By all appearances, the Dow Jones Industrial Average (INDEX: ^DJI ) is a uniquely American institution. The 30 stocks that make up the index are a "who's who" list of America's largest and most hallowed corporations, from Boeing to Microsoft to Disney. Yet nothing is immune nowadays from globalization's gravitational pull. Not even the Dow, which has become progressively less a reflection of the American economy than that of the world's.
The Dow goes global
When the index was first created by Charles Dow and Edward Jones in 1896, there was no doubt about its country of origin. All but three of the original 12 stocks had distinctly American names. There was the American Tobacco Company, the Chicago Gas Company, the North American Company, and the United States Rubber Company, to name a few.
Now, only two of its expanded 30 companies are immediately recognizable as such -- that is, Bank of America (NYSE: BAC ) and American Express. The remainder have names that lend themselves more naturally to global marketing. It's said, for instance, that Coca-Cola's name is the second-most understood term in the world, behind only "OK," and that 94% of the world's population recognize its red and white logo.
Even more telling is the proportion of revenue that the typical Dow company gets from sales here at home. According to quarterly reports and annual filings, the average Dow component derives less than half of its revenue from North America. The majority, or 52%, comes from sales in places like Europe, China, and Brazil.
While the majority of companies fall somewhere in the middle -- 13 get between 40% and 50% of their revenue from North America -- the list isn't without outliers. On one end of the spectrum are Travelers and Home Depot (NYSE: HD ) , which get more than 80% of their revenues from North America. And on the other end are ExxonMobil, Chevron and Intel (Nasdaq: INTC ) , which look to the domestic market for less than 30% of theirs.
Source: Respective companies' annual and quarterly reports. Data for AT&T and Verizon not included.
No company on the Dow demonstrates the global nature of the index better than McDonald's (NYSE: MCD ) . Despite its origins and association with Uncle Sam, the Big Mac maker gets only 32% of its sales from North America. This isn't even a plurality in terms of continents, as it gets 40% of its revenue from Europe alone. And when you read the company's annual report, let's just say it's all about China, where 1.3 billion hungry customers are waking up to the virtues of American fast food.
You gotta get your mind right!
It should go without saying that there's nothing inherently wrong with the globalization of the Dow. It's a sign of the times. The world is becoming smaller, commerce more interdependent, and global asset prices -- be it stocks, bonds, or commodities -- increasingly correlated.
At the same time, however, as a professor of mine from law school liked to remind us: "You gotta get your mind right." In other words, simply recognizing that the Dow is transforming into a global index as much as an American one is an important recognition in and of itself, as the index no longer serves as a pure play on the U.S. economy.
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