15th Global PwC CEO Survey


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PwC recently released its Global CEO Survey, which revealed that 90% of US CEOs look to growing customers in Brazil, China, and India. Where do you think growth will happen in the next 5 years?

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15th Global PwC CEO Survey

  1. 1. 15th Annual Global CEO Survey 2012 o e ce srup e p5/ c o oc p9/ s res e ce p16/ e e c e e /p20 s e p27 / erv ews p30DeliveringresultsGrowth andvalue in avolatile world www.pwc.com/ceosurvey
  2. 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 nancial crisis, we nd CEOs more grounded of strengthening economies, employment about the risks and changing conditions for improvements and breakthrough products growth. The focus on talent and customers from some parts of the world are offset by today is a natural ‘next step’ towards reports on natural disasters, government debt, establishing their organisations in the markets regulatory changes and political turmoil in where they operate and building the trust others. It’s hard to know for sure which way needed for the business of tomorrow. the wind is blowing. That’s why so many CEOs are changing talent While change presents opportunity for some, strategies to improve their ability to attract most business thrives on stability – and the and retain the right people. Skills shortages are fact that this is elusive makes forward plans very real – just 12 of CEOs say they’re nding increasingly hard to develop. No wonder that it easier to hire people in their industries – and con dence is down from what we saw last the constraints are having uanti able impacts year. Yet it’s still at a reasonably high level. on corporate growth. Just as our customers Why? Because despite the uncertainties, are changing rapidly, so are our workforces – the long-term trends that have encouraged and our talent needs are changing, too. corporations to invest in the emerging world, create innovation and develop talent remain I want to thank the more than 1,250 company rmly in place. leaders from 60 countries who shared their thinking with us. The success of the PwC Annual Global CEO Survey – now in its 15th year – is directly attributable to the candid participation of leaders around the world. The demands on their time are many and varied; we greatly appreciate their involvement. And I am particularly grateful to the 38 CEOs who sat down with us near the end of 2011 for more extensive conversations. Their thoughts added invaluable context to our uantitative ndings. Dennis M. Nally Chairman, PricewaterhouseCoopers International2 15th Annual Global CEO Survey 2012
  3. 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. 4. ContentsCon dence disrupted ........................................................ 5Balancing global capabilitiesand local opportunities ..................................................... 9Resilience to global disruptionsand regional risks ............................................................ 16The talent challenge ....................................................... 20What’s next ..................................................................... 27Final thoughts from our CEO interviews ......................... 30Research methodology and key contacts ......................... 36Acknowledgements ......................................................... 37Related reading ............................................................... 384 15th Annual Global CEO Survey 2012
  5. 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 arewill improve this year (see Figure 2). most important for their future. As aIncremental improvements in business result, 0% are ‘very con dent’ inoptimism seen in the PwC 15th Annual prospects for revenue growth in theirGlobal CEO Survey over the past own companies in the next 12 monthstwo years are reversing. In a sign of (see Figure 3).converging economic fortunes, Erdal Karamercancon dence declined in parallel among President and CEOCEOs across all regions, except for the Ec ac ba Group A SMiddle East and Africa. Figure 2: Half of CEOs expect the global economy to decline in 2012 Q: Do you believe the global economy will improve, stay the same, or decline over the next 12 months? in the region – in North Africa and 4% 15% Improve Stay the same 48% Decline 36% 34% Don’t know Base: All respondents (1,258) Source: PwC 15th Annual Global CEO Survey 2012 15th Annual Global CEO Survey 2012 5
  6. 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 con dent in their own capacity to of global risks, CEOs are more generate growth in their business than prepared. They don’t think growthBrian Duperreault, they are in the global economy’s will be easy; but they do believePresident and CEO, growth prospects. they’re more ready for turbulenceMarsh & McLennan Companies Inc. than they were four years ago. At rst glance, this relative optimism seems unfounded. The unfolding The rise in investment and commerce Eurozone crisis alone is creating more to and from emerging economies room for disappointment. So what does – more pronounced than in any period this pattern mean? Should we worry over the past decade – creates vast that the chart suggests we might be market potential. Half of CEOs based