Final 2012 ceo survey

15th Annual Global CEO Survey 2012
Confidence disrupted p5/Balancing global and local p9/Risk resilience p16/
The talent challenge p20/ What’s next p27/CEO interviews p30

Delivering
results
Growth and
value in a
volatile world

www.pwc.com/ceosurvey

Most multinational companies have been
adjusting, without fanfare, to the new global
economic reality for some time. This year,
CEOs have made clear that they are not backing
away from global growth programmes but in
fact are deepening their commitments to their
most important markets. Among the CEOs we
interviewed, whether based in Italy, Malaysia,
the US or South Africa, the goal of delivering
results by growing whole operations – not just
sales – outside of their home base is the same.

These are ambitious agendas, which is
somewhat surprising given economic

Preface
uncertainties. How are CEOs going to make it
happen? This year, we asked CEOs how they
think their time is best spent, and two-thirds
said they want to devote more attention to
developing talent pipelines and meeting with
customers (see Figure 1). Four years into the
We all know these are uncertain times. Stories financial crisis, we find CEOs more grounded
of strengthening economies, employment about the risks and changing conditions for
improvements and breakthrough products growth. The focus on talent and customers
from some parts of the world are offset by today is a natural ‘next step’ towards
reports on natural disasters, government debt, establishing their organisations in the markets
regulatory changes and political turmoil in where they operate and building the trust
others. It’s hard to know for sure which way needed for the business of tomorrow.
the wind is blowing.
That’s why so many CEOs are changing talent
While change presents opportunity for some, strategies to improve their ability to attract
most business thrives on stability – and the and retain the right people. Skills shortages are
fact that this is elusive makes forward plans very real – just 12% of CEOs say they’re finding
increasingly hard to develop. No wonder that it easier to hire people in their industries – and
confidence is down from what we saw last the constraints are having quantifiable impacts
year. Yet it’s still at a reasonably high level. on corporate growth. Just as our customers
Why? Because despite the uncertainties, are changing rapidly, so are our workforces –
the long-term trends that have encouraged and our talent needs are changing, too.
corporations to invest in the emerging world,
create innovation and develop talent remain I want to thank the more than 1,250 company
firmly in place. leaders from 60 countries who shared their
thinking with us. The success of the PwC
Annual Global CEO Survey – now in its
15th year – is directly attributable to the
candid participation of leaders around the
world. The demands on their time are many
and varied; we greatly appreciate their
involvement. And I am particularly grateful
to the 38 CEOs who sat down with us near the
end of 2011 for more extensive conversations.
Their thoughts added invaluable context to
our quantitative findings.

Dennis M. Nally
Chairman, PricewaterhouseCoopers
International

2 15th Annual Global CEO Survey 2012

Figure 1: CEOs’ personal priorities include spending more time with customers and developing leaders
Q: Do you wish that you personally could spend more time, less time or the same amount of time on each of the following activities?

Develop leadership and talent pipeline 66
People
Meet with customers 66

Improve organisational efficiency 57

Set strategy and manage risks 51 Operations

Develop operations outside of my home market 40

Personal time or community service 34

Meet with regulators and policy makers 5

Meet with lenders and providers of capital -4
Governance
Meet with the board and shareholders -5

%

Net priority (% of respondents reporting ‘More time’ minus %
of respondents reporting ‘Less time’)

Base: All respondents (1,258)
Source: PwC 15th Annual Global CEO Survey 2012

I want to thank the more than 1,250 company
leaders from 60 countries who shared their
thinking with us. The success of the PwC Global
CEO Survey – now in its 15th year – is directly
attributable to the candid participation of
leaders around the world.

