The next decade of infrastructure development in Asia Pacific: why public-private partnerships will be key

Mark-rathboneAuthor: Mark Rathbone, Asia Pacific Capital Projects & Infrastructure Leader, PwC Singapore

Take a walk along the streets of Shanghai, Seoul or Singapore, and you’ll see the fruits of a decade of rapid infrastructure development, reflecting the advancing needs and dynamism of economies across Asia Pacific. Over the next ten years, as the region continues to evolve into its role as the global economic powerhouse, infrastructure demands will continue to change too. So what’s required to create the infrastructure that Asia Pacific will need in 2025?

One part of the answer is more capital. Lots more. According to PwC research conducted jointly with Oxford Economics, Asia’s infrastructure market is forecast to grow by 7 - 8% annually over the coming decade, nearing US$5.3 trillion by 2025, or 60% of the world total. Satisfying this hunger for capital will be a challenge in itself.

But I believe something else is also needed: close cooperation, collaboration and alignment of goals between the public and private sectors. In my view, successful and sustainable public-private partnerships will be vital to the robust and savvy deployment of resources – in turn helping to ensure that the 21 member economies of the APEC forum not only survive, but positively thrive, throughout the coming decade.

Why do I say this? Allow me to start my explanation by pinpointing five key trends that are driving priorities and investments in infrastructure development across the Asia Pacific region. While distinct from each other, these five trends are all closely interrelated.

The first – and most evident – of the trends is demand for new transport and utilities infrastructure. As economies grow, so does the need for transport infrastructure to mobilise workforces, transport products and connect economic centres. And as demand expands, improved capacity in power, gas, water and other utility-related resources becomes increasingly critical. Following a decade of expansion, it’s widely recognised that economies across Asia Pacific have a substantial infrastructure gap that they need to close.

Second, the need for schools, healthcare facilities and care for the aged. A combination of rising wealth and greying populations will fuel demand for spending on social infrastructure. Major investments in education and healthcare will be needed if the region’s populations are to contribute sustainably to their growing economies.

Third, Asia Pacific is increasingly wired. The e-commerce boom is driving up expectations for faster and cheaper access to broadband networks for consumers and businesses – while also putting pressure on policy makers to agree how to share data across borders and safeguard transactions, privacy and intellectual property. These types of ‘soft’ infrastructure are vital for expanding business and trade across and beyond the region.

The fourth trend is rapid urbanisation. Attracted by job opportunities, more and more people are moving to cities, stretching existing urban infrastructure to breaking point. To make urban expansion sustainable – and ultimately provide a higher quality of life – it’s imperative to find better ways to manage housing, transport networks, water supply and waste management.

Fifth, private sector platforms for growth are emerging and growing. According to the PwC 2014 APEC CEO Survey, businesses’ capital spending plans over the next three to five years include expanding distribution capabilities in the region, bolstering digital participation, and widening the geographic spread of manufacturing facilities.

If the region is to address the infrastructure implications of all five of these trends, I believe it needs to take an approach that’s increasingly integrated - not just across types of infrastructure, but also across borders. Turning again to our 2014 APEC CEO Survey, some businesses are expanding distribution and service centres to reach new geographies in APEC. Others are stepping up investments in IT infrastructure to expand their digital reach. Each of these examples underlines the importance of planning for infrastructure with regional economic connectivity in mind.

This brings me back to my original point: the vital role of public-private partnerships in spurring and sustaining infrastructure growth. Practical solutions need to be developed to allow for more effective infrastructure investment across the region – and experience shows that mutually beneficial partnerships between the public and private sectors are a great way to enable funds to flow into critical infrastructure. For example, private firms can build and deliver public infrastructure more easily if they have the support of government. And governments can draw on technology and best practices from the private sector to help realise projects and enhance their quality.

For Asia Pacific, the next decade looks bright. And by planning and working together, the region’s governments and businesses can create the world-leading infrastructure that befits the countries’ position in the vanguard of global growth.

Read more in our new report, Infrastructure development in Asia Pacific (APEC): The next 10 years.



Mark is the PwC Capital Projects and Infrastructure leader for Asia Pacific and has extensive experience in structuring projects that straddle the complex interface between public and private partnerships. He’s been integral to the development of numerous project structures, risk allocation and mitigation strategies and the related funding solutions in various sectors in the UK and across Asia Pacific.


The meteoric rise of the middle class: global trend, local opportunity

MarcelFenez0609JPGAuthor: Marcel Fenez, Global Entertainment and Media Leader, PwC

If you look across the many social and demographic changes of the 21st century, the one that stands out for me is the explosive growth of consumers categorised as ‘middle class’.

This demographic group is projected to expand dramatically over the next 15 years, especially in Asia. With rising disposable incomes and aspirations, these consumers are also becoming increasingly connected, mobile, and hungry for new experiences.