facing 2008 all over again, perhaps in developed markets believe that with another crisis precipitating a emerging economies are more massive fall in business activity? important to their company’s future, After all, not everyone can outpace as do 68% of CEOs who are themselves the market. based in emerging markets. The world may be slowed for a time by nancial Possibly, but we don’t think so. In our problems, but this structural shift is view, CEO con dence in business potentially bigger than the institutional growth is holding up because of problems and depressed growth in three important and related trends: developed economies. Gradually rising incomes and economic opportunitiesFigure 3: Short-term confidence has declined – but remains well above the levels seen in 2009 and 2010Q: How confident are you about your company’s prospects for revenue growth over the next 12 months? Yearly comparison. 60% 52% 50% 50 48% 41% 40 40% 30 31% 31% 26% Very confident about company’s 20 prospects for revenue growth 21% over the next 12 months 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Base: All respondents (2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084; 2006 (not asked); 2005=1,324; 2004=1,386; 2003=989)Note: Percentage of CEOs who are very confident about their companies’ prospects for revenue growthSource: PwC 15th Annual Global CEO Survey 20126 15th Annual Global CEO Survey 2012
  7. 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 more infrastructure spending, sustainability closely integrated world comes technologies, demand for health care, together. CEOs believe that the forces education and personal nance of global integration will stay on track: 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 ows will not comePresident and CEO And since the most recent downturn under new constraints.The Norinchukin Bank began, negotiations in the World Trade Organisation’s Doha Round have As a result of these factors, business foundered and a few governments have leaders’ commitment to doing more taken measures to protect domestic business globally is, if anything, industries they consider vital. But that accelerating despite economic, 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 economic 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 nancial 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 M&A) 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. 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 of educational systems everywhere to econ guring o erations to meet keep up with business needs. local market needs: CEOs are simultaneously building local These areas suggest a set of questions 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 (R&D), 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, recon guring 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 am li es: It may feelthose markets which are important to as if disruptions are multiplying asthe future of their business while also their impacts expand across widelyseeking stability and more certainty in dispersed and nely tuned supplytheir domestic markets. chains. During 2011, global businesses had to confront a portfolio ofThis was a message we consistently unrelated high-impact global risks –heard from CEOs, regardless of where from political upheaval and a nuclearthey are based. “We adopted a strategy disaster to massive oods 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 pro t 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 potentialLenovo. “In emerging markets, we consequences they have to prepare forhave primarily adopted an ‘attack’ from a range of risks. Many companiesstrategy. That means we have to pay weren’t directly affected by themore attention to market share at the improbable Fukushima crisis, forbeginning instead of pro t. We would example, or the oods in Thailand.say that it is dif cult to make money if However, supply chain disruption asmarket share is less than 10%.” severe as those two events causedSimilarly Keith McLoughlin, President should be on every company’s radar.and CEO of AB Electrolux pointedout: “Our goal is to maintain marketshare in the mature markets. Thosemarkets generate a lot of earningsso 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. 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, in another. What has changed is the innovate anew, take advantage of local way operations are con gured. India’s talent and brands, reduce risk and Tata is now the largest manufacturer in strengthen supply chains. the UK. Taiwan’s HTC pioneered the use of Google’s Android software. New Over 60 different economies were operational strategies are required to named by CEOs as key overseas 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, for that’s what CEOs are investing to do: example, are propelling CEOs past a build fully edged operations, mindset focused solely on the BRICs.Figure 5: CEOs eye the expanding buying power of emerging marketsPrivate 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 2010Source: Oxford Economics 15th Annual Global CEO Survey 2012 9
