Covid-19’s disruption of the business landscape is reflected in Fortune’s latest Global 500 corporate rankings, giving important insights for investors.
Most critical is how supply chain management, and supply chain risk, has been thrust into the spotlight. A couple of decades of globalisation saw international trade grow and manufacturing supply chains increase in complexity.
“On-shoring” and “near-shoring” were terms we didn’t hear much before Covid-19, but now reflect the need to diversify suppliers and locate factories closer to home.
There were concerns pre-Covid of higher Chinese labour costs and businesses started thinking about diversifying suppliers beyond China. Supply chain bottlenecks, and the massive increase in shipping costs, have now forced companies to act. Vietnam, Thailand, India, Mexico and Poland are benefiting.
An example of supply chain challenges is the global microchip shortage hitting car manufacturers. Some, like Toyota, navigated this better than others.
Toyota only cut its North American production by 10 per cent, compared to an average of 40 per cent for Ford, Mazda, Volkswagen and General Motors.
For other industries the devastation is more fundamental than just supply chain challenges. Before Covid the Fortune 500 list had six airlines, now there are none.
Oil and gas is also hurt, facing the double whammy of faltering demand and risks of transitioning to a lower carbon economy. Ten of the 20 companies generating the largest losses were oil and gas. BP, Shell, ExxonMobil and Pemex (from Mexico) each had losses exceeding US$20 billion (NZ$27.95b).
On the flipside there have been winners with Netflix and Tesla joining the top 500. Pharma companies also benefited with AstraZenica and Gilead Sciences entered the top 500, Johnson & Johnson and Pfzer were already there.
Decades of global growth has been dominated by two giant economies, the US and China. These will continue to grow faster than the next largest economies of Europe and Japan, and investors should factor this into decisions.
The US and China have more than half of the top 500 global companies. Incredibly in 1990 China had only one company in the list, now it has 143.
New Zealand struggles to build large global companies. There are five countries with a similar population to New Zealand (five to six million people), being Denmark, Finland, Ireland, Norway and Singapore. Combined they have 11 companies on the list, meanwhile New Zealand has none.
For the record, the largest global company by number of employees is Walmart with 2.3 million staff. It is jaw-dropping, but the four largest companies employ more people than the entire population of New Zealand.
By earnings Apple is the highest achiever, with US$57b in profits. Again, global scale is staggering with the combined profits of the world’s three most profitable companies – Apple, Saudi Aramco and Softbank – exceeding the NZ$192b value of all stock exchange listed shares in New Zealand.
The lessons for investors? Understand your geographic and industry spread.
Knowing the devastation from supply chain disruption, consider what business risks could hit next. Be clear whether active or passive strategies (or mix of both) work best for you as an investor. And finally appreciate how much our world has changed in a year – because more change is coming.
John Berry is chief executive of ethical fund manager and KiwiSaver provider Pathfinder Asset Management which is part of Alvarium Wealth. Pathfinder does not recommend the purchase or sale of the companies mentioned.
(This article was originally published by Stuff September 6, 2021)