© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
June 24, 2011 10:15 pm
Meet the new economy, same as the old economy. We hear a lot about the technology industry and the upheaval among media and communications companies – the way in which digital innovations are changing how we exchange information and buy goods and services. The most beguiling contests are those played out in Silicon Valley, or its equivalents around the world, between the Facebooks and the Googles.
The risers and fallers in our annual list of the world’s biggest companies
Meanwhile, manufacturing has been squeezed out of many developed economies, which have turned to services – from financial industries to hotels and retail – to provide most jobs. China, Vietnam, the Philippines and others are low-cost manufacturing hubs, but many western economies are shifting to a post-industrial phase.
It is surprising, then, to turn to this year’s FT Global 500 ranking of the world’s largest companies by market capitalisation and find precious little sign of that. Instead, many of the world’s most valuable companies, and the sectors that have risen most in value, are in businesses that are far from virtual.
Their products are solid and often difficult and dangerous to extract – oil, natural gas, copper, coal and precious metals. Alongside energy and mining companies come heavy industries and a resurgent auto industry, which is recovering from its post-2008 crisis. The fastest-growing sectors in value this year are industrial engineering, oil equipment and services, autos, mining and chemicals.
One thing explains much of this – China. The rapid growth of the world’s second largest economy has not only prompted a property boom in coastal cities and an outbreak of inflation but has had an immense impact across the global economy. It has driven up the price of oil and gas, and the commodities needed to keep factories busy.
Adding to the China effect is the fact that the slow recovery in western economies from the 2008 crisis is being led by industrial investment rather than a brisk resumption of the debt-driven consumer boom. Many of the companies that are benefiting from this pattern of recovery are behind-the-scenes industrial producers rather than consumer goods companies and retailers.
As a result, the biggest risers within the FT Global 500 this year were companies such as National Oilwell Varco of the US, which rose 216 places, and the Russian energy producer Novatek, which rose 194 places. They were joined by Atlas Copco and Volvo of Sweden, which rose about 140 places each, and industrial engineering companies including Komatsu of Japan and Deere of the US.
China’s efforts to secure raw materials from commodity-rich countries have been a boon for Australia, Canada, Brazil and Russia. The Russian risers include Gazprom and Rosneft, while Brazil’s rapid growth pushed Petrobras to number five position from last year’s 13. Glencore, the Switzerland-based commodity company, launched its initial public offering in May, too late to be included.
All of that gives this year’s FT Global 500 the feel of the 19th-century economy – it is a product of globalisation, energy and raw materials. Save for the fact that many of the companies benefiting most are from the emerging markets, it could be a snapshot of global economic activity as the US economy surged in the 1860s.
The top 10 is an energy-dominated balance of companies from east and west with Exxon Mobil taking back top position from PetroChina, and Industrial & Commercial Bank of China, Petrobras, BHP Billiton, China Construction Bank, Royal Dutch Shell and Chevron following behind.
Technology – and particularly the dominant US companies – remain important. Yet the industry lacks the overall impact of past years, when many technology enterprises were together rising sharply in value. Instead, the success of one company is offset by the fading of another.
Apple’s continuing rise in the rankings is counterbalanced by the comparative fall in market value of its old rival, Microsoft. As Apple rises to third place from fifth last year, Microsoft falls seven places to 10 and may drop out of the top 10 next year.
Microsoft also suffers compared with corporate software and services companies – IBM rises seven places to 14 and Oracle rises 15 to 22. Google, once the whizzkid of the rankings, climbs a mere two places to 28, ahead of the expected IPO of Facebook, the new darling of Silicon Valley, next year.
This does not mean that the US is down and out. It remains a dominant presence in the index, taking 10 of the top 20 places. US companies such as Coca-Cola (which rises 11 places to 27) and General Electric are still powerful global enterprises and brands, and have benefited from the rise of China and India.
Yet many well-known US names are simply holding their places in the rankings rather than growing and some have slipped this year. Wal-Mart is a striking example of the shift in value from services to resources and heavy engineering, falling from 7 last year to 19.
Some of the most valuable US companies remain banks such as Wells Fargo and JPMorgan Chase. In fact, despite the upheavals of 2008 and sharp criticism that financial services had become an outsized part of western economies, banks remains the largest sector of the FT Global 500.
There are 75 banks in the top 500 this year, with a total market value of $4,435bn – some 16.9 per cent of the total. Most of this value, however, lies with retail banks rather than Wall Street investment banks – Goldman Sachs falls from 56 to 74, while Morgan Stanley falls from 166 to 187.
Within the banks, the influence of China and other Asia economies is evident. Chinese banks comprise three of the six most valuable banks in the world, with HSBC, which gains much of its value from its Asian assets, the fourth. Agricultural Bank of China, which had its IPO in 2010, was the highest-ranked newcomer at 34 (see profile, page 12).
One of the best ways to view the FT Global 500 changing is to look at the new entrants. Some, such as American International Group, are returnees after a disastrous experience in 2008-09. Others are fast-growing companies, many from Asia, that are staking their place. They include South Korean companies such as Hyundai Heavy Industries and Kia Motors, Taiwanese ones such as Nan Ya Plastics and Formosa Chemicals & Fibre, and Australia’s Newcrest and Origin Energy. We can expect many more new names in future.
So the FT Global 500 this year is more global than at any time in the 15 years since it was founded. The hegemony of US and European companies is fading and even technology supremacy is doing little to alter that trend. In industrial terms, the FT Global 500 is surprisingly traditional in its make-up. In terms of geographical balance, it reflects the way that China has tilted the economic world on its axis.
John Gapper is an FT associate editor and chief business commentator
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.