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July 2007 - Fortune Magazine has published their annual Global 500 list. Global revenues of the top 500 in 2007 added up to $20.9 trillion versus $16.8 in 2005 - a gain of 24.4%. Total profits are up nearly 65%, from $0.93 to $1.53 trillion. Total "Global 500" profits as a % of revenues have climbed from 5.5% to 7.3% since 2005.

US Treasury Secretary Hank Paulson was quoted as saying this is the "strongest global economy" he has seen in his business lifetime. The headline of a related article declared it to be the "greatest economic boom ever", quoting several global business leaders to reinforce the premise that this is about "as good as it gets" - but with no end yet in sight. The writer adds the caveat that booms are like that - at the end.

Their sidebar graphics point out that "cross-border trade, commodity prices, and per capita GDP have all soared to historic levels - and nowhere have things been growing faster than in the emerging world. What's grown fastest of all are international flows of capital and direct investment."

There was the usual emphasis on the "BRIC" countries - Brazil, Russia, India and China - but now Turkey and Middle East locations such as Dubai are attracting attention among global CEO's too as potential investment locations.

A comparison of the Fortune Global 500 list for 2007 against the similar data still readily available for 2005 seemed to be one way to get a sense of perspective on how the list has been changing recently - as shown and reviewed below.

Our recent analysis of the investment sentiment shown by CEO's surveyed quarterly by the Business Roundtable is also potentially interesting as context about what is anticipated short-term (within the next 6 months) in terms of capital investment and job creation as well as sales expectations in that sample group of leaders. The survey suggests CEO's are similarly wary, but still very optimistic.

Analysis of Business Roundtable

CEO Survey 2002-2007 Results

Among our own observations from the above list is that the total number of European companies in the list (not limited to the EU) has grown slightly from 171 to 173 from the 2005 to 2007 lists.

In the Americas, the changes from the 2005 to 2007 lists are:

bullet Canada - up 3 from 13 to 16
bullet Mexico - up 3 from 2 to 5
bullet United States - down from 176 to 162

It is worth noting that these rankings can be affected by cross-border M&A deals which change the parent country attributed to the same company. Such consolidation may change the mix, as can private equity deals to take over large publicly traded companies.

It would be a mistake to extrapolate trends or conclusions from two data points which may not be directly comparable, but it is still interesting to observe the change and consider what is driving it.

Unlike some countries, there are very few restrictions on foreign ownership of businesses which are largely concentrated in the United States. Some of these may still be perceived as US firms even though the ownership is now in other countries.

The new Open Economies policy of the White House is relevant in this regard, as it reinforces the obvious point that the United States remains one of the most open markets in the world for both inward and outward foreign direct investment flows.

Very few international investments into the USA are subject to the national security review process known as CFIUS, although there can be other factors such as anti-trust legislation.

It also seems worth noting, given all the public and C-level attention given to the so-called "BRIC" countries (Brazil, Russia, India and China - as a very different mix of big emerging markets) that their representation in the Fortune Global 500 is still rather small even though there are significant gains.


Brazil - up 2 from 3 to 5


Russia - up 1 from 3 to 4


India - up 1 from 5 tot 6


China - up 8 from 16 to 24

Others gaining in the 2007 rankings relative to 2005 included:


South Korea - up 3 from 11 to 14


Taiwan - up 4 from 2 to 6

Japan had fewer companies in the 2007 list than in 2005.


Japan - down 14 from 81 to 67

It is worth noting that the relative stability of the total in Europe (up 2 overall from 171 to 173) included many small gains and losses, and as in the United States, this sometimes just reflects changes in ownership rather than where these companies are growing today.


Belgium - up 2 from 3 to 5


Switzerland - up 2 from 11 to 13


Britain - down 2 from 35 to 33


Germany - unchanged at 37


France - down 1 from 39 to 38


The Netherlands - unchanged at 14

Observation: Where investment decisions are made

In some regions, global corporations are largely free to choose what they regard as their home country, whether through relocation of the corporate headquarters, choices about where their stock will be traded publicly, or as M&A deals or such things as private equity deals change the country attributed to the business.

This does not mean that the list reflects where companies are investing in growth. The list reflects the country attributed to a business as home when - by the nature of this list - these are global rather than national entities. They operate across borders - and in many cases their internal management structures are truly global.

The nationality attributed to a company doesn't necessarily reflect where top decisions are made about global growth and investment. The leadership team may be very global, regardless of location.

State vs. public vs. private equity

Some countries have developed very large companies through state-owned enterprises which may go public or become privately held. There are also some very large private companies worldwide.

If these become publicly traded companies, that can skew the data over the short term by simply changing the mix of companies in the list. Similarly, if publicly traded companies are taken private again, as has obviously been the case in some major deals in recent years, that changes the mix.

A review of publicly traded companies, as is common in the US context, can therefore change through new ownership structures.

Whose strategy - business or national government?

Ultimately, as companies with nationalistic private leaders go public, or as public companies go private, or as state-owned companies privatize, the question is what drives future investment decisions.

Will investment strategy be driven by business issues rather than politically driven by perceived "national interests" and restrictive market practices which distort trade and investment flows?

In an era of efficient global communications, transportation, and travel, globalization imposes external constraints on nationalistic policies. In short, business goes where it is welcome. Money goes where it can be applied to grow. Governments have considerable power to drive business away through policy choices which are not competitive with the choices being made elsewhere in the world.

Open economies attract trade and investment, and prosper from it. Restrictive economies, regardless of "good" intentions behind the restrictive policies, tend to drive trade and investment away through higher costs and risks relative to alternatives elsewhere. Over time, nationalistic economic isolationism leads to stagnation or decline relative to more open and dynamic economies. There's ample evidence of this in recent history.

There is absolutely no doubt that some countries still cling to nationalistic economic policies despite the repeated evidence of their failure, each believing firmly that this is the right thing to do. Like a compulsive gambler, they lose by their own free choice with the firm conviction that they will win big soon.

Open economies vs. nationalistic industrial strategies

It is self-evident that some governments diligently attempt to intervene in global markets to favor their perceived national interests as though the terms and benefits of trade and investment could be manipulated to their advantage.

There is no doubt that sovereign governments can try to manipulate markets to their advantage, and some do not hesitate to attempt this. This can certainly cause short-term market distortions, and can potentially have a major impact within and beyond their borders.

It is less clear, however, that nationalistic policies which attempt to manipulate markets to achieve a perceived benefit are sustainable in the larger global context. Regardless of "good" or "bad" intentions from any perspective, open markets are dynamic, and adapt fairly quickly to such distortions and the changing mix of opportunities.

Governments, by their nature, are less agile. "Black" markets in less open economies, including the most repressive ones, have demonstrated this external constraint on public policy for centuries.

It's like betting against the house in a casino. Few governments "get lucky" consistently over time. Open economies win - but it is not a zero-sum game because business deals are driven by mutual interests and flow faster when market distortions are removed.

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