The Global 1000

The biggest influence on this year's ranking? You guessed it: The Internet

How much has the Net changed things? Only a decade ago, Japanese banks, a Swiss confectioner, and even a Philadelphia utility company were vastly more popular with investors than Microsoft Corp. With a market value of just $3.3 billion, William H. Gates III was running a middle-of-the-pack outfit that ranked just 539th on BUSINESS WEEK's Global 1000 list by market capitalization in 1989. Microsoft figured lower in investors' minds than retailer F.W. Woolworth.

Today, after riding the personal-computer wave right on into the Internet boom, Microsoft has vaulted to No. 1 in our annual rankings. Only three years after breaking into the Top 10, Gates's company has raced at fiber-optic speed ahead of such stalwarts as ge, ibm, and Exxon. At $407.22 billion, its market value is simply "eye-popping," says Hambrecht & Quist analyst Christopher J. Galvin.

Microsoft's 95% surge in value over the past 12 months demonstrates how enamored investors are of the emerging digital economy. Just as the Net and other aspects of the digital world--computers, cell phones, digital broadcasting, consumer electronics--have recast the way business is done and people live, so they have sharply influenced the makeup of this year's list.

Whether they are U.S. upstarts such as (No. 254) or eBay (No. 220) or offshore communications powerhouses such as British Telecommunications (No. 26) and Japan's NTT Mobile Communications Network (DoCoMo, No. 27), companies whose fortunes are linked to the digital world--and especially the Net--have almost instantly become market stars. "As the Internet takes hold, it's creating a paradigm shift," says America Online Inc. Chief Executive Stephen M. Case, whose company has soared from No. 229 on the BW list last year to No. 20. The long-promised convergence of telecommunications and computers, he adds, is "happening on Internet time."

"NOT RATIONAL." True enough: The tech revolution continues. The big question is how long investor enthusiasm for all things digital will continue to power the huge gains in market value evident on this year's list. Already, U.S. stocks directly linked to the Net craze have lost 40% of their value since April. So there's no guarantee the big winners of this year's Global 1000 will dominate next year's list. Any examination of the Global 1000 since 1989 shows that investors have shifted money from country to country and from sector to sector based on a mix of solid corporate performance and often unjustified expectations. "Stock markets are just simply not rational," says Hugh Johnson, chief investment officer of the First Albany Corp. brokerage firm.

Still, companies that consistently perform well in the Global 1000 list over time are those worth watching. And the rise of digital technologies is quickly turning into a global force. Looking at digital technologies worldwide, Paul A. Gompers, an associate professor of entrepreneurial management at Harvard business school says: "The rate of growth in Europe, Asia, and Latin America is exploding."

For now, Americans are leading the way. Using data compiled by Geneva-based Morgan Stanley Capital International Inc., the Global 1000 ranks companies in 22 countries by market capitalization as of May 31. As investors have lifted the fortunes of such U.S. Net-related outfits as leader Microsoft, Intel (No. 8, up from No. 10 last year), and telecom manufacturer Cisco Systems (No. 9, up from No. 30), they've cemented U.S. leadership. American companies have seen their stock prices rise some 39%; they now account for 57% of the world's publicly invested capital. Nearly half the companies on the BW list--some 494--are American, up 14 from last year.

To be sure, other factors besides digital technology influence the list. Currency plays a role, since the Global 1000 ranks market value in dollar terms. The shifts this year also reflect the magnetic appeal of the U.S. market and Europe's continuing market slump. Together, Continental and British companies total just 314 this year, down 36 from 1998. Germany alone accounts for 10 fewer companies, with just 36, and German share prices are off 14% in dollar terms and 10% in local currency. Germany's market has fallen victim to government disarray, a lackluster economy, and the sharp decline of the much ballyhooed euro. "A U.S. investor [in Germany] couldn't make much money in the last few months," says Bernd Meyer, an analyst who follows German equities for Deutsche Bank.

