A leader in the Economist[i] this week discusses the dominance of the US and China among the world’s largest companies. The article and subsequent pieces in the publication provide a host of statistics highlighting the staggering rise of the companies from these two countries and the commensurate decline of European companies: “America accounts for 24% of global GDP, but 48% of business activity. China accounts for 18% of GDP and 20% of business.” Europe’s share of global GDP has fallen from around 38% in early 2000s to about 25% today.
My initial reaction to this was ‘so what, surely you’re telling us something we already know.’ But, on reflection, the articles did make me wonder why this is the case and whether it is something to be concerned about?
There is plenty of evidence for the ‘why’ with the Economist piece. Both the US and China are large countries with lots of people, forming large domestic markets for companies to sell to, with deep pools of capital to support start-up firms and each sharing a common language and by and large unified domestic regulations. Contrast these factors with Europe’s smaller territories and notwithstanding the EU’s objectives, largely fragmented markets with lots of different languages.
The one word I have not included in the ‘why’ reasons is culture, yet is perhaps the most significant reason for the divergent fates of US/China versus the rest of the world. My first thought on the cultural consideration evoked an almost nostalgic view of small, local businesses providing products, produce and services to local communities, akin to a self-subsistence of neighbourhoods. Visualise some rural Italian piazza with the smell of locally baked bread wafting around a market of regionally grown produce, transported by nationally built vehicles. In times when we ought to be very concerned about the business impact on climate change, particularly global logistics, this image has some appeal. However, the evocative image of the Italian piazza was, however, shortly dashed, by the visualisation of a Starbucks on one corner, a MacDonalds on the other.
That is the reality we face – although there are challenges to the notion of globalisation, we do live in a global marketplace and with a range of consumer preferences available to us we will often choose convenience or brand over local. It is unfortunate however that those globally dominant brands are not home grown. Perhaps global domination is not what we seek. Referenced in the article are Germany’s Mittelstand companies – characterised as locally focused, often family owned with intergenerational values. Maybe the European culture is all about local success rather than exporting to far flung countries, or ‘making do’ is sufficient, not seeking to be the biggest.
But should the trend be a concern or, indeed, is it just the time for US and China’s day in the sun and in time, as has been the case before, other countries will rise to dominance and replace their top rankings? I’m sure with the growth of emerging economies there will be some challenge in future, but is just the scale of the US and China which makes it so hard to image that dislodging.
Should we be concerned, however? The questions over the incorporation of Huawei into our domestic networks certainly raised the spectre of nefarious infiltrations into our national security or even our everyday communications. To a certain extent I think there is an inevitability to elements of this, given the interconnectedness of everything digital, but where there exist such ideological and political differences between nations with which we trade there ought to be some checks to ensure we’re only receiving what we expect we’re buying into!
There is no doubt that we have the potential to innovate the next big idea, but perhaps we as a nation need to be a little braver in our ambitions and the providers of capital occasionally back the outsider rather than the favourite.
[i] The Economist, June 5th-11th 2021