15th Annual Global CEO Survey 2012 3

Contents

Confidence disrupted......................................................... 5

Balancing global capabilities
and local opportunities ...................................................... 9

Resilience to global disruptions
and regional risks............................................................. 16

The talent challenge ........................................................ 20

What’s next...................................................................... 27

Final thoughts from our CEO interviews.......................... 30

Research methodology and key contacts.......................... 36

Acknowledgements.......................................................... 37

Related reading................................................................ 38


Confidence disrupted
The year 2012 unfolds with wide Yet businesses are not on the defensive. F William McNabb III
disparities in potential outcomes in CEOs are taking deliberate steps to Chairman, President and CEO
many economies, and little prospect of improve their businesses’ resilience The Vanguard Group Inc.
a coordinated turnaround. Just 15% of against further disruptions and to The lack of a credible, long term
CEOs believe that the global economy grow in the markets they believe are fiscal plan in the US is probably our
will improve this year (see Figure 2). most important for their future. As a chief concern. The fact that there is
Incremental improvements in business result, 40% are ‘very confident’ in not one actually contributes to the
optimism seen in the PwC 15th Annual prospects for revenue growth in their market volatility.
Global CEO Survey over the past own companies in the next 12 months
two years are reversing. In a sign of (see Figure 3).
converging economic fortunes,
Erdal Karamercan
confidence declined in parallel among
President and CEO
CEOs across all regions, except for the
Eczacıbaşı Group A S
Middle East and Africa.
We do not know how the Arab Spring
will end or spread. We don’t know
how the situation with Iran is going to
Figure 2: Half of CEOs expect the global economy to decline in 2012 develop. We are uncertain about the
Q: o you believe the global economy will improve, stay the same,
D position that the US would like to take
or decline over the next 12 months? in the region – in North Africa and
the Middle East. There are political
uncertainties that make it hard to
4%
15%
forecast, and these are of concern.

Improve

Stay the same

48% Decline
36%
34% Don’t know

Base: All respondents (1,258)


CEOs are manoeuvring to outpace the The tough choices and
competition and the market, rather transformations made in business
than relying on riding economic models since 2008. With stronger
updrafts or just riding out volatility. balance sheets, improved cost
They are nearly three times more structures and a greater awareness
confident in their own capacity to of global risks, CEOs are more
generate growth in their business than prepared. They don’t think growth
Brian Duperreault,
they are in the global economy’s will be easy; but they do believe
President and CEO,
growth prospects. they’re more ready for turbulence
Marsh McLennan Companies Inc.
than they were four years ago.
The balance sheets of companies At first glance, this relative optimism
are very strong. The cash seems unfounded. The unfolding The rise in investment and commerce
balances are extraordinarily Eurozone crisis alone is creating more to and from emerging economies
high. Companies are incredibly room for disappointment. So what does – more pronounced than in any period
efficient. Everyone’s poised for this pattern mean? Should we worry over the past decade – creates vast
activity, and with a little less that the chart suggests we might be market potential. Half of CEOs based
uncertainty, you’d see the whole facing 2008 all over again, perhaps in developed markets believe that
world grow economically. with another crisis precipitating a emerging economies are more
massive fall in business activity? important to their company’s future,
After all, not everyone can outpace as do 68% of CEOs who are themselves
the market. based in emerging markets. The world
may be slowed for a time by financial
Possibly, but we don’t think so. In our problems, but this structural shift is
view, CEO confidence in business potentially bigger than the institutional
growth is holding up because of problems and depressed growth in
three important and related trends: developed economies. Gradually rising
incomes and economic opportunities

Figure 3: Short-term confidence has declined – but remains well above the levels seen in 2009 and 2010
Q: How confident are you about your company’s prospects for revenue growth over the next 12 months? Yearly comparison.

