03/27/2015

Is India ready for a marketplace without boundaries?

Bharti-gupta-ramolaAuthor: Bharti Gupta Ramola, Markets Leader, PwC India

The India summary of our 18th Annual Global CEO Survey has thrown up some interesting and surprising results. CEOs in India were the most positive about their business growth prospects and also the most bullish about prospects for the global economy, when compared to their global peers. A whopping 84% of CEOs in India said there were more opportunities today than there were three years ago, against 41% who saw more threats. They also seemed less bothered about potential industry disruptions coming their way in the next few years.

India CEOs confidence
While the positive sentiment about business growth is understandable, the bullishness about the global economy raises a question. Are CEOs in India super excited because of some positive developments in the global economy and a pro-reform government in India? Or are they locally focused and isolated and not so connected with the real issues confronting the global economy? Similarly, the gap between the opportunity and threat perception and relatively low concern about disruptions raises the question about the preparedness of CEOs in India. However, at least one CEO we spoke with about these results thought that perhaps CEOs in India are seeing disruptions as opportunities rather than concerns.

No doubt India is on an upswing, with aspirational double-digit growth that the business community can’t wait to see. PwC's new report, The World in 2050: Will the shift in global economic power continue? projects that India will be the second-largest economy in 2050 in terms of purchasing power parity (PPP). However, there are two prerequisites for this: firstly, structural and institutional reforms and secondly, large-scale investments. There’s also the big question of whether India has, or can build, the capabilities needed to compete in an increasingly borderless market.

In the survey, CEOs in India saw inadequate basic infrastructure and bribery and corruption as the top threats to business growth, and availability of key skills was a key common concern shared with their global peers.

Global CEOs have reinstated their faith in India, which ranked sixth this year in terms of the most important markets for CEOs’ overseas growth prospects - the same as last year. With the IMF and World Bank also showing confidence in India, all eyes are on government action to improve the environment for doing business in the country. Yet, as our report, The Future of India: the Winning Leap, points out, corporations in India have much to do to build the capabilities needed to create innovative solutions that address the needs of India’s growing market in a resource-efficient way. Only then can India progress on an unprecedented growth trajectory and take that winning leap.        

 

 

Bharti Gupta Ramola is the Markets Leader for PwC India and a member of the India Leadership Team. Prior to her current role, she was the Deals Leader for PwC India. Bharti has also led the Infrastructure, Government & Utilities & Energy Sector Advisory for PwC India and was a member of PwC's Global Diversity and Inclusion Council. In her personal capacity, Bharti serves on the boards of BASIX and Srijan, two of India’s leading organisations promoting livelihood development.  She has been Chair of the Board of PRADAN.

03/25/2015

To succeed in China’s “new normal”, you’ve got to have talent.

Dennis Nally Jan15 Author: Dennis Nally, Chairman, PwC International Ltd.

After a decade of plain sailing for China’s economy, CEOs have recently had to navigate a decidedly more complicated business landscape. 

Perhaps it’s not surprising then that, in our Annual Global CEO Survey this year, the confidence of China’s CEOs in their business growth prospects fell below the global average for the first time in its 18-year history. In fact, nearly 60% of them believe there are more threats to the growth of their company today than there were three years ago. This erosion of confidence in China’s economy is shared by global CEOs: for the first time in five years, the US has overtaken China as the most important market for overseas growth.

PwC's 18th Annual Global CEO Survey - Fig 3

The challenge for China’s business leaders is to establish a platform for success and growth in an economic climate that could well be the “new normal”. The good news for China’s CEOs is that a strong majority (71%) believe there are more growth opportunities for their company today than there were three years ago. Also, more than half are planning to increase headcount in the next 12 months.

To make sure growth is sustainable in a global economy being transformed by digital innovation, new business models and changing consumer behaviour, companies will have to embrace new technology and be open to new ways of collaborating - both with traditional business allies and also with unconventional partners, be it academia, or even consumers.

In many ways, to succeed in this new economy requires a new digitally inventive and flexible mindset. That’s why we believe nurturing and holding onto a diverse mix of talent is one of the most important leadership qualities a CEO can command nowadays.

