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Inside business Inside business Putting the Global 500 into perspective The growth of colossal companies, each producing as much as entire countries, has fascinated economic observers. But a closer look at the statistical dynamics tends to ignore the significant impact of smaller firms. 120 - longitude #52 T he annually published Fortune Global 500 list tells us some interesting things about the world economy and its development. In 2013, Wal-Mart was ranked number one in the world with revenue of $486 billion – an amazing figure. Wal-Mart earns on average over $1.3 billion on each day of the year. Looking back about 20 years to 1995, Mitsubishi was ranked number one with $184 billion. Since then, the revenue of the world’s biggest company has tripled. The world economy and the world’s leading companies have grown immensely over the last few decades. Wal-Mart’s revenue is about the same as the GDP of Taiwan or Argentina, which were ranked 25th and 26th in the world. This means that 88% of the approximately 200 countries of the world have a GDP that is smaller than the revenue of one single company. Of course, this comparison isn’t entirely correct, as the GDP is the sum of a country’s value added and not its revenues. Still, the comparison reveals the enormous dimensions from other perspectives. The biggest German company on the Global 500 list in 2013 was Volkswagen with revenue of $266 billion.VW is ranked eighth, one slot ahead of Toyota. In 2005,Volkswagen was ranked 15th with $111 billion. In this period of time,Volkswagen grew a considerable 11.5% per year. Acquisitions obviously played a major role in this. It must be said though that the presence ofVW on this list is rather atypical for German companies. In 2005, 37 German companies were among the Global 500. In 2013, this number dropped by 19% to only 28. Germany’s development is right in line with many other countries. In 2005, 176 US companies belonged to the Global 500; in 2013, it dropped by 27% to 128. It’s a similar situation for Japan where in 2005 it had 81 firms and eight years later 57. French firms on the list dropped from 39 (2005) to 31 (2013) and British from 35 to 27. Chinese companies are the primary reason why these companies are getting pushed off the list. While China had 16 companies on the list in 2005, in 2013 it experienced a 533% increase to reach 95. The growth of individual Chinese companies is even more breathtaking. In 2005, Sinopec, the company with the high- J.D HANCOCK by hermann simon and danilo zatta Bambi versus Godzilla. est revenue in China, was ranked 31st with $75 billion. Today, the third and fourth slots of the Global 500 list are held by Sinopec and China National Petroleum. With 457 and 432 billion dollars respectively, they aren’t far behind Wal-Mart. Of the top 100 in 2005, there were exactly three Chinese companies; in 2013, there were 15. Such comparisons are even better than macroeconomic figures in revealing how dramatic China’s role in the world economy has changed – and will keep doing so. The shift in country figures represents the largest change in the Global 500 list. What kind of role do Global 500 firms play in the ever-increasing global economy? What do the balance sheets, total revenue, profits and employee figures look like? This exceeds our powers of imagination. These 500 companies generate $31.058 trillion a year – a sum that is almost double the amount of the US GDP, which was $16.799 trillion in 2013. In other words, each company earns an average of $62.1 billion. Even the smallest of the Global 500 firms reports a revenue level of almost $24 billion. Their total profits equal $1.956 trillion. That’s almost $4 billion per company. The balance sheet total is $123.476 trillion. It should be noted here that the list includes banks and insurances companies. The total number of employees, 65 million, sounds rather mod- est in contrast to this figure. Each Fortune 500 firm averages 130,000 employees. In May 2014, Germany alone reported 42.1 million workers. So basically, the Global 500 firms employ “only” about 1.5 times more people than Germany in total. And that’s why we need to adjust how we think, which is naturally influenced by the press. In 32,116 reports from 5 German media sources about companies, industries and managers, a study showed that 83.8% were about major corporations and only 16.2% were about small and mid-sized firms. This doesn’t really fit the reality of the job market, where only about 20% work for Fortune 500s and 80% for the rest of the market. In the media, the world economy is often equated with the performance of the major league players of the world. Yes, the Global 500 are the big players, but they aren’t the world economy. The international importance of the world’s biggest firms should be weighed carefully, despite their fantastic numbers. Hermann Simon is the chairman of the consulting firm SimonKucher & Partners. danilo zatta is partner of Simon-Kucher & Partners. ey are authors of the books Aziende vincenti and I trend economici del futuro. longitude #52 - 121