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  • 1. 15th Annual Global CEO Survey 2012Confidence disrupted p5/Balancing global and local p9/Risk resilience p16/The talent challenge p20/ What’s next p27/CEO interviews p30DeliveringresultsGrowth andvalue in avolatile world www.pwc.com/ceosurvey
  • 2. 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 financial crisis, we find 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 finding increasingly hard to develop. No wonder that it easier to hire people in their industries – and confidence is down from what we saw last the constraints are having quantifiable 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 firmly 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 quantitative findings. Dennis M. Nally Chairman, PricewaterhouseCoopers International2   15th Annual Global CEO Survey 2012
  • 3. 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
  • 4. ContentsConfidence 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
  • 5. 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 are fiscal plan in the US is probably ourwill improve this year (see Figure 2). most important for their future. As a chief concern. The fact that there isIncremental improvements in business result, 40% are ‘very confident’ in not one actually contributes to theoptimism seen in the PwC 15th Annual prospects for revenue growth in their market volatility.Global 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 Karamercanconfidence declined in parallel among President and CEOCEOs across all regions, except for the Eczacıbaşı Group A SMiddle East and Africa. We do not know how the Arab Spring will end or spread. We don’t know how the situation with Iran is going to Figure 2: Half of CEOs expect the global economy to decline in 2012 develop. We are uncertain about the Q: o you believe the global economy will improve, stay the same, D position that the US would like to take or decline over the next 12 months? in the region – in North Africa and the Middle East. There are political uncertainties that make it hard to 4% 15% forecast, and these are of concern. 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
  • 6. 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 confident 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.The balance sheets of companies At first glance, this relative optimismare very strong. The cash seems unfounded. The unfolding The rise in investment and commercebalances are extraordinarily Eurozone crisis alone is creating more to and from emerging economieshigh. Companies are incredibly room for disappointment. So what does – more pronounced than in any periodefficient. Everyone’s poised for this pattern mean? Should we worry over the past decade – creates vastactivity, and with a little less that the chart suggests we might be market potential. Half of CEOs baseduncertainty, you’d see the whole facing 2008 all over again, perhaps in developed markets believe thatworld grow economically. 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 financial Possibly, but we don’t think so. In our problems, but this structural shift is view, CEO confidence 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 opportunities Figure 3: Short-term confidence has declined – but remains well above the levels seen in 2009 and 2010 Q: 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 2012 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) Note: Percentage of CEOs who are very confident about their companies’ prospects for revenue growth Source: PwC 15th Annual Global CEO Survey 20126   15th Annual Global CEO Survey 2012
  • 7. Francesco Starace for millions more people around the and human) towards new opportunitiesCEO, Enel Green Power SpA world have enormous implications for and the full potential of a far moreWe think government fiscal policies infrastructure spending, sustainability closely integrated world comesmight become important criteria in technologies, demand for health care, together. CEOs believe that the forceschoosing where companies invest education and personal finance of global integration will stay on track:and how they invest. products, and the list goes on. 45% believe the world will become more open to free international trade The strength of cross-border ties. (with fewer than a third expecting a In past economic downturns, the world pullback) and 56% are convinced thatYoshio Kono experienced rises in protectionism. cross-border capital flows will not comePresident and CEO And since the most recent downturn under new constraints.The Norinchukin Bank began, negotiations in the World TradeI think it necessary to invest in Organisation’s Doha Round have As a result of these factors, businessemerging markets such as BRICs. foundered and a few governments have leaders’ commitment to doing moreHowever, since our investment taken measures to protect domestic business globally is, if anything,volumes in them are way too small industries they consider vital. But that accelerating despite economic,and their country risks difficult to shouldn’t obscure real progress regulatory and other uncertainties.determine, we will have to be recently on bilateral and regional levels Risks are weighted towards economicprudent about this. in fostering cross-border commerce and in particular policy threats in and investment. Trade has rebounded 2012, but the fundamentals for future since the downturn began, according growth are still squarely in place. to data from the World Trade Businesses have adapted their Organisation.1 Add in the greater strategies to take advantage when they mobility of capital today (both financial inevitably reassert themselves. Figure 4: Talent remains priority no. 1 for CEOs Q: To what extent do you anticipate changes at your company in any of the following areas over the next 12 months? 2012 2011 Strategies for managing talent 21 55 23 17 52 31 Organisational structure (including MA) 26 50 22 25 47 27 Approach to managing risk 32 50 17 23 54 23 Captial investment decisions 38 42 19 23 48 28 Focus on corporate reputation and rebuilding trust 49 35 15 36 41 22 Capital structure 55 29 14 50 34 15 Engagement with your board of directors 63 27 8 52 34 12 % % No change Some change A major change Base: All respondents 2012 (1,258); 2011 (1,201) Source: PwC 15th Annual Global CEO Survey 20121 WTO data show global trade rebounded in 2010 to return to its 2008 levels (www.wto.org/english/news_e/pres11_e/pr628_e.htm). 15th Annual Global CEO Survey 2012  7
  • 8. For our 15th Annual Global CEO There will be winners and losers as Making talent strategic: Not havingSurvey, we polled 1,258 CEOs based in businesses pivot to address markets the right talent in the right place is a60 different countries from September they are less familiar with. CEOs see leading threat to growth for manythrough to early December 2011. risks and customer segments through CEOs. One in four CEOs said they wereWe supplemented their comments different lenses than they’ve used unable to pursue a market opportunityon plans for business growth and in the past, and are focusing on the or have had to cancel or delay aassessments of constraints with insights talent they need to grow their strategic initiative because of talentfrom the global PwC network and businesses sustainably. constraints. There are short-termin-depth interviews with 38 CEOs from issues, such as an acute shortage ofall regions. The combined conclusions These are the priorities CEOs described trained managers and technicallyform the basis of this report. to us, and that we take a closer look at skilled workers. And there are long- in this report: term concerns with the capacity ofTwin aims for 2012: Secure educational systems everywhere to Reconfiguring operations to meetgrowth in new markets, local market needs: CEOs are keep up with business needs.achieve more certainty in the simultaneously building local These areas suggest a set of questionsdomestic market capabilities in important markets, that business leaders should consider extending operational footprints, in order to overcome executionAs businesses have faced volatile building strategic alliances and challenges in 2012 and position forglobal conditions since 2008, CEOs creating new networks for new markets longer term growth – questions whichhave crafted new approaches to risk that include research and development we comment on in the last section ofmanagement and new strategies in (RD), manufacturing and services this report.response. But they’re not going back support. They’re adapting how theyon the defensive, as they did in 2008. go to market, reconfiguring processesRisk is not being ignored, but other and at times entire operating models. Andy Greenissues are higher on the agenda (seeFigure 4 on page 7). This year, CEOs CEO, Logica Plc Addressing risks that greaterare focusing on better execution in integration amplifies: It may feel Most clients are talking aboutthose markets which are important to as if disruptions are multiplying as reductions in spend. I think theythe future of their business while also their impacts expand across widely will eventually move to do moreseeking stability and more certainty in dispersed and finely tuned supply outsourcing, which will be good,their domestic markets. chains. During 2011, global businesses but that will take some time as they had to confront a portfolio of think through the consequences.This was a message we consistently What’s clear, though, is they can’t unrelated high-impact global risks –heard from CEOs, regardless of where stop spending on technology because from political upheaval and a nuclearthey are based. “We adopted a strategy the way the world is changing. disaster to massive floods and acalled ‘protect’ in most cases in the sovereign debt crisis. Through it all,mature markets. We pay more attention CEOs have learned that prudent riskto profit making and how to transfer Tidjane Thiam management should focus less on thethe core business into cash cows,” said Group Chief Executive, Prudential Plc probabilities of particular events, andYang Yuanqing, Chairman and CEO of more on understanding the potential Culturally, we are a companyLenovo. “In emerging markets, we consequences they have to prepare for focused on growth. For me cost ishave primarily adopted an ‘attack’ from a range of risks. Many companies hygiene. It is necessary in the samestrategy. That means we have to pay weren’t directly affected by the way that breathing is, but breathingmore attention to market share at the improbable Fukushima crisis, for has never been your life strategy.beginning instead of profit. We would example, or the floods in Thailand. It’s a necessary condition to be alive,say that it is difficult to make money if However, supply chain disruption as no more. That’s how I look at costmarket share is less than 10%.” severe as those two events caused management. You don’t cut yourSimilarly Keith McLoughlin, President should be on every company’s radar. costs into greatness. You achieveand CEO of AB Electrolux pointed greatness by generating moreout: “Our goal is to maintain market profits, being a winning companyshare in the mature markets. Those in your market. So the culture ismarkets generate a lot of earnings very front-end driven.so we have no plans to shrink ourpresence there. On the other hand,we are planning to invest substantiallyin the emerging markets.”8   15th Annual Global CEO Survey 2012
  • 9. Balancing global capabilitiesand local opportunitiesMaria Ramos A sensible strategy for globalisation including manufacturing, in each ofGroup Chief Executive, today means far more than building their priority markets, build deeperABSA Group Ltd cheaply in one location and selling relationships with their customers,It makes all the sense in the world to in another. What has changed is the innovate anew, take advantage of localoperate in a much more joined-up, way operations are configured. India’s talent and brands, reduce risk andintegrated way and take advantage Tata is now the largest manufacturer in strengthen supply chains.of an increasingly integrated client the UK. Taiwan’s HTC pioneered the use of Google’s Android software. New Over 60 different economies werebase across Africa. And that’s what operational strategies are required to named by CEOs as key overseaswe’re doing. compete successfully in such markets. markets, some adjacent to their home market and others on the other side of “You have to innovate, design, the world. Solid growth and risingCheung Yan manufacture and source locally to be domestic spending power (see Figure 5)Chairlady, Nine Dragons Paper successful anywhere,” said David Cote, in more economies around the world,(Holding) Ltd, China Chairman and CEO of Honeywell. And such as Indonesia and Turkey, forThere is still large room for that’s what CEOs are investing to do: example, are propelling CEOs past aimprovement on the living standards build fully fledged operations, mindset focused solely on the BRICs.of most of the Chinese population.We have not yet reached a balancepoint on this, so this will constitutea strong driving force for futuredomestic consumption growth. Figure 5: CEOs eye the expanding buying power of emerging markets Private consumption at current market exchange rates EU27 Canada Russia China Hong Kong Korea US MENA Turkey Japan India ASEAN Sub-Saharan Africa Latin America Australia 5 Private consumption in 10 current prices and market exchange rates, US$ millions 20 2020 2010 Source: Oxford Economics 15th Annual Global CEO Survey 2012  9
