By Ichiro Suzuki
Well over the last 100 years, the list of the world’s largest corporations has shown who’s hot and who’s not from one year to another and one decade to another. The financial markets have always rewarded companies driven by the latest technology defined in a broader sense, with rich valuation. For instance, creation of U.S. Steel at the outset of the 20th century through amalgamation of Andrew Carnegie’s steel mills made the new company the world’s first billion dollar company. Innovative technology in steel making was behind the birth of a billion dollar company though it had little to do with information technology. Outside of technology, there were times that geopolitical and macro economic developments made commodity producers soar to the top of the list. While U.S. corporations crowded the list most of the time, up and coming foreign competitors sometimes made attempts for the top positions. Here is the top 10 list at the end of 2023.
3. Saudi Aramco
4. Alphabet (Google)
7. Meta Platforms (Facebook)
9. Berkshire Hathaway
10. Eli Lilly
And here are takeaways:
One: American dominance, again.
U.S. corporations dominated the list once again, with nine out of ten places in the top ten. In the year of the Magnificent Seven, it is no surprise that America’s tech and tech-enabled corporations domimated top spots. Saudi Aramco, the third largest, was the only non-U.S. corporation in the top ten but an asterisk needs to be added to this. Only a fraction, less than 2%, of Saudi Aramco is traded in the market with the rest being in the hands of the government of Saudi Arabia. In the unlikely event of the Kingdom’s Prince Mohammad Bin Salman allowing the majority of the Saudi Aramco shares to be owned by investors outside, the oil producer’s share price would be severely affected. In contrast, Apple, the reigning largest corporation on earth, is the most liquid mega cap corporations. (This is in part because Steve Jobs sold all but one shares that he originally owned as a co-founder, when he was ousted by John Scurry in 1985.) Apple and Saudi Aramco are not really playing in the same league.
Two: Fall of China, in a rather spectacular fashion
Not so long ago, Chinese corporations rose to prominence, threatening to dethrone the United States as a hub of largest corporations. Petro China became the world’s largest billion dollar corporation for a brief moment on the eve of the 2007-09 global financial crisis. In addition, Chinese banks dominated the list of largest banks on earth at that time. In the next decade tech giants Alibaba and Tencent found themselves solidaly on the top ten list. At the end of 2023, Tencent was still the largest Chinese corporation but ranked 23rd in the world, far cry from the position it once had several years ago. Alibaba fell from top 50.
President Xi Jinping’s ruthless campaign to destroy shareholders’ value is weighing on the Chinese market as much as the sluggish economy. China is presenting a mirror image of the fall of Corporate Japan in the 1990s. In the final 16 months of the 1980s, market value of the Tokyo Stock Exchange even exceeded that of New York. Not even Shanghai went this far. Japanese corporations and banks dominated the lists of the world’s largest. In the 1990s, however, they fell precipitously from grace. Banks were forced to cope with their monumental bad debt problems while other corporations were busy restructuring their businesses slashing unprofitable divisions. While corporations outside Japan grew rapidly in the 1990s, Japanese corporations were constrained to shedding fat to generate cash and stay in business. This forced Corporate Japan to lag behind Western competitors distinctly, and eventually to disappear from the rankings. What is happening to Chinese corporations doesn’t look dissimilar to the fate of Corporate Japan 30 years ago. In this dismal trend of falling China, EV maker BYD is on the rise, already topping Tesla in sales. As the largest EV maker by far in the largest market, BYD has a chance of becoming a dominant multi-national corporation. Market capitalization of BYD at $78 billion today, however, is a fraction of Tesla that at one point exceeded a trillion dollars and still is $750 billion. The financial market does not appear to be painting a future for BYD as bright as Tesla. What matters to shareholders’ value is ultimately profits not sales. This might be what the market is looking at on top of the risk associated with doing business primarily in Xi’s China.
Three: Retreat of Asia
Along with Chinese corporations, other East Asian corporations are retreating in the rankings. This might be too much of generalization since this is essentially about TSMC and Samsung, but both of them were solidly in the top ten in the past. At the end of 2023, TSMC was just outside of top ten, ranked 12th while Samsung fell to 21st. Both of them are major players in semiconductor manufacturing and this happened to them while NVIDIA rose to $1.2 trillion in valuation to be ranked 6th and Broadcom rose to 16th, eclipsing Samsung. Though DRAM prices are firm, the consumer sector, to which Samsung’s memory chips are exposed to, is not doing well lately, adversely affecting Samsung’s bottom line. Along with China, Asia in general may be stepping back.
Four: Retreat of luxury brands
In retrospect, it was a bit too much that LVMH was in the top ten in a pandemic-stricken world, even if the company is blessed with immense brand equity and is run brutally efficiently. The market intensely values innovation that enhance productivity, and luxury brands do not belong to this category. They probably have soared driven by massive liquidity injections amid heightened fears of a severe economic downturn caused by the pandemic. With excess liquidity being taken out of the market, LVMH retreated to No.22 while L’Oreal and Hermes fell to No. 35 and No.48 respectively. They are great companies but where they stand is perhaps where they should really belong to.
Five: Toyota hangs in
This is a minor point. As a remnant of once dominant Corporate Japan, Toyota, ranked 38th, is the only Japanese corporation in the top 50. In fact, Toyota came back from the outside of the top 50, while having been accused of being late in the game of EVs-making. Toyota boasts of its impeccable ability to generate profits from whatever it does, and the market hasn’t given up on the company. It remains to be seen how the new management team guide the company through the challenging times.
Largest companies by market cap (updated daily)
About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.