The entertainment and media sector has always been one to benefit as consumers have progressed into the middle class categorisation, with ‘products and services’ that are generally affordable and may previously have been aspirational (such as regularly going to the cinema). These consumers also represent great targets for advertisers whose increased spend benefits the sector too.

So I see the emerging middle classes as one of the main engines of revenue growth for entertainment and media businesses over the next decade. You can find out more about this in my new video blog and article. But the opportunities presented by the emerging middle class extend much further than this sector alone – affecting virtually every consumer-facing industry.

What’s really ‘emerging’?
While the potential is clear, confusion surrounds many aspects of the global emerging middle. Where’s it located? Who’s best placed to monetise it?  And what strategies can local and international companies use to harness its spending?

To answer these questions, the first point to stress is that the concept of the emerging middle class is very different from the concept of emerging markets. True, there are fast-growing middle classes in India and China. But you’ll also find them in developed economies: take the US, for example, where the Hispanic community is a key part of the emerging middle class.

One global demographic, diverse local demands
A second – related – point is that the tastes, demands and expectations of the emerging middle vary from market to market.  So, to meet the needs of these consumers, a deep local knowledge and insight in each market is needed. International companies can’t expect to capitalise from the emerging middle class simply by taking existing offerings from one market and transplanting them into others. Instead, success is about defining local relevance and structuring solutions to deliver it.

The importance of partnership – and a flexible approach
With their local knowledge and talent on the ground, it’s therefore the local players in each market who seem best-placed to capitalise on the fast-growing middle class. For global companies looking to succeed, collaborating with these ‘tuned in’ local players - with their deep insight into local tastes, expectations and price tolerances - is key.

The rise of the middle class may be a worldwide trend, but it can’t be harnessed through a global one-size-fits-all approach. The big question for multinationals is whether - and how - they can create local relationships to capture their share of the resulting value.


Marcel is the global leader of PwC’s Entertainment & Media practice with over 20 years experience of working with and advising companies within the industry. Read more.



Fulfilling a new vision for Asia Pacific

Dennis Nally photoAuthor: Dennis Nally, Chairman, PwC International Ltd.

Since APEC was created 25 years ago, the economic, financial and business landscape across its 21 member nations has been transformed beyond recognition. This unprecedented surge in development and growth has seen the Asia Pacific region emerge as the main engine of the global economy. At the same time, the regional environment in which organisations do business has also changed, creating new challenges alongside the opportunities.

At PwC, our purpose as an organisation is to build trust in society and solve complex problems. And if Asia Pacific’s ongoing evolution and growth are to overcome the challenges along the way, continued engagement and understanding between policymakers and businesses are essential. With these goals in mind, we recently conducted a research study – the PwC 2014 APEC CEO Survey – in which we asked 635 senior executives with operations in the region for their one request of the economic leaders gathering for the APEC CEO Summit.

Their top-line response came across loud and clear: ‘Be bold and break down barriers to growth’. To this overarching request, they also added some specific desires – including, among others, things like concluding the Trans-Pacific Partnership, addressing intellectual property issues, and encouraging regulatory harmonisation.

This wish-list echoes the views I hear on a regular basis from clients and other business stakeholders across Asia Pacific. And I believe our findings gain particular importance from the timing of the research – coming at an inflexion point where advancing technologies are increasingly transcending national boundaries, while also creating new demands and, in some places, whole new industries. These shifts are in turn driving sweeping change for businesses and governments across APEC.

For their part, businesses are ready to rise to the challenge. My conversations with business leaders across the region show consistently that they’re energised by the fundamental changes now under way, and confident in their ability to seize the resulting opportunities. A closer look at the results from our study reinforces this view.

So, what did we find? You’ll be able to read the full report here when it’s released on 8 November, but for now, I’d like to select three highlights. The first is that business investments are increasing, providing us with a tangible indication of rising confidence in the region.

This finding continues the trend shown by our previous studies. As the Asia Pacific region has shouldered an increasing share of the world’s economic activity, we’ve seen confidence in revenue growth rising year on year. And 2014 is no exception, with 46% of executives saying they’re ‘very confident’ in revenue growth over the next 12 months, up from 36% in 2012. Correspondingly, each of APEC’s 21 member economies has more respondents planning to step up investments than looking to pull back. In all, 67% say their investments in APEC economies will increase over the next year.

The second key finding – underlining my comment above about technologies transcending national boundaries – is that Asia Pacific is becoming more connected. Business leaders’ growing confidence in the region’s future is supported by an evolving vision of an Asia Pacific that has greater connectivity – both physical and virtual – in turn fostering more balanced regional growth. However, our respondents also highlight impediments to this vision: barriers to business growth haven't receded over the past four years, and some are even being amplified as businesses anticipate greater connectivity.