  • 10. Pailin Chuchottaworn The US and Germany were among objective for 2012; 31% plan to buildPresident and CEO, PTT Plc the economies identified by the most manufacturing capacity in Russia, andWe have significant investments CEOs, and mentioned as economies 30% in China. A similar pattern holdsin North America, Australia and where they are expanding capabilities. for product development; CEOs areacross Asia. And if the European Equal numbers of CEOs from seeking to source innovation fromcountries eliminate their developed and emerging markets within their key markets.protectionist policies, Europe identified the two countries as important. China presents a different The recovery in foreign directwould be very attractive to us also. picture of diversification: it’s important investment (FDI) in 2010 corroboratesSo I’m rather confident that we to 37% of CEOs based in developed this trend.2 Inflows into Brazil andcan maintain our growth. economies versus 24% of CEOs Indonesia more than doubled from based in emerging economies. 2006 to 2010, above the 70% rise in FDI into China and Russia. FDI inflows Many of their objectives in the next into mature economies on the other 12 months are similar (see Figure 6). hand, are flat – or down sharply in Building manufacturing capacity, for the case of the European Union. example, is important for many CEOs While FDI outflows from Organisation in each of their key markets. China for Economic Cooperation and faces increasing competition as CEOs Development (OECD) member reach further afield. Of those CEOs economies have also eased over the who listed Brazil or India as important period, those from India increased to to their growth prospects, around a US$14.6 billion and those from China third cite manufacturing locally as an rose nearly threefold to US$60.1 billion. Figure 6: Growing customer bases is far from the only objective of CEOs in their key overseas markets Q: Which of the following objectives do you hope to achieve in the next 12 months? (The top 10 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?’) China USA Brazil India Germany 55 61 61 46 32 46 55 54 27 26 30 22 31 24 32 79 71 83 79 72 30 23 33 38 10 14 17 11 12 16 19 34 31 31 14 Russia UK France Japan Australia 53 47 49 42 44 19 49 36 15 29 34 36 22 38 19 87 78 76 81 85 31 9 21 12 12 11 10 10 16 17 26 5 6 21 19 Build RD/innovation capacity or acquire intellectual property Build internal service delivery capacity Build manufacturing capacity Access local talent base Access raw materials or components Grow your customer base Access local source of capital Base: China (383); USA (275); Brazil (188); India (176); Germany (152); Russia (101); UK (81); France (66); Japan (62); Australia (53) Source: PwC 15th Annual Global CEO Survey 20122 OECD FDI in Figures (October 2011 revision).10   15th Annual Global CEO Survey 2012
  • 11. Hussein HachemCEO Middle East and Africa, Aramex The tax advantageWe are in key locations that will Market opportunity, natural resources, talent ... all of these factors matterenable us to offer our customers a when companies decide where and how to locate operations. But tax may beglobal service but we concentrate the most significant: 44% of CEOs say tax policies are a ‘significant factor’ inon our customers based in emerging their decision-making on cross-border locations. This has not gonemarkets, where we have better unnoticed. Nations are increasingly competing on tax to foster in-boundmargins. You cannot do business investment. Businesses, innovation and skilled people will flow to countrieswithout connections to Europe or where tax systems encourage and offer the prospect of economic growth.the US. You have global hubs inemerging markets, in Dubai, in CEOs are paying close attention to changing tax conditions as a result ofIndia, but at the same time you high debts and deficits in developed economies: 29% are anticipating they’llcannot ignore Amsterdam. change growth strategies as a result, with 19% globally ‘extremelyAmsterdam is a global European concerned’ over an increasing tax burden in countries where they operate.hub so you have to go there. Governments continue to reform their tax systems to help businesses grow and attract investment and employment. Over the past seven years moreRohana Rozhan than 60% of economies made paying taxes easier, with 244 reforms,CEO, ASTRO Malaysia Holdings according to Paying Taxes 2012, a study from PwC, the World Bank andMalaysia is a starting point for IFC, which measures the ease of paying taxes across 183 economieslaunching a true multi-ethnic and worldwide. Globally, the total tax rate has fallen by 8.5% since 2006; themulti-lingual proposition that time required to comply with taxes declined by more than one day per yearhas a presence in many markets. (54 hours); and the number of tax payments required dropped by five.3FDI is commonly viewed as a measure Build or buy? Acquisitions always border deals continue to stem fromof operational commitment, with the have a role to play in growth plans. investors in either North America orpotential for both local job creation and This year, acquisitions are more likely Western Europe, Chinese firms haveknowledge transfers. So a rise in FDI to be a component of strategies for emerged as major internationalindicates deeper cross-border ties than CEOs based in developed markets, investors, as have Indian companies,trade alone would imply. perhaps reflecting classic consolidation and this trend is set to continue. in mature economies: 15% say MA “Company valuations are now muchCEOs are being guided by domestic offers the main opportunity for growth more attractive than they were lastcustomer demand in choosing their for their companies versus 10% in year,” said Ajay G. Piramal, CEO ofpriority markets (see Figure 5). emerging economies. CEOs in Piramal Group Ltd. “Today, weMeasures to integrate product, developed economies were active would pay half or one-third of whatservice hubs, research facilities and deal-makers in 2011, with 26% we would have paid for theseoperations in each market stem from completing a cross-border transaction, companies last year.”that commitment. and were also more likely to have divested an operation. Responses this CEOs based in Africa and the year indicate the potential of a modest Middle East are the most bullish pull-back on international deal-making about continued deal-making in 2012: over the next 12 months: 28% of 40% expect to complete a cross-border CEOs globally plan to complete a transaction in the next 12 months. cross-border deal in 2012, a decline Foreign investment into Africa from a from the 34% who agreed last year number of sources has soared in recent (see Figure 7 overleaf). years, driven mainly by the mining and oil industries, but with increasing The pool of potential acquirers is interest in tourism, telecoms and becoming more diverse, as are the construction. target locations. While most cross-3 Paying Taxes 2012 (www.pwc.com/gx/en/paying-taxes/index.jhtml). 15th Annual Global CEO Survey 2012  11
  • 12. Acquisitions are always risky, even Acquirers will also need to learn new Martin Sennduring a time when assets can be post-merger integration competencies CEO, Zurich Financial Services Groupacquired at seemingly attractive to make these deals work. We believe For a multinational companyprices. Yet our research suggests that that over 10% of deals that complete such as Zurich, the ‘greenfield’acquisitions in emerging markets – result in significant problems post- approach is sub-optimal. It takesexactly the type of acquisition that completion. In an assessment of ten too long to make a meaningfulappears to be more popular today – public cases, we found that post-deal contribution to the group. So weare particularly risky, with lower problems cost the buyer on average employ other options: partnershipschances of success even for proven 49% of the original investment. and acquisitions.deal-makers. In our experiencebetween 50-60% of deals that go into Modify or export? How businessesdue diligence in emerging markets fail achieve the right mix between local Yang Yuanqingto complete.4 Difficulty in justifying manufacturing and international Chairman and CEO, Lenovoemerging markets valuations is the supply chains to service local needs is another defining question for growing We have expanded our developmentmost common reason that deals fail. of personal computers to includeFor example, in China, high growth in new markets. Strategies naturally differ; ‘local’ will be home or intra- smart phones, tablet computersand strong competition from other and smart TVs. Therefore, we haveforeign bidders, an emerging private regional for some CEOs and a thousand miles away for others. But in 2012, the a broader space and stage inequity industry and domestic rivals which to develop.have driven up valuations. The most tilt is clearly towards decentralising,common issue to emerge in deals in creating more products whose designIndia concerned partnering. as well as production and distribution is more localised. Figure 7: A modest decline in cross-border MA is expected in 2012 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’. 40% 110 % of CEOs anticipating MA Number of deals (100 = 2008) 30% 100 20% 90 10% 80 0 70 2008 2009 2010 2011 2012F % of CEOs anticipating MA (left axis) Number of deals (right axis) Base: All respondents (2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150) 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; Dealogic4 PwC, ‘Levelling the playing field: avoiding the pitfalls of the past when doing deals in emerging markets’ (2012).12   15th Annual Global CEO Survey 2012
  • 13. “On business development, we would innovating locally need to reach scale Michael Whitetraditionally start with a standard in order to stay profitable. So global Chairman, President and CEO,product set and adapt it to the local and regional operations still have an The DIRECTV Group Inc.needs. That has worked well for us for important role in the mix. The real prize in any emergingyears,” said Lázaro Campos, CEO of market is getting at the base of theSWIFT. “But in India and China you Segmentation in focus. CEOs expect pyramid, the B minus and the Cneed to forget the products that you’ve to either modify or create products customer who has income in thatgot and start from scratch. Start from for specific markets to suit local US$8,000–12,000 range. So we’vewhat it is they need and build customer preferences. Some four changed our product offerings,from there.” billion of the world’s population live in our approach, and our business countries where the per capita income model to be able to target a moreIn every major geographic market is between US$ 1,000-4,000 per year. affordable offering for thatidentified by CEOs, more companies This vast segment represents an consumer, and that has unlockedare avoiding a simple export model. ‘Emerging Middle’ class in China, an enormous amount of growthSubstantial proportions, between 17% India and elsewhere that is prompting for us in Latin America.and 36%, say they are designing new business leaders to fundamentallyproducts specifically for local markets rethink business strategies that have(see Figure 8). The balance is surely been successful elsewhere.changing as companies increasinglyoperate in dissimilar markets and learn Value propositions designed forto segment better. The advantages countries at the upper end of the(and expense) of managing a uniform global income distribution seldombrand across many markets are being work for the needs of this ‘Emergingweighed against the different needs, Middle’. It’s not only products thatcultures and price points of different must be adapted or built anew, but alsocustomer bases, and in many cases, production, distribution and marketingfound wanting. But businesses capabilities – in other words, entire business models. Figure 8: Pulling away from an export mindset to meet local demand Q: or each of the countries that you intend to grow your customer base, which of the following three statements best describes your approach to F product and service development? (The top 10 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?’) % 100 30 25 20 34 31 32 33 29 37 37 75 30 46 50 46 34 42 43 50 42 49 39 25 36 27 30 24 24 26 20 22 19 17 0 Germany US France Brazil Japan Australia UK Russia China India Products and services are the same as in our headquarters’ market Products and services are modified to meet local market needs Products and services are developed specifically for local market requirements Base: China (302); USA (195); Brazil (156); India (139); Germany (110); Russia (88); UK (63); France (50); Japan (50); Australia (45) Source: PwC 15th Annual Global CEO Survey 2012 15th Annual Global CEO Survey 2012  13
