15th Annual Global CEO Survey by PwC

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PwC’s Annual Global CEO Survey, now in its fifteenth year, aims to inform and stimulate the debate on how businesses are facing today’s challenges. Over the years, thousands of CEOs around the world have taken the time to share their views with us.

Our 15th Annual Global CEO Survey, “Delivering results: Growth and value in a volatile world”, seeks to understand how businesses are preparing for growth in their priority markets. We spoke to 1,258 CEOs based in 60 countries, and carried out a further 38 in-depth CEO interviews. The survey explores CEO confidence in their company’s growth prospects, and how they’re building local capabilities and creating new stakeholder networks in new markets.

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15th Annual Global CEO Survey by PwC

  1. 1. Contents1. Executive Summary2. Main Report3. 10 Minutes
  2. 2. 15th Annual Global CEO Survey 2012 Executive SummaryDeliveringresultsGrowth andvalue in avolatile world www.pwc.com/ceosurvey
  3. 3. In 2012, CEOs face Telling the CEO survey story rising uncertainty in the global economy, as developed economies struggle to sustain 1. How is 2012 shaping up? .................................................................................................. 3 recoveries. 2. So CEOs are preparing for the worst? .............................................................................. 4 In the PwC 15th Annual Global CEO Survey, we asked CEOs how they see the 3. How, then, can CEOs be confident? ................................................................................. 5 global economy evolving this year and beyond, and how they expect to deliver 4. Will there be a rush into fast-growing, emerging economies?............................................ 6 business results in this environment. We surveyed 1,258 business leaders 5. Does that mean we’ll see more M&A this year? ................................................................. 7 in 60 countries from September to December 2011, and conducted further 6. So the plan is to step up exports instead? ......................................................................... 8 in-depth interviews with 38 CEOs. We found a growing sense of 7. Doesn’t this put a big emphasis on innovation? ................................................................. 9 preparedness and a surprising optimism: chief executives were nearly three times 8. Let’s come back to risk. Didn’t you say uncertainty is on the rise?.................................... 10 as confident of their companies’ growth this coming year as they were in the 9. Don’t CEOs always talk about the ‘war for talent’? .......................................................... 11 global economy’s growth. Their strategies to achieve this success centre around addressing three areas: 10. Where are talent constraints most acute? ..................................................................... 12 • balancing global capabilities 11. So what are CEOs doing about it? ................................................................................. 13 and local opportunities • resilience to global disruptions 12. What do CEOs hope to do more of? .............................................................................. 14 and local risks • the talent challenge 13. Are they also thinking outside the box? ........................................................................ 15 This document highlights key findings in the CEO Survey. Please go to www.pwc.com/ceosurvey to read the full report and explore other online tools.2 15th Annual Global CEO Survey 2012 – Executive summary
  4. 4. Short-term confidence has declined – but remains well above the levels seen in 2009 and 20101. How is 2012 Q: How confident are you about your company’s prospects for revenue growth over the next 12 months? Yearly comparison. shaping up? 60% 52% 50% Four years into the global financial 50 48% crisis and uncertainties are mounting: just 15% of CEOs expect 41% the global economy to improve this 40 40% year, and confidence is down among CEOs across all regions, except for 30 the Middle East and Africa. Yet while 31% 31% CEOs don’t think growth will be 26% Very confident about company’s easy, they do believe they’re more 20 prospects for revenue growth 21% ready for turbulence. As a result, over the next 12 months 40% are ‘very confident’ in prospects 10 for revenue growth in their own companies in the next 12 months. 0 Improved cost structures, continued 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 strength in cross-border ties and Base: All respondents (2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084; 2006 (not asked); 2005=1,324; 2004=1,386; 2003=989) the rise in investment and commerce Note: Percentage of CEOs who are very confident about their companies’ prospects for revenue growth Source: PwC 15th Annual Global CEO Survey 2012 to and from emerging economies are lending considerable support to business optimism. The world may “The emergence of a middle-class in India and in China is going to be a huge stimulus be slowed for a time by financial for the global economy over the next 20 years. Additionally, emerging technological problems but this structural shift advances – whether in the digital domain, bio-technology, or any number of fields – is potentially bigger than the still have a long way to go before their full positive effect on the economy is felt. institutional problems and depressed So I am concerned about the next two or three years, but optimistic over the long-term.” growth in developed economies. Dimitrios