A complex world: the Global CEO Survey

1 March 2006

Globalisation and complexity: inevitable forces in a changing economy. That's the message from the CEOs who contributed their voices to PricewaterhouseCoopers' 9th Annual Global CEO Survey. In this exclusive extract, Chief Executive Officer brings you the key findings.

No one ever said that going global is easy. But it's well worth the effort, according to more than 1,400 CEOs who participated in PricewaterhouseCoopers' 9th Annual Global CEO Survey, which was recently released at the World Economic Forum's 2006 Annual Meeting in Davos.

In fact, 58% of the CEOs say that globalisation will have a positive impact on their organisations in the next year, and that number jumps five percentage points to 63% when CEOs are asked about globalisation over the next three years (see Figure 1).

"We need to create simple and effective measures for recognising, evaluating and managing the complexity that appears in our organisation."

Increasingly, globalisation is about the quest for new customers and new markets, rather than simply expanding operations globally to cut costs via reduced manufacturing and labour costs. While CEOs say they have growth and expansion on their mind, they also say that globalisation has never been this difficult – the result of a web of regulation – over-regulation actually – trade barriers / protectionism, currency policy, social issues, political instability and other factors that often get in their way.

It is this connection – between globalisation and complexity – that is the essence of this year's Global CEO Survey.

It also frames one of the big challenges facing CEOs today: successfully managing complexity when it adds value and reducing it when it does not.


There's no stopping globalisation. Across the board and without regard to industry focus, companies both large and small, in the developed world and in developing countries, are vigorously pursuing globalisation strategies to achieve their business objectives. Even over-regulation, perceived by the majority of CEOs responding to this survey as the greatest challenge to globalisation, cannot quell the urge to globalise.

Is globalisation exclusively the province of large OECD companies that achieve their objectives by unfairly exploiting their emerging market counterparts? Is globalisation primarily a cost-cutting measure that eliminates jobs and drains resources from the developed world?

Casual observers and conventional thinkers might agree, at least to a certain extent. However, a different picture is painted by more than 1,400 CEOs who we surveyed. From their responses, it is clear that companies in emerging-market economies are full participants in, rather than victims of, globalisation.

It is also clear that cost cutting is not the primary driver of globalisation. Overwhelmingly, the CEOs participating in this survey state that they are globalising primarily to attract new customers and to service existing customers rather than just to cut costs. In other words, from their perspective, globalisation is a positive force driven by a desire to achieve positive objectives.


This year's Global CEO Survey also focuses on four emerging economies as drivers of globalisation: Brazil, Russia, India and China, the so-called BRICs economies.

"Europe is on the verge of losing its competitiveness."

Why? China is already a major player in world trade, and India is also becoming increasingly significant in such areas as computer software and back-office processing. Although smaller than either China or India, both Brazil and Russia have experienced accelerating growth in recent years.

More importantly, these economies are poised for significant long-term growth. As Goldman Sachs, the originator of the acronym, notes, 'If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025, they could account for over half the size of the G6. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050.'

These findings are mirrored by our own recent research, which suggests that what we call the E7 economies (the BRICs plus three other large, fast-growing emerging economies: Indonesia, Mexico and Turkey) could be around 25% to 75% larger than the current G7 by 2050.


Clearly, the BRICs economies are experiencing the benefits of globalisation. The explosive growth predicted for these economies is enabling them to engage in the same globalising activities as their OECD peers. No longer perceived as underdogs, they are rapidly becoming fully fledged global competitors.

The benefits of this symbiosis between the OECD and emerging economies perhaps explain why globalisation has become such an irresistible force, a phenomenon of which all companies in emerging economies should take note. These benefits also provide a compelling reason why the challenges to globalisation noted by the CEOs in this survey should be taken very seriously.

Optimism notwithstanding, the CEOs understand that the road to globalisation is fraught with obstacles, though not necessarily the obstacles that conventional thinking would suggest. Respondents identify over-regulation as the chief challenge to globalisation (64%), with terrorism and the anti-globalisation movement, both of which dominate the headlines, near the bottom at 48% and 21%, respectively.


CEOs across the board see great promise in the BRICs economies and are aggressively pursuing the opportunities they represent. In fact, 71% of the CEOs plan to do business in at least one of the BRICs economies over the next three years.

'Some governments preach globalization and then vigorously defend their own turf' - CEO, Australia

Where are CEOs investing the most resources? Not surprisingly, given the much greater size of its economy and its recent very rapid growth, China significantly leads the other BRICs (55%) as a place in which to do business over the next three years. India (36%) and Brazil (33%) are next, with Russia (27%) trailing slightly behind.

China also represents the most significant market opportunity (78%), followed by India (64%), Russia (48%) and Brazil (46%).

At first glance, China's lead appears formidable. However, the data indicates that China's lead notwithstanding, the other BRICs are very much in the running. In addition, while China is the leading economy among the BRICs, some commentators believe that because of a rapidly ageing population, China's advantage over emerging economies with much younger populations, such as India and Brazil, eventually may lessen.


What is driving this nearly universal move into the BRICs? Contrary to conventional thinking, non-BRICs CEOs are not investing in the BRICs primarily to reduce costs. Overwhelmingly, their number one motivation is to access new customers and to service existing customers (see Figure 3).

