October 10, 2013, 00:00

The giants will leave for China

By 2025, there will be 10 times fewer large companies in Russia (with revenues of more than $1 billion) than in mainland China, McKinsey Global Institute researchers estimate Grigory Milov A. Taranin

If in 2010 there were just under 8,000 large companies in the world with revenues of $1 billion or more, then by 2025 their number will almost double and reach 15,000, according to McKinsey Global Institute (MGI). Just recently, 73% of the headquarters of such large companies were in developed countries, but in the near future the situation will change. Two thirds (68%) of the 7,000 billionaire companies on the list will be based in developing countries.

Grow up and move

The role of large companies in the global economy cannot be overestimated, but their behavior remains poorly understood, say MGI researchers. In the US alone, the 100 largest companies are responsible for about half of GDP volatility. And in small countries, just one company can play a disproportionately large role in the national economy.

To better understand the role of large companies in the global economy, researchers compiled the MGI CompanyScope database of all enterprises in the world with annual revenues exceeding $1 billion. In 2010, there were 7,941 of them. In 2010, the total revenue of this group exceeded $57 trillion, which is equivalent to 90% of the world's GDP, then by 2025 the role of large companies will increase, and revenue could reach $130 trillion, consultants write.

For each of the companies in the database, the researchers found a place on the map, that is, they determined the location of the headquarters. It turned out that as of 2010, of the 2,600 cities contained in another MGI CityScope database, only 850 could boast at least one headquarters of billionaire companies. A third of all such headquarters are concentrated in just 20 cities around the world. But they account for 40% of the revenue of all large companies.

By 2025, the situation may fundamentally change, researchers predict. They expect at least 7,000 more companies to cross the $1 billion revenue threshold, most of them based in cities in developing countries. The share of developing countries in the total revenue of the largest companies will increase from 24% in 2010 to 46% in 2025. Among the world's largest companies there will be quite a few that little is known about now, and they will be located in cities that few can point on the map, the researchers write.

If in 2010, the headquarters of 577 companies with revenues of more than $1 billion were located in mainland China, then by 2025 their number will reach 3,100. In Russia, at the same time, there were 165 billionaire companies, but by 2025 their number may increase to only 310.

There are not only advantages to the rapid development of cities in China, says a Russian expert who has worked in China for several years. This is already having a negative impact on the environment, he argues. A good friend of his, a native of Foggy Albion, living in one of the rapidly growing Chinese cities, almost never sees blue skies and, in order to overcome depression, asked to paint the windows blue.

Attractive Factors

The attractiveness of cities and countries for large companies is determined by several factors, of which the researchers identified three: the ease of doing business, measured, for example, using the World Bank's Doing Business ranking tools, the share of extractive industries in GDP and the openness of countries to the arrival of foreign companies. Moreover, the more a country is inclined to rely on income from mining, the less attractive it is for large companies, the researchers note. But, for example, high customs duties can encourage rapid localization of production by large global players, and this can slow down the development of local producers, they conclude.

If in 2010 there were 2,200 companies in emerging markets, then by 2025 there will be 7,000 of them. And their geography will change significantly. In 2010, 80% of the headquarters were located in just 100 cities; in 2025 there will be 160 of them, they calculated. During this time, about 280 cities in developing countries will host the headquarters of a billionaire company for the first time. Among them are many little-known Chinese cities, for example Shantu, Brazilian Campinas, Turkish Izmir. In Russia, Surgut, Novosibirsk, Omsk are already among the 10 cities that have sheltered the headquarters of billionaire companies, and by 2025 this list may include Tyumen, Samara and Ufa, says Paul Eric Shotil, managing partner of McKinsey & Company in Eastern Europe and the CIS.

Moscow is ranked seventh in the world in terms of the number of headquarters of large companies, and its role is unlikely to change. Now 77% of the revenue of Russian billionaire companies comes from those whose headquarters are located in Moscow. According to this indicator, the Russian capital lags only behind Paris, where 91% of the revenue of large French companies is concentrated. No other city in Eastern Europe, according to MGI forecasts, will be able to significantly approach Moscow in terms of the scale of business until 2025 (see chart).

MGI is not the only company interested in developing cities by 2025. In 2013, the Economist Intelligence Unit, together with Citibank, ranked the world's largest cities by their competitiveness. In 2012, Moscow was in 59th place. And EIU researchers don't expect any change by 2025. And St. Petersburg, according to their own estimates, over the same period can rise by 15 positions and fall into 92nd place in the world.