Papalexopoulos Half of CEOs based in developed CEO, TITAN Cement SA, Greece markets believe that emerging “The message that we’re going to take five to ten years to recover doesn’t get economies are more important to through at all and so readjustments between the expectations and the reality are their company’s future, as do 68% of painful. Maybe because we are a long-term business, we tend to think about the CEOs who are themselves based in long term a lot and our interpretation of the crisis was that it would take a long emerging markets. time. It’s just simple maths. If you destroy 10% to 15% of your GDP and you need to recover it and you’re growing at 1% or 2% per annum, it’s not difficult to figure out how much time it’s going to take to get back to where you started.” Tidjane Thiam Group Chief Executive, Prudential Plc, UK 15th Annual Global CEO Survey 2012 – Executive summary 3
  5. 5. CEOs to remain vigilant over costs 2. So CEOs are Q: Which, if any, of the following restructuring activities have you initiated in the past 12 months, or plan to initiate in the coming 12 months? preparing for Implemented/Implement a 75 the worst? cost-reduction initiative 66 Entered/enter into a new strategic 38 alliance or joint venture 49 CEOs are paring down ambitions in Outsourced/outsource a 35 business process or function the near term as recoveries in Europe 33 and the US disappoint. Volatile input Completed/complete a cross-border merger or acquisition 20 28 costs and currency fluctuations Insourced/insource a previously outsourced 20 continue to pressure margins in business process or function 16 many sectors. Thus many CEOs are Divested/divest majority interest in a 18 holding back their cash reserves as a business or exited a significant market 14 buffer against an economic pullback: Ended/end an existing strategic alliance or joint venture 17 12 fewer CEOs are planning a ‘major 10 change’ to capital investment Don’t know/refused 11 strategies this year than did in 2011. % Similarly, CEOs are keeping vigilant Initiated in the past 12 months Plan to initiate in the coming 12 months watch over their operating costs: 66% plan to initiate cost cuts in Base: All respondents (1,258) Source: PwC 15th Annual Global CEO Survey 2012 2012, with CEOs in healthcare and the forestry and paper industries most likely to pare costs. “We’ve entered into some significant outsourcing agreements, not only with respect to administration but also mill maintenance with the aim of achieving maximum flexibility in the use of our assets at a time of great uncertainty.” Jouko Karvinen CEO, Stora Enso Oyj, Finland “What we have seen, though, is that we have to find ways to build capacity in emerging markets at lower capital costs.” Michael Thaman Chairman of the Board and CEO, Owens Corning, US4 15th Annual Global CEO Survey 2012 – Executive summary
  6. 6. Growing customer bases is far from the only objective of CEOs in their key overseas markets3. How, then, can CEOs Q: Which of the following objectives do you hope to achieve in the next 12 months? (Top five countries mentioned by CEOs in ‘Which countries, excluding the one in which you are based, do you consider most important for your overall growth prospects over the next 12 months?’) be confident? China USA Brazil India Germany This is where it gets more interesting. 61 61 Almost a third of CEOs globally 55 46 32 believe that their biggest 55 54 27 46 26 30 22 31 32 opportunities for growth lie in 24 79 71 83 79 developing new products and 72 services to differentiate themselves 30 14 17 23 33 11 38 12 10 16 and remain competitive. 30% are 34 19 31 31 14 determined to expand share in existing markets. Above all, CEOs Build R&D/innovation capacity or acquire intellectual property Build internal service delivery capacity are looking to grow outside their Build manufacturing capacity Access local talent base home base, and are simultaneously Access raw materials or components Grow your customer base building local capabilities in each of Access local source of capital their important markets. They are extending operational footprints, Base: China (383); USA (275); Brazil (188); India (176); Germany (152) building strategic alliances and Source: PwC 15th Annual Global CEO Survey 2012 creating networks that include research and development (R&D), manufacturing and services support. Building manufacturing capacity, “We have stepped up our global investment programme over the last for example, is important for many 18 months, particularly in emerging markets, including Thailand, China, CEOs in each of their key markets, India, Indonesia and Brazil. We’re putting in new brick-and-mortar so China faces increasing competition facilities and adding capacity in order to expand our ability to as CEOs reach further afield. manufacture and assemble products in those markets. I firmly believe that with seven billion people on the planet wanting to live as we do in the US, they’re going to want infrastructure. Caterpillar makes infrastructure, so we have to be there.” Douglas R. Oberhelman Chairman and CEO, Caterpillar Inc., US “The balance sheets of companies are very strong. The cash balances are extraordinarily high. Companies are incredibly efficient. Everyone’s poised for activity, and with a little less uncertainty, you’d see the whole world grow economically.” Brian Duperreault President and CEO, Marsh & McLennan Companies Inc., US 15th Annual Global CEO Survey 2012 – Executive summary 5
