Knowing how a company makes its money is key – but knowing where can be just as important. After all, when you snap up shares in, say, a European firm, you get more than just a slice of the local scene. And that’s because while Paris or Berlin might be the home base, the real action could spread from New York to Shanghai. Now, untangling the global sales streams can be tricky business: fortunately, Morgan Stanley has laid out the big trends for you. Here’s what it says…
What do the global streams look like?
US firms love their home sweet home. They’re the homebodies among developed markets, with a whopping 73% of sales coming from the US and Canada. Not a huge surprise, then, that American companies are worldwide leaders in consumer goods, pulling in half their revenues directly from shoppers – primarily from the ones right in their backyard.
Emerging market firms also surprisingly stick close to home. They lean surprisingly heavily on domestic sales, perhaps more than you might expect. (Yes, even China.) And like their American counterparts, emerging market (EM) companies love that direct-to-customer route: it’s where 45% of their sales come from.
European firms are masters of globalization. They’re the vanguards of the worldwide market, sourcing most their revenue from beyond the Continent. They’re also more business-to-business savvy, with most sales coming from other firms, not from consumers.
Japanese firms strike a good balance. They manage to leverage business from both the stable developed economies and the dynamically growing, emerging ones. And they make money both from corporates and consumers in almost equal measure.
Here’s a closer look at the domestic and international revenue streams.
The domestic and foreign revenue breakdown of companies from the US, Europe, Japan, and combined emerging market (EM) economies. Source: Morgan Stanley.
And here’s a closer look at how the customer base breaks down for the firms from each region.
The percentage of sales that come from consumers, governments, and other businesses, for firms across regions. Source: Morgan Stanley.
And that’s a pretty good overview, but if you look at each region in a bit more detail, it can tell you a lot more.
The United States
Of the 27% of sales that come from abroad, Europe contributes the most to US firms, at 11%. Then it’s Asia – excluding Japan and China – which chips in 5%, with Latin America not far behind at 4%, and China itself adding a modest 3%.
Where the sales happen for US firms. Source: Morgan Stanley.
When it comes to business that stretches across borders, the US tech sector is unmatched, with a hefty 56% of its sales coming from overseas. Close on its heels are the materials, industrials, and energy sectors, each with 25% to 45%.
The more domestic-focused sectors all lean toward the less-risky, more defensive end of things: with utilities, real estate, and healthcare making more than 80% of their revenue right at home. Similarly, consumer staples and discretionary sectors both are primarily fueled by the domestic market, with more than 70% of their sales originating stateside.
The total foreign revenue of US firms, broken down by sector. Source: Morgan Stanley.
Europe
European firms are true globetrotters, with more than half their revenues flowing in from outside the Continent. In fact, their local share is at an all-time low, with only 44% of their sales coming from within Europe – a dramatic drop from 70% at the turn of the century.
When you zoom in on where exactly these euros are coming from, it’s the emerging markets that steal the spotlight, accounting for a hefty 31% of total sales – a figure that’s expected to only climb. North America is also a key customer, particularly the US, which makes up 20% of European revenue and has seen the most growth over the past ten years. China makes its mark with 8%, more than double that of the US to China.
Where European companies get their revenue. Source: Morgan Stanley.
The bloc’s financial sector and defensive stocks tend to rely more on advanced European economies. But its commodity companies and cyclical businesses tend to spread their wings wider, particularly to the Asia Pacific region and North America.
If you look at European sectors, here’s where they get their revenue. Source: Morgan Stanley.
Japan
Japanese firms get roughly 57% of their revenue right at home. The other 43% are scattered pretty evenly across developed markets and emerging markets.
Where Japanese companies get their revenue. Source: Morgan Stanley
Emerging markets
EM firms draw a significant portion of revenue – 72%, to be precise – from within their own borders. That other 28% comes from other EM and developed market (DM) econonies. Interestingly, North America and Europe are only modest contributors, providing 8% and 5% of EM sales exposure, respectively.
Where the revenue comes from for companies in emerging markets. Source: Morgan Stanley.
Now, the most striking case in the EM world is probably China, where companies earn most of their income domestically – a stunning 85% of revenue is homegrown. And that’s despite China’s dominant role in global exports. It’s a unique economic situation, where the major exporters are often multinationals or unlisted local firms.
When you look beyond China, the picture shifts slightly. EM companies outside of China see a more balanced revenue stream, with 44% coming from abroad. In specific regions like Eastern Europe, the Middle East, and Africa (EEMEA), and Latin America (LatAm), companies still lean heavily domestic for sales, but with a notable foreign revenue exposure at 38% and 37%, respectively, showcasing a diverse approach to revenue generation across different EM economies.
Why should you care?
We’re all living in a world that’s more connected than ever, but it turns out investment opportunities still vary wildly by region.
If you’re eager to tap into the solid US economy and its consumers, then stick to US firms. But if you’re after a more diverse revenue stream, Europe may be your ticket, giving you a slice of emerging and developed markets, and a bit less consumer focus. And if you want to shake things up even more, consider adding companies from Japan and emerging markets: they may give you exposure to economies that are driven by slightly different factors.
For me, the biggest takeaway here is this: if your investments are heavily US-centric, you’re likely out of balance. Sprinkling in some international flavor could be just what you need to diversify and potentially level out the bumps in your investment journey.
