Friday, October 04, 2013

America Inc rules again

American firms have muscled their way back into nine of the top ten slots amongst global firms in terms of market cap. In 2009, only the US had only three firms in the list. Post-crisis, it seemed the US was headed for a decline. For the nth time, the US is to prove the naysayers wrong. The US economy is recovering better than Europe and it's emerging markets that are slipping up of late.

The Economist gives the reasons why America's renewed ascendance in the business world:
A perky stockmarket is partly responsible. The euro crisis has killed off any hope that more firms from the euro zone might scale the rankings: the currency block has just four firms in the top 50 (see article).
Two deeper factors are also at play, though. First, America’s mix of resilience and renewal. Three of its nine biggest firms have their roots in a 16-year period in the late 19th century—Exxon, General Electric and Johnson & Johnson. Their durability reflects their powerful corporate cultures. But the country still does creative destruction, too. IBM and Intel have slid down the rankings to be replaced by Apple and Google. Chevron, an energy firm, has gone from a laggard to a world-beater. Success has been anything but parochial. Six of the nine biggest firms sell more abroad than at home.

Second, the old rule that buying shares in state firms is investment suicide has reasserted itself. The world’s ten biggest state firms in 2009 have lost $2.2 trillion of value, or 60%, from their peaks. Lower commodity prices are only partly to blame. Investors now award most state firms stingier valuations than their private peers. Gazprom is worth three times its profits, versus Exxon’s multiple of 11. And although emerging economies have slowed, nimble private firms are doing fine. In 2007 investors gorged on shares in PetroChina when it listed in Shanghai, briefly making it the only firm ever to be worth over $1 trillion. Now China’s hottest corporate property is Alibaba, a private internet firm plotting a huge flotation.

The Economist may be exulting too soon over the falling fortunes of state firms. Nobody gave these firms the ghost of a chance of being highly valued, say, 10 years ago. But they did become a force to reckon with. With improvements in governance, restructuring and better market orientation, they could well reinvent themselves. The Economist had its ideological basis but it's too early to write off state-owned firms everywhere. 


Anonymous said...

please share the link to the list

Anonymous said...

i understand that my post would be out of context but what are your thoughts on real-estate bubble in india - is it nearing or already there?:

Termografering said...

Interesting to see ... thank you it's well done article:)

T T Ram Mohan said...

Anonymous, I have provided the link to the Economist edit.


Anonymous said...

thank you sir!

chandramouli said...

State Enterprises were traditionally oriented towards domestic markets. But today we find these SE operating globally competing with private sector organizations. In the first instance, these SE get patronage from the State and this leads to an unfair competition with private players globally, who do not enjoy such state patronage. The role of state is to govern the economy and not to enter into commercial venture and further take it globally. Even if for certain strategic reasons if a commercial venture is commenced by a State, the policy ought to be divestment of the same once the initial objective is achieved. There is an existence of conflict of interest in having an authority to govern and regulate as well as to run commercial ventures, which again are regulated by the same state. Hence, the basic foundation of SEs is to make undue profits through patronage and thus thwarting competition. Hence they are bound to be unsuccessful as it leads to monopoly and results in curbing competition leading to bad governance and management.

chandramouli said...

Further to my comment above, the FIR against Mr. Parakh and Kumaramangalam Birla, pioneer in India of good corporate governance, is an outcome of alleged diversion of coal blocks ear-marked for state enterprises to private players.(sic.). The end result is India importing coal though it has highest coal mines. These are clear cases of bad governance and mismanagement, which results in such actions, which adversely affect the sentiments of investors in India.