More positively, a solution to this challenge is indicated by our third finding. It’s that connectivity and new kinds of partnership that are now driving growth, as technology – including connected devices – blurs traditional industry boundaries. With a mandate to innovate, 59% of executives are now more willing to share market insights and resources with business partners, to speed product development and market access. And 42% say they’re considering a business combination outside their core industry.

What does all this mean for the economic and business leaders gathering for the 2014 APEC CEO Summit? In my view, the overarching challenge is to foster and harness regional connectivity to build platforms for robust growth in the coming years. Achieving this will require three steps. First, adopt a regional perspective for future infrastructure development. Second, realise that the faster barriers can be lowered, the faster economies can grow. And third, invest in the skills needed to compete today – and tomorrow.

In the past quarter of a century, APEC has come a long way. But I believe the progress to date is just the start. It’s now time to build the platforms that will underpin Asia Pacific’s next phase of growth and development – as an increasingly interconnected region.


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



Is the breakfast table more influential than the boardroom table?

Malcolm PrestonAuthor: Malcolm Preston, Global Sustainability Leader

I’m in a really privileged position to work with some great business leaders and it’s interesting to consider their legacy.  ‘Legacy’ seems such an old-fashioned word - somewhat detached and not really relevant for today’s business world.  But you just have to look at the actions of Bill Gates, CEO of Microsoft, or Paul Polman, CEO of Unilever, and the legacy they’re creating is clear.  Both men have a vision and are determined to make a positive difference in their lifetimes.  Their approaches are very different – one uses his earnings from the business as a force for good, the other uses the business itself to drive responsible business behaviour.  But both are clearly driving visible change and will likely be remembered favourably for their contribution.

When I talk to business leaders about legacy, many say they want to be able to look their own children in the eye and have a reasonable response when challenged with, “what did you do with your position and your power?” I often wonder whether the personal nature of family mealtime conversations like these has more power and resonance than any stakeholder pressure.  Take the very current example of the Ebola crisis: if I were leading a company in the healthcare, life sciences R&D or even medical equipment industries, I’d want a very good answer when my kids ask what I’m doing to help those suffering. Being held personally accountable plays a strong part in driving legacy, but it needs to be articulated and embedded into business strategy to shape the business – it can’t stay personal.

In PwC’s 17th Annual Global CEO Survey, 40% of CEOs said that the one thing they wanted to be remembered for, as CEO of their enterprise, was creating ‘social value’ or ‘value for others’.  Over the years, this hasn’t changed – the response was the same in 2007.  On the one hand, it’s reassuring to see it’s remained stable; I would have expected to see this figure plummet during the financial crisis as CEOs focused on business survival. But, to be honest, I was actually pretty disappointed to see just how low it was in the first place.

Business can’t exist without society.  Society provides the employees, the suppliers and the buyers for business to function and be effective.  And society lives not just with the benefits business generates, but the negative outcomes too, like pollution, deforestation, water stress etc.  So it’s extraordinary that 60% of CEOs would appear to view it as a one way relationship, putting profits before people, and personal gain ahead of creating positive value for the society they serve.  Am I being too harsh? Perhaps it’s because CEOs were asked to name just ‘one thing’ that they wanted to be remembered for. But certainly the connection between society and business isn't coming across as strongly as I would have liked to have seen.

I believe business is a significant contributor to many of the problems now faced by humankind and that a responsible approach to business is the way forward. I’m honoured to have been invited to attend the Rockefeller Foundation’s Bellagio Centre to participate in a Shared Value Initiative workshop where we’ll be looking at the future of shared value measurement. If a few leading organisations start reporting against key metrics for social and business value, while proving it adds value to the business, others will likely sit up and say, “If it’s giving you competitive advantage, we should be doing the same.”

I see a real benefit in this - in having an industry standard measurement framework that allows information to be generated for management decisions and company comparison, covering social as well as business impacts. This is my long-term quest—if I go to my grave and it’s happened, I’ll be a happy man! As for whether it’s possible or not, I desperately hope it is.

TIMM framework diagram

At PwC, we’re working towards this with Total Impact Measurement & Management (TIMM), and I look forward to a continued dialogue with the Shared Value Initiative and other stakeholders to advance the global vision.  I hope my legacy will be to have inspired and enabled others to do business in a better way, that’s embedding responsible growth into strategy.  I want to be able to look my kids in the eye and say, “I did my best”.   And my team at work know it, too.

For more information, read my full article entitled, “What motivates your CEO over the long term: Shareholder or social value?”