60%

52%
50%
50 48%

41%

40
40%

30
31% 31%

26%
Very confident about company’s
20
prospects for revenue growth 21%
over the next 12 months
10

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Base: All respondents (2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084; 2006 (not asked); 2005=1,324; 2004=1,386; 2003=989)
Note: Percentage of CEOs who are very confident about their companies’ prospects for revenue growth


Francesco Starace for millions more people around the and human) towards new opportunities
CEO, Enel Green Power SpA world have enormous implications for and the full potential of a far more
We think government fiscal policies infrastructure spending, sustainability closely integrated world comes
might become important criteria in technologies, demand for health care, together. CEOs believe that the forces
choosing where companies invest education and personal finance of global integration will stay on track:
and how they invest. products, and the list goes on. 45% believe the world will become
more open to free international trade
The strength of cross-border ties. (with fewer than a third expecting a
In past economic downturns, the world pullback) and 56% are convinced that
Yoshio Kono
experienced rises in protectionism. cross-border capital flows will not come
President and CEO
And since the most recent downturn under new constraints.
The Norinchukin Bank
began, negotiations in the World Trade
I think it necessary to invest in Organisation’s Doha Round have As a result of these factors, business
emerging markets such as BRICs. foundered and a few governments have leaders’ commitment to doing more
However, since our investment taken measures to protect domestic business globally is, if anything,
volumes in them are way too small industries they consider vital. But that accelerating despite economic,
and their country risks difficult to shouldn’t obscure real progress regulatory and other uncertainties.
determine, we will have to be recently on bilateral and regional levels Risks are weighted towards economic
prudent about this. in fostering cross-border commerce and in particular policy threats in
and investment. Trade has rebounded 2012, but the fundamentals for future
since the downturn began, according growth are still squarely in place.
to data from the World Trade Businesses have adapted their
Organisation.1 Add in the greater strategies to take advantage when they
mobility of capital today (both financial inevitably reassert themselves.

Figure 4: Talent remains priority no. 1 for CEOs
Q: To what extent do you anticipate changes at your company in any of the following areas over the next 12 months?

2012 2011
Strategies for managing talent 21 55 23 17 52 31

Organisational structure (including MA) 26 50 22 25 47 27

Approach to managing risk 32 50 17 23 54 23

Captial investment decisions 38 42 19 23 48 28

Focus on corporate reputation and rebuilding trust 49 35 15 36 41 22

Capital structure 55 29 14 50 34 15

Engagement with your board of directors 63 27 8 52 34 12
% %

No change Some change A major change

Base: All respondents 2012 (1,258); 2011 (1,201)

1 WTO data show global trade rebounded in 2010 to return to its 2008 levels (www.wto.org/english/news_e/pres11_e/pr628_e.htm).


