This is from Citi’s Robert Buckland in the latest edition of the firm’s Global Equity Strategist note:
In the last 15 years, the west has expanded its profit margins, while Asia (ex Japan) has seen its profit margins shrink. On the other hand, intense revenue maximization (as measured by sales divided by company assets) has gone the other way.
If you want a real-world example just think Apple and FoxConn.
What we have just experienced, at a global level, is a classic change in corporate strategy. Such changes are often the topic of textbook industry analysis. Asian companies have adopted a turnover-maximising business model, which is consistent with lower margins. Companies elsewhere have pursued a margin- maximising business strategy, which is consistent with lower turnover. In Figure 8,
we provide a snapshot of global industry margins and asset turn. The Eastern business model now looks more like a Grocery Store (Food Staples Retailing). Western business models look more like those of a Software or Media company.
Now what’s interesting is that this is not just a “tech” phenomenon.
Here’s one more chart, showing that in the last 15 years, almost every industry in the bottom right corner (shrinking margins, higher sales) is Asia ex-Japan.
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