  7. 7. CEOs are focusing on a mix of large emerging and developed markets 4. Will there be a Q: Which countries, excluding the one in which you are based, do you consider most important for your overall growth prospects over the next 12 months? continued rush into fast-growing, China 30 USA emerging economies? 22 Brazil 15 India 14 Not entirely. Emerging economies Germany are an increasingly important source 12 of growth for most CEOs, whether Russia 8 these markets are close to home UK 6 or 5,000 miles away. Yet developed France 5 and emerging economies alike Japan are considered destinations that 5 CEOs believe are critical for their Australia 5 organisations. Over 60 different % economies were named by CEOs as Base: All respondents (1,258) key overseas markets. Solid growth Source: PwC 15th Annual Global CEO Survey 2012 and rising domestic spending power in more economies around the world, like Indonesia, Colombia and Turkey, for example, are propelling “Our goal is to maintain market share in the mature markets. CEOs past a mindset focused solely Those markets generate a lot of earnings so we have no plans to on the BRICs. shrink our presence there. On the other hand, we are planning The US and Germany were among to invest substantially in the emerging markets.” the economies identified by the Keith McLoughlin most CEOs, and mentioned as President and CEO, AB Electrolux, Sweden economies where they are expanding capabilities. Nearly equal numbers of CEOs from developed and emerging “We’ve not been able to take one strategy that will work in India, that will work in China, markets identified the two countries that will work in Brazil. So you have to adapt the strategy very much to the local market. as important. China presents a In China our focus has been on largely organic growth because we are a foreign entity. different picture of diversification: it’s We can’t actually own content assets so we have to have a lot of established partnerships: important to 37% of CEOs based in in China partnerships are really critical for us. In other places like India they are developed economies versus 24% of probably far less critical and there it’s about how to get distribution across the country.” CEOs based in emerging economies. Nancy McKinstry CEO and Chair of the Executive Board, Wolters Kluwer, The Netherlands6 15th Annual Global CEO Survey 2012 – Executive summary
  8. 8. A modest decline in cross-border M&A is expected in 20125. Does that mean Q: Which, if any, of the following restructuring activities do you plan to initiate in the coming 12 months? Responses of ‘Complete a cross-border merger or acquisition’. we’ll see more M&A this year? 40% 110 This year, acquisitions are more % of CEOs anticipating M&A Number of deals (100 = 2008) likely to be a component of strategies 30% 100 for CEOs based in developed markets, perhaps reflecting classic consolidation in mature economies: 15% say M&A offers the main 20% 90 opportunity for growth for their companies versus 10% in emerging economies. CEOs in developed markets were active deal-makers 10% 80 in 2011, with 26% completing a cross-border transaction, and were also more likely to have divested an 0 70 operation. But responses this year 2008 2009 2010 2011 2012F indicate the potential of a modest % of CEOs anticipating M&A (left axis) pull-back on international deal- Number of deals (right axis) making over the next 12 months: 28% of CEOs globally plan to complete a Base: All respondents (2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150) cross-border deal in 2012, a decline Note: Number of deals is all completed deals where final stake is greater or equal to 20%. Source: PwC 15th Annual Global CEO Survey 2012; Dealogic from the 34% who agreed last year. “Company valuations are now much more attractive than they were last year. Today, we would pay half or one-third of what we would have paid for these companies last year.” Ajay G. Piramal CEO, Piramal Group Ltd, India “I think it necessary to invest in emerging markets such as BRICs. However, since our investment volumes in them are way too small and their country risks difficult to determine, we will have to be prudent about this.” Yoshio Kono President and CEO, The Norinchukin Bank, Japan 15th Annual Global CEO Survey 2012 – Executive summary 7
  9. 9. Pulling away from an export mindset to meet local demand 6. So the plan is to step Q: For each of the countries that you intend to grow your customer base, which of the following three statements best describes your approach to product and service development? (The top 10 countries mentioned by CEOs in ‘Which countries, excluding the one in which you are based, up exports instead? do you consider most important for your overall growth prospects over the next 12 months?’) % 100 In every major geographic market identified by CEOs, more companies 20 30 25 are avoiding a simple export model. 37 34 31 32 33 29 37 Substantial proportions, between 75 17% and 36%, say they are designing new products specifically for local 46 markets. The balance is surely 50 30 46 42 43 changing as companies increasingly 39 34 42 49 50 operate in dissimilar markets and learn to segment better. 