For our 15th Annual Global CEO There will be winners and losers as Making talent strategic: Not having
Survey, we polled 1,258 CEOs based in businesses pivot to address markets the right talent in the right place is a
60 different countries from September they are less familiar with. CEOs see leading threat to growth for many
through to early December 2011. risks and customer segments through CEOs. One in four CEOs said they were
We supplemented their comments different lenses than they’ve used unable to pursue a market opportunity
on plans for business growth and in the past, and are focusing on the or have had to cancel or delay a
assessments of constraints with insights talent they need to grow their strategic initiative because of talent
from the global PwC network and businesses sustainably. constraints. There are short-term
in-depth interviews with 38 CEOs from issues, such as an acute shortage of
all regions. The combined conclusions These are the priorities CEOs described trained managers and technically
form the basis of this report. to us, and that we take a closer look at skilled workers. And there are long-
in this report: term concerns with the capacity of
Twin aims for 2012: Secure educational systems everywhere to
Reconfiguring operations to meet
growth in new markets, local market needs: CEOs are
keep up with business needs.
achieve more certainty in the simultaneously building local These areas suggest a set of questions
domestic market capabilities in important markets, that business leaders should consider
extending operational footprints, in order to overcome execution
As businesses have faced volatile
building strategic alliances and challenges in 2012 and position for
global conditions since 2008, CEOs
creating new networks for new markets longer term growth – questions which
have crafted new approaches to risk
that include research and development we comment on in the last section of
management and new strategies in
(RD), manufacturing and services this report.
response. But they’re not going back
support. They’re adapting how they
on the defensive, as they did in 2008.
go to market, reconfiguring processes
Risk is not being ignored, but other
and at times entire operating models. Andy Green
issues are higher on the agenda (see
Figure 4 on page 7). This year, CEOs CEO, Logica Plc
Addressing risks that greater
are focusing on better execution in integration amplifies: It may feel
Most clients are talking about
those markets which are important to as if disruptions are multiplying as
reductions in spend. I think they
the future of their business while also their impacts expand across widely
will eventually move to do more
seeking stability and more certainty in dispersed and finely tuned supply
outsourcing, which will be good,
their domestic markets. chains. During 2011, global businesses
but that will take some time as they
had to confront a portfolio of
think through the consequences.
This was a message we consistently What’s clear, though, is they can’t
unrelated high-impact global risks –
heard from CEOs, regardless of where stop spending on technology because
from political upheaval and a nuclear
they are based. “We adopted a strategy the way the world is changing.
disaster to massive floods and a
called ‘protect’ in most cases in the
sovereign debt crisis. Through it all,
mature markets. We pay more attention
CEOs have learned that prudent risk
to profit making and how to transfer Tidjane Thiam
management should focus less on the
the core business into cash cows,” said Group Chief Executive, Prudential Plc
probabilities of particular events, and
Yang Yuanqing, Chairman and CEO of
more on understanding the potential Culturally, we are a company
Lenovo. “In emerging markets, we
consequences they have to prepare for focused on growth. For me cost is
have primarily adopted an ‘attack’
from a range of risks. Many companies hygiene. It is necessary in the same
strategy. That means we have to pay
weren’t directly affected by the way that breathing is, but breathing
more attention to market share at the
improbable Fukushima crisis, for has never been your life strategy.
beginning instead of profit. We would
example, or the floods in Thailand. It’s a necessary condition to be alive,
say that it is difficult to make money if
However, supply chain disruption as no more. That’s how I look at cost
market share is less than 10%.”
severe as those two events caused management. You don’t cut your
Similarly Keith McLoughlin, President should be on every company’s radar. costs into greatness. You achieve
and CEO of AB Electrolux pointed greatness by generating more
out: “Our goal is to maintain market profits, being a winning company
share in the mature markets. Those in your market. So the culture is
markets generate a lot of earnings very front-end driven.
so we have no plans to shrink our
presence there. On the other hand,
we are planning to invest substantially
in the emerging markets.”


Balancing global capabilities
and local opportunities
Maria Ramos A sensible strategy for globalisation including manufacturing, in each of
Group Chief Executive, today means far more than building their priority markets, build deeper
ABSA Group Ltd cheaply in one location and selling relationships with their customers,
It makes all the sense in the world to in another. What has changed is the innovate anew, take advantage of local
operate in a much more joined-up, way operations are configured. India’s talent and brands, reduce risk and
integrated way and take advantage Tata is now the largest manufacturer in strengthen supply chains.
of an increasingly integrated client the UK. Taiwan’s HTC pioneered the
use of Google’s Android software. New Over 60 different economies were
base across Africa. And that’s what
operational strategies are required to named by CEOs as key overseas
we’re doing.
compete successfully in such markets. markets, some adjacent to their home
market and others on the other side of
“You have to innovate, design, the world. Solid growth and rising
Cheung Yan manufacture and source locally to be domestic spending power (see Figure 5)
Chairlady, Nine Dragons Paper successful anywhere,” said David Cote, in more economies around the world,
(Holding) Ltd, China Chairman and CEO of Honeywell. And such as Indonesia and Turkey, for
There is still large room for that’s what CEOs are investing to do: example, are propelling CEOs past a
improvement on the living standards build fully fledged operations, mindset focused solely on the BRICs.
of most of the Chinese population.
We have not yet reached a balance
point on this, so this will constitute
a strong driving force for future
domestic consumption growth.

