Top 1,000 Listed Companies of Greater China
The Empire of Chinese Business
Taiwan, Hong Kong and China have merged into a single economic sphere whose influence is being felt the world over. In this first-ever survey, we explore the similarities and disparities that make up this rising realm.
The Empire of Chinese BusinessBy Sara Wu
From CommonWealth Magazine (vol. 372 )
"In 1994 Peter Drucker, the father of modern management, predicted in an interview with CommonWealth Magazine that within some fifteen years Chinese management methods would become a hot topic around the world.
In Drucker on Asia, published in 1997, he reiterated that point, predicting that within the next ten years, as many books would appear in the United States and Europe entitled “Secrets of Chinese Management” as books entitled “Secrets of Japanese Management” appeared during the previous decade.
Ten years on, Drucker’s prognosis has come true.
Under the onslaught of globalization, China, Hong Kong and Taiwan have merged into a single, symbiotic economic system of mutual competition and cooperation. With each location demonstrating its own strengths and weaknesses, businesses from Taiwan, Hong Kong and China – referred to collectively as the Greater China region – are posting breathtaking growth and huge profits.
This year CommonWealth Magazine has for the first time produced a ranking of the “CommonWealth Top 1,000 Listed Companies of Greater China,” in an effort to understand how enterprises from Taiwan, Hong Kong and China are deploying their resources to win the battle in the Greater China region, and which companies have already managed to pull away from the pack.
When Hong Kong, once the brightest pearl in the British crown, approached its handover to Chinese sovereignty in 1997, it had lost much of its former luster. But backed by a rapidly ascendant China, Hong Kong is shining brightly again.
Leading Global Growth
Within just over a decade, enterprises in Greater China have created another economic miracle. Our first-ever “Top 1,000 in Greater China” represent a total annual turnover of US$1.9 trillion, accounting for 10 percent of the US$18.9 trillion total annual turnover of the world’s largest companies listed in the Fortune Global 500 in 2006.
Their revenue growth rates have also startled the world. Enterprises in Greater China are growing twice as fast as the top global companies. Last year the Top 1,000 companies of Greater China registered vigorous revenue growth averaging 21.9 percent – double the 10.7 percent posted by the Fortune Global 500. No wonder the whole world looks toward the Far East.
Not only has Greater China been leading in terms of pace of growth, it also has opened a large lead over the rest of the world when it comes to profits. The Top 1,000 in Greater China boast an average profit margin of 9 percent, compared to 6.4 percent for the Fortune Global 500.
Within Greater China, Hong Kong-based enterprises take the lead with an average profit margin of 22.5 percent, followed by China-based businesses with 7.1 percent. Taiwan comes in last with an average profit margin of just 5.3 percent, the only Greater China location to trail behind the global average .
The ‘Golden Triangle’ Conquers the World
Thanks to geographical proximity, cultural affinity and a common language, enterprises in Greater China have developed vertical and horizontal business models that differ from others. Never before has an economic region concentrated the primary, secondary and tertiary sectors of industry – natural resources, manufacturing, and services – within a three-hour flight radius, achieving a compact symbiosis of cooperation and competition.
Figures show that in 2006 China was Taiwan’s largest export market, followed by Hong Kong. Combined as a single market, they account for 40 percent of Taiwanese exports. Every year Taiwan posts a huge trade surplus thanks to its exports to China and Hong Kong. The United States, Taiwan’s longtime top export market, has meanwhile fallen back to second place.
For Hong Kong, China is even more vital. China is Hong Kong’s largest export market and its largest source of imports – 30 percent and 46 percent, respectively. The former British colony is highly dependent on China for its economic development.
China’s relations with these two trade partners are quite the opposite, as trade with Hong Kong is export-heavy, while trade with Taiwan is import-heavy. Hong Kong is China’s second largest export market, accounting for 16 percent of exports, while Taiwan is China’s third largest source of imports – accounting for 11 percent.
These figures underline that the flow of goods, technology and money among China, Hong Kong and Taiwan has already become indivisible. Mountains of goods made in China are transshipped to the whole world via Hong Kong. Taiwan and China for their part have developed partnerships between upstream and downstream manufacturers. Taiwanese enterprises establish factories in China and import half-finished goods or raw materials to China from Taiwan.
Under the new rules of a globalizing world economy, businesspeople know no borders and are difficult to categorize in terms of nationality.