25 The advantages (and expense) of 36 30 27 26 managing a uniform brand across 20 22 17 24 24 19 many markets are being weighed 0 against the different needs, Germany US France Brazil Japan Australia UK Russia China India cultures and price points of different Products and services are the same as in our headquarters’ market customer bases and, in many cases, Products and services are modified to meet local market needs found wanting. But businesses Products and services are developed specifically for local market requirements innovating locally need to reach Base: China (302); USA (195); Brazil (156); India (139); Germany (110); Russia (88); UK (63); France (50); Japan (50); Australia (45) scale in order to stay profitable. So Source: PwC 15th Annual Global CEO Survey 2012 global and regional operations still have an important role in the mix. “We’ve certainly seen much more innovation coming from outside the US. Ten years ago, less than 40% of our sales were outside the US. Today it’s approximately 55%. We’ve grown from a US$22 billion company to a US$37 billion company. You don’t do that by simply taking US products and selling them somewhere else. You have to innovate, design, manufacture and source locally to be successful anywhere. For instance, we talk about the need to develop products in India and China, for sales both in those countries and in other markets, including the US.” David Cote Chairman and CEO, Honeywell, US “Our Latin American business is booming. One of the fundamental elements there was to think about a more affordable price point with more affordable programming for the market’s middle class.” Michael White Chairman, President and CEO, The DIRECTV Group Inc., US8 15th Annual Global CEO Survey 2012 – Executive summary
  10. 10. Many industries see significant pressure for both process innovations and radical innovation7. Doesn’t this put Q: To what degree are you changing the emphasis of your company’s overall innovation portfolio in the following areas? Responses of ‘significantly increase’. a big emphasis 50 on innovation? Global average 19 40 Cost reductions to existing processes Cost reduction remains an important driver of innovation, but the drive to 4 6 get ahead by fostering innovation is 30 1 5 7 2 12 unmistakable. With strong balance 3 8 9 11 13 20 sheets supporting investments to 10 14 15 16 17 18 20 grow future business, over half of CEOs (56%) who are changing innovation strategies are pursuing 10 opportunities in new business models. CEOs in the communications, and media and entertainment 0 sectors, facing swiftly changing 0 10 20 30 40 New business models dynamics in their industries, are the most active on all fronts, whether it 1 Banking & Capital Markets 6 Metals 11 Chemicals 16 Pharma & Life means refocusing innovation efforts 2 Business and Professional Services 3 Healthcare 7 Industrial manufacturing 8 Retail 12 Forestry, Paper & Packaging 13 Global 17 Insurance 18 Technology for existing products and services or 4 Automotive 9 Consumer Goods 14 Construction/Engineering 19 Communications for entirely new products in new 5 Transportation & Logistics 10 Hospitality & Leisure 15 Asset Management 20 Entertainment & Media models. Those in industries with a Base: All respondents (29-245) historical dependence on innovation Source: PwC 15th Annual Global CEO Survey 2012 are still among the most likely to change approaches. A third of CEOs in pharmaceutical and life sciences expect ‘major change’ to R&D and “If volume growth is not going to be there, you need to have value growth, and in order to have value innovation capacities in their growth you need to offer the market innovative solutions, products, materials. So we are focusing companies, as patent expirations and a lot more on innovating across the board in our company.” low R&D productivity are leaving Antonio Rios Amorim many large pharmaceuticals with Chairman and CEO, Corticeira Amorim SGPS SA, Portugal uncertain revenue streams. “We have expanded our development of personal computers to include smart phones, tablet computers and smart TVs. Therefore, we have a broader space and stage in which to develop.” Yang Yuanqing Chairman and CEO, Lenovo, China 15th Annual Global CEO Survey 2012 – Executive summary 9
  11. 11. Global economic uncertainty remains the top threat to growth prospects 8. Let’s come back to Q: How concerned are you about the following potential threats to your business growth prospects? risk. Didn’t you say uncertainty is on North America Western Europe Asia Pacific Latin America CEE Middle East/Africa the rise? Uncertain or volatile Uncertain or volatile Uncertain or volatile Uncertain or volatile Uncertain or volatile Uncertain or volatile economic growth economic growth economic growth economic growth economic growth economic growth Public deficits Public deficits Exchange rate Increasing tax Exchange rate Exchange rate volatility burden volatility volatility Absolutely. There’s broad consensus that uncertain or volatile economic Over-regulation Unstable capital Unstable capital Over-regulation Unstable capital Availability of markets markets markets key skills growth in the coming year is the chief concern, and that risk is having Unstable capital Shift in consumers Increasing tax Availability of Increasing tax Public deficits a big influence on plans for 2012. markets burden key skills burden Many other risks differ in their Availability of Increasing tax Public deficits Exchange rate Public deficits Over-regulation importance by region. For example, key skills burden volatility three-quarters of CEOs in Western Europe are concerned about Shift in consumers Over-regulation Availability of key skills Public deficits Over-regulation Bribery and corruption instability in capital markets and government responses to fiscal Increasing tax Exchange rate Over-regulation Bribery and Shift in consumers Unstable capital burden volatility corruption markets crises. Many in North America also believe that rising public deficits are Exchange rate Inability to Energy costs Inadequacy of Availability of Inflation a threat, although they’re the least volatility finance growth basic infrastructure key skills concerned about rising taxes. Protectionism Availability of Shift in consumers Unstable capital Bribery and Increasing tax Exchange rate volatility