Figure 5: CEOs eye the expanding buying power of emerging markets
Private consumption at current market exchange rates

EU27
Canada Russia

China Hong Kong

Korea
US
MENA
Turkey Japan

India
ASEAN

Sub-Saharan Africa

Latin America Australia

5

Private consumption in 10
current prices and market
exchange rates, US$ millions 20 2020 2010

Source: Oxford Economics


Pailin Chuchottaworn The US and Germany were among objective for 2012; 31% plan to build
President and CEO, PTT Plc the economies identified by the most manufacturing capacity in Russia, and
We have significant investments CEOs, and mentioned as economies 30% in China. A similar pattern holds
in North America, Australia and where they are expanding capabilities. for product development; CEOs are
across Asia. And if the European Equal numbers of CEOs from seeking to source innovation from
countries eliminate their developed and emerging markets within their key markets.
protectionist policies, Europe identified the two countries as
important. China presents a different The recovery in foreign direct
would be very attractive to us also.
picture of diversification: it’s important investment (FDI) in 2010 corroborates
So I’m rather confident that we
to 37% of CEOs based in developed this trend.2 Inflows into Brazil and
can maintain our growth.
economies versus 24% of CEOs Indonesia more than doubled from
based in emerging economies. 2006 to 2010, above the 70% rise in FDI
into China and Russia. FDI inflows
Many of their objectives in the next into mature economies on the other
12 months are similar (see Figure 6). hand, are flat – or down sharply in
Building manufacturing capacity, for the case of the European Union.
example, is important for many CEOs While FDI outflows from Organisation
in each of their key markets. China for Economic Cooperation and
faces increasing competition as CEOs Development (OECD) member
reach further afield. Of those CEOs economies have also eased over the
who listed Brazil or India as important period, those from India increased to
to their growth prospects, around a US$14.6 billion and those from China
third cite manufacturing locally as an rose nearly threefold to US$60.1 billion.

Figure 6: Growing customer bases is far from the only objective of CEOs in their key overseas markets
Q: Which of the following objectives do you hope to achieve in the next 12 months? (The top 10 countries mentioned by CEOs in ‘Which countries,

excluding the one in which you are based, do you consider most important for your overall growth prospects over the next 12 months?’)

China USA Brazil India Germany

55 61 61
46 32
46 55 54
27 26 30 22 31 24 32
79 71 83 79 72

30 23 33 38 10
14 17 11 12 16
19
34 31 31 14

Russia UK France Japan Australia

53 47 49
42 44

19 49 36 15 29 34 36
22 38 19
87 78 76 81 85

31 9 21
12 12 11 10 10
16 17
26 5 6 21 19

Build RD/innovation capacity or acquire intellectual property Build internal service delivery capacity
Build manufacturing capacity Access local talent base
Access raw materials or components Grow your customer base
Access local source of capital

Base: China (383); USA (275); Brazil (188); India (176); Germany (152); Russia (101); UK (81); France (66); Japan (62); Australia (53)

2 OECD FDI in Figures (October 2011 revision).


Hussein Hachem
CEO Middle East and Africa, Aramex The tax advantage
We are in key locations that will Market opportunity, natural resources, talent ... all of these factors matter
enable us to offer our customers a when companies decide where and how to locate operations. But tax may be
global service but we concentrate the most significant: 44% of CEOs say tax policies are a ‘significant factor’ in
on our customers based in emerging their decision-making on cross-border locations. This has not gone
markets, where we have better unnoticed. Nations are increasingly competing on tax to foster in-bound
margins. You cannot do business investment. Businesses, innovation and skilled people will flow to countries
without connections to Europe or where tax systems encourage and offer the prospect of economic growth.
the US. You have global hubs in
emerging markets, in Dubai, in CEOs are paying close attention to changing tax conditions as a result of
India, but at the same time you high debts and deficits in developed economies: 29% are anticipating they’ll
cannot ignore Amsterdam. change growth strategies as a result, with 19% globally ‘extremely
Amsterdam is a global European concerned’ over an increasing tax burden in countries where they operate.
hub so you have to go there.
Governments continue to reform their tax systems to help businesses grow
and attract investment and employment. Over the past seven years more
Rohana Rozhan than 60% of economies made paying taxes easier, with 244 reforms,
CEO, ASTRO Malaysia Holdings according to Paying Taxes 2012, a study from PwC, the World Bank and
Malaysia is a starting point for IFC, which measures the ease of paying taxes across 183 economies
launching a true multi-ethnic and worldwide. Globally, the total tax rate has fallen by 8.5% since 2006; the
multi-lingual proposition that time required to comply with taxes declined by more than one day per year
has a presence in many markets. (54 hours); and the number of tax payments required dropped by five.3

