The face of global business has changed rapidly in the past decade as a new breed of companies rises to prominence. Many of these are idea-driven companies (think Amazon or Google) or firms with unique solutions to the world's problems, such as growing rates of diabetes or cancer.
Accordingly, the composition of the world's most valuable companies (by market capitalisation) has transformed over the past 15 years. Apple, Amazon and Facebook now claim the top spots in the MSCI All Country World Index, taking over positions that were once dominated by oil, mining and consumer companies. How did they do it?
Technology has been a powerful game changer. For example, companies that drive distribution of their products and services through the internet have experienced accelerating speeds of adoption. It took four years for Apple's iPod to amass 50 million users. Facebook hit 50 million users in one year, while Twitter reached 50 million in just nine months.
"For technology companies, the barriers to entry are lower because there are no distribution expenses. The smartphone or tablet is the distribution mechanism," says the New Perspective strategy's portfolio manager Rob Lovelace.
Technology continues to make the world smaller, allowing trends to spread at lightning speed and companies to compete on a global scale more quickly. Firms are using enterprise software solutions, cloud computing and digital manufacturing platforms to develop new products and solutions in multiple locations and bring them to market more quickly.
"Once you've established these networks, there are huge economies of scale to branding and marketing," says investment analyst Georgios Damtsas.
By building powerful digital platforms and networks, the biggest technology and tech-enabled giants have reached never-before-seen scale in users, customers, revenue and profits. Amazon Web Services is one example. One of the best in its field, the cloud computing division of e-commerce giant Amazon hit the US$10 billion revenue mark in only 10 years.
Huge strides in technology and changing demographic patterns are creating paradigm shifts in the way companies operate. The potential for future success of multinational companies lies in the ability of management teams to innovate, have diverse sources of revenue and resilient balance sheets to withstand economic shocks.
As the investment universe evolves, so does our approach to researching and investing in global companies. To thrive in the new environment, fundamental research will be key.
The Capital Group New Perspective strategy follows an unconstrained approach that allows portfolio managers to pursue pockets of growth, secular trends and global trade patterns wherever these may occur. To capture these trends, the strategy invests in quality companies across the market capitalisation spectrum that are either established multinationals, or have the potential to develop into such organisations.
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