Where do companies make their revenues? European companies saw their non-European exposure decline marginally in 2013 as stronger currencies weighed on foreign sales, but still generated about half of their turnover outside the continent, with at least 15 per cent coming from the emerging world. This far exceeds the US, where just 35 per cent of sales are overseas with only 7 per cent coming from emerging markets.
In general, European companies make far more abroad than their developed-country counterparts. Swiss firms have the highest overseas exposure at 88 per cent, followed by Sweden at 86 per cent. Spain makes the least overseas, but at 66 per cent of revenues, its foreign exposure is still far higher than the US’s 35 per cent or Japan’s 33 per cent.
The sectors that have seen the biggest increase in overseas exposure are IT, materials, consumer goods and energy
Emerging markets tend to be much more domestically oriented. The average overseas exposure of the emerging markets we studied is just 30 per cent, compared to more than 60 per cent for developed markets. Of the BRIC [Brazil, Russia, India and China] nations, Russia has the highest overseas exposure at 47 per cent of revenues, followed by India with 32 per cent. However, Brazil generated just 23 per cent of revenues abroad and China only 12 per cent.
But many emerging markets have seen their overseas exposure increase in recent years and Brazil has shown the biggest rise. Its foreign revenues increased by almost 10 percentage points over the past 5 years, ahead of Poland and Mexico with 8-point rises. Even China, still one of the most domestically oriented markets, has seen its overseas exposure rise by 4 percentage points since 2009.
Nevertheless, the markets which have seen the biggest increase globally are Italy (14 percentage points) and Spain (12 percentage points). This probably reflects the continued weakness of their domestic economies rather than a dramatic increase in overseas revenues. Of the main developed markets, Spain has the highest emerging-market exposure with more than 20 per cent of sales there. Sweden is next, with at least 18 per cent.
The increased foreign sales from emerging-market countries partly reflect globalisation, with companies increasingly likely to seek growth overseas as they develop. But it also reflects deliberate investment to acquire more advanced technology and know-how and secure much-needed raw materials. This is particularly true in China, where outward investment has increased dramatically in recent years.
The sectors that have seen the biggest increase in overseas exposure are IT, materials, consumer goods and energy. Financials and utilities remain relatively domestically oriented.
In general, small firms produce far less of their revenues overseas than their large-cap counterparts. In the US, companies with high stock-market values make 34 per cent of their revenues outside their domestic market, whereas small caps generate just 20 per cent.
In Europe, the distinction is even clearer: sales outside the continent account for almost half of large-cap companies’ turnover but just 27 per cent for small caps.
However, certain small-cap sectors do make a significant proportion of their revenues overseas. In the US, small-cap semiconductor companies produce almost 75 per cent of their revenues outside the country, with Asia accounting for almost 60 per cent.
This article was first published on 3 July 2014.