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It seems only yesterday that most of the world’s largest corporations were based in the United States. In the auto industry, for instance, there was General Motors, which not only towered over Ford and Chrysler but made Toyota and Volkswagen look positively Lilliputian. Those days are gone. On most measures Toyota and Volkswagen are now running neck and neck with GM.
The story is similar or even more troubling in a host of other industries. Yesterday’s news that Royal Dutch Shell is to buy U.K.-based BG is yet another reminder of the extent to which corporate America has been losing bragging rights. We will take a closer look at the oil industry in a moment but first let’s consider the wider trend.
Take the steel industry. For generations, U.S. Steel had been the global leader in sales revenues. Now the largest players are Luxembourg-based ArcelorMittal, followed by Nippon Steel of Japan, and Heibei Steel of China. As for U.S. Steel, it is way down at 13th.
Then there is the chemical industry. Dow Chemical was once the leader but Ludwigshafen-based BASF now boasts more than 30 percent higher sales revenues. Rubbing salt in American wounds is the fact that BASF was once a division of the notorious IG Farben, the company that supplied poison gas to the Hitler’s gas chambers.
Even in the pharmaceuticals industry, corporate America has lost position: specifically long-time leader Pfizer has been passed by Basel-based Novartis.
As for the oil industry, the story is that for most of the twentieth century, Standard Oil and its biggest successor company Esso (later renamed Exxon) led the industry. Slowly but surely, however, Royal Dutch Shell, an Anglo-Dutch corporation formed by a merger in 1907, crept up. Even though Exxon merged with Mobil in 1999, this was not enough to stay ahead. As of today Royal Dutch Shell boasts sales revenues more than 7 percent higher than Exxon’s. The proposed merger with BG will boost Royal Dutch Shell’s revenues by a further 5 percent. Already ExxonMobil has fallen to fourth in the world, outranked by Sinopec and China National Petroleum – and this does not include Gazprom and Aramco, which are excluded from conventional rankings because of their close connections with their home-country governments.
Why has the United States been losing out in the superlatives game? Several factors are clearly involved, of which the most obvious is the rise of stock options in American business culture. Stocks options provide a strong incentive to maximize profits in the short run, with often unfortunate results for the long term.
Of course, it is often suggested that corporate size is no longer important in national economic competition. This is surely a limited view. In one key area, size makes a major difference – research and development. By and large the larger a corporation’s revenues, the more it can afford to spend on R & D. And R &D is the key not only to future profitability but to high-paying jobs.
Another argument is that what matters is market capitalization, not sales revenues. This might be convincing but for the fact that market capitalization is such a volatile — and often overtly irrational — indicator (those of us with long memories can cite several bubbles that temporarily exaggerated the importance of various corporations, particularly tech corporations). Even on market value, however, corporate America is not as far ahead as is often assumed. It has been widely reported, for instance, that Apple Computer is the world’s most valuable company. This reckons without Aramco, which many would argue is more valuable. This is not an apples to apples comparison, however, because Aramco is not a listed company. Nonetheless Aramco’s value is hard to gainsay. Click here for an interesting discussion on that subject.
Disclosure: I own stock in Gazprom.