Wednesday, October 7, 2009

World's Best Companies 2009

By: E. Deprez of Businessweek

Any athlete will tell you that the time to train is in dismal weather, not on perfect, sun-drenched days. If you want to excel at the best of times, it seems, you need to be prepared for the worst.

Companies are little different. So as the economic outlook brightens, those that have worked hard to survive the tough times of the past year are best prepared to seize new opportunities. It is these enterprises that have risen to the top of the World's Best Companies/Global Top 40 list, compiled for BusinessWeek by management consulting firm A.T. Kearney.

What are some traits of the World's Best Companies? A commitment to innovation, diversified portfolios, aggressive expansion, strong leadership, and a clear vision for the future. "In an environment of continuous disruptive change, companies that have rigorous strategic planning initiatives that allow them to see over the horizon…are far more likely to win than those that make it up as they go along," says Paul Laudicina, chairman of A.T. Kearney.

To create the list, A.T. Kearney examined the 2,500 largest publicly listed companies in the world. Kearney's team singled out those with a minimum of $10 billion in sales in 2008, at least 25% of which came from outside the company's home region. It then ranked the companies on their sales growth and value creation—the rise of market capitalization after subtracting any increase in capital—over the past five years. This year, the list expanded to 40 companies from the 25 Kearney ranked in the past.

Thriving Industries

The top 40 come from 18 countries and industries ranging from chemicals and contracting to software and shipbuilding. But three groups stand out. There are six technology and telecommunications enterprises that have tapped into continuing demand for mobile-phone service and new digital hardware and services. The eight heavy-industry and engineering outfits performed well as infrastructure spending started to bounce back. Finally, companies in sectors tied to the commodities boom of recent years have in many cases continued to prosper, though their ranks have been thinned considerably.

Japanese electronics maker Nintendo (7974.T) claims the No. 1 spot this year. Its sales have risen 36% annually over the past five years, while its value growth averaged 38%. Despite the hard times of the past year, Nintendo's continued emphasis on innovation has helped the company develop must-haves such as the DS handheld game machine and the Wii console, which outsold rival offerings from Sony (SNE) and Microsoft (MSFT).

Nintendo's strategy is emblematic of the tech companies on the list. Like Nintendo, American technology giants Google (GOOG) (No. 2), Apple (AAPL) (No. 3), and (AMZN) (No. 17) have continued to invest heavily in innovation, commanding large market share with new products even as consumer spending and confidence have declined sharply. Telecom companies MTN (No. 7) and América Móvil (AMX) (No. 18) have profited handsomely by expanding into developing markets in Africa and Latin America.

Though they seem to lie at the other end of the business spectrum, engineering companies have enjoyed a similarly strong run. Initial dents following the recession-driven building bust have been patched up by government-financed infrastructure projects worldwide. Komatsu (6301.T) (No. 25) has consolidated its focus on construction and mining equipment. Doosan Heavy Industries (No. 4) has diversified by adding desalination plants to its business of building power stations for utilities. Similarly, Hyundai Heavy Industries (No. 5) has branched out beyond shipbuilding into construction machinery and solar power.

Fewer Commodities Companies

Commodities plays have fared less well. In 2008 three-fifths of the World's Best Companies were in energy and metals due to high commodities prices. This year, only a quarter are. Last year's leader, steel giant ArcelorMittal (MT), and four Russian energy, metals, and mining companies have vanished from the list. That said, 11 commodities companies remain. Australia's BHP Billiton (BHP), for example, the world's largest diversified miner, brought in more than $63 billion in revenue in 2008 and gained six spots, to No. 10, this year.

It's not all about industry. Charismatic chiefs—sometimes bordering on autocratic—can also be key to earning a place on the Global Top 40. Apple, for instance, has long prospered under the steady hand of Steve Jobs. With Jobs now back in the driver's seat after taking a leave of absence due to illness this year, expect Apple to continue to thrive. At Spanish textile and retail giant Inditex (No. 9), the owner of Zara stores, founder Amancio Ortega Gaona continues to implement his vision of fast fashion.

In Mexico, billionaire Carlos Slim has made América Móvil into the world's fourth largest cellular carrier, with more than 190 million subscribers. Klaus-Michael Kuehne has headed Kuehne + Nagel (KNIN.VX) (No. 23) for four decades and built it into a leader in global logistics services, helping preserve profits through targeted cost cuts as trade volumes plummeted over the past year. "Driven by an idea, [these leaders] have taken time building their companies…with the patience required to see their efforts come to fruition," says Norbert Jorek, partner at A.T. Kearney and principle author of the study.

From Exxon to World Fuel

Size, meanwhile, doesn't matter as much as some might think. Only four companies with market caps of greater than $100 billion made the top 40: BHP Billiton, French utility GDF Suez (GSZ.PA) (No. 6), Spanish phone carrier Telefónica (TEF) (No. 32), and oil giant ExxonMobil (XOM) (No. 38). Indeed, some of the most successful enterprises are relatively small. Miami-based World Fuel Services (INT), which markets marine, aviation, and land fuel products in 23 countries, is the smallest on the list with a market cap of $1.1 billion, but comes in at No. 13. German construction company Bilfinger Berger (GBFG.DE) (No. 33) had a market cap of $1.7 billion but has won impressive contracts such as the world's longest rail tunnel, a 30-mile-plus link under the Alps straddling the French-Italian border.

In the developing world, South Africa put in a strong showing with three companies in the Global Top 40. MTN, one of the pioneers in bringing mobile service to emerging markets, has proven that poor countries can be lucrative markets. Nigeria is its largest with some 28 million subscribers, and the company continues to expand in the Middle East. "Driven by a large entrepreneurial spirit, MTN had the will and appetite to take on that risk and the ability to turn risk into success," says Dobek Pater, partner at Africa Analysis, a consulting firm for tech companies in developing markets. And conglomerate Bidvest Group (No. 37) has placed an emphasis on food service but also has holdings in logistics and retailing. Both are examples of emerging-market companies poised to become global players: Bidvest has made acquisitions around the world, including in Australia and Central Europe, and MTN is currently in talks with India's Bharti Airtel (BRTI.BO) over a $24 billion merger.

This year's ranking of the World's Best Companies shows that even when stock markets are down, smart companies can be on the way up. A.T. Kearney Chairman Laudicina sees two important factors that are most likely to drive global economic performance in coming years: leveraging technology and innovation to enhance productivity, and demographic shifts such as graying populations. "Those companies who understand them best—and I think you see many of them on this list," will prosper, he says. "Those that don't are likely to be outside the bakery window looking in."

Deprez is a reporter for BusinessWeek.

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