In the business sector, large corporations tend to be more likely to concentrate in specific "arena" markets, and the market capitalization of these "arena" markets is mostly driven by large corporations. More than half of companies with a market capitalization of more than $200 billion belong to the "arena" market. Although in terms of the number of companies, the companies in the "arena" market make up only one-fifth of the total sample. In 2005, Microsoft was the only company in the top 10 by market capitalization to be in the "arena" of the future, with a market capitalization of $278 billion. By 2020, eight of the top 10 companies were in the "arena" market, with market capitalizations ranging from $511 billion to $1.7 trillion. By 2024, this market capitalization leadership will become more and more significant.
Information technology has played a huge role in the rise of the "arena" giants.
In 2005, among the top 10 companies by market capitalization, there were several oil and gas companies, as well as well-known brands such as General Electric and Wal-Mart. But by 2020, the top 10 companies were mostly tech companies such as Alibaba, Google (Alphabet), Amazon, Apple, Meta (formerly Facebook), Microsoft and Tencent. By 2024, only one of the top 10 companies by market capitalization will not be in the "arena" sector. The concentration of the "arena" market tends to be higher. Market capitalization and revenue are more concentrated among large companies within the "arena" than in non-"arena" companies. Taking the top 10 companies in each "arena" market in 2020 as an example, among the five "arenas" of cloud services, consumer electronics, consumer Internet, electric vehicles and payments, the top 10 companies accounted for at least 90% of the market capitalization and revenue in the sample in 2020. Similarly, the top 10 companies in e-commerce, video and audio entertainment in 2020 accounted for about 80% of their market capitalization and revenue. That is, more than half of the "arena" market has reached this 80% threshold. By contrast, only a quarter of non-"arena" companies have a market capitalization that meets this criterion, and less than two-fifths of companies that do so by revenue. However, in the long run, the structure of the industry is not static. Even though the "arena" market concentration is high, the competitive pressure for innovation always exists. Because investments in improving products or leveraging network effects can deliver incremental returns, industry leaders need to continually strive to stay ahead of the curve. For example, in the consumer Internet "arena", the top three Google (Alphabet), Meta and Tencent in 2020 accounted for 72% of the market capitalization and 78% of the revenue. In 2012, these three companies accounted for 73% of the market capitalization. During this period, there was fierce competition between the three companies, with Google's share falling from about 50% to 30%, while Meta and Tencent increased from about 10% to 20%. In addition, the "arena" market is often a highly innovative space, which can lead to leapfrog changes in technology and business models that can disrupt existing winners.
Figure: Giants are more likely to emerge in the business arena
In some cases, these leapfrogs have also led to the creation of new spin-off "arenas".
For example, the emergence of chatbots powered by generative AI poses a threat to the ad-dependent web search business model; Algorithmically recommended short video platforms have developed rapidly in the social media sector, attracting a large number of users to participate. The "arena" market is more global. "Arena" companies tend to be more global than non-"arena" companies. On average, 50% of the revenue of "Arena" companies comes from outside the company's home region, compared to 42% of non-"Arena" companies. In addition, the "Arena" company is more likely to become a multinational. 13 More than 68 percent of companies in the "arena" market derive more than 20 percent of their revenue from countries outside their home countries, compared to about half in other industries. The software industry is an "arena" with a particularly strong global character. In 2020, 53% of the industry's revenue came from outside the company's home region. The top four companies in terms of 2020 revenue – Microsoft, IBM, Oracle and SAP – together account for more than half of the software industry's revenue, with nearly 60% of that revenue coming from countries other than their home countries. Given the digital nature of these tech companies' products and services, it's no surprise that they're expanding globally. Because, at least on a direct level, they are not constrained by transportation costs, physical factories, or input constraints.
Related:
18 Potential Arenas of the Future That Could Reshape the Global Economy (1)
18 Potential Arenas of the Future That Could Reshape the Global Economy (2)
18 Potential Arenas of the Future That Could Reshape the Global Economy (3)
18 Potential Arenas of the Future That Could Reshape the Global Economy (4)
18 Potential Arenas of the Future That Could Reshape the Global Economy (5)
18 Potential Arenas of the Future That Could Reshape the Global Economy (6)
18 Potential Arenas of the Future That Could Reshape the Global Economy (7)
18 Potential Arenas of the Future That Could Reshape the Global Economy (8)
18 Potential Arenas of the Future That Could Reshape the Global Economy (9)