  • 14. Jaime Augusto Zobel de Ayala Success involves understanding difference for your company or yourChairman and CEO customer segmentation and the professional profile: customer serviceAyala Corporation dynamics driving it. Category – even and relations and innovation.”We had to reinvent the technology price – is not as important as solving a specific set of consumer problems that CEOs in insurance and assetof pre-charging our phones to management are among those moreaccommodate much smaller are not being met with existing products. Bajaj, one of India’s leading likely to emphasise innovation in newdenominations. We had to come up business models – often takingwith over-the-air technology that motorcycle manufacturers, recently launched the Bajaj Boxer, targeted advantage of new technologies.would transfer funds as needed, Their customers are generating massivebring the cost down and allow towards the rural consumer. The Boxer provides a functional benefit of higher amounts of information that theypeople to just have the minutes in can now capture, and analysis of thistheir phone that they needed for cartage and resilience to poorer rural roads, features that are highly relevant data is propelling companies towardsa specific period of time. models based on an entirely digital for the rural markets. The Boxer was positioned as a sports utility vehicle of supply chain. A far more thorough motorcycles, directly targeting the understanding of customer behaviour,Michael Thaman male consumer with power, sporty based on data now available, canChairman of the Board and CEO, looks and functional benefits, and has change how an underwriter createsOwens Corning been a success story for Bajaj Auto.5 policies for customers, for example.We’ve been quite successful atthat, so we actually believe that Innovating on multiple fronts CEOs in communications, and mediaour developing-country strategy Improving the effectiveness of and entertainment, two industriesis giving us manufacturing innovation continues to be a major facing swiftly changing dynamics,technologies and insights that we strategic priority. Three out of four are the most active on all fronts,can then take back to our existing, CEOs plan to change RD and whether refocusing innovation effortsbigger-scale facilities in developed innovation capacity in 2012, of for existing products and servicesmarkets in the Americas or which 24% expect ‘major change’. or for entirely new products in newWestern Europe. models (see Figure 9). But competitive This is partly related to a widening intensity continues to rise in virtually definition of innovation. CEOs in all industries, particularly as theRoger W. Ferguson, Jr industries in the throes of disruptive Internet transforms possibilities.President and CEO, TIAA-CREF change require radical innovation; Innovation and competition isCertainly we’ve seen generational if their business cannot quickly increasingly crossing industrydifferences, particularly around create new products or services that boundaries, as Francisco González,social networking and the use of customers will buy, they will not Chairman and CEO of Banco Bilbaotechnology, so there are many ways survive. However, innovation does Vizcaya Argentaria (BBVA) SA,in which we are listening to clients not just mean end product or service pointed out: “Our future competitorsand adapting our practices to changes – it sometimes now includes will not be traditional banks but largerespond to the unique needs of taking costs out of processes or forming technology companies.”different groups. strategic alliances to collaborate. Each aspect of the business is fair game for Those in industries with a historical reinvention. Executives are targeting dependence on innovation are still changes to their revenue and margin among the most likely to change models – and the organisation as well approaches. A third of CEOs in – to find better ways to innovate pharmaceutical and life sciences, across many dimensions.6 chemicals and technology industries expect ‘major change’ to RD and Supporting the capacity to innovate is innovation capacities in their at the forefront of priorities for CEOs companies as patent expirations and this year and in recent PwC Global CEO low RD productivity are leaving Surveys. This is surely a reflection of many large pharmaceuticals with the accelerating technology advances uncertain revenue streams. in many industries. Increasingly, being Pharmaceuticals businesses have been innovative is understood as a primary in the forefront in shifting some differentiator too. As Luiza Helena research resources to faster-growing Trajano Inácio Rodriguez, CEO of economies in Asia. Overall RD retailer Magazine Luiza SA in spending in Asia has surpassed EU Brazil, told us: “Today, everything’s levels, and Goldman Sachs predicts a commodity. Service quality is a that it is likely to overtake US levels commodity, price is a commodity. But before 2020, due in large part to the there are two things that will make a rapid pace of growth in China.75 PwC, ‘Profitable growth for the next 4 billion’ (forthcoming 2012).6 PwC, ‘Caught in the crossfire’, a 2009 survey of 65 executives on innovation strategies and expectations.7 Douglas Gilman, ‘The new geography of global innovation’, Goldman Sachs (September 2010).14   15th Annual Global CEO Survey 2012
  • 15. While primary RD is still largely More innovations created in emerging Antonio Rios Amorimconducted in home markets, businesses economies are flowing their way back Chairman and CEOare increasingly shifting some to other markets, according to CEOs. Corticeira Amorim SGPS SAcapabilities to their new priority “To me, one of the interesting things If volume growth is not going tomarkets. Spending by foreign affiliates that’s changed globally, particularly in be there, you need to have valueof US multinationals on RD in foreign our company, is where innovation takes growth, and in order to have valuecountries, for example, rose to 15.6% place and where it migrates to,” said growth you need to offer the marketof total multinational RD spending Brian Duperreault, President and CEO innovative solutions, products,in 2009 from 12.5% in 1999, according Marsh McLennan Companies Inc. materials. So, we are focusing ato a recent report by the US Bureau “Classically, innovation resided in lot more on innovating acrossof Economic Analysis.8 The shift in the developed world. We took ideas the board in our company.research budgets is partly market- and moved them into the emergingdriven as multinationals seek footholds world. There’s now an equal chance,in fast-growing economies, but is also a and maybe a greater chance, thatresult of rising scientific and technology innovative ideas will come out of thecapabilities in foreign countries. “It will developing world, where the action is,take us another five to seven years to where the need to deliver more for lessbecome as innovative as companies in is even more heightened. Today we’rethe West,” said Baba Kalyani, Chairman getting as many ideas out of, say, Chinaand Managing Director, Bharat Forge and India as we were before out of theLtd. “But we will get there for sure.” US and Europe.” Figure 9: Many industries see significant pressure for both process innovations and radical innovation Q: o what degree are you changing the emphasis of your company’s overall innovation portfolio in the following areas? T Responses of ‘significantly increase’. 50 Global average 19 40 Cost reductions to existing processes 6 4 30 1 7 5 12 2 13 8 9 11 20 3 14 10 18 15 17 20 16 10 0 0 10 20 30 40 New business models 1 Banking Capital Markets 6 Metals 11 Chemicals 16 Pharma Life 2 Business and Professional Services 7 Industrial manufacturing 12 Forestry, Paper Packaging 17 Insurance 3 Healthcare 8 Retail 13 Global 18 Technology 4 Automotive 9 Consumer Goods 14 Construction/Engineering 19 Communications 5 Transportation Logistics 10 Hospitality Leisure 15 Asset Management 20 Entertainment Media Base: All respondents (29-245) Source: PwC 15th Annual Global CEO Survey 20128 Kevin Barefoot and Raymond Mataloni, ‘Operations of US Multinational Companies in the United States and Abroad’, Bureau of Economic Analysis (November 2011). 15th Annual Global CEO Survey 2012  15
  • 16. Resilience to global disruptionsand regional risksLuiza Helena Trajano CEOs report that they are less likely There’s greater awareness of specificInácio Rodriguez this year to focus on changing and evolving risks within differentCEO, Magazine Luiza SA approaches to risk management markets, and how local risks can beIn a globalised world, even localised than on other areas of priority, amplified into global ones. Yet thecrises end up having an impact on from strategies for talent to speed with which risk events unfoldall economies. The 2008 crisis organisational structure. Significant – and the extent to which their impactstaught us that. defensive steps have already been on the business spread across different taken: balance sheets have improved risk categories – appear to be and cash reserves have been built. escalating. In the past 12 months alone,Nancy McKinstry Enterprise risk is now more frequently 56% of CEOs said their businesses wereCEO and Chair of the Executive discussed in boardrooms. financially impacted by the sovereignBoard, Wolters Kluwer debt crisis in Europe, another 29% cited Dimitrios Papalexopoulos, CEO an impact from the earthquake andThere is much more need for of TITAN Cement SA, Greece, tsunami in Japan, and 21% cited thescenario planning than there was a summarised the changes taking place political upheaval in the Middle East.few years ago. Much more need for in risk approaches since 2008 withindashboards that senior executives many businesses: “In the past, our risk Key operational moves have alreadycan look at and understand risk. management and scenario planning improved organisational resilience. was based on the assumptions After the earthquake and tsunami in that conditions would change Japan, for example, CEOs based inZsolt Hernádi incrementally. As events of the past Asia Pacific focused on improvingChairman and CEO, MOL Plc couple of years have shown, that has their company’s ability to react moreRight now, our ‘homework’ is to not been the case. So we have now quickly to a supply chain shock.9increase our fitness. What do I mean built into our risk management the They sought new locations for theirby that? Essentially, we must possibility of more extreme conditions operations and reinforced buildings.maintain our capacity to respond occurring. And our board of directors Changes to supply logistics andquickly in an unpredictable, ever- has become much more engaged in the increasing contingency plans inchanging environment. enterprise-risk planning process.” supplier networks were also areas that business leaders in a PwC survey in July felt were critical to managingRichard O’Brien future disruptions.10President and CEONewmont Mining CorporationLast year’s BP oil spill in the Gulf ofMexico has led many companies tore ask the question, Is enterpriserisk management one of thoseunfortunate check-the-box activitiesthat every company should be doingbecause people tell us we should, oris it one that we embrace?9 ‘APEC: The future redefined’, PwC survey of business leaders in 21 Asia Pacific economies (November 2011).10 ‘Post 3.11 Japan: Global Community’s Perspective’, PwC Global CEO Pulse Survey (July 2011).16   15th Annual Global CEO Survey 2012
  • 17. Rüdiger Grube Chairman and CEO, Deutsche Bahn AG The nuclear disaster in Fukushima and the political disturbances in North Africa and the Middle EastCompanies are also learning that Western Europe: have had a direct impact on globalpreparedness for uncertainty is about Outlook for taxes, financial market supply chains.focusing on the consequences of stability. Three-quarters of Westernbusiness disruption. This approach European CEOs are concerned aboutcan bring risk discussions to a more instability in capital markets and Jouko Karvinenstrategic level. In our experience, when three-quarters are concerned about the CEO, Stora Enso Oyjthe focus is on preparing to respond to government response to fiscal crises. We’re deploying our assets andconsequences, discussions occur across It naturally follows, then, that 70% operations in a more flexiblepeople involved in strategy, operations, believe that ensuring stability in the manner so that we can controlrisk management, crisis management financial sector should be a top priority costs not only with regard toand business continuity management. of their governments. And stability predictable business cycles, butBy contrast, a focus on assessing the includes calls for consistency in new also to cope with unpredictablelikelihood of particular risks tends to regulations for the financial sector. macro-economic events.remain theoretical and the domain ofrisk managers rather than the functions Central and Eastern Europe:that will have to respond to disruptions. Exchange rates, corruption. These are Tidjane Thiam two important threats for business Group Chief Executive, Prudential PlcRegional concerns reveal regional leaders in CEE economies, with CEOs We certainly invest a lot aroundrisks. The risk of global economic based there much more likely to report regulation. If you look at thevolatility is a common threat, as is the concerns than global average. As with functions of finance, risk andcontinued uncertainty in markets as a CEOs in Asia Pacific, concerns related compliance, they are our highestresult of depressed growth and rising to adjusting to rapidly changing growth areas. We invest a lot infiscal debts and deficits in many consumer demands are more prevalent. beefing up our resources and ourdeveloped nations: a concern cited by capability to deal with regulatorsover half of CEOs regardless of where North America: at the right level, because it isthey are based. “We are now into the Constrained state spending, skills strategic for us.fourth year of the economic crisis and mismatches. Like CEOs in Europe,none of the European countries have many in North America believe risingemerged from the downturn – nor are public debts and deficits are a key Laércio José de Lucena Cosentinothey confident that they soon will. threat, yet they are less concerned CEO, TOTVs SACompare that with the Asian economic about an increasing tax burden and capital market instability. They’re also You can no longer analyse onecrisis that began in 1997. By 2001 or among the least concerned about country in isolation; all are part of2002, most Asian countries had repaid inflation and protectionism. the same context, so that anythingtheir debts to the IMF and Japan,” that happens within a given groupsaid Pailin Chuchottaworn, President of countries will affect the wholeand CEO of PTT Plc, Thailand. world in some way.Comparing how CEOs perceiveother threats to their business offers Dimitrios Papalexopoulossome insight into the risks that are CEO, TITAN Cement SAtop-of-mind in different regions(see Figure 10 overleaf). A business Below the surface of the unfoldingoperating globally has to have economic crisis, there remains aoperational strategies that encompass deep society-wide concern aroundand respond to these very different risks. the issue of sustainability and the environment. And that is not going away. 15th Annual Global CEO Survey 2012  17