In this year’s CEO Survey, nine out of 10 CEOs in China said they were concerned about the availability of key skills. On the surface, the future looks bright. After all, by 2020, 40% of Chinese 18 to 22-year-olds will have a college education. The question CEOs need to ask is, “Do I have a corporate strategy and culture that can bring the best out of and retain the Millennial generation?"

Half the China CEOs we interviewed said they already had a strategy in place to promote diversity and inclusiveness - and an overwhelming majority agreed that having such a strategy will help attract new talent to the business.

In the global, increasingly mobile and technology-driven 21st century economy, you’ve got to have talent.

Read more in the newly released China summary of PwC's 18th Annual Global CEO Survey.

 

 

Dennis Nally leads the global network of PwC firms. He has extensive experience serving large multinational clients in a variety of industries, principally focusing on technology and life sciences. Dennis is also a frequent speaker and guest lecturer on issues affecting the professional services profession and the global capital markets. Read Dennis Nally's full biography.

03/23/2015

Five traits that might indicate you’re a resilience builder

Dennis-chesleyAuthor: Dennis Chesley, Global Risk Consulting Leader

More risk or more opportunity, what do you see in the near future? When we asked 1,322 CEOs this question as part of PwC’s 18th  Annual Global CEO Survey this year, the response showed that business leaders are almost evenly split. 59% see greater risk this year than they did three years ago, while 61% of CEOs believe there are more opportunities now than there were three years ago.

 

Ceosurvey-risk-Figure_2

 

Of course, the percentages don’t add up to 100%, and that’s because there’s a unique group of CEOs in the middle - thirty percent - who believe that there are both more opportunities and threats. We were intrigued by this group of 30%. How do they prepare their organisations and strategies for both opportunities and threats? So we dug deeper into the data. What we found was an optimistic group of business leaders who appear to be actively seeking positive disruption. We call them ‘resilience builders’ because their beliefs suggest their organisations are equipped to act on emerging opportunities – even in the most daunting circumstances.

Resilience is an organisation’s capacity to anticipate and react to change, not only to survive, but also to evolve and seize advantage. To survive and evolve today, companies need do more than simply innovate incrementally or tweak their balance sheets; they need to prepare their entire organisations to take advantage of big shifts. And this is what resilience builders seem to understand too, so as to be able to act on emerging opportunities before competitors.

We know that resilience builders are more likely to: 

  1. Anticipate competition from outside of their industry: 66% of resilience builders versus a global average 56%.
  2. Enter a new industry themselves: 60% of resilience builders versus a global average 54% say that they have entered, or considered entering, a new industry in the past three years. 
  3. See a range of trends as being more disruptive to their industries than the global average, including  changes in distributions channels, in industry regulations, in customer behaviours, and in core technologies, as well as increasing competition.
  4. Pay attention to societal concerns, such as unemployment (54% vs global average 34%) and social instability (68% vs 61% global average).
  5. Collaborate with non-traditional partners. 52% versus a global average of 44% have or are considering collaborating with start-ups, for example.

Resilience builders have a heightened sense of risk, but this risk mindset isn’t a hindrance; rather, it’s an indication of how they intend to grow. As they plan for growth, they’ve changed their risk management functions not only to mitigate value destruction, but also drive value creation.

What do you think -  sound like you? Are you actively fostering the critical business capability of resilience within your organisation? Do you know where to start? Contact me if you'd like to investigate further, and take a look at the full article and infographic on Resilience Builders here.

 

 

Dennis Chesley is a Principal in PwC's Advisory practice with experience across a broad range of public and private entities within global operations. Dennis is the Global Leader for Risk Consulting Services and a frequent speaker and author on topics related to strategy, risk, compliance and control. Read more

 

03/16/2015

Keeping talent diversity in mind

Mitch Cohen PwC Author: Mitch Cohen, Vice Chairman, PwC US

CEOs today are well aware that a diversity of talent is critical for competitiveness, according to PwC’s 18th Annual Global CEO Survey.  81% of survey participants say their organisations are now looking for a much broader range of skills than in the past. 78% say their business always uses multiple channels to recruit, while 71% actively search for talent in different geographies, industries, and demographic segments. Adapting talent is also considered a must: 81% of respondents say that their business always looks to equip employees with new skills. Perhaps most importantly, of the CEOs whose companies have a formal diversity and inclusiveness strategy, 85% think it’s improved the bottom line.