and unstable key skills markets corruption burden capital markets are potential New market Energy costs Inflation Protectionism Energy costs Shift in consumers constraints on expansion in both entrants Asia-Pacific and CEE economies. Rising taxes and over-regulation Energy costs loom large for CEOs in Latin America. And exchange rate Business threats Economic and policy threats Denotes equal ranking volatility is high among the concerns Base: North America (236); Western Europe (291); Asia Pacific (440); Latin America (150); CEE (88); Middle East/Africa (53) of CEOs in the Middle East and Note: Rank of top threats, by % of somewhat or extremely concerned Africa – as is the availability of key Source: PwC 15th Annual Global CEO Survey 2012 skills. In fact, the availability of key skills is a common concern across most regions. “We’re consistently, I think, really focused on two risks – the management of our contract risk in an increasingly unstable world and one where clients need to change a lot: how do we come up with new ways of managing that risk so that we can make money and our clients can be successful? The second one is around IT security and the stability of that.” Andy Green CEO, Logica Plc, UK10 15th Annual Global CEO Survey 2012 – Executive summary
  12. 12. Talent constraints have impacted costs – but also factor in lost opportunities9. Don’t CEOs always Q: Have talent constraints impacted your company’s growth and profitability over the past 12 months in the following ways? talk about the ‘war for talent’? Our talent-related expenses rose more than expected 43 We weren’t able to innovate effectively 31 We were unable to pursue a market opportunity 29 Yes – but now they’re telling us it’s having a real impact on growth. We cancelled or delayed a key strategic initiative 24 One in four CEOs said they’ve had to We couldn’t achieve growth forecasts in overseas markets 24 cancel or delay a strategic initiative We couldn’t achieve growth forecasts in the country where we are based 24 because of talent constraints: 40% of Our production and/or service delivery quality standards fell 21 CEOs in the technology industry say % they’ve missed a market opportunity. And, above all, rising pay packages Base: All respondents (1,258) Source: PwC 15th Annual Global CEO Survey 2012 are impacting faster-growing economies: talent costs are a constraint for 53% of CEOs in China and Hong Kong, 58% in Brazil and 67% of CEOs in South East Asian nations. Look ahead and the problem “Let’s face it. There are 80 million Baby Boomers who are going to retire gets worse. More CEOs (47%) are over the next five to seven years, and they’re going to be replaced by ‘very confident’ in prospects for 40 million Gen Xers. That’s two to one, so you’d better be developing revenue growth in the next three your next generation now if you’re going to be ready for that transition.” years than CEOs who are ‘very Michael White confident’ (30%) that they’ll have Chairman, President and CEO, The DIRECTV Group Inc., US access to the talent needed to execute over the same period. “Every CEO says people are my most important asset, but the proof of the pudding is in the eating. I think we all say that. I think it’s more important to believe it.” Tidjane Thiam Group Chief Executive, Prudential Plc, UK 15th Annual Global CEO Survey 2012 – Executive summary 11
  13. 13. Half of CEOs expect to raise their headcount in 2012 10. Where are talent Q: What do you expect to happen to headcount in your organisation globally over the next 12 months? constraints most Healthcare 6 6 38 31 9 acute? Business services 5 6 23 17 18 Technology 4 2 11 20 18 19 Even industries that have Communications 7 14 24 12 19 retrenched workers in large Chemicals 1 11 34 11 10 numbers, such as banking, are still Automotive 3 4 7 26 16 10 struggling to get the right people: 22 15 41% of CEOs in banking and Global 3 4 11 23 14 14 capital markets say it’s become more difficult to hire in the Insurance 3 3 10 25 13 12 industry, versus only 18% who Entertainment & Media 5 4 10 24 6 20 believe it’s become easier. CEOs in Industrial manufacturing 3 3 6 19 18 12 the US and Canada are more likely Banking and Capital markets 7 7 11 25 8 15 to face the greatest challenges in Asset management 5 6 21 hiring skilled production workers; 6 13 13 senior management teams are Consumer goods 4 4 15 20 18 9 proving more challenging for CEOs Construction/Engineering 4 4 13 17 10 19 in the Middle East and Africa. Retail 4 3 17 22 13 11 Rising compensation and changing Pharmaceuticals & Life sciences 1 5 12 20 12 11 skills requirements are factors, Transportation/Logistics 5 1 12 17 10 12 but for more CEOs, there is simply Metals 3 5 15 13 18 5 a deficit of qualified candidates, Hospitality & Leisure 3 17 7 17 3 14 especially in healthcare and Forestry, Paper & Packaging 8 10 18 10 14 8 technology, where half of CEOs are % facing more difficulties in hiring. Decrease by more than 8% Decrease by 5-8% Decrease by less than 5% The strain in hiring will not abate Increase by less than 5% Increase by 5-8% Increase by more than 8% in the near term. More CEOs are expecting to expand their Base: All respondents (29-245) workforces than to reduce. Note: Responses of ‘stay the same’ not depicted. Source: PwC 15th Annual Global CEO Survey 2012 “The main concern for TOTVs – and for Brazilian companies in general – is a lack of skilled labour. This is a major limiting factor for Brazil today. For growth you need financial investment in infrastructure and you need people – qualified people who are able to carry out the plans of the companies who are set up here. Today there is a deficit of skilled labour in all sectors, from technical posts to less skilled labour, from the building trade to the transport sector.” Laércio José de Lucena Cosentino CEO, TOTVs SA, Brazil12 15th Annual Global CEO Survey 2012 – Executive summary
