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The world’s biggest companies: what does this tell investors?

April 17th, 2009 · Greg Atkinson · 4 Comments

Sometimes as stock market investors it is useful for us to step away from the daily noise created by market analysts, company CEO’s and news headlines and try to look at the big picture.  One way to do this is to just get back to the basics and look at hard data to see if this helps us spot any trends regarding in the global economy. So it seems reasonable that a good place to start would be by looking at the top companies across the world to see who is making money and why.

There are many ways to rank companies globally. You could for example rank companies in order of market capitalisation, in terms of net profits or based on assets, but I like the list Forbes puts together since in their own words:

“Forbes’ ranking of the world’s biggest companies departs from lopsided lists based on a single metric, like sales. Instead, we use an equal weighting of sales, profits, assets and market value to rank companies according to size.”

So let us look at the top 20 companies according to Forbes and see what it might be telling us.

Forbes Global 2000 Top 20 Companies (April 2009)

the-global-2000-top-20.jpg

For further information and more company lists see the The World’s Biggest Companies special report on the Forbes website.

The first thing that becomes obvious about the above list is that 40% of the companies in the Top 20 are in the oil and gas sector.  Thus it seems even as we head into the second decade of the 21st century the oil and gas giants from the 20th century are still going strong, and my guess is they will still be well represented in the Forbes list for many years to come.

Another interesting aspect of the list is the lack of U.S. manufacturing focused companies present and this challenges the view many American’s have that they posses the best manufacturing sector in the world. In fact in terms of true global players the U.S. looks a bit light on the ground since AT&T is basically focused on the U.S domestic market and so is Wal-Mart to a large extent. I also think this list supports what I have believed for some time and wrote about in The U.S. auto industry bailout and some inconvenient truths and that is that the U.S. economy has benefited a lot from world history, as opposed to any superiority the U.S. worker has over their counterparts in other countries.

In addition the U.S. has abundant natural resources and fairly friendly neighbours so those factors also help the U.S. economy of course. But many U.S. companies are now struggling to compete with challengers in Asia and Europe and I doubt it is going to get any easier for corporate U.S.A from this point onwards.

I have not looked through all the information on the Forbes website yet, but from what I studied so far I would make a few very broad statements:

  • Europe seems to be written off by many analysts these days but I actually think that the Eurozone has a lot of great quality companies and will be a good place to invest when things settle down.
  • The emergence of China is reflected by growing number of Chinese companies creeping onto the list of leading corporations.
  • Australia is yet to crack the Top 20 and BHP is our best performer at Number 52.  If you dig into the data a little on the Forbes website you will see Australia has a pretty under developed tech sector… not the greatest launch pad for this century I would think.

But enough of my ramblings, I wonder what readers thinks of the Forbes list? Am I worrying too much about the lack of a significant tech sector in Australia for example or should we just focus on our strengths in commodities, farming and banking? Feel free to share your views and tell me what you think.


4 responses so far ↓

  • 1 8020 Financial // Apr 18, 2009 at 11:09 pm

    I think, applying the 80-20 rule, we should focus on what we’re best at, which is mining and agriculture. Our mediocre tech sector is a real shame though, there is certainly a lot of talent in Australia. I remember reading somewhere that is has something to do with our tax system, it doesn’t favor startup entrepreneurship in the same way as other countries.
    But I wonder what happens when all the commodities run out, as it must eventually. Maybe that will be problem for our grandkids.

  • 2 Greg Atkinson // Apr 20, 2009 at 7:09 pm

    8020 that makes sense…since that is where we seem to have a competitive advantage…for now. I really think though that some money should be directed towards giving tech/biotech etc. a kick along. Maybe some generous tax deductions for R&D?

  • 3 Ned S // Apr 28, 2009 at 12:46 pm

    Good point 8020 – Concentrate on what you do well.

    Hey we do a good job of digging coal out of the ground. But could we add some more value to it? Maybe – For that reason I’d like to see us putting way more R&D effort into things like maybe cracking coal into oil cleanly. The demand for oil is there and it’s not going away just yet. We have lots of coal. We know it can be turned into oil. And that the cost was maybe USD 30 per barrel in 2005? (Not sure what it would be now – But if it is an energy intensive thing then if push came to shove I’d use nuclear power to get the cost down.) Because it has to be cheap or the current oil producing nations just could to do their best to drop prices long enough to starve you out of the market.) Presumably it’s pretty infrastructure intensive – Maybe it would give Mr Rudd something of long term use to direct his infrastructure stimulus dollars towards? But it also has to be a clean process. Some R&D needed please?

    And maybe figuring out how to convert sunlight to usable energy cost effectively. Oz has no shortage of sunlight. Harnessing it cost effectively is the trick. This little nation really should be world’s leading R&D site re that for mine. Because we have so much to potentially gain from any break through.

    And then there is the question of how to capitailise on all that dry land to grow food cost effectively? Do we look for ways to get water to it? Or do we look for ways to grow food with minimal water – Unless we don’t think food is going to be a big deal anytime soon? If not then we should be a leading R&D nation when it comes to getting cost effective food out of dry land.

    But we should also maybe be thinking about how we can lift our game re some of the things that we don’t do well for the longer term. Because as you say, the commodities are going to start running out eventually.

  • 4 Greg Atkinson // Jul 23, 2009 at 11:31 am

    Ned S – I have been thinking again about your comment and reckon you are on the right track. Australia should be ploughing a fortune in R&D into some of the areas you mentioned above and trying to turn our arid areas into an asset.

    This is why I am so annoyed at the way Rudd spent billions on projects that will do nothing to help Australia in the 21st century…but the billions will still probably get him re-elected.

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