A global view

PricewaterhouseCoopers' tenth Annual Global CEO Survey provides a clear and insightful picture of the rapid and fundamental changes that business leaders from around the world see shaping their businesses.

It is clear from the survey that globalisation is a journey that is far from over and, for many CEOs, only just beginning.

The survey addresses the key issues that CEOs are confronting in their efforts to turn their firms into truly global operations. Accordingly, the survey is divided into four sections:

• Assessing the global landscape
• Growing abroad: East meets West
• From cost to collaboration: redefining the value chain
• Defining the role of business leaders in society: a business imperative

In addition to providing analysis of the views of nearly 1,100 CEOs, each section includes the personal views of individual CEOs who provide their perspective on how their organisations are meeting the challenges and addressing the opportunities of a world economy in transition.

ASSESSING THE GLOBAL LANDSCAPE

The PwC CEO survey confirmed a high degree of confidence from business leaders, with optimism about revenue growth reaching a new high. Nearly half of all respondents are more confident about the prospects for their business than they were a year ago, and 44% are very confident. North American CEOs are more optimistic than their peers in other locations.

How realistic is this high level of confidence? PricewaterhouseCoopers analysed the responses to identify the basis for optimism and to assess how specific actions and expectations aligned with the high levels of confidence. This analysis meant looking at three main areas:

• How growth will be financed
• The specific risks faced by management
• The sources of future growth

CEOs are taking a cautious approach to financing growth, with nearly 80% saying that they will rely on cash flow, with only 28% looking to the debt capital markets and less than a fifth seeking to finance growth through equity.

This conservative approach is not as pronounced, however, when it comes to looking at the key risks that companies face. In spite of the extremely high public profile accorded to major external threats, such as terrorism, climate change and pandemics, many other risk factors, such as the availability of skilled resources, over regulation and low-cost competition, are still seen as significantly higher risks to growth.

Does this mean that CEOs are burying their heads in the sand? The survey suggests a complex picture. Though these global threats may be seen as improbable and remote by some, a more likely explanation of the results is that rather than wilfully ignoring these potential threats, many CEOs see these risks as simply too large for any individual company to address.

However, the survey also indicates that emerging new forms of partnership and collaboration between the public and private sectors are beginning to address these issues in a new way. A small, but significant, proportion of respondents (12%) are already heavily involved in such innovative initiatives and a further 64% cite some moderate or limited involvement. PwC believes that this is the beginning of a trend that warrants more attention in future surveys.

The overall optimism expressed in the survey is tempered by other considerations that together present a realistic picture of the challenges businesses face. While the CEOs are optimistic, they are aware of risks and are willing to take them as they strive to continue growing and to remain competitive.

In fact, sources of growth most frequently cited in the survey include penetration of new markets, M&A and technical innovation – all areas with higher levels of risk than less venturesome channels, such as better penetration of existing markets or through improved operations.

So while CEOs are confident that significant growth remains available, achieving that growth may not be straightforward.

GROWING ABROAD: EAST MEETS WEST

With nearly half (47%) of all CEOs engaged in M&A activity last year, the lull in the market in the first few years of the decade has been replaced with significantly increased activity. Of course, there are some regional variations in the responses: Western Europe is the most active theatre for deals (54%), with Asia Pacific (44%) and North America (42%) following.

Regardless of geography, however, the majority of CEOs (65%) cite the same principal motivation for pursuing transactions: access to new markets. Other motivations, such as obtaining new products or reducing competition, are seen as significantly less important.

In addition to the desire to expand into new markets, the survey also shows that the proximity of target markets is a key consideration. The majority of deals are taking place relatively close to home. This is partly explained by examining the obstacles that CEOs perceive in the pursuit of their global ambitions.

Nearly half of all CEOs surveyed indicate that cultural barriers are the main hindrance to achieving successful deals. This perception is most pronounced in developed economy CEOs. CEOs in emerging economies are likely to be less concerned at the problems of overcoming differences in attitude and approach.

The emphasis on culture indicates that implementing deals, rather than simply executing transactions, is an increasingly critical competence. This involves far more than delivering on financial drivers, but also encompasses the successful stewardship of people, knowledge and collaboration in the post-merger environment. These factors are increasingly seen as decisive to achieving the full value available from M&A activity, and CEOs are increasingly aware of them.

FROM COST TO COLLABORATION: REDEFINING THE VALUE CHAIN

Outsourcing and sourcing may have started life primarily as tactics for achieving lower cost of operations, but the global supply chain picture today is infinitely more nuanced and complex in its strategic applications.

In fact, only 15% of CEOs cite cost as the major factor underpinning their relationship with suppliers. The survey shows that collaboration to achieve competitive advantage is now a strategic imperative. This applies across nearly all economies – developed and emerging.

The shift towards collaboration and away from merely cost considerations is also changing the perception of what areas of the business are suitable for external suppliers.

While it would be premature to suggest that no areas are considered off-limits, the survey shows a number of CEOs willing to outsource activities that were previously considered too important to be taken outside the company. These include outsourcing R&D (12%), human resources (11%), and those even prepared to outsource sales and marketing (9%).

DEFINING THE ROLE OF BUSINESS LEADERS IN SOCIETY: A BUSINESS IMPERATIVE

The survey shows that CEOs believe their companies have to become increasingly global to meet shareholder expectations. These same business leaders are also engaged in trying to understand and manage the impact of their global aspirations on society and on the communities in which they operate.

While the overwhelming majority (73%) firmly believe that globalisation is beneficial for both developed and developing markets, this view is accompanied by concerns about the extent to which those benefits are evenly distributed.

More than half of CEOs recognise that the short-term impact of globalisation may have some adverse consequences. CEOs of companies in emerging markets (42%) are more likely to perceive globalisation as benefiting developed, more than emerging, economies, a view shared by only 32% of their counterparts in developed economies.

There is a clear need for global companies to make sure that they contribute to the local economies in which they are operating, rather than simply taking advantage of lower cost labour and other resources.

The question of how companies can achieve that balance – and the style and direction of leadership that CEOs need to display in pursuing it – is critical. The message from survey respondents is that equilibrium needs to be achieved between sustainable economic returns and the needs of employees and of society.

Nearly a quarter of CEOs believe that their legacies will focus on developing and nurturing their employees' talents and skills through training and improving the work environment.

They also recognise the importance of being perceived as good corporate citizens, a perception they view as an aid to attracting global talent.

However, these aims indicate a significant shift in mindset among CEOs, away from one that focuses solely on the bottom line. All these changes point to a new set of values and approaches that are in line with globalisation's inexorable sweep.

The survey indicates that the global winners of tomorrow are those that can change their outlook from local to global, in the true sense, and learn to operate in a world now subject to far more influences from a wider array of sources than ever before.

The full findings of PricewaterhouseCoopers' tenth Annual CEO Survey are available at www.pwc.com/ceosurvey