CEO-Survey-Web_Diversity-SOCIAL-IMAGE 3

Digging deeper

These numbers are, on the face of it, pretty compelling. But if we dig a little deeper, we can see something else going on.  The large majority of CEOs with formal talent strategies already in place - more than 90% - said they’re addressing dimensions that are, in one way or another, observable: gender, knowledge/skills/experience, ethnicity/nationality, age, disability, and religion.

By contrast, only a small number are addressing dimensions that are unobservable. Less than 6% said their diversity and inclusiveness strategy specifically addresses people who have different personal qualities/mindsets (including adaptability).  

 

PwC's 18th Annual Global CEO Survey - Fig 18
However you look at it, very few CEOs are looking to enhance dimensions of diversity that fall outside conventional modes. I find this especially intriguing in light of the research John Sviokla and I conducted on 120 self-made billionaires over the past couple of years.


Understanding the ‘Producer’ mindset

According to our analysis, extreme entrepreneurs take an approach to building a business that’s quite different from what you typically see nowadays. As we explain in our new book, The Self-Made Billionaire Effect, they exhibit what we call the ‘Producer’ mindset, as opposed to the ‘Performer’ mindset that’s usually encouraged and promoted in most companies.

Specifically, Producers display five habits of mind - empathetic imagination, patient urgency, inventive execution, a relative view of risk, and a partnership approach to leadership. Time and time again, these entrepreneurs have drawn on these habits of mind to create blockbuster offerings, often in highly competitive industries. Howard Schultz of Starbucks, Sara Blakely of Spanx, and Joe Mansueto of Morningstar are just three examples.


Making mindset top of mind

Diversifying the mindset of your talent pool in this way begins with identifying Producers already in your organisation, as well as bringing them in from the outside through catalyst hires, partnerships, and M&A.  At PwC, we’ve had a lot of success with catalyst hires - conducting interviews with the express purpose of identifying individuals who exhibit those five habits of mind.

Raising the number of Producers in your organisation is only the first step. It’s also important to determine which tasks require a Producer mindset and deploy your Producers accordingly.  In some cases, the project will require a leadership partnership - not only a Producer, but a Performer with complementary skills.

Evaluations of a Producer’s performance should also be conducted with this mindset in mind. The success of the project is only one consideration. To what degree did the individual exhibit empathetic imagination and inventive execution?  What attitude was displayed to risk?  If the project failed, how did he or she respond?

We’re certainly not suggesting that companies in pursuit of massive value creation should stop looking for people from different backgrounds or experience: there’s little doubt that these dimensions bring diversity of thought to an organisation. But they’re no longer sufficient. Companies need to expand their notion of diversity and consider a person’s mindset.

As the extreme success of self-made billionaires would suggest, a person’s mindset is an important consideration for companies looking to disrupt their industries. In today’s constantly shifting business landscape, it’s something no company can afford to ignore.

 


During his 34 years at the firm, Mitch has served a number of Fortune 500 clients; he's also held various leadership roles, helping to guide the firm's strategy as well as its initiatives around innovation and corporate responsibility. Mitch serves on the Advisory Board for Penn State's Smeal College of Business. He also serves on the Advisory Board of DonorsChoose. 

03/10/2015

Friend, enemy or frenemy? Welcome to the era of agile collaboration

Chris_LedererAuthor: Chris Lederer, Principal, PwC US

In today’s increasingly interconnected world, the entertainment and media CEOs I speak to increasingly see collaboration as a route to innovation. And they aren’t alone: in PwC’s 18th Annual Global CEO Survey, 68% of respondents in entertainment and media said they plan to enter a new strategic alliance this year, more than virtually any other industry group.

