пятница, 10 сентября 2010 г.

Corporate Giants and Economic Growth - is a new research of SKOLKOVO

Historically economic growth depends crucially on profit creation and the appreciation of asset prices. Although the vibrant sector of small businesses in many countries is the workhorse for generating jobs and emancipating the poor from poverty, profit creation and wealth accumulation however, more or less take place mostly at large scale enterprises.

In a new policy paper, the SKOLKOVO Institute for Emerging Market Studies (SIEMS) studies the largest 400 companies in China and Russia

The research separately reviews a contribution of private companies, i.e. such companies where
the majority equity share of the company is owned by individuals and parties other than the state, and corporate decision making is not controlled by the state.

About 80% of the companies making into the top list are private companies in Russia, while only 18% are private companies in China. The above comparison confirms a current opinion that the private sector in Russia plays a more prominent role than in China.

While China and the US have a comparable share of its top 400 companies aggregating to about 70% of GDP, Russia’s top 400 companies jointly take 55% of GDP. All these trends seem to
confirm the hypothesis that wealth creation of nations is indeed achieved mostly by corporate giants. Moreover, there seems to be a trend of convergence towards the total revenues of 400 companies settling somewhere between 70% and 80% of the nation’s GDP.

Hence it can be concluded that an economic growth model of countries is also explicitly determined by those top companies.

Based on results of the research, it can be asserted that in comparison with China Russian companies are growing much faster, and much more profitably. This phenomenon debunks the
myth that there is little or no profit in emerging markets. While Chinese companies display the typical high-growth-low-margin pattern, the Russian companies consistently show average profit margins of over 10% in recent years.

Some conclusions warn of weak points.

For instance, the top 400 list in Russia brings about the issue of national economic health, as it indicates Russia’s heavy dependence on oil and gas industries. Russian companies’ higher profit margins may also be related to the high-flying oil prices before the financial crisis. In fact, macro data also confirms Russia’s GDP fluctuates tightly with world oil prices. Will this energy-driven growth model be sustainable over the long run, particularly when the world seems to be increasingly moving towards a new alternative energy era?

Both China and Russia also seem to see a slight erosion of the private sector in recent years. China is now witnessing the unfolding of what is called “State-Progress-Private-Regress” (SPPR) phenomenon, as many private companies are being nationalized or consolidated under the SOEs, especially in coal mining, iron and steel, and aviation industries. A similar pattern is also unfolding in Russia.

You can read a full text of the research here

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