  10. 10. Pailin Chuchottaworn The US and Germany were among objective for 2012; 31% plan to buildPresident and CEO, PTT Plc the economies identi ed by the most manufacturing capacity in Russia, and CEOs, and mentioned as economies 30% in China. A similar pattern holds where they are expanding capabilities. for product development; CEOs are Equal numbers of CEOs from seeking to source innovation from developed and emerging markets within their key markets. identi ed the two countries as important. China presents a different The recovery in foreign direct picture of diversi cation: it’s important investment (FDI) in 2010 corroborates to 37% of CEOs based in developed this trend.2 In ows into Brazil and 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 in ows Many of their objectives in the next into mature economies on the other 12 months are similar (see Figure 6). hand, are at – or down sharply in Building manufacturing capacity, for the case of the European Union. example, is important for many CEOs While FDI out ows from Organisation in each of their key markets. China for Economic Cooperation and faces increasing competition as CEOs Development (OECD) member reach further a eld. 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 R&D/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. 11. Hussein HachemCEO Middle East and Africa, Aramex Market opportunity, natural resources, talent ... all of these factors matter when companies decide where and how to locate operations. But tax may be the most signi cant: 44% of CEOs say tax policies are a ‘signi cant factor’ in their decision-making on cross-border locations. This has not gone unnoticed. Nations are increasingly competing on tax to foster in-bound investment. Businesses, innovation and skilled people will ow to countries where tax systems encourage and offer the prospect of economic growth. CEOs are paying close attention to changing tax conditions as a result of high debts and de cits in developed economies: 29% are anticipating they’ll change growth strategies as a result, with 19% globally ‘extremely concerned’ over an increasing tax burden in countries where they operate. 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 and IFC, which measures the ease of paying taxes across 183 economies worldwide. Globally, the total tax rate has fallen by 8.5% since 2006; the time required to comply with taxes declined by more than one day per year (54 hours); and the number of tax payments required dropped by ve.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 rms 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 re ecting classic consolidation and this trend is set to continue. in mature economies: 15% say M&A “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. 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 believeprices. Yet our research suggests that that over 10% of deals that completeacquisitions in emerging markets – result in signi cant problems post-exactly the type of acquisition that completion. In an assessment of tenappears to be more popular today – public cases, we found that post-dealare particularly risky, with lower problems cost the buyer on averagechances of success even for proven 49% of the original investment.deal-makers. In our experiencebetween 50-60% of deals that go into Modify or e ort? How businessesdue diligence in emerging markets fail achieve the right mix between local Yang Yuanqingto complete.4 Dif culty in justifying manufacturing and international Chairman and CEO, Lenovoemerging markets valuations is the supply chains to service local needs ismost common reason that deals fail. another de ning question for growingFor example, in China, high growth in new markets. Strategies naturallyand strong competition from other differ; ‘local’ will be home or intra-foreign bidders, an emerging private regional for some CEOs and a thousandequity industry and domestic rivals miles away for others. But in 2012, thehave 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 M&A 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 M&A Number of deals (100 = 2008) 30% 100 20% 90 10% 80 0 70 2008 2009 2010 2011 2012F % of CEOs anticipating M&A (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 eld: avoiding the pitfalls of the past when doing deals in emerging markets’ (2012).12 15th Annual Global CEO Survey 2012
  13. 13. “On business development, we would innovating locally need to reach scale Michael Whitetraditionally start with a standard in order to stay pro table. 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.years,” said Lázaro Campos, CEO ofSWIFT. “But in India and China you Segmentation in focus. CEOs expectneed to forget the products that you’ve to either modify or create productsgot and start from scratch. Start from for speci c markets to suit localwhat it is they need and build customer preferences. Some fourfrom there.” billion of the world’s population live in 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 thatidenti ed by CEOs, more companies This vast segment represents anare avoiding a simple export model. ‘Emerging Middle’ class in China,Substantial proportions, between 17% India and elsewhere that is promptingand 36%, say they are designing new business leaders to fundamentallyproducts speci cally 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: For each of the countries that you intend to grow your customer base, which of the following three statements best describes your approach to product and service development? (The top 10 countries mentioned by CEOs in ‘Which countries, excluding the one in which you are based, 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. 