We examine the specific drivers and dynamics of collaboration in the entertainment and media sector in this video blog and article. But in my view, the drive to create value through alliances and partnerships is equally strong in other industries, with daily reports of tie-ups and alliances within and across an infinite array of sectors and countries. In fact, 51% of CEOs interviewed in this year’s CEO Survey said they plan to enter into new strategic alliances or joint ventures over the next 12 months, up from 44% last year.

Two waves of collaboration

As well as expanding in number and reach, I also see collaboration evolving in nature and rationale. The first wave of collaboration focused on using digital platforms to drive down cost, mainly by consolidating and optimising supply chains. Some of these deals saw incumbents offer their core competency as a basis for collaboration with other segments. Others involved new entrants, in areas like digitisation, coming in and collaborating from outside. In each case, the core aim was to lower costs.

The second wave has seen collaboration move onto the offensive, with companies seeking out a variety of partners to generate new offerings, create previously untested business models and drive higher revenues. Key focus areas in this wave – which is still under way – include big data analytics. And one of its impacts has been to accelerate companies’ expansion across the traditional segment boundaries and into each other’s core markets.

Complementary or co-opetition?

This effect is underlined by the fact that the first – cost-focused – wave generally involved partners with complementary capabilities or presences in different markets. But, as the second wave builds, co-opetition in the same sector – or collaboration with ‘frenemies’– is increasingly evident. In this year’s CEO Survey, more than half of CEOs said they’re partnering, or have considered partnering, with business networks, firms from other industries, academia and even competitors.

PwC's 18th Annual Global CEO Survey partnering image

Common co-opetitive models include minority investments, which can open up strategic options on both sides at lower risk than a full merger. Yet co-opetition also faces barriers, including competition regulation. For example, in early 2014 the US Justice Department asked the Federal Communications Commission to impose tougher regulations on collaborations between local television stations, on the basis they may be circumventing restrictions on ownership.

The need for agility and honesty

Whatever the nature of a collaboration,  sometimes the excitement of forging the relationship can make it all too easy to overlook the downside if things don’t work out. So how can collaborations be future-proofed? For me, the key is to create a structure that builds in agility from the start, by allowing the strategy and operation of the partnership to flex in response to economic and technological shifts.

Crucially, this level of agility needs each partner to have a clear and honest understanding of why it’s entering the relationship in the first place. The goal may simply be to join capabilities to generate new revenues. Or it may be more complex – such as a company collaborating with a major player in an adjacent sector to stop it entering its own core market. It may even be a way of securing exclusive access to an industry-leading capability before competitors do so.  

Opening options up – not shutting them down

Whatever the final goal, the collaborative structure needs to be flexible. That means leaving strategic options open rather that closing them off – whether the end-game be one partner buying out the other, or both partners spinning the venture off, bringing in more partners, or even shutting it down.

Collaborations are fundamentally a response to accelerating change, often enabling a business to innovate more quickly and effectively. It makes sense that an ability to change at pace – and to embrace and leverage new ideas – will remain key to successful partnerships in any sector, no matter who they’re with. In today’s connected environment, it’s no coincidence that these are also the keys to the success of any business venture.

 


Chris Lederer leads the PwC US Strategy practice within the Entertainment, Media and Communications industries and has over 20 years of experience as a strategic consultant and senior operating executive. He's helped senior corporate and private equity clients to create and execute a broad range of successful business strategies:  from global organic growth programmes and programmatic acquisition efforts to turnarounds and restructurings. Find out more

 

03/06/2015

International Women’s Day: celebrating a new era of female talent

Dennis Nally Jan15 Author: Dennis Nally, Chairman, PwC International Ltd.

On Sunday 8 March, International Women’s Day (IWD) will be celebrated worldwide. IWD takes place annually and, for 2015, will revolve around the theme, Make It Happen: Encouraging effective action for advancing and recognising women.

Research and media are currently focused on the lack of women in leadership and on corporate boards. But, if we want to achieve sustainable change, we must shift the discussion and commit to two parallel efforts: tackling enhanced leadership diversity along with driving change in the workforce.