Malcolm Preston is Global Sustainability Leader for PwC, and leads a team of some 700 sustainability and climate change experts. Malcolm has a view on all aspects of sustainability from climate change to reporting, to supply chains to international development, and specialises in Total Impact Measurement & Management. Read more.


Engaging with the ‘super-fan’: a growing source of incremental revenue

Russ Sapienza photoAuthor: Russell Sapienza, Partner, PwC US

Want to create a viral sensation on YouTube? Try this. Choose a pop star and bring together 20 of his biggest fans to record their own version of his new single. Then video their faces when the star himself walks in to join them on-set. Then upload and see what happens.

This was what the US retailer, Target, did when launching its deluxe edition of Justin Timberlake’s album, ‘The 20/20 Experience’. It’s one of my favourite ever examples of viral marketing. And guess what: it worked. To date, the fans’ shock and joy when Justin appeared has garnered 2.8 million views and counting.

This is just one example of the rise – and rising importance – of the super-fan. It’s a trend investigated in more detail in my recent video blog and accompanying article. But I believe it’s a development whose significance for companies and their CEOs also extends well beyond the entertainment and media sector.

Adding value through adoration
In fact, with the help of digital technologies, super-fans are now adding rising value to brands across many industries. From toys, to consumer electronics, to cosmetics - people with a deep, emotional attachment to brands are going beyond blogging and tweeting to become actively involved in making their favourite brands even better and more valuable. If you look across any brand’s consumers, its super-fans should be among its top priorities.

Not that super-fans are new: fast-moving consumer goods companies have been identifying and engaging with them for decades, including creating personas for different types. And these types vary widely, from ‘fanatical devotees’ who might attend Comic-Con in character costume, to ‘vocal advocates’ who tweet continually about a brand, to ‘quiet advocates’ – or ‘super-subscribers’ – who may only follow their more vocal counterparts, but are every bit as loyal.

Getting inside the ropes – in different ways
In my view, each persona of super-fan should be treated differently. For example, a vocal advocate who tweets positively to 100,000 followers and takes part in product development deserves to be given a premium offering – sometimes termed an ‘inside-the-ropes’ experience – such as a pre-release, exclusive or live version. Meanwhile, the less vocal but equally committed quiet advocate will usually be willing to pay extra for ‘value-add’ premium experiences or products – opening up a growing source of incremental revenues.

What’s key is that a premium experience has to be special – even unique – in the eyes of the fan: witness the ‘V.I.P.’ button displayed discretely on the People Magazine homepage, offering subscribers the opportunity to join the ‘A-List’, including access to an exclusive premium section.

Owning the ‘circles’
As more companies set about capitalising on the rise of the super-fan, I believe its wider implications are becoming increasingly clear. One of the biggest is that it creates a need and opportunity for brands to establish clear ownership of their most passionate consumers, by identifying and building concentric ‘circles of influence’.

What does this mean? Well, the ‘inner circle’ is the people within the business working on developing and delivering new products or experiences. This internal talent pool can then be supplemented and reinforced with an ‘outer circle’ of super-fans advising on product design and boosting the brand on social media, in return for a personalised premium experience. 

This outer circle doesn’t need to be huge: it’s more likely to number 100 than 100,000. But companies that haven’t yet started to identify and engage with their outer circle should begin now, by applying a mix of qualitative research and data analytics to find out who their super-fans are - and how best to engage with and reward them.

Avoiding the pitfalls – through two-way relationships
Inevitably, there are hurdles to overcome. Companies in many industries are disintermediated by wholesalers and distributors, making it difficult to engage fans directly. Strategic responses include direct-to-consumer engagement, potentially including collaboration between producer and distributor.

Also, companies that exploit their super-fans as a source of insight, but then fail to reward them adequately, may end up souring the relationship. So premium incentives that add real value are crucial. Remember, all human relationships are two–way: the super-fan’s commitment to your brand is emotional and beyond reason – so you need to show the same emotion in return.



Russell is a principal in PwC’s US advisory practice with 33 years of experience in the media, entertainment, communications, and financial services industries.  He’s also a senior member of PwC's Strategy& operations practice, focusing in areas such as business strategy, revenue growth, new business design and launch, business process simplification and risk management.  Find out more


Global airline CEOs are at a crossroads


Author: Jonathan Kletzel, Transportation & Logistics leader, PwC US

The aviation sector has long been acknowledged as a critical multiplier of economic growth. So I think it’s good news for everyone that airline CEOs are even more optimistic about short-term prospects for their industry’s growth than CEOs across the board, as found in our recently released 2014 Global Airline CEO Survey.


Airline CEO confidence 2014
Still, airline CEOs are slightly less positive about the prospect of growth for their own companies. That’s probably because they’re acutely aware of threats to the industry and the difficulty of containing costs. While demand is on the upswing, so is competition.

