Companies from developed economies have improved their value-creation performance vis-à-vis their emerging-market rivals, according to a new report by The Boston Consulting Group (BCG).
The report, Risky Business: Value Creation in a Volatile Economy, finds that of the 192 companies included in this year’s global and industry rankings, slightly less than half (46 percent) are located in developing economies—down from 57 percent last year.
Seven out of the top ten value creators in the 941-company sample are listed on emerging-market stock exchanges—four (including the top three companies) in China and Hong Kong, and one each in India, Mexico, and the Philippines.
However, whereas last year, all ten of the top value creators were from Asia, this year three U.S. companies join the list: fertilizer manufacturers CF Industries and Terra Nitrogen, and designer and producer of branded footwear and accessories Deckers Outdoor.
When it comes to the world’s largest companies with market valuations of at least $35 billion, the ratio is reversed, with six out of the top ten large-cap value creators hailing from developed economies—three from the United States, two from Europe, and one from Canada.
Trends in Value Creation
The report also discusses other findings from BCG’s analysis of this year’s Value Creators database.
The weighted average annual return for the 941 companies in the sample was 5.9 percent, considerably below the long-term historical average of about 10 percent.
Although all 19 industry sectors in the sample delivered positive TSR during the period studied, only 7 were able to meet or beat the sample average. This suggests that while the economic recovery has spread to all sectors, its major impact has been on only a relatively small number of them.
The big industry winner in this year’s rankings is the mining and metals sector, with a weighted average annual TSR of 15.7 percent. This performance is a function of the rise in commodity prices during the 2006–2011 time period, driven in part by rapid development in emerging markets.
In second and third place are the machinery industry and consumer nondurables.
The leading companies in the sample substantially outpaced not only their own industry average but also the total sample average. For example, the average annual TSR of the global top ten (69.8 percent) was more than ten times greater than that of the sample as a whole.
The top ten companies in each industry outpaced their industry averages by between 11.4 percentage points (in telecommunications) and 33.3 percentage points (in chemicals). And in every industry BCG studied, the top ten companies also did substantially better than the overall sample average—by at least 8.2 percentage points of TSR.
“The lesson for executives is clear,” says coauthor Frank Plaschke, a partner in BCG’s Munich office. “Coming from a sector with below-average market performance is no excuse. No matter how bad an industry’s average performance is relative to other sectors and to the market as a whole, it is still possible for companies in that industry to deliver superior shareholder returns.”
“High volatility in the macroeconomic environment and in global equity markets is wreaking havoc with established value-creation strategies at many companies,” adds Daniel Stelter, a senior partner in BCG’s Berlin office and a coauthor of the report. “Uncertainty about the evolution of the world economy has thrown into question traditional assumptions about how best to create value.”
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