Fact of the Week: The Least Profitable Firms Among the World's Largest Companies Have Higher Labor Productivity and Lower Fixed Capital Productivity than the Most Profitable Firms

November 26, 2018

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Among the world’s largest companies, the least profitable firms have 26 percent higher labor productivity and 68 percent lower fixed capital productivity than the most profitable firms.

Source: James Manyika et al., “Superstars: The Dynamics of Firms, Sectors, and Cities Leading the Global Economy,” McKinsey Global Institute, October 2018.

Commentary: There are nearly 6,000 firms with revenues exceeding $1 billion, representing nearly two-thirds of global corporate earnings. The 10 percent of those firms with the largest profits produce 80 percent of the group’s total earnings. A new study has found that firms in the top 1 percent outperform the median firm across the board, with 20 times more revenue, 12 times more employees, 2.9 times more R&D intensity, 23 percent more labor productivity, and 14 percent more fixed capital productivity.

Interestingly, the firms in the top and bottom deciles have similar revenues, and the firms in the bottom 10 percent have labor productivity 26 percent higher and invest 2.8 times more in fixed capital compared to firms in the top 10 percent. However, the least profitable firms do not utilize those investments effectively, as their fixed capital productivity is less than one-third that of the most profitable firms, and they invest only 12 percent as much of their revenue into R&D.