14. Jaime Augusto Zobel de Ayala Success involves understanding difference for your company or yourChairman and CEO customer segmentation and the professional pro le: customer serviceAyala Corporation dynamics driving it. Category – even and relations and innovation.” price – is not as important as solving a speci c set of consumer problems that CEOs in insurance and asset are not being met with existing management are among those more products. Bajaj, one of India’s leading likely to emphasise innovation in new motorcycle manufacturers, recently business models – often taking launched the Bajaj Boxer, targeted advantage of new technologies. towards the rural consumer. The Boxer Their customers are generating massive provides a functional bene t of higher amounts of information that they cartage and resilience to poorer rural can now capture, and analysis of this roads, features that are highly relevant data is propelling companies towards for the rural markets. The Boxer was models based on an entirely digital 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 bene ts, and has change how an underwriter createsOwens Corning been a success story for Bajaj Auto.5 policies for customers, for example. nnovating on multi le fronts CEOs in communications, and media Improving the effectiveness of and entertainment, two industries innovation continues to be a major facing swiftly changing dynamics, strategic priority. Three out of four are the most active on all fronts, CEOs plan to change R&D and whether refocusing innovation efforts innovation capacity in 2012, of for existing products and services which 24% expect ‘major change’. or for entirely new products in new models (see Figure 9). But competitive This is partly related to a widening intensity continues to rise in virtually de nition 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 is if their business cannot quickly increasingly crossing industry create new products or services that boundaries, as Francisco González, customers will buy, they will not Chairman and CEO of Banco Bilbao survive. However, innovation does Vizcaya Argentaria (BBVA) SA, not just mean end product or service pointed out: “Our future competitors changes – it sometimes now includes will not be traditional banks but large taking costs out of processes or forming technology companies.” 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 nd better ways to innovate pharmaceutical and life sciences, across many dimensions.6 chemicals and technology industries expect ‘major change’ to R&D 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 R&D productivity are leaving Surveys. This is surely a re ection 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 R&D 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, ‘Pro table growth for the next 4 billion’ (forthcoming 2012).6 PwC, ‘Caught in the cross re’, 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. 15. While primary R&D is still largely More innovations created in emerging Antonio Rios Amorimconducted in home markets, businesses economies are owing 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 thingsmarkets. Spending by foreign af liates that’s changed globally, particularly inof US multinationals on R&D in foreign our company, is where innovation takescountries, for example, rose to 15.6% place and where it migrates to,” saidof total multinational R&D spending Brian Duperreault, President and CEOin 2009 from 12.5% in 1999, according Marsh & McLennan Companies Inc.to a recent report by the US Bureau “Classically, innovation resided inof Economic Analysis.8 The shift in the developed world. We took ideasresearch 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 scienti c and technology innovative ideas will come out of thecapabilities in foreign countries. “It will developing world, where the action is,take us another ve 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: To what degree are you changing the emphasis of your company’s overall innovation portfolio in the following areas? 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. 16. Resilience to global disruptionsand regional risksLuiza Helena Trajano CEOs report that they are less likely There’s greater awareness of speci cInácio 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 be than on other areas of priority, ampli ed into global ones. Yet the from strategies for talent to speed with which risk events unfold organisational structure. Signi cant – and the extent to which their impacts 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. nancially impacted by the sovereignBoard, Wolters Kluwer debt crisis in Europe, another 29% cited Dimitrios Papalexopoulos, CEO an impact from the earthquake and of TITAN Cement SA, Greece, tsunami in Japan, and 21% cited the summarised the changes taking place political upheaval in the Middle East. in risk approaches since 2008 within many businesses: “In the past, our risk Key operational moves have already 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 Paci c focused on improvingChairman and CEO, MOL Plc couple of years have shown, that has their company’s ability to react more not been the case. So we have now quickly to a supply chain shock.9 built into our risk management the They sought new locations for their possibility of more extreme conditions operations and reinforced buildings. occurring. And our board of directors Changes to supply logistics and 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 Corporation9 ‘APEC: The future rede ned’, PwC survey of business leaders in 21 Asia Paci c 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. 