  • 18. Douglas R. Oberhelman Asia Pacific: Middle East and Africa:Chairman and CEO, Caterpillar Inc. Currency volatility, energy costs. Skills shortages and corruption.I find my time increasingly aimed Currency fluctuations are among the The availability of key skills stands outat government policy makers and top economic and policy threats for as an acute concern in the Middle East,policy itself, which is a sign of the CEOs in Asia, and CEOs there are while CEOs in Africa – the mosttimes. I hear this from my peer more concerned about inflation than optimistic region in terms of theirCEOs all over the world. Today, most others. Skills shortages, rising growth prospects in 2012 – have amonggovernment policy seems to be tax burdens and higher energy costs the highest concern levels across awrapped so much more around loom as potential constraints on range of potential threats, notablybusiness than it’s ever been, and expansion plans. over-regulation and official corruption.we all need to stand up and be Latin America:heard. We have to make sure Underdeveloped infrastructures.everybody understands what we Infrastructure looms larger forneed to do to add jobs, to grow and CEOs in Latin America as a growthto be internationally competitive. threat and CEOs naturally call for governments to address it. Corruption and over-regulation stand out as potential barriers to business. Figure 10: Global economic uncertainty remains the top threat to growth prospects Q: How concerned are you about the following potential threats to your business growth prospects? North America Western Europe Asia Pacific Latin America CEE Middle East/Africa 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 Over-regulation Unstable capital Unstable capital Over-regulation Unstable capital Availability of markets markets markets key skills Unstable capital Shift in consumers Increasing tax Availability of Increasing tax Public deficits markets burden key skills burden Availability of Increasing tax Public deficits Exchange rate Public deficits Over-regulation key skills burden volatility Shift in consumers Over-regulation Availability of Public deficits Over-regulation Bribery and key skills corruption Increasing tax Exchange rate Over-regulation Bribery and Shift in consumers Unstable capital burden volatility corruption markets Exchange rate Inability to Energy costs Inadequacy of Availability of Inflation volatility finance growth basic infrastructure key skills Protectionism Availability of Shift in consumers Unstable capital Bribery and Increasing tax key skills markets corruption burden New market Energy costs Inflation Protectionism Energy costs Shift in consumers entrants Energy costs Business threats Economic and policy threats Denotes equal ranking Base: North America (236); Western Europe (291); Asia Pacific (440); Latin America (150); CEE (88); Middle East/Africa (53) Note: Rank of top threats, by % of somewhat or extremely concerned Source: PwC 15th Annual Global CEO Survey 201218   15th Annual Global CEO Survey 2012
  • 19. Tom AlbaneseChief Executive, Rio Tinto Opportunities and risks far from homeIf we’re at any point in timesuffering from an uncertainty of As CEOs seek growth outside familiar markets, they must adapt their firms’what our taxes or royalties are risk practices. Economic, social and political conditions vary by country,going to be, or there is a change in and a more subtle understanding of how these factors will shape thethe investment conditions of the business environment is critical to spotting new opportunities andcountry, it has the effect of creating managing unexpected risks.more risk. That increases our Many political, regulatory and tax risks are predictable. In developingcost of capital, and has the effect countries, market-moving decisions are often made by government officialsof reducing the amount of re- with identifiable political motivations or known limitations on theirinvestment, which one day might authority. One European firm operating in Latin America acted on an earlyhave produced more taxes for those warning of political deterioration and repatriated the firm’s equity, shiftingcountries. So in the longer term they to local financing prior to currency devaluation. In a win/win outcome, themight find that they’re not seeing move allowed the company to avoid losses while maintaining operations inthe re-investment, nor the jobs, nor the country.the economic benefits they wouldhave seen in the long term. Even unpredictable risks can be managed. We cannot know when a natural disaster or social upheaval will spring a surprise, but we can predict which markets are most vulnerable to such shocks – and how decision-makers areHussein Hachem likely to respond when they hit. Situational awareness and planning canCEO Middle East and Africa, Aramex ensure that their impact on balance sheets, supply chains and marketI was in Uganda three months back demand is anticipated.when there was a civil disturbance,but our worry is corruption. I want As they seek growth in new markets, many executives focus on market-to make sure that we operate in an entry risks, but underestimate the risks that come with sustained marketenvironment where we can do presence – figuring that they have good people on the ground and abusiness without paying anybody good lay of the land. But just as with the political, economic and socialunder the table. environments, the business environment has changed rapidly in developed markets. Business leaders must constantly return to the fundamental question: “How must my business practices evolve to profit from the torrent of change underway everywhere around the world?” The largest emerging markets – notably Brazil, Russia, India and China – illustrate this principle. Many large multinationals now regard a presence in these countries as a competitive imperative. Yet, as we have seen recently, threats to or changes in political leadership, revelations of corruption and official malfeasance, and perceived economic threats from abroad can have profound downside impacts on the local business environment. Early movers and those who understand the shifting terrain in these countries will have substantial advantages, and unpleasant surprises await those who enter late or without preparation for the torrent of change underway in these markets. For example, one firm watching the opening of a market for its services after the 2005 Chinese accession to the WTO bought out its joint-venture partner and quickly established itself in interior cities once closed to foreign firms. The investment greatly increased its corporate profile among local and central government stakeholders and spread the brand name quickly in a lucrative market. In contrast, one bank’s late arrival in Latin America resulted in a failed attempt to establish a dominant presence in a market where rivals were already in the midst of consolidating the market. What’s true for risk is true for opportunity. As their commercial rivals focus on yesterday’s bonanza, business decision-makers can use a refined understanding of political, social and economic trends to spot the growth opportunities of tomorrow. 15th Annual Global CEO Survey 2012  19
  • 20. This is the talent crunch. It’s a complex and frustrating challenge and it’s being felt worldwide. To give a measure of the scale of the problem: more CEOs are changing talent management strategies than, for example, adjusting approaches to risk (see Figure 4 on page 7): 23% expect ‘major change’The talent challenge to the way they manage their talent. And skills shortages are seen as a top threat to business expansion.Tom Albanese Theoretically, finding a good candidate Talent shortages and mismatches areChief Executive, Rio Tinto to fill a position should now be a very impacting profitability now. One in four straightforward exercise. There have CEOs said they were unable to pursuePeople of my generation will be never been as many educated people a market opportunity or have had toretiring over the next 10 years in the world, nor has it ever been as cancel or delay a strategic initiativeleaving a pretty shallow pool of simple for employers to tap this vast because of talent (see Figure 11).people; then everyone will be pool online. Highly skilled talent is One in three is concerned that skillsstruggling and competing for a also highly mobile; but just in case, shortages impacted their company’slimited group of experienced mining networking advances also mean that ability to innovate effectively.professionals. But we do find that many more tasks can be handled “Close to 15 percent of energy-relatedwe can go outside our sector, for remotely or outsourced. investments around the world fail orexample, for mechanical engineers are lost because a suitable workforceor people in the auto sector who are The reality is far different. A Chinese is not available,” said Zsolt Hernádi,good with industrial enterprises. automaker attends job fairs in Chairman and CEO of MOL Plc. Germany, even though China produces large numbers of graduate engineers There are challenges in hiring acrossMarijn Dekkers each year. High jobless rates persist in most industries, as well as in retentionChairman, Bayer AG the US and Europe, disproportionately in some markets and industries,But what is interesting and what is among the young, even as businesses as businesses compete for highlychanging is that among Western fret that they cannot attract the talented people. CEOs are takingcompanies, the ability to hire, develop digitally adept ‘Millennial’ generation many approaches to address theand retain talent in the developing to pursue careers in their industries. shortfalls, as Andrey Kostin, Presidenteconomies has become a major point Too many well-educated citizens of the and Chairman of the Managementof competitive differentiation. Middle East and elsewhere are not in Board of JSC VTB Bank, put it: the workforce at all. “Before, people “In some countries we have constant looked for jobs. Now, companies look shortages of risk managers or retail for talent,” said Erdal Karamercan, experts, for example, or local finance President and CEO of Eczacıbaşı experts with relevant expertise. Group A S. Sometimes the solution is to relocate people from other offices.” Figure 11: Talent constraints have impacted costs – but also factor in lost opportunities Q: Have talent constraints impacted your company’s growth and profitability over the past 12 months in the following ways? 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 We cancelled or delayed a key strategic initiative 24 We couldn’t achieve growth forecasts in overseas markets 24 We couldn’t achieve growth forecasts in the country where we are based 24 Our production and/or service delivery quality standards fell 21 % Base: All respondents (1,258) Source: PwC 15th Annual Global CEO Survey 201220   15th Annual Global CEO Survey 2012
  • 21. A minority of CEOs expect to Even industries such as banking that Andy Greenundertake deep restructuring have retrenched workers in large CEO, Logica Plcmeasures specifically to fill the talent numbers are still struggling to get the We’ve definitely grown less fastgap. As they consider how to build the right people. Developed market banks than we would have liked to infuture of their workforce, a third or are in competition with one another but some places, particularly in someless expect to make dramatic changes, also with increasingly ambitious and of these new skill areas – businesssuch as making an acquisition to well-capitalised local competitors in intelligence or future IT skills –secure needed talent, seeking faster-growing economies.12 There are because we haven’t been able topartnerships to get access to skills, or also shortages of specific financial recruit and attract and trainmoving operations to more talent-rich services skills in these economies, enough people fast enough.areas. Slightly more CEOs (38%) for example, private wealth bankersexpect to make significant investments or actuaries. Almost twice as manyin technology to circumvent shortages. banking CEOs (48%) plan to expand Mariano Bosch workforces than to cut (26%) in 2012Hiring talent. CEOs across all CEO, Adecoagro SA (see Figure 13 overleaf).industries say it’s become more Adecoagro’s greatest challenge fordifficult to hire, but the challenges are Making talent strategic. CEOs are growth is recruiting the right peopleacute in knowledge industries such as determined to be more strategic in the to manage operations.pharmaceuticals and life sciences, and way they manage their workforcetechnology, and in heavy industries today and plan for future needs. Up tosuch as industrial manufacturing and now, an assumption has held that the Richard O’Brienautomotive (see Figure 12). The need market analysis element of a strategic President and CEOfor technically skilled people to plan is paramount, and how a business Newmont Mining Corporationmanage the increasing sophistication ‘resources up’ to meet the plan is We’re starting to attract somein production is strong, and the growth something that’s worked out later. technically inclined people out of thein demand for professionals in Now, leading businesses are looking schools today, but there are fewermanufacturing is projected to be over beyond the next budget round to plan mining schools and mining engineers4% a year across all economies and to talent needs. A longer-term strategic – at the same time there’s morepeak at over 10% in developing view is needed, if they want to close demand for them.economies in 2020.11 the gap today and map how talent needs will change. Figure 12: Different industries, different requirements – but skills gaps remain Q: In general, has it become more difficult or less difficult to hire workers in your industry, or is it unchanged? Global 12 43 Consumer goods 11 44 Automotive 8 46 Healthcare 9 47 Sectors above the global Industrial manufacturing 14 47 average in % of CEOs responding Technology 12 48 ‘More difficult’ Insurance 10 49 Pharamceuticals Life sciences 6 51 % -16 37 Less difficult More difficult -21 34 Base: All respondents (29-245) Note: Responses of ‘unchanged’ not depicted. -19 28 Source: PwC 15th Annual Global CEO Survey 201211 World Economic Forum, ‘Global Talent Risk’ (2011).12 PwC, ‘Securing the talent to succeed: Making the most of international mobility in financial services’ (November 2011). 15th Annual Global CEO Survey 2012  21