  14. 14. CEOs are more focused on recruiting local talent and developing and promoting from within11. So what are CEOs Q: With regards to plans for your global workforce over the next three years, which of the following statements do you feel is more likely to occur? doing about it? Don’t know We plan to move experienced employees from our home 53 16 We plan to move experienced employees from newer 31% market to newer markets to circumvent skills shortages markets to home markets to circumvent skills shortages Businesses are once again investing We plan to develop and promote most of 67 24 We plan to recruit more experienced talent 8% our talent from within the company from outside the company heavily in attracting and retaining We plan to primarily recruit local talent We plan to move more talent across borders 70 19 11% talent, and it is increasingly wherever we have market needs to fill market needs % apparent that companies need Agree with statement Agree with statement to better align their people and business strategies going forward. Base: All respondents (1,258) As part of this effort, CEOs are Source: PwC 15th Annual Global CEO Survey 2012 closely integrating HR with business planning at the highest levels of the company: 79% of CEOs say the chief human resources officer, or equivalent, is one of their direct reports “I believe organisations have to find their own solutions. We run a talent (most have ten or fewer direct factory of 700 to 800 people here in India and we are working on creating a reports). Two-thirds also say it’s global talent pool of about 100 people – 60 of them from India and 40 from more likely that talent will come other countries – so that we can send them anywhere across our operations. from promotions within their We hope to have this talent pool ready within the next three years.” companies over the next three Baba Kalyani years, reflecting an increasing Chairman and Managing Director, Bharat Forge Ltd, India focus on talent development. “The active rotation and promotion of top managers within the group secures the best performance capabilities and shapes a corporate culture which is open to the best international practices.” Andrey Kostin President and Chairman of the Management Board, JSC VTB Bank, Russia 15th Annual Global CEO Survey 2012 – Executive summary 13
  15. 15. A minority of CEOs get comprehensive reports on their workforce 12. What do CEOs hope Q: When making decisions, how important is it to have information on each of the following talent-related areas? to do more of? For those areas that are important to you, how adequate is the information that you currently receive? 100 % of CEOs who believe the relevant information is important or very important CEOs are seeking a better understanding of the scale and 80 effectiveness of their investments Information Gap: Percentage of CEOs CEOs believe in talent. Productivity and 60 information is important but labour costs remain important don’t receive comprehensive measurements; these are the tools reports 40 investors, lenders and businesses use to benchmark progress (or lack of it). They are largely standardised 20 in many industries, and thus easy to implement. 0 Costs of Return on Assessments Labour Employees’ Staff employee investment on of internal costs views and productivity Yet for many CEOs, those tools turnover human capital advancement needs aren’t enough. They’re very good Do not receive information at telling a CEO how the business Not adequate Adequate but would like more is performing today relative to its Information received is comprehensive peers, but not at indicating whether the organisation is investing Base: All respondents (1,258) enough in employees to generate Source: PwC 15th Annual Global CEO Survey 2012 future growth. Such measurements cannot isolate skills gaps, and “The degree to which an HR mindset is integrated into the thinking struggle to identify the pivotal of the company’s top management – and by that I mean the way jobs that drive exponential value; management ensures the quality of our HR services – has become they do not measure employee much more important to MOL over the past three to five years.” engagement or team performance, Zsolt Hernádi both of which are so critical for Chairman and CEO, MOL Plc, Hungary investments to foster innovation to bear fruit. These measurements are much harder to make, which is one “You have to realise that if you want your workforce to embrace reason why they’ve been neglected innovation, they must first develop a certain appetite for risk. and why today, so many CEOs are So, my job is not to punish failure, but instead to provide everyone frustrated with the issue of talent. with a safe environment in which to take risks.” Rohana Rozhan CEO, ASTRO Malaysia Holdings, Malaysia14 15th Annual Global CEO Survey 2012 – Executive summary
