Why the next Apple is likely to be an Asian start-up you’ve not even heard of yet

Andrew Sheng says technological advances and other disruptive forces in the new economy have made it easier for small start-ups to take on the corporate giants – and beat them

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Technicians at Chinese vaccine maker Sinovac Biotech in Wuhan. Improvements in technology and greater access to markets and capital are making it easier for small and medium-sized companies to grow into tomorrow’s behemoths. Photo: Reuters

Published: 3:43pm, 13 Nov 2015Updated: 3:43pm, 13 Nov 2015

Is big always good? How are the biggest companies in the world doing? Prior to the global financial crisis, it was always assumed that “big is better”. Companies from telecoms to supermarkets have tried to dominate global trade, especially in opening up new markets and putting in place global supply chains.

In 2014, the Fortune Global 500 largest companies generated US$31.2 trillion in revenue, US$1.7 trillion in profits and employed 65 million people. But as Wal-Mart, the largest global retailer, signalled a profit warning, have global companies peaked as the world moves into secular stagnation?

Fortune magazine’s analysis of the Global 500 companies shows that, in the past decade, the geography of these companies has changed. The number of companies from advanced countries (the US, Europe and Japan) has shrunk from 452 out of 500 to 353. The big entrant is China (98 companies, compared with only 16 a decade ago). South Korea (17), Taiwan (8) and India (7) also have more global companies than 10 years ago.

Other than China, technology was the big disruptor. The newcomers that became big through technology, such as Apple, Google, Amazon, Visa and Facebook, have more market value per dollar of physical assets than older giants such as General Motors, Exxon and the like.

A customer looks at products displayed during the opening day of an Apple shop in Dubai. Technology is the big disruptor in the new economy. Photo: AFP

The third disruptor after technology is the post-crisis reforms in financial regulation. In a period of low interest rates, large companies made money from financing. GM, for example, made more money from car financing than from making cars. Once Dodd-Frank legislation threatened to make them financial holding companies, subject to many complex rules, these industrial giants decided to get out of the finance business.

Never have so many SMEs been able to access so much knowledge and so many markets with such speed and ease

Furthermore, the regulatory reforms also cut back on global bank profits by requiring large capital and liquidity increases and imposing huge compliance costs. Global banks are shrinking their balance sheets and lowering risk appetites to concentrate on where they have comparative advantage. At the same time, high regulatory costs and the constant need to increase transparency is causing many family-owned companies to rethink the benefits of going public.