With female millennials making up an ever larger part of the global talent pool, diversity and inclusion (D&I) strategies must account for this talent population. This week, we launched The female millennial: A new era of female talent. This report shares the findings of a global survey conducted with over 8,700 millennial women in 75 countries.  

PwC - The female millennial (1)Our research confirms that female millennials (women born between 1980 and 1995) are entering the workforce in much higher numbers than any of their previous generations. They’re a highly educated and much more financially empowered generation: 86% of female millennials are part of a dual-career couple, and 66% of millennial women who are part of a dual-career couple, earn equal to, or more than, their partner or spouse.

But this isn’t the only thing that’s changed. These women also enter the workforce with a different career mindset. They’re more career-confident and ambitious than previous generations.  They rank opportunities for career progression as the most attractive employer trait, and are most likely to have left a former employer due to a lack of such opportunities.


This year, the results of PwC’s 18th Annual Global CEO Survey reveal that D&I is high on the talent agendas of organisations worldwide, with 64% of CEOs stating they have a formal D&I strategy in place, and 13% planning to adopt one over the next 12 months. Furthermore, 90% of CEOs that have a formal D&I strategy in place say it’s enhanced their ability to attract talent, while 85% say it’s enhanced business performance.

Meanwhile, our millennial research tells us that 71% of female millennials (up 17% since we last asked millennials this question in 2011) believe that, while organisations talk about diversity, they don’t feel opportunities are really equal for all. Saying the right things on the topic of gender diversity will no longer suffice; female millennials want to see visible action from their employers.

CEOs need to move beyond soft D&I programmes and commit to inclusive talent and advancement strategies that demonstrate visible results - and that tap into the confidence and ambition of the female millennial.

PwC - The female millennial (2)
At PwC, as we make sure our diversity initiatives are addressed as a core business priority throughout our network of firms, these are some of the efforts I’m championing:

  • D&I on the leadership agenda: I’ve appointed a Global D&I Leader, who reports directly to me.  In addition, D&I updates are a regular feature on the agendas of our leadership meetings. 
  • Leadership accountability for diversity and an inclusive culture: We’re looking at a number of measures (quantitative and qualitative) to make sure our firms are making tangible progress.
  • Driving awareness: At every opportunity I talk about how diversity is critical to the sustainability of our business and sponsor efforts to support that message. For example, during our latest annual Global Diversity Week campaign, we focused on building our people’s awareness of the business case for diversity and provided them with tools to help them become even more inclusive PwC professionals.
  • Engaging men on the topic of gender diversity: The achievement of gender equality requires an inclusive approach that recognises the crucial role of men as partners for women’s rights. I’m proud of our role as one of the founding partners of the UN IMPACT 10x10x10 HeForShe solidarity movement for gender equality - an effort focused on engaging men and boys in removing the social and cultural barriers that prevent women and girls from achieving their potential.


Remember, when talent rises to the top, everyone wins.

 

Find out more at www.pwc.com/femalemillennial

 

 

Dennis Nally leads the global network of PwC firms. He has extensive experience serving large multinational clients in a variety of industries, principally focusing on technology and life sciences. Dennis is also a frequent speaker and guest lecturer on issues affecting the professional services profession and the global capital markets. Read Dennis Nally's full biography.

Digital transformation and the CEO agenda

Raymund ChaoAuthor: Raymund Chao, Asia Pacific Assurance Leader

We’re living in an era of unprecedented digital change. The type of change that’s reshaping the relationship between customers and companies, and blurring the boundaries between industry sectors.

It’s no exaggeration to say that digital technologies are upending the very business landscape we all operate in. Organisations are constantly being challenged to reinvent their operating model – and in many cases, their very business model – to survive and thrive in this rapidly-evolving digital world.

The findings from our recent 18th Annual Global CEO Survey clearly demonstrate that digital transformation is at the core of the CEO agenda. For some CEOs, it’s even making them question the very business they’re in.