For that reason a growing number of ethnic Chinese businesspeople have begun to make use of the combined resources of the entire Greater China region. Since they find it very difficult to use the definitions of the past that were based on personal identity, geography or market, they are conquering the world backed by the competitive advantages of Greater China.
Scale Favors Big China
Hong Kong has been able to clearly consolidate its position as a superior capital market. A surge of Chinese companies is going public on the Hong Kong stock exchange, but Taiwanese enterprises are not to be outdone. In late May Taiwanese conglomerate Formosa Plastics Group said it may spin off China-based operations and take them public in Hong Kong. “The industries on the two sides of the Taiwan Strait are innately different,” says Chen Tain-jy, economics professor at National Taiwan University. When both sides of the Taiwan Strait function as an integrated whole, he notes, “Many things complement each other, so that Taiwan can make use of many resources.”
But it is not just Taiwan that is able to exploit these synergies. Despite less than 30 years of economic reform and opening, China has developed its own methods, and even strategies, yielding stunning results.
Our first-ever Top 1,000 in Greater China shows that scale is the No. 1 threshold in global competition. A total of 121 enterprises in the Top 1,000 had an annual turnover above NT$100 billion, including 57 Chinese, 49 Taiwanese and 15 Hong Kong companies.
In China, some 90 percent of the companies that made the cut were state-run enterprises, while private enterprises dominated in Taiwan and Hong Kong.
China is presently developing from the resource-oriented stage that is driven by production factors such as cheap labor, land and resources, to what competitiveness authority Michael Porter calls the investment-oriented stage. A nation’s competitiveness at that stage builds on the government’s and enterprises’ will and ability to invest.
China’s growing orientation toward investment is developing the nation’s competitive edge as it wins through scale. Among the Top 1,000 in Greater China, Chinese companies stand out with their performance in terms of business volume, assets, after-tax net profits and other benchmarks.
China is making full use of its “post-development advantages,” exchanging human and physical resources for money and technology.
Chinese companies took seven of the ten top slots in terms of business volume, while Taiwanese companies came in third (Hon Hai Group) and ninth place (CPC Corporation), and Hong Kong’s Hutchison Whampoa Limited (HWL) ranked number eight.
Chinese companies also shine with after-tax profits, taking eight of the top ten spots. Chinese energy giant China National Petroleum Corporation (CNPC) came out number one with after-tax profits of NT$648.5 billion, while Taiwan Semiconductor Manufacturing Company (TSMC) placed eighth with after-tax profits of NT$127.2 billion. The top-ranked Hong Kong enterprise was the Swire Group in tenth place.
However, these Chinese cash cows do not fare as well as their Taiwan and Hong Kong rivals when it comes to profit margins and return on assets (ROA), which shows that management competencies in China are not yet on par with Taiwan and Hong Kong, and that scale is behind Chinese companies’ success.
Buttressed by China, Hong Kong on the Rise
When Hong Kong, once the brightest jewel in the British crown, approached its handover to Chinese sovereignty in 1997, it had lost much of its former luster. But nestled against a rapidly growing China that increasingly asserts its place in the world, Hong Kong is shining brightly again as the region’s major financial center.
As many as 83 percent of Hong Kong enterprises that made it into the Top 1,000 in Greater China are active in the finance and service industries. Charmaine Wong, associate director-general of Invest HK, the investment promotion agency of the Hong Kong government, points out, “Last year Hong Kong’s stock market had the most initial public offerings (IPO) of all capital markets in the world. We are already running neck-and-neck with New York and London.”
Western media often describe Hong Kong as a place of “unfettered” capitalism, where a small group of politicians and taipans dominates the economy, bringing into full play their ability to make fortunes on real estate or turn money into more money.
Hong Kong clearly outdoes the other areas of Greater China with its astounding profit margins. Hong Kong enterprises captured all slots in the top ten for profit margins, led by real estate companies. The No. 1 for instance, Hongkong Land, which belongs to the former colony’s oldest trading house, the Jardine Matheson Group, posted a mind-boggling profit margin of 343 percent, meaning that it was able to make more than 3 dollars from every dollar spent.