  • 22. Francisco González As part of this effort, more CEOs are They are very good at telling a CEOChairman and CEO, Banco Bilbao now integrating HR with business how the business is performingVizcaya Argentaria (BBVA) SA planning at the highest levels of the today relative to its peers, but not atThe idea that banks need only company: 79% of CEOs say that the indicating whether the organisationconventional people no longer holds chief human resources officer, or is investing enough in employees totrue. If we really want to compete equivalent, is one of their direct reports generate future growth.in the future, we need to update the (most have ten or fewer direct reports). Such measurements cannot isolatequalifications of our people and They are also seeking a better skills gaps and struggle to identifythat’s where talent comes in. understanding of the scale and the pivotal jobs that drive exponential effectiveness of their investments in value; they do not measure employee talent. Productivity and labour cost engagement or team performance,Baba Kalyani remain important measurements; both of which are so critical forChairman and Managing Director, these are the tools investors, lenders investments to foster innovation toBharat Forge Ltd and businesses use to benchmark bear fruit. These measurements areTalent is the most strategic issue for progress (or lack of it). They are largely much harder to make, which is onea country like India. The country standardised in many industries, and reason why they’ve been neglectedis tremendously short on talent. thus easy to implement. Yet for many and why today, so many CEOs areAttrition rates are in double digits. CEOs, those tools aren’t enough frustrated with the issue of talent.There is a gap between what comes (see Figure 14 opposite).out of technical institutes and whatthe industry needs. Figure 13: Half of CEOs expect to raise their headcount in 2012 Q: What do you expect to happen to headcount in your organisation globally over the next 12 months? Healthcare 6 6 38 31 9 Business services 5 6 23 17 18 Technology 4 2 11 20 18 19 Communications 7 14 24 12 19 Chemicals 1 11 34 11 10 Automotive 3 4 7 26 16 10 22 15 Global 3 4 11 23 14 14 Insurance 3 3 10 25 13 12 Entertainment Media 5 4 10 24 6 20 Industrial manufacturing 3 3 6 19 18 12 Banking and Capital markets 7 7 11 25 8 15 Asset management 6 5 6 21 13 13 Consumer goods 4 4 15 20 18 9 Construction/Engineering 4 4 13 17 10 19 Retail 4 3 17 22 13 11 Pharmaceuticals Life sciences 1 5 12 20 12 11 Transportation/Logistics 5 1 12 17 10 12 Metals 3 5 15 13 18 5 Hospitality Leisure 3 17 7 17 3 14 Forestry, Paper Packaging 8 10 18 10 14 8 % Decrease by more than 8% Decrease by 5-8% Decrease by less than 5% Increase by less than 5% Increase by 5-8% Increase by more than 8% Base: All respondents (29-245) Note: Responses of ‘stay the same’ not depicted. Source: PwC 15th Annual Global CEO Survey 201222   15th Annual Global CEO Survey 2012
  • 23. Laércio José de Lucena Cosentino,CEO, TOTVs SA The future of employee engagementIf we don’t work now on training Employee engagement analysis can give business leaders a clear link betweenpeople, a shortage of professionals engagement and improved performance measures such as retention andcould affect growth. discretionary effort. The point is to align strategy and engagement – and to thus understand the organisation’s capacity to generate the benefits derived from engagement in ways that directly impact delivery of the business plan.Michael White,Chairman, President and CEO, A study conducted by the Corporate Executive Board found that theThe DIRECTV Group Inc. employees who were most committed to their organisations gave 57% more effort and were 87% less likely to resign than employees who considerLet’s face it. There are 80 million themselves disengaged.13 Yet during the recent downturn, engagementBaby Boomers who are going to retire levels among top performers fell more sharply than for workers overall,over the next five to seven years, and PwC has found.14they’re going to be replaced by 40million Gen Xers. That’s two to one, That’s why forward-looking businesses are going further. They’re couplingso you’d better be developing your a clear view of the pivotal roles within their business – the roles that createnext generation now if you’re going (or destroy) disproportionate business value – and applying data miningto be ready for that transition. and predictive modelling to gain insight into retention, recruitment or productivity. For example:Roger W. Ferguson, Jr • a retention score for each employee, which measures the probability thatPresident and CEO, TIAA-CREF an employee will leave in the next year;We have traditionally hired people at • use of engagement studies to identify barriers to high performancemid career, but over the last few years within specific groups of employees, as well as the tangible improvementswe’ve also reinvigorated our college that can drive both engagement and business performance; orcampus recruiting. • a focus on the direct market-facing impact employee engagement has on measures of business performance such as customer satisfaction or product quality. Figure 14: A minority of CEOs get comprehensive reports on their workforce Q: hen making decisions, how important is it to have information on each of the following talent-related areas? W 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 80 Information Gap: Percentage of CEOs CEOs believe information is 60 important but don’t receive comprehensive reports 40 20 0 Costs of Return on Assessments Labour Employees’ Staff employee investment on of internal costs views and productivity turnover human capital advancement needs Do not receive information Not adequate Adequate but would like more Information received is comprehensive Base: All respondents (1,258) Source: PwC 15th Annual Global CEO Survey 201213 Corporate Executive Board, ‘The Role of Employee Engagement in the Return to Growth’, Bloomberg Businessweek (August 2010).14 PwC Saratoga Global Survey (2011). 15th Annual Global CEO Survey 2012  23
  • 24. Jaime Augusto Zobel de Ayala Developing talent. Frequent job- Wolters Kluwer. “It’s very difficult oftenChairman and CEO hopping is endemic to many markets, to take people from outside to comeAyala Corporation at all levels of the organisation. A 2010 into the company and have them beWe’re investing much more now survey of over 2,200 mid- to senior- productive in a short period of time.”in retraining people. The world is level managers in mainland China found that two-thirds had received at To develop talent better, however,changing so quickly that it’s just least one competing job offer in the last companies will need to understandnot enough to go to school once. 18 months, and that nearly half (46%) that what works in one market might had moved to a new role with a more not work in another. Mentoring than 30% increase in compensation.15 programmes, for example, are popularRüdiger Grube, Chairman and CEO, in some countries but fail in others, Employee loyalty to their employerDeutsche Bahn AG because of the way coaching is is changing everywhere. Only 18%We annually train about 10,000 of Millennials in a global survey of received in different cultures. Evenapprentices in more than 25 new graduates said they intended companies that are well respected forvocational skill areas. to stay with their current employer, their development practices are for example.16 rethinking global talent strategies and adapting them for different markets.Yoshio Kono, President and CEO This is a trend many CEOs would like to counter. Two-thirds say it’s more Holding the organisation together.The Norinchukin Bank likely that talent will come from High-potential middle managers areWe have now radically changed that the employees more CEOs across all promotions within their companiesby developing a global HR training industries and regions fear losing the over the next three years. Whileprocess to screen potential most (see Figure 15). These outsiders bring many benefits, the losscandidates and send them abroad operational managers are often the in productivity and time when ato gain work experience for a year, closest to changing customer demands valuable employee leaves, as well asbeginning in 2012. and the ones charged with executing the expense related to retraining, are beginning to be better appreciated: the strategic direction. This is one 21% say the information they receive reason why formal succession planningRohana Rozhan on the cost of employee turnover to in some companies is starting to goCEO, ASTRO Malaysia Holdings their organisations is not adequate and deeper into the organisation. Efforts toDiversity is part and parcel of 47% receive some information but identify the talented managers earliereverything that we do because to want more. “We need to grow our own in their careers, and to specificallysucceed, ASTRO’s workforce must talent,” said Nancy McKinstry, Chair of devote development resources to them,directly reflect its market place. the Executive Board and CEO of are taking place in more organisations. Figure 15: Recruiting and retaining high-potential middle managers is the biggest concern for CEOs Q: With which of the following groups do you currently face the greatest challenges with regard to recruitment and retention? Respondents were able to choose all that applied. 55 High-potential middle managers 50 35 Skilled production workers 31 32 Younger workers 30 35 Senior management team 21 13 Overseas unit heads 21 % Emerging Markets Developed Markets Base: All respondents (621; 637) Source: PwC 15th Annual Global CEO Survey 201215 MRI China Group Talent Environment Index.16 ‘Millennials at Work: Shaping the workplace’, PwC survey of over 4,300 graduates aged 31 or under (December 2011).24   15th Annual Global CEO Survey 2012
  • 25. Those future leaders will also need to compensation packages. In 2007, 41% Daniel S. Glaserreflect the world in which they operate. of highly skilled Chinese professionals Group President and COO,“The evolution of senior leadership preferred working for a Western Marsh McLennan Companies Inc.teams is going to continue. I think multinational, while 9% preferred a People want to have an impact. Theypeople will have to be more global in job with a domestic firm. By the second want to be listened to, no matter thetheir perspective. They will have to quarter of 2010, the preference for size of the company they work for.understand the interconnectedness employment by a multinational hadaround the world. That’s going to be a risen to 44%, but the preference forvery important element,” said F William Chinese employers had jumped to Jouko KarvinenMcNabb III, Chairman, President and 28%, according to the Corporate CEO, Stora Enso OyjCEO of The Vanguard Group Inc. Executive Board.17 It isn’t about young versus old, orMoving talent. Across all industries, While 53% of CEOs expect to move the developing world versus themore CEOs would rather have local experienced people from the home developed world. The most criticalleadership run local business units. market to newer markets to fill skills selection criteria that we used inToday, 29% of senior managers are gaps (see Figure 16), reverse transfers, putting together our team of juniortransferred from their headquarters involving moving top performers in managers together was to maximisecountry to newer markets; in an ideal emerging markets into developed diversity of thought.world, only 18% of CEOs said they markets for a short period of time towould continue to move their senior become ‘credentialised’, can also beleaders from headquarters. This is effective retention and development Marijn Dekkersbecoming increasingly hard to achieve measures. And businesses are making Chairman, Bayer AGin fast-growing economies. Foreign greater use of short-term assignments We try to avoid overseasmultinationals remain desirable to address skills shortages in high- assignments just to fill a gap, butemployers, but the best people in India priority markets, and costs related to sometimes you just can’t avoid it.and China, among other economies, long-term assignments. These can behave many more options with domestic extended business travel or flexiblemultinationals today. These are groups commuter arrangements, oftenwhich offer opportunities to run intra-regional, which addressgrowing, global businesses and which situations where an employee orcan increasingly match Western candidate is reluctant to move. Figure 16: CEOs are more focused on recruiting local talent and developing and promoting from within 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? 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 We plan to develop and promote most of 67 24 We plan to recruit more experienced talent our talent from within the company from outside the company 8% We plan to primarily recruit local talent 70 19 We plan to move more talent across borders 11% wherever we have market needs to fill market needs % Agree with statement Agree with statement Base: All respondents (1,258) Source: PwC 15th Annual Global CEO Survey 201217 ‘The Battle for China’s Talent’, analysis from the Corporate Leadership Council, Harvard Business Review (March 2011). 15th Annual Global CEO Survey 2012  25