Even more importantly, we’re in an era of unprecedented global change, and global airline CEOs know it. They expect technological advances, shifts in the global economy, and demographic changes to transform their business over the next five years. Over the next 20 years, the industry is expected to triple in size, as the middle class grows in developing countries. Airlines will need to keep up.

In client discussions, and at industry conferences, like the IATA’s Annual General Meeting held in Doha over the summer, I’ve been hearing that talent strategies and technology investments are on many airline CEOs’ minds. These areas are also where the largest number of airline CEOs say their companies are already implementing plans for change, along with production capacity and strategies for customer growth and retention. Some airlines are also looking at improving data analytic capabilities, which could prove useful in market segmentation, revenue and price modelling, and flight and operational planning.

In our view, though, there’s one area where airlines still need to do even more -- innovation. Traditionally, airline CEOs have focused on gaining profitability by keeping down costs and capacity discipline. Change in the industry has been incremental rather than transformational, with only pockets of innovation. These tactics, along with consolidation in the industry, have enabled the airlines to move into the black. But to deal with the dramatic shifts occurring in the world, airline heads will need to up their game.

While many CEOs say their companies have plans to improve their R&D and innovation capabilities, or have already made a start, the airline industry has yet to fully explore a broader range of service and business models. And new technologies still have a lot of potential to increase competitive advantage and drive greater efficiencies. We talk more about how innovation can help improve customer service and engagement as well as help companies manage their supply chains, operations, and maintenance in the Airline Survey and in our recent Tailwinds report.

And the timing for such investment couldn’t be better, with many airline chiefs having earnings to invest.

In my work with clients, I see the most successful airlines balancing short- and long-term initiatives. They’re investing in improving the efficiency of their operations, while also spending some of their profits on innovations. The trickiest bit? Choosing the right projects. And that’s something airline CEOs have in common with their fellow chief executives in nearly every industry.



Jonathan Kletzel, leads the US Transportation & Logistics practice. He has more than 15 years of experience helping clients develop and execute business and technology strategies with a particular focus on modernising customer channels, optimising operations, and improving cross-functional collaboration. Jonathan has been serving clients in the travel and transportation industries for over 10 years. Read more


Achieving customer relevancy and trust – the race is on

D Bothun, PwCAuthor: Deborah Bothun, Entertainment, Media and Communications Leader, PwC US

Today, as digital – and increasingly mobile – technologies become the key route to consumers, I believe we’re seeing a fundamental change in the competitive landscape. As more players scramble to capture a disproportionate share of each customer’s total lifetime value, everyone is targeting the same goal: consumer relevancy.

This is a far cry from the business environment I first joined 15 or 20 years ago. In those far-off pre-digital days, any consumer-facing business knew who it was up against. Supermarkets competed with supermarkets, automakers with automakers, broadcasters with broadcasters. So far, so simple.

By comparison, today’s competitive landscape is a bewildering free-for all. Everyone is vying to define their role in an ever-changing landscape – striving to expand choice and reduce cost for consumers in a new customer-centric value chain that allows customised and personalised relationships to be built.

Radical disruption in one industry…

In the entertainment and media industry, online video distributors are competing in content creation to drive subscriptions. Content companies are going direct to consumers, bypassing distributors. Broadcasters are bundling broadband to take on telcos. Telcos are responding by snapping up premium content. And advertisers are competing with nearly everyone by creating and distributing their own content.

…is replicated across many others

Extrapolate these dynamics across the universe of companies selling to consumers, and you get an idea of the scale of the disruption. The result is an intensifying battle for the end-customer involving the entire ecosystem of consumer-focused, digitally-connected companies – from retailers to utilities, and from device manufacturers to app developers to healthcare providers.

As this battle escalates, my daily interactions with clients confirm that the key competitive advantage they’re scrambling to achieve has moved beyond the customer ‘experience’ to customer ‘relevancy’, which I discuss in a recent video blog. This aim is no longer to target a consumer segment with an experience or offering designed loosely for that group of people. Instead, companies are looking to meet individual consumer desires, engaging and capturing their interest, imagination and spending.  Companies must be creative in using multiple techniques to learn about their customers. For example, in our recent consumer research on television viewing, we were surprised to learn that some consumers prefer recommendations based on actual viewing rather than from friends or family, given the technology ‘knows’ their ‘real’ viewing preferences.  

Risks and rewards: trust comes to the fore

In my view, the companies that fail to achieve this degree of relevancy will find themselves supplanted in their own value chain by others that succeed in doing so. And those that do achieve relevancy will gain admittance to the consumer’s ‘inner circle of trust’, positioning themselves to capture more than their fair share of that individual’s lifetime value.

