Saturday, November 18th, 2017

Globalization: how great companies do not depend on domestic markets

Every day the news carries articles about the weak performance of the United States economy compared to the emerging markets of the world.  Worried that the bad news will continue ad-infinitum, many investors thus shy away from investing in companies based in the USA.  What they are missing is that the USA is also home to the most global companies, the most innovative companies and most of the biggest companies on Earth.  Canada is home to a number of great companies, but their number is dwarfed by those available in that other country located just a few miles from most major Canadian cities.

In 2004 General Motors sold 10 cars in the US for every one in China.  The ratio is now approaching one to one and soon sales in China will exceed sales in the United States.  In the 14 years since Wal-Mart opened its first store in China, it has opened almost 300 more.  Trends like this are not new – they have been occurring ever since international trade really took off at the dawn of the industrial revolution.  Countries like China were stuck in a bog of socialism for decades and have just recently started to move towards capitalism and their own industrial revolution.  Naturally, they do not have to go through all the slow phases experienced in Canada since there is so much that has already been imagined and discovered by scientists, created by engineers and mass produced by entrepreneurs.  China does not have to invent cell phones, automobiles, computers, satellites, power grids, or neurosurgery because capitalism (a free market) has already allowed for these to be developed.  Instead, what Chinese people desperately want is to adopt all of the advanced knowledge, technologies and business practices that has been led by the United States for more than a century.

As the United States economy slows down, burdened by increasing government interventions and restrictions on freedom, some other countries like China and India are headed in the direction of more freedom and so are advancing rapidly.  Companies based in the United States and other relatively free countries are able to operate on a global scale and so expand into the faster growing areas to create new production capabilities, raising the wealth of that population and enabling them to improve their lives and produce even more wealth.  Companies like Wal-Mart, Exxon, Microsoft and many other may have started in the USA and still be listed on a stock exchange in the USA, but increasing portions of their business is actually conducted elsewhere.  This provides an opportunity for investors to benefit from the world-leading legal protections afforded to owners of U.S. based companies and the business opportunities available in emerging parts of the world.

If you look at the investments you have acquired through me, you will find they are largely in global equity mutual funds.  Not only can these fund managers invest in companies that are located all over the world, but the companies owned in your funds usually have operations all over the world.  Most of the companies in your funds are very large, strong, established businesses that are likely to be around for the long term and are constantly engaged in adapting to the changing world in which they design, produce, sell and service their products.  I have great confidence these investments are both suitable for your long term needs and will do well for you in the years ahead.

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