France, too, has lost six corporate spots, cutting it to just 45, and its share prices are up by 7% in dollar terms. The only European companies to make the Top 20 this year are oil producers Royal Dutch/Shell Group (at No. 5, down two notches) and BP Amoco, which rose to No. 10 on the strength of the merger of previously 26th-ranked British Petroleum and 85th-ranked Amoco.

By contrast, the long-suffering Japanese companies have made some modest gains. As a group, the share prices of Japanese companies gained 29% in dollar terms last year and took 135 spots on the list, up from 116. Leader Nippon Telegraph & Telephone Corp. gained 20% in share value, even though it dropped five notches to No. 13. While the Japanese account for just 9.7% of the Global 1000's total value--a far cry from their dominance of the list a decade ago--that's up from just 8.5% last year. Japan's fortunes are getting a lift from hopes that its corporate giants will at last trim themselves down to be more competitive, and that Japan's recession is crawling to a close.

BROADBAND BET. This year, the advance of the Net cuts across these national distinctions. Of the top 50 companies on the BW list, 19 are either directly driven by the fortunes of the medium (as with America Online) or indirectly benefiting (as with 26th-ranked British Telecommunications PLC, up from No. 40). BT, for instance, has excited investors by offering its own Internet service, along with partnering with the likes of Yahoo! Inc. and Excite UK. The company, betting big on the growth of broadband technology on the Net, is building a network that links the world's 100 biggest cities. "There is no doubt that the Internet is fueling a lot of our growth," says Alfred Mockett, chief executive of the company's BT Worldwide division.

Globally, investors have bid up stocks that are likely to gain from the Net even as they've walked away from other players in the markets. While France's market generally has struggled, investors are flocking to companies such as the conglomerate Vivendi, which has a joint venture with AOL in France and plans to offer Net access over its huge pay-TV affiliate, Canal Plus. Vivendi vaulted from No. 144 last year to No. 104. Share prices in Finland's companies as a group managed just a 6% gain overall. But Net-friendly cell-phone maker Nokia more than doubled its valuation and climbed from No. 87 to No. 38.

Investors are not just shopping for Net buys in Europe. Nortel Networks of Canada climbed from No. 106 to No. 84 because investors expect that its purchase last year of Net-gear maker Bay Networks Inc. will pay off big. And that's so even though investors have bid up Canadian stocks on the BW list just 1% overall in dollar terms and knocked six Canadian companies off the list.

Market watchers are now having a heated debate on what the recent slide in Net stocks portends for the sector. "I call these tulip stocks," says Forrester Research Inc. President George F. Colony, referring to the tulip mania that engulfed 17th-century European investors.

The smartest and the most global of such companies, however, should be able to adjust. Potential developments, such as the growth of truly interactive broadband technology, could simply provide new vehicles for Net-savvy players. America Online's Case, for instance, argues that access to the Net will continue to grow on fronts as varied as cable, conventional phone lines, and wireless technology--not just the traditional dial-up phone-line service that AOL grew up on. "We're supporting a wide array of broadband technology--not just one," Case says. "People want services available to them pervasively, not just on one device."

The outfits likely to keep their lofty perches on the Global 1000 list will be those that anticipate changes on the Net and cater to its growing tens of millions of adherents. "This is not [one] sector of the economy," says Don Tapscott, a Net adviser to the likes of Hewlett-Packard Co. Chief Lewis E. Platt and Vice-President Al Gore. "This is the basis of all sectors of the economy. This is the infrastructure."

For the leading builders of this infrastructure, maintaining high growth will certainly get tougher with each peak climbed. Noting that revenue growth at Microsoft has slowed from 46% in 1996 to just 26% last year, for instance, Chief Operating Officer Robert J. Herbold says "it is unlikely that Microsoft [can] deliver the growth rates that we have in the past." Perhaps. But other Net companies are just starting their climb upward. And the drive to be the next Microsoft will make for an exciting race.

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