To secure this position, I believe all businesses need to understand the core drivers of the connected consumer’s evolving behaviours and expectations. For example, consumers don’t like intrusive or irrelevant mobile advertising – but they are willing to share their personal data in return for value. And they want the ability to search instantaneously and interactively for – and get personalised recommendations on – any content, product or service, increasingly via the ‘second screen’ of a smartphone or tablet.

Imperatives for relevancy

As these drivers continue to reshape consumer expectations, we’ve identified four imperatives for companies to achieve customer relevancy and trust:

  • Connecting with the consumer – Speaking to – and providing solutions that meet – an individual’s needs at a specific time, place and context, while remembering there’s a fine line that must not be overstepped on privacy.  
  • Building an audience through discovery and curation – Helping consumers navigate to services, content or offers they will like across multiple channels and platforms, supported by personalised recommendations.
  • Meeting consumer expectations while driving profitable growth – Staying abreast and ahead of evolving customer demands and wants by investing and innovating in offerings they will value and pay for.
  • Advancing relationships through choice and flexibility – Gone are the days when companies could just tell consumers what they’ll receive. Companies need to really understand and match their customers’ evolving preferences across multiple touchpoints.

Any business that delivers against these four imperatives can enter the ultimate destination: the consumers’ inner circle of trust. The prize will go to those who get there first in the most cost effective manner, and then innovate to maintain their position within the circle. The race is on.


Deborah Bothun is a Partner in the Advisory practice in the New York office of PwC.  She leads the US Entertainment, Media and Communications practice, focusing on assisting clients in adapting to the changing content and distribution marketplace. Deborah specialises in market entry analysis, commercial and financial due diligence, corporate business planning and strategy, and crisis management. She has over 20 years of experience working with Fortune 500 E&M clients.


Escaping the middle income trap – what’s holding back the Fragile Five?

John Hawksworth photoAuthor:  John Hawksworth, Chief Economist, PwC UK

From the turn of the century until around 2012, the big story in macroeconomics was the shift in economic power to the BRICs and other large emerging economies such as Indonesia, Mexico, Turkey and South Africa. This story remains valid in parts, but the last couple of years have highlighted the growing pains facing some emerging economies. This was typified by Morgan Stanley’s introduction last year of a less bullish grouping of large emerging markets – the ‘Fragile Five’ of India, Indonesia, Brazil, Turkey and South Africa.

Our latest contribution to this debate is the PwC ESCAPE Index. This index combines 20 key indicators across five dimensions: economic growth and stability; social progress and cohesion; communications technology; political, legal and regulatory institutions; and environmental sustainability.

A particular objective of the index is to give an indication of how well different emerging markets are placed to escape the so-called ‘middle income trap’. As the chart below shows, Saudi Arabia, Malaysia, Chile and China seem to be the front-runners here based on 2013 data.  

PwC ESCAPE Index chartPutting the Fragile Five under the microscope
The Fragile Five, however, generally score a lot less well on our ESCAPE index. Indonesia is the best of the bunch, but still only on a par with Mexico and Peru. Turkey, Brazil and India are near the bottom of the heap and South Africa fares even less well.

What’s holding them back? To answer this, we need to delve further into the details of the index, looking at results for each of the 20 component indicators.

The first conclusion from this analysis is that technology is not the problem. All of the Fragile Five have, for example, made great progress since 2000 in adopting new digital methods of communication, like smart phones and broadband internet.

Environmental sustainability is a long-term concern in some cases, ranging from the need to protect Amazonian rainforests in Brazil to worries about rising carbon intensity in India. But in terms of derailing economic development, the bigger concerns at present relate first to economic stability and second to political and social institutions.

We can make this more specific by identifying those indicators for each of the Fragile Five that are either below average and not improving between 2007 and 2013, or about average but declining since 2007, or both. The table below sums up the major weaknesses of each country on this basis.

Relative weakness of Fragile FiveOn the economic side of the equation, most of these economies (except South Africa) have delivered relative strong GDP per capita growth performances over the decade to 2013. But this growth has pumped up inflation and trade deficits to levels that started to be of concern to financial market investors in 2013 and early 2014. Although these market concerns have eased somewhat in recent months, they could always flare up again.

For Brazil and South Africa, low investment to GDP ratios are also of concern here. But government debt to GDP ratios don’t look to be big worries yet, except perhaps for Brazil. This is in marked contrast to the fiscal vulnerability of Japan, the US and many EU economies.

Institutions - still a long way to go
The deeper problems, however, become apparent when we turn to political and social institutions. Research by academics such as Daron Acemoglu and James Robinson shows that these institutional factors can be critical to sustainable long-term growth. Where they are ‘extractive’, a small elite may get rich. But such countries are unlikely to graduate fully to the advanced economy club unless they reform their political, social and economic institutions to make them more inclusive and thereby provide the right incentives for innovation and entrepreneurship.