Need a new… digitally-aware CEO

We all know that technology is no longer the back office function it once was. The whole raft of new C-suite job titles like ‘Chief Data Officer’ and ‘Head of Digital’ testifies to that. In fact, I’d argue that digital transformation is now firmly part of every board member’s job description, and for no-one more so than the CEO him- or herself.

No less than 86% of the CEOs we interviewed said that it was important that they, as the CEO, champion the use of digital technologies to help their organisations get the most out of those technologies. And the same percentage believes that a clear vision of how digital technologies can help achieve competitive advantage is another key to success.

 

PwC's 18th CEO Survey - Figure 12

 

There’s no doubt that digital technologies are now getting a lot of attention in the boardroom. The majority of the CEOs we spoke to think that digital technologies are creating value right across the organisation, from data and data analytics through customer experience to innovation capacity.

 

PwC's 18th CEO Survey - Figure 11


AsiaPac CEOs lead the way

As the PwC Assurance Leader for Asia Pacific, I was pleased to see that AsiaPac CEOs are more ‘bullish’ on technology than their global peers. Data mining and analysis tops the AsiaPac CEO’s digital agenda (83% vs 80% of global CEOs). And CEOs in AsiaPac also seem ahead of their global peers when it comes to embracing ‘newer’ digital technologies and appreciating their strategic importance: socially-enabled business processes (65% vs 61% of global CEOs), the Internet of Things (67% vs 65%) and cloud computing (64% vs 60%).


Digital transformation will roll on…

It’s clear that we’re only part-way through this era of digital transformation. One of the AsiaPac CEOs we spoke to as part of the CEO survey, Atsushi Saito (Director & Representative Executive Officer, Group CEO of Japan Exchange Group, Inc.) sums it up nicely: “No one can stop this progress in technology. [The] know-how is in harnessing this technology and deploying it in a controlled manner.”

So, if there’s one question I’d ask every CEO I meet, it’s this: “In what ways does your business and operating model need to change to fulfil evolving customer needs – and what are you doing to put digital transformation at the heart of that change?”

 

 

Raymund Chao is PwC’s Assurance Leader in Asia Pacific. He's also one of the core members of PwC’s Global Assurance Executive Team, which determines the strategy and direction for the network's Assurance business on a global basis. Read more

02/25/2015

Greater risk and more reward for private companies

PwC Henrik S-0990Author: Henrik Steinbrecher,  Network Middle Market Leader

Changing the way you’ve always done business is hard, but it doesn’t require superhuman powers.

This year’s private company view from the 18th Annual Global CEO Survey gives a clear message that sticking to business as usual will put private companies at a distinct disadvantage.

Nearly 60% of the 711 private company CEOs we spoke to told us they face more threats to revenue growth today than they did three years ago, yet a similar number see more growth opportunities than before. 

Private Company View, risks & rewards infographic

Pain and gain is the reality of this high-stakes operating environment where competition is more intense, customer demands are rising and the speed of change is faster. Uncertainty is the only certainty and private company leaders have a greater appreciation that they must do more to thrive in this riskier, but potentially more rewarding world.

So, what’s the best way forward? And where to start?

Keeping your company relevant means having a greater innovation focus combined with robust resilience measures to weather shocks that could derail your plans. CEOs see a whole range of threats that are beyond their control, such as over-regulation and skills shortages. But, by being adaptable and rethinking risk, they can increase their competitive capabilities to better cope.

Playing it safe won’t cut it. Companies that pursue growth must take on risk. But, by making no changes to their risk approach, this could pose the greatest risk of all. Risk management should go hand-in-hand with innovation strategies and should be viewed as a core enabler of growth, if done well.

In our private company view, we show how private companies must embed risk assumptions in corporate growth strategies to build resilience. But the challenge is understanding the wide range of threats in front of a company to be able to respond and react appropriately. The risk landscape is, by nature, an unpredictable and hard-to-control beast.

This year, we found over half of private company CEOs think it’s likely organisations will increasingly compete in new sectors; with nearly a third saying their company entered a new industry during the past few years.

