched its rankings of the world's most valuable corporations in 1988, the global economy has been transformed. More countries are open to international trade and investment than ever before. For corporate giants, the biggest opportunities are far beyond their home markets.
This year's Global 1000 is a barometer of such change. The rankings, based on how the market values a company, show that investors are clearly valuing global champions while shunning domestic also-rans. From the U.S. to Europe to Japan, the companies moving up the rankings are those that have become worldwide names in technology, manufacturing, and consumer goods.
"A FLUID GAME." As in recent years, the U.S. is at the center of the action in 1996. Once again, Corporate America increased its lead in the standings over Japanese and European rivals. The list contains a record 422 U.S. companies, up from 396 last year. Much of this of course is thanks to an extraordinary American bull market, which sent their combined value up 32%, to $5.1 trillion. The U.S. now accounts for 46% of the $11.2 trillion value of the entire Global 1000, compared with just 30% in 1988. And for the first time in the nine-year history of the Global 1000, a U.S. company--General Electric Co.--ranks No.1, with a value of $137.3 billion. Since 1988, GE Chairman John F. Welch has added $99 billion to the market capitalization of the world's premier blue-chip company. "This is a very fluid, dynamic game," says Welch.
It's also a very different game from the late '80s, when mighty Japan was rapidly extending its reach. On our first Global 1000, the Japanese companies accounted for 48% of the list's then-$5.7 trillion value. Together, they were worth about 60% more than all the U.S. companies on the list. Now, it's the U.S. giants that are worth 95% more than their Japanese counterparts. Japan accounts for just 23% of the Global 1000's value.
In Europe, blue chips such as Siemens, Heineken, and L.M. Ericsson have soared. But because of Europe's anemic recovery, European companies as a whole have slipped further behind their U.S. rivals. Companies based in Europe's four major economies--Germany, France, Britain, and Italy--now represent 17% of the list's value, down from 18% last year. With the notable exception of Britain, profit growth among the German, French, and Italian giants has come nowhere close to the increases delivered by their U.S. rivals. While privatization of industrial giants such as Italy's state-owned ENI has added to Europe's weight, the collective value of companies from these four countries is now just 37% of the U.S. total, down from 44% in 1988 and 43% last year.
Of course, because all companies are ranked in U.S. dollars, some of these shifts simply reflect currency swings. The Global 1000, 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 at the end of May each year. This year, the dollar gained ground against the yen, wiping out most of the 30% rise in yen market value posted by the Japanese companies. Converted to dollars, that gain shrank to 2%. The stronger dollar also hurt most European companies, although not as much.
JAPAN SLIPS. Still, with the yen now worth only about 15% more than in 1988, the prominence of U.S. companies in the rankings isn't just a byproduct of currency fluctuations. America's best companies have made a remarkable resurgence since the '80s, when the strong dollar and bloated cost structures made it seem that they were slipping irrevocably behind their international rivals. American officials have been quick to notice this comeback. Says U.S. Treasury Secretary Robert E. Rubin, the leaders of the other major industrial nations "are all looking at our companies--in a lot of industries--and saying: `[You have] the most competitive economy."'
The BUSINESS WEEK rankings seem to be in synch with the 1996 Global Competitiveness Report of the Geneva-based World Economic Forum. The report concludes that the U.S. is now "the most competitive of all the large economies" and fourth among the 49 countries having the "best prospects for economic growth over the next 5 to 10 years." Japan, which until recently was regarded as the world leader, slipped to 13th. It was hindered by a deteriorating fiscal situation, the ongoing banking crisis, and the fact that huge sections of the economy--from midsize manufacturers to many retailers--are insulated from international competition. "We need a new vision," concedes Shoichiro Toyoda, chairman of Toyota Motor Corp.
The U.S. has done best in information technology. Of the world's top 25 companies, four--Microsoft, Intel, IBM, and Hewlett-Packard--are U.S. leaders in this industry. And their surge shows no sign of abating. As its value jumped 45%, to $71 billion, Microsoft Corp. climbed to 12th on the list. In 1988, it wasn't even on the Global 1000, which then had a cutoff of $1.27 billion. Neither was Sun Microsystems Inc., which vaulted to 261 on this year's list, up from 644 last year, or Cisco Systems Inc., the leader among independent networking companies, whose market value surged 159%. Netscape Communications Corp., the stock market darling some investors expect to rule the Internet, didn't even go public until last year. Worth $5.6 billion, it debuted on the Global 1000 at 570.
The industry remains brutally competitive. Apple Computer Inc., which suffered the steepest drop of any company, fell from 543 last year to 978. Late with a clear Internet strategy, and faced with new rivals like Sony into the PC fray, Apple remains as vulnerable as ever. Novell was another big loser: It tumbled 239 spots, to No.632, following a 26% drop in its market value. Still, even the Japanese concede the U.S. retains the global lead in the industry. "When it comes to software operating systems and microprocessors," says Toshiba Corp. President Fumio Sato, "we envy the Americans."
Increasingly, the U.S. consumer-products companies are also becoming dominant global players. Take McDonald's Corp. It's now serving burgers in 94 countries, up from 53 in 1990, pushing non-U.S. sales to $14 billion, from $6.5 billion five years back. McDonald's is now worth $33.7 billion--four times as much as in 1988. Gillette Co., long dominant in the world shaving market, has picked up 200 million new customers in Russia, China, India, and Eastern Europe since those markets began opening in 1990. It's now worth $26.3 billion, six times as much as in 1988. Coca-Cola Co. now gets 70% of its sales, and 80% of its profits, from beyond U.S. shores. No surprise that it rose to No.4, with a value of $115 billion.