As the table shows, the Fragile Five have a long way to go on many key institutional measures, particularly in relation to corruption, political stability, income inequality and trust. Ease of doing business is also a major hurdle in India and South Africa in particular, based on World Bank analysis that we’ve incorporated into our index.

Interestingly, very little progress has been made by the Fragile Five on these institutional measures, even if we take the analysis back to 2000. This is in contrast to their generally strong performance on GDP growth, communications technology, rising education levels and increased average life expectancy over this period. Making deeper institutional reforms will take a long time, even if short term macroeconomic imbalances can be addressed.

Implications for business strategy
Our analysis has a number of high level messages for US and European businesses considering how to develop their emerging market strategies, although all of these would need careful tailoring to individual circumstances.

First, sustaining the growth rates of the 2000 to 2012 period in emerging markets like the Fragile Five will be difficult, given the combination of economic bottlenecks and institutional deficiencies.

Second, emerging markets vary greatly in their institutional strengths and weaknesses and need to be assessed in a nuanced way. There could also be major differences in institutional strengths between industry sectors within countries. Deep local knowledge that’s updated in real time is critical here.

Finally, don’t forget your ‘home’ markets in the US and Europe. These will remain significant players in the global economy for decades to come, with relatively high average incomes and relatively strong and stable political and economic institutions.

In short, by all means place some strategic wagers on emerging markets, but don’t bet the house.


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.



Brazilian resilience – it’s not just about football

Evandro_CarrerasAuthor: Evandro Carreras, Partner, PwC Brazil

What’s the penalty for not being prepared? The Brazilian football team learned the hard way in the FIFA World Cup semi-final last week. For faced with the loss of their most valuable talent, and then a competitor that made the most of every opportunity, the team was totally unable to change its game to recover.

As a business leader, chances are that you can sympathise somewhat with the Brazilian team managers, right? Talent shortages, inability to adapt, competitive surprises, lack of agility in a fast-paced game… these are challenges we all deal with daily. So what can we learn from Brazil’s downturn in football fortunes?  Make sure you’re resilient enough to handle the risks of a totally changed game.

Nation deflated
Commenting on the defeat, the Brazilian President Dilma Rousseff urged Brazilians to "Get up, shake off the dust and come out on top". In other words, she was calling on their resilience. Resilience includes the ability of an organisation (a business, a nation, or a sports team) to be ready for crises, so that they can recover speedily and come out ahead. Nobody had expected the team to find itself in the situation it faced going in to the semi-final. So when the German side rapidly took the lead, the Brazilians were unable to bounce back.  The team, and consequently the nation, was left in shock, deflated. How will they pick themselves up from this?

Unready for risks
Crises and the resulting disruption come in many forms. They can hit at home or away. They can be expected risks or totally unforeseen. And they are often followed by aftershocks. For Brazil’s national football team, the “catastrophe” as their coach Luiz Felipe Scolari put it, started when one of their key players was injured in the quarter-finals. Next came the suspension of the team captain in the same match. Suddenly, valuable resources were no longer available. It happens in the business world too – strategies risk stalling because of a shortage of key skills. Indeed, in PwC’s 17th Annual Global CEO Survey, 63% of CEOs say they are somewhat or extremely concerned about the availability of key skills.

Football fans around the world, soccer for the American fans, wondered how the Brazilian team managers would react. Would they stick to plan A, and address the gap with a “stock replenishment”?  Or were they ready to re-assess the new reality, adapt their strategy with agility to capitalise on their remaining strengths, and switch to an alternative, but rehearsed new team constellation? Sometimes crises inspire innovation, a chance to surprise the competition, new ways to play the game, but nevertheless need a prompt response.

Unbeautiful game
They opted for replacement, but with a different kind of player, an underworked business continuity plan if you will. The German team read the new situation accurately and Brazil was in crisis management mode. The crisis management plan seemed to be missing though. There was no apparent leadership on the pitch. Nobody took responsibility for corralling and re-focusing the team on the most urgent priorities – no more goals. Communication between players seemed non-existent, with each man trying to fix the problem for themselves, rather than pulling together, using the strengths and assigned responsibilities of the whole team.

When disasters hit, rehearsed crisis plans have to kick-in, leadership needs to be immediate, communication clear, information shared, and reactions speedy - but agile - as the situation develops rapidly. These factors strengthen resilience and help you recover. None of them were present and goals three, four and five went in. Brazil’s defence wasn’t prepared for the attack, their team spirit was gone.