Private Company View, innovation imperative infographic

It seems innovation is winning through and many CEOs see disruption as an opportunity to be a pioneer. As one of our interviewees, Rajiv Bajaj of Bajaj Auto Limited said so well, “I don’t know any way of managing a disruption other than to be a creator of it.”

The winners will be those companies that are able to anticipate change and are willing to be disrupters themselves – either in their approach to market, in their products and services, operating models, talent plans or in their willingness to change strategy - or even sector - to chase new opportunities. But even with this willingness, will governance structures give private company leaders enough agility to disrupt business as usual for this new world order?

There’s a lot for private company leaders to think about. It’s a challenging time that’s equally as exciting. Despite feelings of uncertainty about the global economy, private company leaders feel confident about finding new ways to create value and grow. Anything but business as usual is how they’ll get there.

See our report and findings at a glance to find out more.

 


Henrik leads the Middle Market business for PwC globally, focusing on owner-led, private, family controlled and entrepreneurial companies. He’s particularly focused on family and owner led businesses, advising them on how to address strategic issues relating to the owner's agenda. 

02/17/2015

Not so confident? The views of the state backed CEO

Nick JonesAuthor: Nick C Jones, Director of PwC’s Public Sector Research Centre

State owned enterprises (SOEs) have become a rising influence in the global economy over the past decade, particularly since the financial crisis. And this is reflected again in the 18th Annual Global CEO Survey, with more than 1 in 10 of the CEOs surveyed leading an organisation with some form of government ownership or backing. So how do the views of these CEOs differ from those with no state backing?

There is one significant difference that we have observed when considering responses by business leaders in our Survey over the last five years: state-backed CEOs are generally less confident about long term prospects for revenue growth.

CEO Insights - Gov - State backed CEOs less confident-ref

Indeed the gap in expectations for long-term revenue growth between state backed CEOs and their private sector counterparts has been widening since the depths of recession. What might explain this?

The difference in expectations for long term growth may hint at the tension that state backed CEOs face in being commercially viable and competitive while also trying to fulfil non-commercial objectives, the latter often demanding trade-offs in terms of financial performance between the short and longer term. Political cycles and fiscal constraints may also contribute to this phenomenon as well as tightening of labour markets as private sector careers become more attractive for mobile talent.

Yet, it still appears that there are many similarities, with CEOs of state backed companies holding many of the same concerns about their businesses as their private sector counterparts. Over regulation, availability of key skills, government responses to fiscal deficit and debt burden and geopolitical uncertainty were among the top five concerns for both state backed and non-state backed CEOs.

CEO Insights - Gov - CEOs most want govs to deliver-ref
Indeed, the only real significant difference was on the importance of tax burdens, with 59% of state backed CEOs being concerned compared to 70% for our full sample. Meanwhile, a high proportion of the state backed CEOs surveyed were also concerned about social instability (65%).

There are also similarities in the priorities for government. An internationally competitive and efficient tax system and a skilled and adaptable workforce were the top two outcomes on the wish list for government by both state backed and non-state backed CEOs. About half (49%) of state backed CEOs suggest that their organisation will work with their governments to develop a skilled and adaptable workforce over the next three years (compared to 44% of private sector CEOs). And around a third of the state backed CEOs are also focusing on collaborating with government on developing an innovation ecosystem (35%) and adequate physical infrastructure (32%).

CEO Insights - Gov - Business and gov collaboration-ref
Despite the challenges of longer term revenue growth, perhaps state backed CEOs see a greater need for more collaboration and partnership to deliver on the government’s priorities.

Find out more in ‘Government and the Global CEO: Delivering outcomes, creating value’ which is downloadable from PwC’s Public Sector Research Centre.

Nick C Jones is the Global Director of PwC’s Public Sector Research Centre and has authored, and contributed to, reports on a wide range of public services issues. He sits on PwC’s Global Government and UK Government and Public Sector Leadership teams and is also a member of the Editorial Team for PwC’s Annual Global CEO Survey, commenting on the relationship between business and government. 