  16. 16. Most CEOs plan to increase their investments in skilling the workforce13. Are they also Q: How much does your company plan to increase its investment over the next three years to achieve the following outcomes in the country thinking outside in which you are based? the box? Creating and fostering a skilled workforce 71 Maintaining the health of the workforce 61 Investments to bridge talent gaps Ensuring financial sector stability 41 in strategic plans don’t stop at Securing natural resources that are critical to business 39 the four walls of the company. Improving the countrys infrastructure 37 CEOs recognise that talent is vital to competitiveness at a time Reducing poverty and inequality 37 when business success relies Addressing the risks of climate change and protecting biodiversity 36 increasingly on knowledge capital % and innovation capacity. So most Respondents who stated ‘a significant’ or ‘some increase in investment’ are making direct investments Base: All respondents (1,258) in workforce development Source: PwC 15th Annual Global CEO Survey 2012 programmes outside their own companies. Just over half say they are investing in formal education systems and adult or vocational training programmes. “Now with increasing globalisation and recruitment challenges, Talent shortages are also we’ve developed a greater range of strategic programmes with some increasingly an issue for top universities around the world and are helping them tailor their governments, with more programmes toward our career requirements.” competing to attract the world’s Tom Albanese best talent to their shores. Chief Executive, Rio Tinto, UK Close to half of CEOs (47%) believe that fostering a skilled “Countries like the Philippines have fairly large growth in the population workforce is one of three top base. Maturing the educational system and building a progressive priorities for their governments. element into it that is aligned to the needs of the workforce is something I think we can coordinate better with the government.” Jaime Augusto Zobel de Ayala Chairman and CEO, Ayala Corporation, The Philippines 15th Annual Global CEO Survey 2012 – Executive summary 15
  17. 17. For further information, please contact: Sophie Lambin Suzanne Snowden Director of Global Thought Leadership Global Thought Leadership +44 20 7213 3160 +44 20 7212 5481 sophie.lambin@uk.pwc.com suzanne.snowden@uk.pwc.com www.pwc.com/ceosurveywww.pwc.com/ceosurveyPwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us whatmatters to you and find out more by visiting us at www.pwc.com.This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability,responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.© 2012 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms ofthe PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of itsmember firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’sprofessional judgment or bind another member firm or PwCIL in any way.
  18. 18. 15th Annual Global CEO Survey 2012 o e ce srup e p5/ c o oc p9/ s res e ce p16/ e e c e e /p20 s e p27 / erv ews p30DeliveringresultsGrowth andvalue in avolatile world www.pwc.com/ceosurvey
  19. 19. Most multinational companies have been adjusting, without fanfare, to the new global economic reality for some time. This year, CEOs have made clear that they are not backing away from global growth programmes but in fact are deepening their commitments to their most important markets. Among the CEOs we interviewed, whether based in Italy, Malaysia, the US or South Africa, the goal of delivering results by growing whole operations – not just sales – outside of their home base is the same. These are ambitious agendas, which is somewhat surprising given economicPreface uncertainties. How are CEOs going to make it happen? This year, we asked CEOs how they think their time is best spent, and two-thirds said they want to devote more attention to developing talent pipelines and meeting with customers (see Figure 1). Four years into the We all know these are uncertain times. Stories nancial crisis, we nd CEOs more grounded of strengthening economies, employment about the risks and changing conditions for improvements and breakthrough products growth. The focus on talent and customers from some parts of the world are offset by today is a natural ‘next step’ towards reports on natural disasters, government debt, establishing their organisations in the markets regulatory changes and political turmoil in where they operate and building the trust others. It’s hard to know for sure which way needed for the business of tomorrow. the wind is blowing. That’s why so many CEOs are changing talent While change presents opportunity for some, strategies to improve their ability to attract most business thrives on stability – and the and retain the right people. Skills shortages are fact that this is elusive makes forward plans very real – just 12 of CEOs say they’re nding increasingly hard to develop. No wonder that it easier to hire people in their industries – and con dence is down from what we saw last the constraints are having uanti able impacts year. Yet it’s still at a reasonably high level. on corporate growth. Just as our customers Why? Because despite the uncertainties, are changing rapidly, so are our workforces – the long-term trends that have encouraged and our talent needs are changing, too. corporations to invest in the emerging world, create innovation and develop talent remain I want to thank the more than 1,250 company rmly in place. leaders from 60 countries who shared their thinking with us. The success of the PwC Annual Global CEO Survey – now in its 15th year – is directly attributable to the candid participation of leaders around the world. The demands on their time are many and varied; we greatly appreciate their involvement. And I am particularly grateful to the 38 CEOs who sat down with us near the end of 2011 for more extensive conversations. Their thoughts added invaluable context to our uantitative ndings. Dennis M. Nally Chairman, PricewaterhouseCoopers International2 15th Annual Global CEO Survey 2012