  • 26. Douglas R. Oberhelman Investing in workforce development Chairman and CEO, Caterpillar Inc. Skills constraints are not likely to go away soon. As economies evolve, Chinese leadership and needs are so workforces need to evolve as well. It’s an issue for CEOs, who recognise different from those in India, Brazil, that talent is vital to competitiveness at a time when business success relies Canada and Belgium. Talent has to increasingly on knowledge capital and innovation capacity. One-third of be regionally directed, and that’s CEOs saw reduced innovation as a consequence of talent constraints. what we’re working on. Frankly, it’s a big challenge, because as we’re It’s also an issue for governments, which increasingly see the need to new to some of these places and compete on talent. India and China have invested heavily to upgrade skills our growth is strong, we’re having and widen access to education, and are more actively cultivating their trouble teaching what we want our substantial diaspora of students and entrepreneurs to encourage their leaders to do and know. return. Singapore and Malaysia are taking comprehensive, long-term approaches to attract highly skilled foreigners to enhance their economies; the UK is reforming its RD tax credit to incentivise innovative businesses Francesco Starace to stay. In short, policy makers are seeing the effects of talent mobility on CEO, Enel Green Power SpA economic competitiveness and, as a result, more countries are acting to We previously went through a phase attract and retain talent.18 This is likely to encourage even more global talent in which we moved people out of the mobility, which will, in turn, impact business talent management strategies. centre into the periphery of the Yet while immigration and tax reform will bridge the skills gap to some company. Now we’re in a phase in extent, over the long term, multinationals will need to move from ad hoc which people are coming into the solutions and create hubs to seed and develop the skills and managerial centre from the periphery. A third talent they need. That’s why leading companies take the long view and phase will begin during 2012 in are partnering with their governments and foundations to invest in which people are moved between workforce development. different locations to fill talent gaps. Most CEOs believe business has a role in upgrading and fostering skills outside their own companies and 78% say they are making direct Martin Senn investments in workforce development. Just over half say they are investing CEO, Zurich Financial Services Group in formal education systems and adult or vocational training programmes. I look for globally-minded people with the capacity to anticipate change and the flexibility to accept it. I also put a lot of emphasis onThis is part of a wider trend we have Not all countries are keen on this character. Good character, honesty,observed of businesses reaching back trend, with some arguing that direct and consistent behaviour – that’sfurther into the talent pool and seeking involvement of business in education what we’re looking for.to ‘grow their own’ with a proliferation results in short-termism rather thanof employer-led universities. Regions establishing a broader education basewhere the needs are greatest today have to equip people better in the longerseen more employers taking the lead term. However, there are increasing David Coteon solutions to skills gaps. Many more examples of public-private Chairman and CEO, Honeywellcompanies, such as Infosys in India, are partnerships involving a more active, I personally spend a great deal ofputting employees through intensive strategic role being played by business time on it. For example, I review thetraining on their own campuses. in education. Take P-Tech, a six-year performance of our top 200 people high school in large part created by the three times a year. IBM International Foundation, where students can earn a diploma and an associate’s degree in a computer Andrey Kostin science-related field and have a first CEO, VTB Bank OAO crack at a job with IBM.19 VTB’s corporate university was established six years ago. Since then it has become a promotion springboard for many middle-level managers.18 he number of countries looking to ‘systematically encourage talent mobility’ rose from just a few in 2001–01 to nearly two dozen in 2008, according to Papademtriou et al., T ‘Talent in the 21st Century Economy’ Migration Policy Institute (November 2008).19 For more on government and business partnerships in education and elsewhere, see ‘Taking responsibility: Government and the Global CEO’, PwC (forthcoming 2012).26   15th Annual Global CEO Survey 2012
  • 27. What’s nextIn the past, recovering from a downturn That is why we’re seeing greaterwas a relatively straightforward confidence from CEOs in their ownprocess; businesses could look forward company’s ability to grow than theirto studying the trends and the expectations for global economiccompetition, and planning how to growth, and why they believe therespond. Those days are long gone. main challenge today lies in howThree years into the financial crisis, well organisations are able to becomeuncertainty and volatility have become more local in their global strategies.the baseline expectation. Global fundamentals for future growth are still squarely in place – andYet changing conditions also present businesses are positioning to takeopportunities. The rise of emerging advantage when we do emerge fromeconomies, ever greater mobility of this period of economic volatility.goods, capital and, increasingly, ofpeople, along with accelerating We believe the findings have broadtechnological advances in many implications for business in 2012 andindustries, are supporting far more beyond as companies position foroptimism for business prospects than long-term growth in their prioritythe headlines today would suggest is markets. The following eight questionsmerited. CEOs have built on the are distilled from CEOs’ insights andexperience of the past few years and can help business leaders achieve theare better prepared to tackle emerging balance they’ll need to grow theirrisks head-on. businesses in these volatile times. The rise of emerging economies, ever greater mobility of goods, capital and, increasingly, of people, along with accelerating technological advances in many industries, are supporting far more optimism for business prospects than the headlines today would suggest is merited. 15th Annual Global CEO Survey 2012  27
  • 28. 1. How local is your global 3. Is your talent strategygrowth strategy? fit for growth? The traditional wayCEOs are shifting away from an export Cost-focused measurements around of setting a grandmindset to respond more attentively tolocal markets. Over 70% of CEOs are talent strategy need to give way to measurements around returns on global strategy andplanning to grow domestic customer investment, as leaders increasingly pushing it out tobases in their important markets.Competition will be tough, particularly implement new approaches to solve their talent shortage problems. operations maywhen operating in markets that are Two-thirds of CEOs are seeking need to give way to adissimilar and far afield. Thetraditional way of setting a grand relevant data and analysis from talent managers to make and inform more agile strategyglobal strategy and pushing it out to investment decisions around people. that can adapt atoperations may need to give way to amore agile strategy that can adapt at Implementing strategic workforce planning will help leaders look beyond the local level.the local level. the talent shortages today to align the talent needed to fulfil business plans.2. How are you balancing Around a fifth of CEOs expect theyglobal capabilities with local will have to make acquisitions oropportunities? partnerships to fill the gaps. This may be conservative, considering theCEOs are developing new capabilities degree of challenges businesses facein their important markets, and with talent.tailoring approaches to ensure that thebest of their global expertise supports 4. Are your innovationsrather than imposes operational creating value for yourstructures on the local business. One infive plan to innovate locally in their customers – or just novelty?important markets; and over a third When it comes to innovating in and forexpect to expand internal service local markets, delivering on the valuedelivery. They’ll need to find the right that customers in those markets expectscale to bring the benefits of their is paramount. Between a fifth and aglobal organisation to the local level third of all CEOs say they are creatingand maintain profitability. products specifically for their important markets. It will be increasingly important to get segmentation right – at the regional, country, city or even neighbourhood level – and to design operating models around serving those segments. That means looking beyond product design to include factors such as production, distribution and marketing.28   15th Annual Global CEO Survey 2012
  • 29. 5. Do your strategic plans 7. Where are the biggest 8. Are you adapting yourfocus on how to respond to the opportunities for business governance model to changingmost serious consequences and government to stakeholder expectations?you could face? coordinate better? The organisation of the future willThe range of CEO concerns reflects Compliance with a growing body likely be accountable to a differenthow diverse sources of risks are: of regulations, particularly when mix of stakeholders from a different25% are ‘extremely concerned’ that operating in disparate markets, is a mix of markets. Governance modelsinstability in capital markets will complex task for most businesses, need to adapt, beginning with buildingimpact business, for example. The which is why CEOs consistently report a leadership pipeline that reflectsnumber of potential risks and their over-regulation as a threat to their potential future demands. It’s a keyinter-relationships make it very growth. However, the successes of area of focus globally, with 53% ofdifficult to predict what will occur the private and public sectors are CEOs concerned about recruitingwhere and when, but companies can increasingly intertwined. Roughly half and retaining high-potential middlebetter deal with uncertainty – and take of CEOs believe that workforce skills managers and a desire to build morea more strategic approach to risk – and infrastructure developments are diverse leadership teams.by focusing on likely consequences, top priorities for their governments,no matter what the cause. and eight in ten CEOs say their business has a role in workforce6. Are you responding to the development, other than theirneeds and constraints of the own employees. Areas such ascommunities in which you infrastructure development, education, intellectual property protection,operate? healthcare and regulatory convergenceCEOs recognise that sustainable standards are ripe for increasedbusiness growth requires working collaboration between the public andclosely with local populations, private sectors. Effective partnershipgovernments and business partners, models – better communication.and investing in local communities.This can mean creating job trainingprograms, helping to manage resourceconstraints or contributing to healthsolutions. Over 60% plan to increaseinvestments in the next three years to Roughly half of CEOs believe thathelp maintain the health of theworkforce, for example. workforce skills and infrastructure developments are top priorities for their governments, and eight in ten CEOs say their business has a role in workforce development, other than their own employees. 15th Annual Global CEO Survey 2012  29
  • 30. Final thoughts from ourCEO interviews We really do need to staff up local businesses with people from those countries. It doesn’t make sense to have large numbers of ex-pats working all round the world as it’s just very expensive, so we have to train, we have to develop and we have to attract the right local talent. For the most part these locations are in pretty wild places. And now most professionals want to be in urban locations, particularly if they have families. So it’s an increasing challenge to induce people to work in those difficult locations. Tom Albanese Chief Executive, Rio Tinto, UK We are looking more and more at the balance sheet. We are looking much more at working capital needs. It is clear an economy that is going to be de-levered is going to have credit restrictions in the market so your investment policy, your acquisition policy has to be a lot more prudent than ever before. But it is also clear that the markets are not going to be growing. So you really need to invest. Antonio Rios Amorim Chairman and CEO, Corticeira Amorim SGPS SA, Portugal Before the crisis, Europe and the US were the most important markets. Now we are going to India, to China and building much stronger relationships with BRIC countries. We are selling rice, sugar and ethanol to a more expanded and balanced world. Mariano Bosch CEO, Adecoagro SA, Argentina As emerging markets accelerate – or maybe the rest of the world decelerates – there is a significant sense of urgency. There is the sense that it may already be too late to place your bets. A second factor to consider it that it is much more difficult to get into those markets because of their attitude change. They feel that post-2008 they have less to learn from the West. Lázaro Campos CEO, SWIFT, Belgium In the case of the EU, it seems that all its members were anxious to benefit from the union but some didn’t want to uphold their responsibilities. The members of ASEAN must not fall into the same trap. Dr Pailin Chuchottaworn President and CEO, PTT Plc, Thailand 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, Brazil30   15th Annual Global CEO Survey 2012
  • 31. To read the full interview transcripts and watch selected videos,visit www.pwc.com/ceosurvey We’ve certainly seen much more innovation coming from outside the US. Ten years ago, less than 40 percent of our sales were outside the US. Today it’s approximately 55 percent. 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 The business case for innovation is increasing, but as I often say, the easy stuff has been done. For innovations to be meaningfully better requires more insight into the fundamentals of science. Take the example of blood thinning. Relatively early on, products like aspirin were used as a blood thinning drug. But in order to have a really sophisticated blood thinning treatment, a whole new level of chemistry is required. So moving from relatively straight forward chemistry to very complex chemistry is a difficult transition. Dr Marijn Dekkers Chairman, Bayer AG, Germany Recognising that the world is somewhat split down the middle between slow growth and rapid growth, you’d better be able to operate in both at the same time. You have to manage that difficult slow growth and then completely switch gears and go to high growth. You have to find ways of moving your resources – and for us it’s talent – from where it’s not being utilised to where it can be utilised. Brian Duperreault President and CEO, Marsh McLennan Companies Inc., US On the other hand, businesses have ample capital. We see businesses investing in equipment and software. And consumer spending of late has picked up. So there are some headwinds, there are some things that are supportive, and overall that’s going to make for a picture of relatively slow growth but with very low inflation. Roger W. Ferguson, Jr President and CEO, TIAA-CREF, US All our management and staff know full well that we are onto something big and that in the future we may no longer be called a bank. Nowadays, some companies provide information, others credit but, at the end of the day, the borders will become blurred and all of us will be competing for customers. So, getting a client and transforming information into knowledge is where the battle will be fought. Francisco González Chairman and CEO, Banco Bilbao Vizcaya Argentaria (BBVA) SA, Spain The sort of glimmering trends we see are: should we develop ourselves more in South America or North Africa? That is something where we have taken option decisions rather than big strategic changes. The other key thing, I suppose, is we are beginning develop new business models around the ‘cloud’. So the deployment of business process services where we create platforms which many industry players use and collaborate on, because they are happy to do so, such HRBPO platforms or platforms for the fuel cards that truckers use around Europe, or smart metering platforms which can be used by many utilities, all of these things are beginning to make a difference. Andy Green CEO, Logica Plc, UK 15th Annual Global CEO Survey 2012  31
