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July 28, 2014

More on Canada’s largest firms

Earlier this month the DEEP Centre released a major report outlining the role and performance of Canada’s largest (billion dollar+) firms, and how Canada stacks up against other economies in the creation of such firms. On aggregate, we found that Canada has a commensurate number of such firms, a finding we thought was quite positive.  You can read the full report here.

Admittedly, our use of a billion dollars as the cutoff is quite arbitrary. As we continue to study the subject, however, we’ll continue to dissect different metrics of comparison to see Canada stacks up. Evidently, the science behind these comparisons are somewhat spurious, however, they serve a purpose in promoting discussion on corporate growth and the keys to enabling it.

The recently released Fortune 500 ranking provides a good opportunity to do so. You can see the full Fortune ranking here. I had Kirill run a series of analyses to find patterns or trends on this data set. On aggregate, several findings stand out.

First, the U.S. captures over 25 percent of the Fortune 500 companies. While this might seem high, when compared to the U.S. share of the global economy (22.5 percent) this is quite in line (a 3% positive deviation). China comes in second with 95 firms in the sample, a share that exceeds its share of the global economy by 6.6 percent. This is the biggest differential in the sample, ahead of Japan’s (4.8%), the U.S. (3.1%), France (2.5%), the U.K. (2%) and South Korea (1.7%).  Canada contributes 10 firms to the total sample, or 2%, which is slightly below its 2.4% contribution to global GDP.

Second, amongst the largest of these large firms, which for the sake of discussion we’ll set at greater than $50billion, the U.S., China, Japan, France and Germany dominate with 4-5% positive deviations against their share of global GDP. Here, however, Canada’s presence disappears as it has no firms in the >$50 billion cohort. Other similarly mature economies such as the Italy, the Netherlands, Australia and Spain have all produced firms in this cohort.

This takes us to our third finding. Amongst economies with more than 2 companies in the sample, Canadian firms have the smallest average revenue at $33 billion. This is approximately half the average revenue found amongst major comparative economies such as the US, U.K., Germany, France, Japan etc. That Canada relies on smaller-big firms mimics the findings in our report that found that the Canadian economy relies more on sub-billion dollar firms than do other comparative economies.

All together, the Fortune data highlights that while Canadian firms develop into + billion dollar firms on par with other similar economies, they don’t grow into the largest cohort of firms. Of particular interest is why our financial services, telecommunications and energy firms don’t scale to the size seen across jurisdictions. Is the protected nature of these industries (in particular the first two) lessening their need to grow both domestically and globally?

We’ll continue to study questions like this as we seek to better understand how Canada will compete going forward.

 

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