  20. 20. Figure 1: CEOs’ personal priorities include spending more time with customers and developing leadersQ: Do you wish that you personally could spend more time, less time or the same amount of time on each of the following activities? Develop leadership and talent pipeline 66 People Meet with customers 66 Improve organisational efficiency 57 Set strategy and manage risks 51 OperationsDevelop operations outside of my home market 40 Personal time or community service 34 Meet with regulators and policy makers 5 Meet with lenders and providers of capital -4 Governance Meet with the board and shareholders -5 % Net priority (% of respondents reporting ‘More time’ minus % of respondents reporting ‘Less time’)Base: All respondents (1,258)Source: PwC 15th Annual Global CEO Survey 2012 I want to thank the more than 1,250 company leaders from 60 countries who shared their thinking with us. The success of the PwC Global CEO Survey – now in its 15th year – is directly attributable to the candid participation of leaders around the world. 15th Annual Global CEO Survey 2012 3
  21. 21. ContentsCon dence disrupted ........................................................ 5Balancing global capabilitiesand local opportunities ..................................................... 9Resilience to global disruptionsand regional risks ............................................................ 16The talent challenge ....................................................... 20What’s next ..................................................................... 27Final thoughts from our CEO interviews ......................... 30Research methodology and key contacts ......................... 36Acknowledgements ......................................................... 37Related reading ............................................................... 384 15th Annual Global CEO Survey 2012
  22. 22. Confidence disruptedThe year 2012 unfolds with wide Yet businesses are not on the defensive. F William McNabb IIIdisparities in potential outcomes in CEOs are taking deliberate steps to Chairman, President and CEOmany economies, and little prospect of improve their businesses’ resilience The Vanguard Group Inc.a coordinated turnaround. Just 15% of against further disruptions and to The lack of a credible, long termCEOs believe that the global economy grow in the markets they believe arewill improve this year (see Figure 2). most important for their future. As aIncremental improvements in business result, 0% are ‘very con dent’ inoptimism seen in the PwC 15th Annual prospects for revenue growth in theirGlobal CEO Survey over the past own companies in the next 12 monthstwo years are reversing. In a sign of (see Figure 3).converging economic fortunes, Erdal Karamercancon dence declined in parallel among President and CEOCEOs across all regions, except for the Ec ac ba Group A SMiddle East and Africa. Figure 2: Half of CEOs expect the global economy to decline in 2012 Q: Do you believe the global economy will improve, stay the same, or decline over the next 12 months? in the region – in North Africa and 4% 15% Improve Stay the same 48% Decline 36% 34% Don’t know Base: All respondents (1,258) Source: PwC 15th Annual Global CEO Survey 2012 15th Annual Global CEO Survey 2012 5
  23. 23. CEOs are manoeuvring to outpace the The tough choices and competition and the market, rather transformations made in business than relying on riding economic models since 2008. With stronger updrafts or just riding out volatility. balance sheets, improved cost They are nearly three times more structures and a greater awareness con dent in their own capacity to of global risks, CEOs are more generate growth in their business than prepared. They don’t think growthBrian Duperreault, they are in the global economy’s will be easy; but they do believePresident and CEO, growth prospects. they’re more ready for turbulenceMarsh & McLennan Companies Inc. than they were four years ago. At rst glance, this relative optimism seems unfounded. The unfolding The rise in investment and commerce Eurozone crisis alone is creating more to and from emerging economies room for disappointment. So what does – more pronounced than in any period this pattern mean? Should we worry over the past decade – creates vast that the chart suggests we might be market potential. Half of CEOs based facing 2008 all over again, perhaps in developed markets believe that with another crisis precipitating a emerging economies are more massive fall in business activity? important to their company’s future, After all, not everyone can outpace as do 68% of CEOs who are themselves the market. based in emerging markets. The world may be slowed for a time by nancial Possibly, but we don’t think so. In our problems, but this structural shift is view, CEO con dence in business potentially bigger than the institutional growth is holding up because of problems and depressed growth in three important and related trends: developed economies. Gradually rising incomes and economic opportunitiesFigure 3: Short-term confidence has declined – but remains well above the levels seen in 2009 and 2010Q: How confident are you about your company’s prospects for revenue growth over the next 12 months? Yearly comparison. 60% 52% 50% 50 48% 41% 40 40% 30 31% 31% 26% Very confident about company’s 20 prospects for revenue growth 21% over the next 12 months 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Base: All respondents (2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084; 2006 (not asked); 2005=1,324; 2004=1,386; 2003=989)Note: Percentage of CEOs who are very confident about their companies’ prospects for revenue growthSource: PwC 15th Annual Global CEO Survey 20126 15th Annual Global CEO Survey 2012

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