The share of large companies headquartered in emerging markets is set to increase from 27% today to 46% by 2025, according to a report by consultancy McKinsey Global Institute, underlining a global shift in innovation, capital and decision-making towards emerging markets.
The number of large companies based in emerging markets is expected to more than triple from 2200 today to 7000 companies by 2025, says the report, and at least 280 developing cities in China, Brazil and Turkey will host large companies for the first time.
Jaana Remes, a principal at McKinsey, said: “Seven out of 10 new companies will be based in developing regions and this will create quite a dramatic shift in the corporate landscape. There are currently around 8000 large global companies who have over $1bn in global revenues [each]. We expect this number to almost double to 15,000 by 2025, and 7000 of these companies will come from the developing world.”
The report revealed that although the largest global companies are still clustered in a small number of developed-world cities, increasing urbanisation and a rise in consumption power in developing countries will power the growth of local enterprises, as well as attract more market-seeking foreign companies.
“The GDP of developing regions is growing faster than that of developed countries,” said Ms Remes. “In addition, the share of large companies in those developing economies is catching up because these regions are urbanising and more consumers are becoming accessible.”
The rise of global Chinese firms, such as state-owned oil company Sinopec and telecommunications firm Huawei, show the country’s strength in leading the corporate shift towards the emerging world. Indeed Beijing currently ranks sixth in McKinsey’s top 25 index of leading headquarter locations, and data from McKinsey reveals that 154 of the 331 cities that will become significant headquarter locations will be in China. Other tier-two cities such as Guangzhou and Shenzhen, which currently rank 22 and 27 in McKinsey’s top 100 subsidiary headquarter cities, could also become global headquarter hubs by 2025.
Ms Remes was quick to point out that this shift will be gradual as developed-world cities will continue to benefit from their reputation as global centres of excellence. Tokyo, New York and London remain the most popular destinations for global companies according to McKinsey, and only five of the top 20 headquarter cities are in the emerging world. For Ms Remes, this illustrates that traditional business hubs in North America, western Europe and to a lesser extent north-east Asia will continue to maintain their lead as their infrastructure, technological readiness and lower costs of doing business make them easier environments for firms to operate in.
“Many of these leading cities are in a strong position because they have become quite attuned to the way companies think,” explained Ms Remes. “For example, London starts from a very positive position, both within Europe as well as globally, as companies like to be where other headquarters are and that is a clear advantage for London.”
“The challenge is when things are changing fast, cities must stay attuned to how multinational preferences are shifting. An issue for such a strong leader like London is when you have such a concentration of big businesses and people, infrastructure and land become scarce. Thus the city’s response is something that will determine how these leaders can maintain their positions going forward,” she said.