  • 32. The demographic changes that we see occurring in many of the regions where we operate – shrinking populations, an ageing workforce and diversifying demographics – compounds the challenges we face and intensifies the war for talent. Dr Rüdiger Grube Chairman and CEO, Deutsche Bahn AG, Germany We have said we are going to invest US$100 million in Africa where the return on investment and margins are much better for us than the margins in other markets, such as Europe and the US. From that perspective we think investments in emerging markets make a lot of sense. That’s why we are moving fast. Hussein Hachem CEO Middle East and Africa, Aramex, UAE During recent years, the issue of stakeholder management has become astoundingly important. The way in which a company can position itself within the larger society and how it can achieve acceptance within a given community has become a source of value. Zsolt Hernádi Chairman and CEO, MOL Plc, Hungary I believe organisations have to find their own solutions. We run a talent factory of 700 to 800 people here in India and we are working on creating a global talent pool of about 100 people – 60 of them from India and 40 from other countries – so that we can send them anywhere across our operations. We hope to have this talent pool ready within the next three years. Baba Kalyani Chairman and Managing Director, Bharat Forge Ltd, India In the last four years, our innovation efforts have been focused on sustainability. In every product and service, in every technology that we develop, we prioritise sustainable development. That means anything we produce should utilise less resources. Anything we give to our consumers should help the consumer to utilise fewer resources. In the value chain as a whole, we should utilise fewer resources and work with companies who utilise fewer resources. Erdal Karamercan President and CEO, Eczacıbaşı Group A S, Turkey Innovation in most industries is too driven by technical perspectives rather than consumer perspectives. We’re very fond of talking about all sorts of technical possibilities. But in many cases, we don’t actually understand many of the markets that we’re trying to sell into. And I happen to believe that’s where you should start. You need to bring the consumer into the equation first, before pushing out technical solutions. Jouko Karvinen CEO, Stora Enso Oyj, Finland Our bank has branch and office managers in the Miyagi, Fukushima and Iwate Prefectures, which were all hit by the disaster. I told these local heads, who were the on-the-spot commanders, not to panic but to sit tight and issue explicit directions, and that if things went wrong, I as the president would assume full responsibility. Yoshio Kono President and CEO, The Norinchukin Bank, Japan32   15th Annual Global CEO Survey 2012
  • 33. From a longer-term perspective, potential asset quality damage stemming from theEurozone crisis must be considered. However, no major Russian bank has any significantdirect exposure to the peripheral European sovereigns, and the oil and commoditiesprices seem to be very resilient as they are supported by the Chinese demand, better thanexpected US economic data and the continuing political unrest in the Middle East.Andrey Kostin President and Chairman of the Management Board,JSC VTB Bank, RussiaWe’ve not been able to take one strategy that will work in India, that will work in China,that will work in Brazil. So you have to adapt the strategy very much to the local market.In China our focus has been on largely organic growth because we are a foreign entity.We can’t actually own content assets so we have to have a lot of established partnerships:in China partnerships are really critical for us. In other places like India they areprobably far less critical and there it’s about how to get distribution across the country.So each market is different and I think that the focus for us is how to tailor our strategyto meet the local needs of the business.Nancy McKinstry CEO and Chair of the Executive Board, Wolters Kluwer,The NetherlandsWhen RD, marketing and design work independently of one another, we do have somesuccesses. But we don’t get the same sort of amplifying effect like we do when they worktogether in the innovation triangle.Keith McLoughlin President and CEO, AB Electrolux, SwedenWe still are relatively optimistic that we have an awful lot of opportunities bothdomestically in the US, as well as around the world to grow by, frankly, takingmarket share.F William McNabb III Chairman, President and CEO, The Vanguard Group Inc., USWe deeply believe we have to be in China to know that market and those competitors, inorder to take them on at their own game. We learned that in the early 1960s when ourpredecessors went to Japan and successfully took on Komatsu, a very strong emergingcompetitor. That’s exactly what we’re going to do in China, where we’ve alreadyestablished 15 plants with 9,000 employees. Our dealers there are strong. We’re buildingthe same Caterpillar business model in China as we have everywhere else in the world,and I believe Chinese customers will respond to that over time.Douglas R. Oberhelman Chairman and CEO, Caterpillar Inc., USThe biggest factor facing the global economy of today is, how do we re-inject growth intocountries? If we get that right, then there’s a world of possibilities for the economy. If wedon’t, it’s going to be left up to those growing economies to pull the rest of the world along.Richard O’Brien President and CEO, Newmont Mining Corporation, US 15th Annual Global CEO Survey 2012  33
  • 34. We were a Greek company for 90 years – but in the last 15 years we’ve become a multinational company. The senior management team, however, remains, to a large extent, Greek and male. How does a company like ours develop a multicultural talent pool from which a future management team can be drawn? Dimitrios Papalexopoulos CEO, TITAN Cement SA, Greece Last year, many companies were battered. They do not have the capacity to invest in the future and the capital markets have become absurd. There have been no initial public offerings (IPOs), while private equity is also sceptical. Valuations have come down. Large projects have come to a standstill because of regulatory reasons or cash constraints. So there are several opportunities out there for a cash-rich group like ours. Ajay G. Piramal CEO, Piramal Group Ltd, India Trade with Africa has increased significantly; and importantly, intra-Africa trade has also increased. We are seeing the patterns of exports change more and more into the emerging market economies. If I look at our own client base, both in South Africa and in the other African economies that we operate in, and if I look at the global clients that we interact with in the Barclays Group, the question we get asked all the time is, ‘Can you help us do business in Africa?’ Maria Ramos Group Chief Executive, ABSA Group Ltd, South Africa Right now, we’re at 50% penetration of Malaysian households. So the question becomes, how do we continue to achieve double digit growth every year? The answer is that we have to simultaneously move up the value chain, in line with customer trends and demands, ahead of current and would be competition, so as to earn our fair share of the customer lifestyle wallet. And to continue growing our customer numbers, both households and individuals. Our content reach, given the current technology can also travel beyond Malaysian borders. So we have to think of ways to monetise and build on this. Rohana Rozhan CEO, ASTRO Malaysia Holdings, Malaysia I understand the outcry, but there’s a risk that if the regulators respond in a populist way, the recovery could be threatened. The public and the private sectors went into the crisis together; now they need to come out of it together. So for us, dialog is very important and something that we pursue. Martin Senn CEO, Zurich Financial Services Group, Switzerland In terms of technical breakthroughs, the renewable energy industry generates an inordinate amount of innovation. So, we have stopped trying to be the company that generates all the ideas and instead we focus on the best ideas regardless of where they originate. Instead of always trying to be the inventor, Enel now wants to become the company that is best at commercialising innovations and bringing them to scale – whether those innovations are internal or external to our company. Francesco Starace CEO, Enel Green Power SpA, Italy When we look at products that we provide to an emerging middle class, we don’t believe they want a quality standard below what Americans or Europeans have come to expect. 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, US34   15th Annual Global CEO Survey 2012
  • 35. I am not going to sit in London and try to set the product strategy in Indonesia. It’sdoomed to fail. The business model, the kind of people you get and the culture is very,very intimately linked. I believe that the fact we are a decentralised federal model allowsus to have better quality people and, ultimately, to do better in the marketplace. The holygrail, if you wish, is when you can combine the federal model, which Pru has always hadin its history, with financial discipline, which has been more the story over the last threeor four years: the combination is very powerful. We consume 12% less capital than fouryears ago and generate 90% more profit. That’s the same business but with centralmanagement of capital. Linking those two aspects is important.Tidjane Thiam Group Chief Executive, Prudential Plc, UKIt is worth remembering that 40 million people have recently joined the consumer marketand that Brazil is not seeing a crisis in demand. On the contrary, 45% of people do not yethave an LCD TV, 45% do not yet have a washing machine and 95% of the new middle classdon’t own their own home, most of them in the northeast. As these people enjoy higherliving standards, they will want their own homes, cookers, fridge freezers, LCD TVs, etc.Luiza Helena Trajano Inácio Rodriguez CEO, Magazine Luiza SA, BrazilA lot of the risks you tend to look at on risk maps are less of the traditional, financialrisks, the control risks – albeit I strongly believe that internal audit ought to continue tofocus on those. But there is much more risk around changes in competition or yourconsumers and how you’re trying to accommodate those in your business strategy.Michael White President and CEO, The DIRECTV Group Inc., USWe have many middle management positions taken up by this young generation,and they share the same visions and corporate culture as their colleagues. They are alsocommitted to the paper business. I feel very confident that they will make a significantcontribution to the enterprise, and build promising careers for themselves.Cheung Yan Chairlady, Nine Dragons Paper (Holding) Ltd, ChinaIn order to internationalise, talented individuals from the acquired company have takencharge of some important positions. And importantly, we focus on developing the talentof our long-term employees by providing them with new opportunities. In this way thecompany can reflect the achievements made in terms of the cultivation of staff in newacquisitions and the forging of our own talents. Success depends on the balance betweenthese two aspects.Yang Yuanqing Chairman and CEO, Lenovo, ChinaIn all our companies we’ve had to change radically the way we do business. It’s been anexciting time because the Ayala of today is now, in my opinion, far more relevant to thevast majority of our countrymen than it was 10 to 20 years ago.Jaime Augusto Zobel de Ayala Chairman and CEO, Ayala Corporation,The Philippines 15th Annual Global CEO Survey 2012  35