17. Rüdiger Grube Chairman and CEO, Deutsche Bahn AGCompanies are also learning that estern uro e:preparedness for uncertainty is about Outlook for taxes, nancial marketfocusing 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 scal crises.consequences, discussions occur across It naturally follows, then, that 70%people involved in strategy, operations, believe that ensuring stability in therisk management, crisis management nancial sector should be a top priorityand business continuity management. of their governments. And stabilityBy contrast, a focus on assessing the includes calls for consistency in newlikelihood of particular risks tends to regulations for the nancial sector.remain theoretical and the domain ofrisk managers rather than the functions entral and astern uro e: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 CEOsrisks. The risk of global economic based there much more likely to reportvolatility is a common threat, as is the concerns than global average. As withcontinued uncertainty in markets as a CEOs in Asia Paci c, concerns relatedresult of depressed growth and rising to adjusting to rapidly changing scal debts and de cits in many consumer demands are more prevalent.developed nations: a concern cited byover half of CEOs regardless of where North America:they are based. “We are now into the Constrained state spending, skillsfourth 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 de cits are a key Laércio José de Lucena Cosentinothey con dent that they soon will. threat, yet they are less concerned CEO, TOTVs SACompare that with the Asian economic about an increasing tax burden andcrisis that began in 1997. By 2001 or capital market instability. They’re also2002, most Asian countries had repaid among the least concerned abouttheir debts to the IMF and Japan,” in ation and protectionism.said Pailin Chuchottaworn, Presidentand CEO of PTT Plc, Thailand.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 businessoperating globally has to haveoperational strategies that encompassand respond to these very different risks. 15th Annual Global CEO Survey 2012 17
  18. 18. Douglas R. Oberhelman Asia aci c: Middle East and Africa:Chairman and CEO, Caterpillar Inc. Currency volatility, energy costs. Skills shortages and corruption. Currency uctuations are among the The availability of key skills stands out top economic and policy threats for as an acute concern in the Middle East, CEOs in Asia, and CEOs there are while CEOs in Africa – the most more concerned about in ation than optimistic region in terms of their most others. Skills shortages, rising growth prospects in 2012 – have among tax burdens and higher energy costs the highest concern levels across a loom as potential constraints on range of potential threats, notably expansion plans. over-regulation and of cial corruption. Latin America: Underdeveloped infrastructures. Infrastructure looms larger for CEOs in Latin America as a growth 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. 19. Tom AlbaneseChief Executive, Rio Tinto As CEOs seek growth outside familiar markets, they must adapt their rms’ risk practices. Economic, social and political conditions vary by country, and a more subtle understanding of how these factors will shape the business environment is critical to spotting new opportunities and managing unexpected risks. Many political, regulatory and tax risks are predictable. In developing countries, market-moving decisions are often made by government of cials with identi able political motivations or known limitations on their authority. One European rm operating in Latin America acted on an early warning of political deterioration and repatriated the rm’s equity, shifting to local nancing prior to currency devaluation. In a win/win outcome, the move allowed the company to avoid losses while maintaining operations in the country. 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 market demand is anticipated. As they seek growth in new markets, many executives focus on market- entry risks, but underestimate the risks that come with sustained marketenvironment where we can do presence – guring that they have good people on the ground and a good lay of the land. But just as with the political, economic and social 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 pro t 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 of cial 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 rm 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 rms. The investment greatly increased its corporate pro le 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 re ned understanding of political, social and economic trends to spot the growth opportunities of tomorrow. 15th Annual Global CEO Survey 2012 19