Of interest is the fact that China and Russia, once viewed as economies fraught with risk, are now seen as huge opportunities. At some point, a paradigm shift has taken place.

This could mean either that the perceived risk with regard to these economies has lessened or that the advantages in terms of new markets and customers outweigh the risks.


China dominates in terms of being perceived as a source of new competitors, followed, though not closely, by India, Brazil and Russia. Interestingly, 27% of CEOs expect competitors to emerge from other OECD countries.

In terms of the competitive advantages of doing business in the BRICs economies, the BRICs themselves provide an interesting perspective. In general, the BRICs view quality and productivity as their main competitive advantage, followed somewhat closely by political and institutional stability (see Figure 4).


With globalisation comes increased complexity. Complexity can be good when it involves commercial activities that add value. It can also be bad when it involves geopolitical forces that are beyond the CEO's control. Respondents to the survey understand the difference but are unsure of how best to manage complexity when it is positive and to reduce complexity when it is not.

The CEOs confirmed what we suspected: complexity is increasing, and the overwhelming majority of CEOs (73%) agree that complexity is not going away – and that increased complexity is an inevitable aspect of business today.

'We are concerned about the entrance of foreign competitors through mergers and acquisitions' – CEO, Chile

As the CEOs note, the causes of increased complexity are many and varied. Some, such as commercial activities, can be managed and add value. Others, such as geopolitical forces, can only be influenced. Commercial activities include launching new products and services, extending operations to new territories, forming strategic alliances and outsourcing functions to third parties (see Figure 5).

Nearly all CEOs acknowledge that commercial activities increase complexity, though to varying degrees. Topping the list of commercial activities that most increase the level of complexity are extending operations to new territories (65%), engaging in mergers and acquisitions (65%) and launching new products and/or services (58%). Outsourcing functions to third parties is perceived as causing the least increase in complexity (36%) – see Figure 6.


While acknowledging that commercial activities increase complexity, the CEOs largely maintain that the advantages of engaging in those activities strongly outweigh the disadvantages, particularly with regard to launching new products and / or services (88%) and to extending operations to new territories (83%). In fact, even the most complexity-causing activities (doing mergers and acquisitions, extending operations to new territories, and launching new products and services) are perceived as having advantages that far outweigh the disadvantages.

In addition to commercial activities, respondents view geopolitical forces as having increased the level of complexity to a medium or large extent over the past three years. Chief among them are national and international laws and regulations (62%), actions by competitors (62%) and changing customer requirements (61%). Changing workforce attitudes and expectations, and language and cultural differences are perceived as least likely to cause increased complexity (41% and 33%, respectively) – see Figure 7.

The CEOs' high level of interest in managing complexity is also evident in the clear views they express regarding how best to accomplish this task. We selected seven capabilities for managing complexity. When asked to rank the importance of these seven capabilities for complexity management, the CEOs responded with high numbers for each.

The CEOs ranked highly capable people as the single most important capability, with 55% of respondents rating it as extremely important. Even regarding the lowest ranked capabilities – the ability to measure complexity and having a corporate-wide framework for managing leading edge complexity – 78% and 76%, respectively, believe them to be extremely important, very important or important.

'Most CEOs perceive globalisation as a positive endeavour and are actively engaged in global expansion.'


In reviewing the data, we were struck by how few CEOs rate their organisation's capabilities for managing complexity as 'very good', even in areas the CEOs ranked as being extremely important.

In fact, all seven capabilities show double-digit gaps between how important the CEOs believe a capability to be and how they evaluate their organisation's performance in that area (see Figure 9).

The lesson is clear: generally, the more important the capability, the greater the gap. To manage complexity most effectively, CEOs will need to close the gaps within those capabilities of complexity nmanagement they rank as being most important.


Most CEOs perceive globalisation as a positive endeavour and are actively engaged in global expansion. However, they are not doing so with blinkers on. The CEOs recognise that there are factors that threaten the progress of globalisation, but acknowledge that facing those threats is worth the effort.

The overwhelming majority of CEOs are optimistic that globalisation will have a positive effect on their companies over the next three years. And that positive effect, particularly with regard to the BRICs economies, is related to accessing new markets rather than low-cost labour.

By inference, the CEOs recognise that globalization contributes to both the commercial and the geopolitical causes of complexity. In one way or another, globalisation relates to nearly all of the sources of complexity which we asked respondents to the survey about.

Do the CEOs understand the importance of effectively managing complexity? Yes. But they are not as effective as they can be in translating that understanding into meaningful action. Will such action eliminate complexity? Definitely not. And the CEOs understand that attempting to eliminate complexity sometimes misses the point. When complexity is associated with value-creating activities, it should be managed as effectively as possible. Only when complexity destroys value should it be reduced or eliminated.

The winners in a complex global economy will be those companies whose leaders recognise the nature of the complexity their organisations are facing and then work to manage it successfully.

Figure 1: Impact of Globalisation.
Figure 2: Globalisation Challenges.
Figure 3: Business Objectives.
Figure 4: Competitive Advantage.
Figure 5: Creating Value.
Figure 6: Increased Complexity.
Figure 7: Geopolitical and Market Drivers of Complexity.
Figure 8: Managing Complexity.
Figure 9: Capabilities Gaps.