(Chinese Version)

Everything great matter in the world, long divided, must unite; long united, must divide.

The past decade witnessed the growing gap between rich and poor. On the one hand, wealth of only the top 20 per cent of Americans are increasing. This is true also in China: as low interest rate spreads, only rich people will getter richer. On the other hand, market concentration rate of major companies globally is again growing significantly. As a matter of fact, 10 per cent of listed companies account for 80 per cent of revenue around the world.

Market concentration rate grows most noticeable in the US. While top 100 companies’ contribution to nominal GDP has risen from 33 per cent in 1994 to 46 per cent in 2013, the number of American listed companies has shrunk from 6,797 in 1997 to 3,285 in 2013. The only difference is that internet is the driving force of such significant increase this time.

Many of you might have seen the following graph, which shows that the top ten listed companies by market capitalization has shifted from energy companies to internet ones.

Bloomsburg: World Largest Listed Companies by Market Capitalization (2006 VS 2016)

The era of technopoly

If you have any basic knowledge of economics, you would know that market giants emerged usually after a decade of competition and continued to monopolize the market for a couple decades, and, of course, this isn’t the first time market concentration rate is so high. However, this is indeed the first time internet is the driving force.

One typical of this era is that when market capitalization rises too high, regulations ensue, as we can see from the split of Morgan, AT&T (in the 1980s). In 2000, US Supreme Court also upheld that Microsoft was a “monopoly”. However, it is impossible to split Google or Facebook today, whose market capitalization grows rapidly due to the growing global mobile internet.

Another feature of this era is light asset. While top three American automobile manufacturers’ revenue, market capitalization and number of employees are $250 billion, $36 billion and 1.2 million respectively, those of top three tech companies in the Silicon Valley are $247 billion, $1 trillion and 137,000 respectively. This is also why most people’s income is declining. As asset is getting lighter, fewer employees are needed. Instead, wealth begins to be focused around people with high academic credentials.

In addition, the market is changing even more rapidly today. In 1958, a S&P 500 company would be kicked off after sixty-one years on average. In 2011, however, that figure has dropped to eighteen years. Technological progress also expedites the evolution of tech companies. In 2009, many economics magazines were quite optimistic about Nokia’s future. Nobody had expected that Nokia would pale into insignificance a few years later. For the past decade, lots of tech giants have already been replaced by other tech companies. For example, Blockbuster was replaced by Netflix, Blackberry was replaced by smartphone makers, while Borders Bookstore was also replaced by Amazon. It is expected that S&P 500 companies list will be totally renewed by 2027.

The following graph shows the distribution of major companies around the world. It is quite obvious that the number of companies with huge market capitalization is rising.

PwC: Distribution of Top 100 Companies by Market Capitalization (2009 VS 2016)

The unstoppable globalization

Sicne the 1980s, globalization becomes the largest driving force towards monopoly. This is also why America is the largest beneficiary of this wave of globalization.

One of the indicators that a country is prosperous enough is that it can spread its own culture worldwide. When China was at its peak, it spread Chinese ancient culture to surrounding countries such as South Korea, Japan as well as Southeast Asian countries. The rise of internet led to another round of cultural assimilation and transmission, as we can see from US tech companies’ fast expansion in the mobile internet era. In the US, companies such as Facebook, Google and Apple have already established their own ecosystem through mergers and acquisition. This is also true in China, as BAT companies have already accounted for much part of the Chinese internet industry. At present, 40 per cent of top 1,000 listed companies in the US are tech companies, while that figure was only 1 per cent in 1980.

In the past, it usually takes a long time for heavy asset companies to go abroad. For example, it took General Motors quite some time to open a factory in China. Although traditional companies own the technology and brand, it’s still rather hard to expand overseas. Today, however, tech companies can expand to overseas market very easily. At the same time, merger and acquisition is becoming increasingly easy, as government regulations for such behaviors are also loosening.

The Silicon Valley is also evolving. In the past, the Silicon Valley is referred to as the paradise of technology and entrepreneurship; today, however, it has become harder and harder to start one’s own company and succeed as super tech giants have become so predominant in the mobile internet era. As a matter of fact, the best result an entrepreneur can expect today is to sell his or her startup to super tech giants at last. As the influence of these super tech giants is increasing, they also begin to follow the path that’s “politically correct”, and government relations departments are also becoming increasingly important.

The following figure demonstrate the opening and closing frequency of American startups.

How can super industry giants survive the test of time?

There are lots of industry giants in the history of American business world, such as steel manufacturers, car manufacturers and Coca Cola. However, only one company managed to survive the test of time, General Electronics. But how did manage to do so?

• Embracing innovation and integration. Today’s General Electronics is no longer the company Edison established. After these years of evolution, it has already become a financial company. Through financial business, the company manages to integrate diverse resources and provide low-cost capital for its long-term development.
• Attracting the best management talents. GE attaches high importance to people, and its CEO must be able to remember the detailed information (including family conditions) of all its 600 employees. Lots of high-level executives of GE later became CEOs of companies they acquired.
• Embracing change and transformation. GE has always been open to change. This is why it manages to take the lead even till today.

As technology evolves faster, super industry giants also get easier to be replaced

From today’s perspective, however, these “genes” are also unsustainable. Whether we admit it or not, industry giants will upgrade and be replaced faster and faster. In fact, although industry giants seem to be very secure in the market, they are actually highly insecure. The fundamental reason for such insecurity is that new technologies evolve much faster than traditional consumer goods, and will certainly expedite the upgrade and transformation process.

From the aspect of post-financial crisis, the US and China are certainly the largest beneficiaries of this wave of globalization. While the US owns technologies and controls the flow of money, China has the largest consumer market, middle-class and internet user base worldwide.

To wrap up, low interest rate will lead to growing gap between different countries, between rich and poor, and between different companies. As resources are increasingly focused around industry giants, market concentration rate is very high in today’s world. Technology will expedite the process of upgrading and transformation, while globalization is another variable for income disparity. By the way, if Donald Trump really became US president, the trend towards globalization might be reversed, which will certainly have huge impact on the global business world in the future.

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[The article is published and edited with authorization from the author @Selected Articles please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.