The American singer Dinah Washington once marvelled about the difference a day makes. But in the corporate arena, it can take a decade for the fortunes of some of the world’s largest companies to shift.
There are few better barometers than the Fortune Global 500 list, which tracks the world’s largest companies by revenues each year. And the latest, published in late July, marked a new milestone: “It’s China’s world” ran the Fortune headline atop the list.
“Chinese companies account for 129 (including 10 Taiwanese companies). For the first time since the debut of the Global 500 in 1990, and arguably for the first time since World War Two, a nation other than the US is at the top of the ranks of global big business,” it trumpeted.
By comparison there were 121 American companies in the list and 52 from Japan. The top 10 also included the Chinese giants Sinopec, CNPC and State Grid.
Does this mean that the American century is giving way to the Chinese one? Well, the contrary argument is that this isn’t the first time that the Americans have been shoved off the top spot – and they weren’t displaced for long. Back in the mid-1990s, companies from Japan dominated the list, accounting for eight out of the 10 top spots, with Mitsubishi, Mitsui, Itochu and Sumitomo ruling the roost as the top four. (Today, only Toyota Motors remains in the top 10.)
Not that China’s top companies weren’t pleased to seize the higher ground. As Fortune’s Clay Chandler pointed out: “In China, publication of the Fortune Global 500 has become a major media event. Companies advancing even a place or two rush out press releases. Those making the list for first time bask in the achievement; this year’s most notable Chinese debutant, smartphone maker Xiaomi, celebrated by doling out $24 million in stock to its 20,000 employees.”
All the same, there were words of warning about some of the other trends that featured in the rankings.
The South China Morning Post calculated that state-owned enterprises accounted for 80% of the revenues of China’s Fortune-ranked firms, up from 76% last year, and other newspapers highlighted how many of the Chinese candidates hail from traditional industries, whereas the US has a deeper roster in ‘post-industrial’ sectors like healthcare and entertainment.
Fortune China says that the US firms were on average three times more profitable than Chinese ones (excluding the banks) and that being big doesn’t always equate to strength or longevity in corporate terms. It also highlighted that the Chinese companies have 1.29 times as many employees as US ones, pointing to lower productivity. Returns on assets are lower too – 9% for the Chinese firms compared to 15% for US companies.
Another challenge for the Chinese contenders is to develop the kind of global supply chains and management expertise that have helped the world’s biggest multinationals prosper outside their home markets. “The transnational nature of China’s largest multinational companies is still in its infancy,” Fortune observed.
A blog post by the American Enterprise Institute (AEI) took a more confrontational view, with resident scholar Derek Scissors tearing apart the credentials of the Chinese firms. Fortune’s ranking reveals a lot more about their weaknesses than their abilities, Scissors declared, “unless you believe that being permanently sheltered from competition constitutes strength”.
Reasons he gives for why Chinese success isn’t as compelling as it might seem: he believes many of the companies on the list only prospering because they are monopolies or political favourites and “because the Communist Party doesn’t like bad news” firms in China don’t necessarily release reliable data.
That said, one of the better soundbites about the longer-term ascent of the Chinese economy and its largest companies came out of the debate between the Democrat Party presidential candidates hosted by CNN this week.
“China has a 100-year plan; our plan is a 24-hour news cycle,” lamented Tim Ryan, a congressman for Ohio and one of the 20 Democrat presidential hopefuls.
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