U.S. companies have gained ground in a wide range of industries. Creations by Walt Disney Co., No.35, are almost as well-known in Tokyo and Paris as in Peoria. In telecommunications, where the U.S. government recently unleashed companies to compete as never before, MCI Communications was up 46% last year, Sprint jumped 58%, and Tellabs was up 98%.
EUROPEAN AGGRESSIVENESS. But Corporate America can hardly afford to rest easy. "This is a moment in time," warns GE's Welch. Adds Xerox Corp. Chairman Paul A. Allaire, "We [must] work very, very hard" to stay ahead. Already Japan's shift of high-cost production into lower-cost Asian markets is creating a network to penetrate the world's fastest-growing region. In Europe, despite the Continent's problems, the best companies are displaying a new aggressiveness. "In five years, the corporate elite of Europe will be on a par with the corporate elite of the U.S.," predicts Eberhard von Korber, head of Europe for the Swiss-Swedish group ABB. The Global 1000 suggests some are already there.
In France, lackluster growth and poor corporate profits have made the Paris Bourse one of the world's worst performers over the past decade. But Carrefour, the retailer that invented the hypermarket in the '60s, has soared more than tenfold since 1988. The reason is international expansion. Carrefour, which now has 50 hypermarkets in Spain, 38 in Brazil, and 10 in Taiwan, now gets more than half its sales from outside moribund France. Carrefour rose 66% in value last year and now ranks 114 on the list, up from 188 last year.
NEW PECKING ORDER. "Germany has [also] become a distinctly two-tier equity market," argues Thomas R. Holmes of Shroder Munchmeyer Hengst Research in Frankfurt. While companies mired in the domestic economy languished, rising export earnings made drug and chemical giants the big winners this year. Hoechst, up 55%, had the biggest increase, thanks also in part to CEO Jurgen Dormann's $7.1 billion takeover of U.S. drugmaker Marion Merrill Dow. Dormann is now cutting 8,000 jobs from his global drug empire and plans to separate the business from Hoechst's chemical units.
British companies are also bulking up for global markets. As mergers hit a record level, British stocks on the Global 1000 rose 18% (in U.S. dollars), the best of the major European economies. Royal Dutch/Shell Group retains its title as the world's most valuable oil company. Following a 19% gain, it ranks No.2 on the Global 1000.
Global competition is also creating a new pecking order within various countries. In Canada, Northern Telecom Ltd., powered by a 43% gain, became the most valuable Canadian company for the first time. Its emergence is based on ruthless, U.S.-style restructuring while charging into global markets.
Among the smaller countries on the list, two of the biggest winners are Singapore and Hong Kong, both of which are gateways to the world's fastest-growing region. They also rank at the top of the competitiveness index because of their open economies and low tax rates. There are now 13 companies from Singapore on the list, up from 3 in 1988. Collectively, they're worth $123 billion, or 17 times more than eight years ago, an increase that far outstrips the U.S. Over the same period, the collective value of Hong Kong-based companies has quintupled, to $195 billion. Thanks to the explosive growth of companies such as Hutchison Whampoa and Hong Kong Telecommunications, the colony now accounts for 1.7% of the Global 1000, compared with 0.7% on our first list.
Even in Japan, where the Nikkei is still trading 43% below its peak, investors are rewarding the best companies. Despite the problems of the Japanese economy, "they have not been standing still in [certain] targeted industries," says TRW Inc. Chairman Joseph T. Gorman. And because they cut costs so much as the yen dipped below 100 to the U.S. dollar, the Japanese auto giants are poised to clean up now that the yen is around 110. Toyota, which remains the world's most valuable auto company, has nearly doubled its market value since 1988. Similarly, Honda Motor Co. jumped 63% last year, more than any of Detroit's Big Three. The Japanese consumer-electronics giants remain equally fearsome. Sony Corp., now preparing a new digital assault, rose 32%, to $23.8 billion last year, up from just $9.7 billion in 1988.
But largely because of the rout of the Nikkei, Japan's less-competitive giants have suffered the biggest losses since 1988. Their problems are epitomized by Nippon Telegraph & Telephone Corp. (NTT), which fell to third this year, after leading the Global 1000 seven of the first eight years. In 1988, NTT was worth a staggering $296 billion--an amount equal to the combined market value of all the German, Swiss, and French stocks then on the list. But once the stock market bubble burst, investors quickly realized the slow-moving monopoly was far behind its international competition. Following a 10% drop this year, NTT is now worth $180 billion less than it was just eight years ago.
As a sector, Japan's banks have also been hit hard. In 1995, the top 20 money-center banks posted a cumulative $14.5 billion loss, the worst in their history, following huge loan write-offs. Some think there's more to come. J. Brian Waterhouse at James Capel Pacific figures the banks still have an additional $250 billion in bad debt.
The losers haven't been confined to Japan. In Europe, Italy's Fiat fell 14%, even though it plans to introduce 15 new models by 2002, more than any European rival. Given "the competitive advantage of the weak lira, people were expecting electrifying profits," says John Lawson, a London-based auto analyst with Salomon Brothers Inc., "but that just didn't happen." The bad news knocked Fiat to 198 on the Global 1000, from 80 in 1988.
France's Compagnie de Suez, which has lost more than $4 billion since 1990, dropped 23%, even though the CEO who presided over the debacle was fired. And British laggard United Biscuit Holdings PLC, which had sunk to 976 last year from 689 in 1988, finally fell off the list altogether, despite selling off its troubled U.S. cookie unit, Keebler Co.
For investors, the key question is whether the U.S. can maintain its lead. The weakening yen is already breathing new life into Japan's exporters. An even more immediate threat is a correction in the overheated U.S. stock market.
Still, a market correction won't dull the competitive edge of a GE, Coke, or Microsoft. These global brands and such counterparts as Sony, Toshiba, and Siemens, have staying power. For them, the world economy is their home.