Being also the world’s largest trading hub and a top destination for buyers around the globe, Hong Kong has spawned the shining example of a global logistics management enterprise, the Li & Fung Group. “They don’t have a single factory themselves, but are able to cooperate with more than 3,000 factories worldwide,” notes Prof. Lee Ji-ren, EMBA program director at National Taiwan University. Thanks to the company’s efficient management, shareholders have been enjoying considerable investment returns, he says.
Taiwanese Enterprises Turn Adversity into Advantage
Relations within Greater China, both cooperative and competitive, are indescribably tricky. Despite complex historical backgrounds and political disputes, the Greater China region is highly economically interdependent. Among the areas of Greater China, Taiwan is in the most complicated and most challenging situation. Wedged between economics and politics, Taiwanese enterprises must fight for survival.
But Taiwan is also the strongest in technology and innovation. In May the Economist Intelligence Unit (EIU) of Britain’s Economist magazine released a report on the level of innovation in 82 countries from 2002 to 2006, ranking Taiwan the sixth most innovative economy in the world.
Taiwan is also doing quite well with regard to return on assets, an indicator of how efficient management is at using assets to generate earnings. Return on assets stood at an average 5.3 percent for the Top 1,000 in Greater China , but differed somewhat according to area. Hong Kong leads the pack with 6.9 percent, followed by Taiwan with 5.2 percent and China with 4.8 percent.
Among the top ten in terms of return on assets are five Taiwanese companies. Their major competitive edge is innovative capabilities in technological research and development.
But the figures in this year’s survey also reveal Taiwan’s weaknesses.
The lion’s share of the Top 1,000 – 919 enterprises – are currently turning profits, while just 80 companies are losing money. But with 49 of its top enterprises in the red, Taiwan accounts for the majority of loss-making companies, followed by China with 24 and Hong Kong with seven. Thirty-two of the 49 unprofitable Taiwanese enterprises are in the manufacturing sector, while twelve are in finance, and five in the service sector. Taiwanese companies are the only ones in Greater China losing money in the finance industry.
At an average 5.3 percent, the profit margin of Taiwanese enterprises is the lowest of all three areas of Greater China. The thin margins show that Taiwan has too many companies in the same industry or trade, which has led to ruthless price-cutting and cutthroat competition that makes it difficult to boost profits.
The factors driving growth for enterprises in Taiwan are inherently limited, yet externally, Taiwanese companies also must cope with an unclear cross-strait situation.
C.Y. Huang, Polaris Financial Group's CEO for Greater China capital market investments, blames government restrictions for the plight of Taiwanese enterprises. “Not only does the Taiwanese government have this restriction that a company’s investment in China must not exceed 40 percent of its paid-in capital, it also demands that companies that list spin-offs on foreign stock markets must delist in Taiwan.” Huang believes, “If companies are tied down in Taiwan, they will be eliminated sooner or later.”
Taiwan’s most serious challenge is to prevail over the two other areas of Greater China despite the cross-strait conundrum.
Taiwan’s Foremost Problem: Lack of Governmental Acumen
In May the Swiss business school IMD released its latest World Competitiveness Yearbook, sounding an alarm for Taiwan, as the island’s ranking (18) fell behind China’s (15) for the first time ever. Taiwan’s major weakness is its government’s lagging competitiveness.
However, Taiwanese enterprises have still a very strong ability to succeed on their own. A closer look at the Top 1,000 in Greater China shows that, when it comes to running a company, private entrepreneurs from Taiwan are still a far cry ahead of their competitors in rapidly rising China.
The most precious part about Taiwan is that no matter how the environment at large changes and no matter how many uncertainties the future holds everyone from employee to company boss shares an invincible spirit and a “can do” attitude.
Moreover, the gap between rich and poor is much wider in China and Hong Kong than in Taiwan. In comparison with the two other areas of Greater China, Taiwan also performs much better in the social justice department. These “soft” strengths regarding people’s livelihood are all competitive advantages that should also be incorporated when we consider future industrial orientation.
“We should not be afraid that companies will leave, but make efforts to improve Taiwan’s living environment, to turn the island into a very attractive place,” says one Taiwanese banking executive who requested not to be named.
And most importantly, no matter whether Taiwan’s government wants to face this truth, in the course of globalization Greater China has already become a single economic sphere of symbiotic cooperation and competition.
In this new economic ecosystem where talent, technology, capital and goods are circulating at an ever faster pace, constantly innovating, growing and maintaining balance is the challenge facing one and all.
Translated from the Chinese by Susanne Ganz