Fit for the match
Never before has a team with the resources or perceived skills of Brazil been in this situation in a World Cup match. Brazil had not seen itself in this situation in almost 100 years. But just because something has never happened, it doesn’t mean it never will. Resilient organisations constantly look out for the unpredicted and the unknown. They know that disaster doesn’t discriminate – it can strike anybody. They run the scenarios, size up the risks and prepare their organisation for them, with rigour, structure, planning, training and skills. This is what Germany illustrated. According to their coach, the German team had a “clear and consistent game plan.” But even this result must have been unexpected for them. They stayed in control of the situation, they demonstrated professionalism, ability, knowledge and preparedness.

Leading organisations don’t leave resilience to chance. However, observing their inability to bounce-back, one can only wonder if this is exactly what the Brazilian team had done. They lacked their best talent, they were overpowered by a better-prepared competitor, and they couldn’t react when crisis struck.

Can they bounce back?
What will happen now? We can expect aftershocks. Given Brazil’s recent political turbulence, some people fear that the collective disappointment might prolong political and economic unease. But the nation’s people have every reason to shake off the dust and be proud anyway. They staged a successful tournament, and have received much praise as hosts to the largest world sporting event. Brazil’s resilience is about to be put to the test. 


Evandro Carreras is the Advisory Risk Leader and a partner at PwC Brazil. He specialises in the financial services industry. Evandro has more than 25 years of auditing and risk consulting experience and has worked with industrial and financial clients domestically and internationally.


Recruiting and retaining new talent in the digital age

Megan Brownlow photoAuthor: Megan Brownlow, Principal, PwC Australia

Across many industries, we’re seeing digital transformation erode the old dividing-lines between sectors. From financial services to retail and from utilities to communications, traditional barriers are falling and new players entering the fray.

Virtually every client I speak to says that this blurring of industry boundaries is impacting not just their strategy and operations, but also their talent needs. And nowhere are the impacts on talent and skills more profound than in entertainment and media - an industry that’s right in the front line of digital disruption.

Digital drives collisions and convergence
That’s why I believe that entertainment and media can provide some valuable lessons around talent leadership and retention for CEOs in other sectors, as digital technologies trigger collisions and convergence across more and more industries.

As highlighted by PwC’s recent Global Entertainment and Media Outlook 2014-2018, the industry's former ‘cool’ cachet in the employee marketplace is eroding, as the barriers with formerly distinct sectors such as technology and communications continue to dissolve. This change is coinciding with a dramatic rise in the importance of digital technologies and analytics-driven data insights. As a result, entertainment and media companies need new talent with different skillsets – something which my colleague, David Lancefield, explores in more detail in this video.

Two challenges to tackle
These shifts we’re seeing in the entertainment and media industry are being mirrored to varying degrees in many other sectors – and in my experience, they raise two related challenges. One is a need to recruit, integrate and retain new skillsets from adjacent industries – in the case of entertainment and media, top-end talent in data analytics – where competition in the recruitment market is increasingly intense.

The second challenge is harder to address: a need to stop recruiting on the basis of ‘similarity attraction’ on the part of the existing management, and start recruiting people who are very different from the current workforce. In entertainment and media, a history of recruiting and promoting from within has seen businesses become dominated by ‘right-brained’ people who are creative and intuitive. In other sectors such as technology, the dominant type has been ‘left-brained’ logical and analytical personalities.

Abandoning the stereotypes
In my view, digital blurring means successful businesses in all sectors now need to break away from their embedded recruitment stereotypes, and ensure they develop or buy both types of talent. Whichever type they need, my experience suggests that the best solution is to make diverse recruitment easier, through five specific actions:

  • First, raise the HR function to a higher status in the organisation with more resources, capabilities and influence, to reassess the business’s talent needs and provide a better understanding of how external changes are affecting skills availability.
  • Second, invest in social enterprise technology and collaboration tools, which younger recruits now expect as the core of their workplace experience.
  • Third, bring new talent into the heart of the business through steps such as co-locating new and existing employees, and discrete social monitoring to make sure new people are not ‘ground down’ by the incumbent culture.
  • Fourth, incentivise everyone in smarter ways more tied to the business’s outcomes than the traditional flat salary, bonus, or incentive plan.
  • Finally, take on board the growing power and importance of trust and integrity, by setting the right tone from the top and embedding a culture of ‘doing the right thing’ to rebuild employee engagement.

In the digital world, companies need new talent that’s fundamentally different to their current workforce. But to recruit and – more importantly – retain it, they’ll also need a new culture. And, in my experience with clients, that’s the hard part.

To learn more, take a look at the article, Time to look to adjacent industries for new talent – and new ways to keep it on board.


Megan is an entertainment and media industry specialist at PwC Australia, where she performs strategy, due diligence, forecasting, and market analysis work for clients. In 2013, Megan was named by industry journal, AdNews, as one of the top 20 most influential women in media and advertising in Australia.