The World’s Surprising Economic Superpower

The annual Fortune 500 rankings have become an iconic measure of corporate influence in the U. S. business world. But just as major league baseball's World Series stacks the deck in favor of U. S. baseball teams, the Fortune 500 is limited to U. S. companies. And just as the United States failed to end up at the top in this year's (genuinely global) World Baseball Classic, the relative position of U. S. companies changes once you step onto the global playing field. The United States still dominates the Fortune Global 500 with 140 U. S companies, its 30% share equaling roughly the United States' share of the global economy.That's twice as many as its nearest competitor, Japan, with 68 companies on the list. But U. S. dominance is clearly eroding. Most notably, a U. S. company is no longer at #1, with Royal Dutch Shell displacing U. S. -based Wal-Mart as the world's largest company with revenues of $458 billion. That's the first time a non-U. S. company has been at the head of the list since 1996. The 140 U. S. companies that did make the list combine for the lowest number since Fortune magazine began compiling the list in 1995. Recall that 2008 was particularly unkind to the United States.Within the span of a remarkable 12 months, household names like AIG, Freddie Mac, Lehman Brothers, Merrill Lynch, Wachovia, and Washington Mutual all disappeared from the list. The Fortune Global 500: BRICs Rising? The inevitable rise of the BRIC economies — Brazil, Russia, India and China — is now taken as holy writ among the U. S. business press. With the BRIC countries now boasting more than a quarter of the world's land area and more than 40% of the world's population, it's now considered inevitable that, in terms of size, speed, and directional flow, the transfer of global wealth and economic power is shifting from West to East.While it's true that the BRICs offer some of the best investment opportunities, in terms of companies on the Fortune Global 500, the dominance of the BRICs is still far from today's reality. The BRICs account for 58 companies among the Fortune Global 500. China stands head and shoulders above its rivals, with 37 companies on the list — a gain of nine companies from only a year ago. India has seven companies on the list, while Brazil has six and Russia has eight among the top 500. As pundit David Rothkopf observed, â€Å"Without China, the BRICs are ust the BRI — a bland, soft cheese that is primarily known for the wine that goes with it. † That said, even the Chinese companies on the list are hardly world beaters. Most are state-owned behemoths — not known for savvy or innovation. China's second-biggest company is the creatively named â€Å"State Grid,† which ranks (a shocking) #15 in the world. And in 2009, you can still win bets at almost any U. S. bar by betting someone that she can't name a Chinese brand. Most of the Chinese companies on the list are like a 7†² 5†³ basketball player who can barely dribble the ball.Sure, it's hard to ignore that he is an intimidating presence on the basketball court. But that doesn't mean that you'd want to put him on your All-Star team. And it's hard not to notice that the largest BRIC companies outside of China are largely based on natural resources — that is, â€Å"trust fund† countries pumping wealth from the ground. Take away the oil and steel industries, and Russia, India and Brazil all suddenly rank alongside Denmark, Austria, Ireland and Finland, with two Fortune Global 500 companies each.In terms of heft, the BRICs are still distinctively minor league. Brazil has one company in the top 100, Russia has two, India has zero, and China has five, totaling eight companies from the BRIC countries in the top 100. By this measure, the combined BRICs beat Britain alone — but not France. The Fortune Global 500: The World's Surprising Economic Superpower? With all eyes looking toward the inev itable rise of the BRICs, it's easy to spurn â€Å"Old Europe† as a global economic force. I'm guilty of it and I've spent my entire adult life here.There may be a handful of contrarians willing to say that China may not be all that it's cracked up to be. But in over 15 years of active investment reading, I can recall only a single book that ever viewed Europe's prospects in a positive light. Taken together, Europe's economy is not only bigger than the U. S. economy, but its companies also rival the United States for corporate oomph. The economy of Germany, with a population of 80 million people, is the size of China's, and it both exports more and boasts more companies among the Fortune 500 than its Asian rival (39).Throw in France (40), the United Kingdom (26), Switzerland (15), the Netherlands (12), and Spain (12), and the top six European economies boast an impressive 155 companies among the Fortune Global 500. Not bad for a combined population of 266 million — sub stantially less than the United States. Include the Scandinavian countries of Sweden, Norway and Denmark (combined population 19 million) landing nine companies on the list, and you skew the list even further in Europe's favor. And unlike the BRICs, the European companies are distinctly top-heavy.Germany has 15 companies in the top 100, France, 10; Britain, six; Italy, five; Spain, three; and Netherlands, two, for a total of 41. That far outpaces the United States' collective 27 companies on the list of the world's 100 largest. The Fortune Global 500: A Welcome Correction Parsing the Fortune Global 500 rankings offers an important correction to what you hear in the mainstream business press. First, on a country level, U. S companies still dominate the global economy. And Japan, for all of its widely publicized problems, is still a powerful economic force.Second, China plays a much smaller role in the real world than it does in your email inbox. Third, and perhaps most surprisingly, taken together, the European companies outrank the United States — both in the top 100 and top 500 of the Fortune Global 500. Think of Europe as a single country and you suddenly realize that it trounced both the United States and China in the Beijing Olympics. And it wasn't even close. Yet, consider how likely it would be that you'd ever subscribe to an investment newsletter that focused solely on investment opportunities in Europe.The broader lesson is that distinctions on national lines are increasingly irrelevant. A good example is Arcelor Mittal, the world's largest steel-maker, which grew its revenues faster than Google did over the past five years. Arcelor Mittal is technically a Luxembourg-based company, run by an Indian, who lives in London. And I'd be surprised if you even knew (or cared) that the world's #1 company, Royal Dutch Shell, is actually based in the Netherlands. For true multinationals, country of origin is so yesterday. And that's the way it should be fo r you in looking at your investments.