02/16/2015

Battle of the giants: China, the US and India

CEO Insights - John HawksworthAuthor: John Hawksworth, Chief Economist, PwC UK

One of the historic landmarks of 2014 was China overtaking the US as the largest economy in the world based on GDP at purchasing power parities (PPPs). This International Monetary Fund estimate reflects the total volume of goods and services produced, after adjusting for the fact that prices in China are, on average, relatively lower than in the US when converted at current market exchange rates.

But questions have begun to be asked about whether China’s success can be sustained, particularly as regards the possibility of its investment and property bubble bursting. There are uneasy echoes here of the experience of Japan, which also looked like overtaking the US in the early 1990s, but whose economy was laid low following its land price bubble bursting.

We think the Chinese economy has considerable resilience, and the new leadership has embarked on an ambitious economic reform programme, including measures to combat corruption that can only be welcome in putting China’s economic development on a stronger footing for the long run. But the transition process to the new policy and regulatory regime has increased short-term uncertainties for international companies doing business in China.

These short-term uncertainties are reflected in the results of our 18th Annual Global CEO Survey, which saw confidence levels among US CEOs overtake those for CEOs in China for the first time.

CEO Insights - US confidence level exceeds China for first time
This was also reflected in 38% of CEOs around the world now seeing the US as the most important market for their overall business growth, compared to 34% for China. The latter is still a strong showing, but it reverses the order from last year’s survey when China was seen as the primary growth engine.

This also mirrors trends in GDP growth: our latest projections show a gradual slowdown in Chinese growth to around 7% this year, the lowest rate seen for a long time, while US growth accelerates to over 3%, the fastest rate since 2005.

But, we should not overlook the fact that, in absolute terms, Chinese growth this year is still likely to be more than double that in the US. Barring a major financial crisis in China, which is a downside risk as discussed above but not our main scenario, we also expect a significant Chinese-US growth gap to persist for at least the rest of this decade.

As a result, as set out in detail in our new report ‘World in 2050’, we expect the GDP gap between China and the US in PPP terms to continue to widen. By 2030, we would also expect China to overtake the US in terms of GDP at market exchange rates (i.e. in dollar values without any relative price adjustment). China would then become not just the largest producer of goods and services in volume terms, but also the biggest consumer market in the world.

The chart below shows how we project China’s GDP share on this alternative ‘dollar value’ basis to overtake the US shortly before 2030.

CEO Insights - Shifting global economic power
However, we do expect China’s rate of growth to revert to the global average rate of around 3% per annum beyond around 2040, causing its share of world GDP to flatten out at just under 20% as the chart shows. This reflects the combined effects of a rapidly ageing population, diminishing marginal returns to high levels of capital investment, and less scope for technological catch-up as China approaches the global technological frontier and has to become an innovator not just an imitator. As we saw with previously fast-growing Asian economies like Japan and South Korea in earlier decades, Chinese growth will eventually slow down.

As the chart also shows, however, the country with the potential to be the new rising global economic power is India, whose share of world GDP at market exchange rates could potentially quadruple from only around 2.5% in 2014 to around 10% by 2050. By that time, India could be closing in on the US and the EU (and indeed might even overtake them by 2050 if measured by GDP at PPPs).

However, as discussed in detail in another recent PwC report, India needs to implement a wide-ranging programme of human and physical capital investment and institutional reform to achieve this ‘winning leap’ into the global premier league. Success is not guaranteed.

Our 'World in 2050' report argues that the same is true for many other emerging economies like Indonesia (which we think could reach 4th place in the global GDP rankings by 2050 with the right policies), Brazil, Mexico and, if it can diversify its economy away from oil, Nigeria. All of these have the potential to be top 10 global economies by the middle of the century, displacing European ‘old stagers’ like France, Italy and the UK.

But there are many risks and obstacles to be negotiated in order to fulfil this potential, and businesses investing in these growth markets need to tread carefully in order to manage these risks and turn presence into profitability.

 

John Hawksworth is an economist who specialises in macroeconomics and public policy issues. He is Chief Economist in PwC’s UK firm and editor of our Economic Outlook reports. He is also the author of many other reports and articles on macroeconomic and public policy topics and a regular media commentator on these issues. Read John's full biography.