  • 36. Research methodology and key contacts Note: Not all figures add up to 100% This is the 15th Annual due to rounding of percentages and to the exclusion of ‘neither/nor’ and Global CEO Survey ‘don’t know’ responses. We have followed the same methodology as used in For further information on the survey content, please previous years to ensure we are fairly representing contact: the emerging economies of the world. We have Sophie Lambin conducted interviews with CEOs in 60 countries Director of Global Thought Leadership worldwide, and varied the number of interviews +44 20 7213 3160 sophie.lambin@uk.pwc.com in line with GDP. Suzanne Snowden Global Thought Leadership +44 20 7212 5481In total, we conducted 1,258 interviews 42% of the companies had revenues suzanne.snowden@uk.pwc.comwith CEOs in 60 countries between of US$1 billion and over, and a further22 September and 12 December 2011. 34% had revenues of over US$100 For media enquiries,By region, 440 interviews were million up to US$1 billion. The please contact:conducted in Asia Pacific, 291 in remaining 20% had revenues of up toWestern Europe, 236 in North America, US$100 million. Company ownership is Mike Davies150 in Latin America, 88 in Central recorded as private for 47% of the Director of Global Communications Eastern Europe and 53 in the Middle companies, with the remaining 48% +44 20 7804 2378East Africa. The interviews were listed on at least one stock exchange. mike.davies@uk.pwc.comspread across a range of industries.Further details, by region and industry, To better appreciate what is For enquiries about theare available on request. underpinning the CEOs’ outlook for research methodology, growth we also conducted in-depth please contact:The majority of the interviews were interviews with 37 CEOs from fiveconducted by telephone, with some continents over the fourth quarter Heather Harrison, Market Insightscountry exceptions. Interviews were of 2011. With global recovery still +44 20 7212 8334conducted face-to-face in Africa and the appearing fragile their insights look heather.s.harrison@uk.pwc.comPhilippines, postal surveys were used in at how multinational businesses areJapan and Korea and online surveys adapting their approaches in thesewere completed in most central conditions, including understandingAmerican countries. In addition, how the global economy is changing,members of our global CEO panel were how strategies are changing ininvited to take part online, with 167 response, and how talent strategiesCEOs across the globe providing their in particular are changing.views through this online panel. All the Their interviews are quoted in thisinterviews were conducted in confidence report, and more extensive extractsand on an unattributable basis. can be found on our website at www.pwc.com/ceosurvey whereThe lower threshold for inclusion in you can explore responses by sectorthe top 30 countries was companies and location.with more than 100 employees orrevenues of more than US$10 million. PwC’s extensive network of expertsThis is raised to 500 employees or and specialists has provided itsrevenues of more than US$50 million input into the analysis of the survey.in the top 10 countries. Our experts span many countries and industries.36   15th Annual Global CEO Survey 2012
  • 37. AcknowledgementsThe following individuals and groups in Other contributorsPwC and elsewhere contributed to the Ian Bremmer Poh-Khim Cheahproduction of this report. Miles E. Everson Himani GuptaWe’d like to also thank our Network Leadershipteam – Dennis M. Nally, Robert Moritz, Ian Powell, Publishing andNorbert Winkeljohann and Silas Yang – for their project managementinvaluable insights and support. Natasha Cambell Angela Lang Roxana Opris Core editorial team Heather Harrison Emily Church Suzanne Snowden Sophie Lambin Larry Yu Online and multimedia Elaine Aitken Editorial board Lee Connett Cristina Ampil Ashley Hislop Justine Brown Nick Masters Áine Bryn Blake Neiman Mike Davies Julie Szydlowski Jonathan Grant Nick Jones Design and layout Christopher Michaelson Elizabeth Montgomery Design Media – The Studio Oriana Pound Leyla Yildirim Research and data analysis The research was coordinated by the Advisory group PwC International Survey Unit, located Fouad Alaeddin in Belfast, Northern Ireland. Donald Almeida Jon Andrews Tom Craren Moira Elms Simon Friend Leo Johnson Paula Loop Sridharan Nair Tony Poulter Juan Pujadas Bharti Gupta Ramola Alastair Rimmer Yael Selfin Jan Sturesson David Wu 15th Annual Global CEO Survey 2012  37
  • 38. Capital markets in 2025: The future of equity capital markets (December 2011) Is the focus of www.pwc.com/capitalmarkets2025 capital markets Capital markets in 2025 The future of equity capital markets finance moving A PwC IPO Centre publication, assessing the choices ahead for global companies. eastward?Related reading Will emerging market exchanges have the sophistication and infrastructure to challenge incumbent exchanges in the West? What are the drivers behind the 10Minutes on the CEO agenda. change in capital market dynamics? Delivering results: growth and value These are some of the questions we in a volatile world (January 2012) asked in our survey of senior 10Minutes On the CEO agenda Continued managers from companies across Delivering results: growth and value uncertainty has Continued volatility and uncertainty has taken a toll on CEO confidence in the prospects for their confidence for the upcoming year has been disrupted, particularly by the outlook in Europe, January 2012 the globe. Their responses highlight the challenges facing incumbent business growth in 2012. But despite the many but growth plans are still moving forward. taken a toll on unknowns, companies aren’t on the defensive. in a volatile world. Our 15th Annual Global CEO Survey of 1,258 2) Talent and innovation are key to results. Eight questions for business leaders in 60 countries shows that CEOs The challenges of getting the right people in the right places and continuously renewing are taking deliberate steps to grow in priority every CEO. markets – those they believe are most important innovations were identified as key constraints by for their future.1 They’re mindful of risks and costs, CEOs. One in four CEOs say talent constraints have Highlights but aware of the greater risk of standing still. affected their ability to chase market opportunities, thereby limiting growth potential. And the speed Companies are getting more local about their We’ve drawn on the findings from the survey, and intensity of competition has made it crucial markets in the coming two decades. global growth strategies. and from our related research, to create eight for companies to be continuous innovators. As a CEO confidence questions that we think help to frame the result, talent strategies and innovation capacity are Many are expanding capabilities in their priority challenges and opportunities facing CEOs. markets and innovating locally to better serve two of the biggest areas where CEOs are planning new customers in new segments. Survey responses make clear that over the next changes in the coming year. three years, strategies centre on getting the right Seeking growth outside familiar markets calls global business model for a world where risks 3) Preparing for the consequences of risk. for careful monitoring of ongoing risks, both at and opportunities are often very much local. Reliance on priority markets away from home the local level and by considering their potential impacts on global businesses. will challenge companies to better prepare for the What’s influencing the CEO agenda? consequences of business disruption. Embedding CEOs are also challenged to address talent Long-term business plans are likely to remain the constraints and needs of local communities issues more systematically and strategically consistent in spite of expected volatility in 2012. in strategic plans, and working with stakeholders in their prospects in all their markets. to address them, will become a bigger element of 1) Confidence has been disrupted. risk resilience. Only 15% of CEOs expect the global economy to improve in 2012. Yet 40% are ‘very confident’ of 1 All survey findings are from PwC’s 15th Annual CEO Survey, their revenue growth prospects, down modestly January 2012. Find full survey results and interviews with 37 CEOs at www.pwc.com/ceosurvey from the 48% who agreed last year. So business for business growth in 2012. But What next for the Eurozone? Possible companies aren’t on the defensive. scenarios for 2012 (December 2011) Drawing on findings from our 15th The potential Annual Global CEO Survey, political and 10Minutes on the CEO agenda economic outcomes explores eight critical questions for emerging from the business leaders as they position their Eurozone crisis in companies for long-term growth in 2012 are disparate, their priority markets. although all share a similar theme. Millennials at work: Reshaping A harsh adjustment to a new the workplace (December 2011) fiscal reality will be unavoidable, The millennial www.pwc.com Millennials at work regardless of the path politicians generation, now decide to follow. This report analyses Reshaping the workplace The millennial generation, now a number of scenarios and outlines entering into flooding into employment, will reshape the world of work. Are you ready? employment, will the outcomes of each in terms of the shape the world potential Eurozone inflation and of work for years to come. Attracting GDP impact over the medium term. the best of these millennial workers is critical to the future of your business. In late 2011, PwC surveyed over 4,000 university graduates. This report explores their career aspirations, attitudes about work, and knowledge of new technologies.38   15th Annual Global CEO Survey 2012
  • 39. Securing the talent to succeed: Making Cybercrime: protecting against the Post 3.11 Japan: Global Community’sthe most of international mobility in growing threat. Global Economic Perspective (July 2011)financial services (November 2011) Crime Survey (November 2011) In July 2011, we www.pwc.com/jp There’s a huge www.pwc.com/financialservices PwC’s sixth global www.pwc.com/crimesurvey surveyed 201 global Post 3.11 Japan: Global Community’s Perspective gap between Securing the talent to succeed: Making the most of international economic crime Cybercrime: protecting against the growing threat business leaders from financial services survey examines the our international CEO mobility in financial services Global Economic PwC Global CEO Crime Survey Pulse Survey July 2011 How financial services 3,877 respondents from organisations’ causes and effects of panel who participate organisations can make organisations in 78 sure they have the right countries provide a global people with the right skills picture of economic crime in the right places to realise their goals. November 2011 November 2011 growth aspirations fraud worldwide, in PwC’s Annual and the availability of focusing on the Global CEO survey. talent in key growth growing threat of The aim was to gain locations to make this cybercrime. A decade 20731_GECS11_GlobalReportPOR_v12_131211.indd 1 15/1/2012 17:36 insight into how the tragic events ofpossible. Drawing on interviews with on from our first survey and the fraud the Great East Japan earthquake andsenior HR executives from leading risk continues to rise. Our survey shows Tsunami, and the ensuing crisis at theinternational financial services groups that economic crime is persistent and Fukushima nuclear plant, have affectedfrom around the world, this report that organisations need to be vigilant international business leaders’explores the workforce management and proactive when fighting fraud. confidence in Japan. The report looksissues of matching talent with growth at the strategic and operational lessonsobjectives and how companies can Eye of the storm. Key findings from learned, and what Japan needs to focusaddress these issues as part of their the 2012 Global State of Information on for its future competitiveness.overall business planning. Security Survey® (September 2011) Growth re-imagined: Prospects in According to theThe future redefined: Asia Pacific at an emerging markets drive CEO results of this study,inflection point (November 2011) confidence (January 2011) the majority of As the Knowledge executives across In the last quarter www.pwc.com/ceosurvey Partner for the 2011 industries and of 2010, we set out Growth reimagined Prospects in emerging markets drive CEO confidence APEC CEO Summit, markets worldwide to uncover how CEOs PwC conducted a are confident in the were approaching 14th Annual Global CEO Survey Main report survey of over 300 effectiveness of their growth, during a business executives organisation’s information security time when on the most pressing practices. This report explores the sustainable economic business issues and basis for this confidence, and examines growth appeared far 20462_CEO Survey_Main report_v18_LITHO_SB0302.indd 1 3/2/2011 16:14trends. This survey explores topics where organisations have made from assured. We surveyed 1,201such as barriers to trade, the growth progress in addressing information business leaders in 69 countriesof bi-lateral trade among countries security over the past year. around the globe. The results showedwithin the region, the rising that two years removed from thecompetition for talent, and the Resilient growth: Making the most depths of recession, CEOs’ confidenceimpact of innovations in the field of opportunities away from home in future growth had returned toof technology. (August 2011) nearly pre-crisis levels.Paying Taxes 2012: The global picture CEOs aspiring to www.pwc.com/risk(November 2011) reignite company Resilient growth Making the most of opportunities away growth are looking from home Based on a study www.pwc.com/payingtaxes at fast-growing CEOs today are focusing on fast-growing emerging markets as major engines of growth. But success of tax regimes in in unfamiliar markets requires more deliberate emerging markets alignment of risk monitoring with strategic planning and operational execution. How prepared is your organisation to grow away from home? Paying Taxes 2012 183 economies The global picture and seeking the A fair, sustainable tax system – how can governments create an worldwide, this joint opportunities that annual report from environment that fosters business investment and economic growth? developed markets PwC and the World continue to yield. In this report, Bank enables the PwC outlines the risks to look out comparison of tax for at each stage of the marketsystems from the point of view of lifecycle and how they could impactbusiness. This year’s study shows that potential opportunities.tax reform is continuing around theworld, with an increasing focus onimproving the administrative aspectsof tax systems. 15th Annual Global CEO Survey 2012  39
  • 40. www.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 arecommitted to delivering quality in assurance, tax and advisory services. Tell us what matters 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 theinformation contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy orcompleteness 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 anydecision 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 PricewaterhouseCoopersInternational Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act asagent 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 ofany other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.Printed on FSC 50% recycled material, supporting responsible use of forest resources. Produced at a mill that is certified to the ISO14001 environmental management.

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