FDI is commonly viewed as a measure Build or buy? Acquisitions always border deals continue to stem from
of operational commitment, with the have a role to play in growth plans. investors in either North America or
potential for both local job creation and This year, acquisitions are more likely Western Europe, Chinese firms have
knowledge transfers. So a rise in FDI to be a component of strategies for emerged as major international
indicates deeper cross-border ties than CEOs based in developed markets, investors, as have Indian companies,
trade alone would imply. perhaps reflecting classic consolidation and this trend is set to continue.
in mature economies: 15% say MA “Company valuations are now much
CEOs are being guided by domestic offers the main opportunity for growth more attractive than they were last
customer demand in choosing their for their companies versus 10% in year,” said Ajay G. Piramal, CEO of
priority markets (see Figure 5). emerging economies. CEOs in Piramal Group Ltd. “Today, we
Measures to integrate product, developed economies were active would pay half or one-third of what
service hubs, research facilities and deal-makers in 2011, with 26% we would have paid for these
operations in each market stem from completing a cross-border transaction, companies last year.”
that commitment. and were also more likely to have
divested an operation. Responses this CEOs based in Africa and the
year indicate the potential of a modest Middle East are the most bullish
pull-back on international deal-making about continued deal-making in 2012:
over the next 12 months: 28% of 40% expect to complete a cross-border
CEOs globally plan to complete a transaction in the next 12 months.
cross-border deal in 2012, a decline Foreign investment into Africa from a
from the 34% who agreed last year number of sources has soared in recent
(see Figure 7 overleaf). years, driven mainly by the mining and
oil industries, but with increasing
The pool of potential acquirers is interest in tourism, telecoms and
becoming more diverse, as are the construction.
target locations. While most cross-

3 Paying Taxes 2012 (www.pwc.com/gx/en/paying-taxes/index.jhtml).


Acquisitions are always risky, even Acquirers will also need to learn new Martin Senn
during a time when assets can be post-merger integration competencies CEO, Zurich Financial Services Group
acquired at seemingly attractive to make these deals work. We believe For a multinational company
prices. Yet our research suggests that that over 10% of deals that complete such as Zurich, the ‘greenfield’
acquisitions in emerging markets – result in significant problems post- approach is sub-optimal. It takes
exactly the type of acquisition that completion. In an assessment of ten too long to make a meaningful
appears to be more popular today – public cases, we found that post-deal contribution to the group. So we
are particularly risky, with lower problems cost the buyer on average employ other options: partnerships
chances of success even for proven 49% of the original investment. and acquisitions.
deal-makers. In our experience
between 50-60% of deals that go into Modify or export? How businesses
due diligence in emerging markets fail achieve the right mix between local
Yang Yuanqing
to complete.4 Difficulty in justifying manufacturing and international
Chairman and CEO, Lenovo
emerging markets valuations is the supply chains to service local needs is
another defining question for growing We have expanded our development
most common reason that deals fail. of personal computers to include
For example, in China, high growth in new markets. Strategies naturally
differ; ‘local’ will be home or intra- smart phones, tablet computers
and strong competition from other and smart TVs. Therefore, we have
foreign bidders, an emerging private regional for some CEOs and a thousand
miles away for others. But in 2012, the a broader space and stage in
equity industry and domestic rivals which to develop.
have driven up valuations. The most tilt is clearly towards decentralising,
common issue to emerge in deals in creating more products whose design
India concerned partnering. as well as production and distribution
is more localised.

Figure 7: A modest decline in cross-border MA is expected in 2012
Q: Which, if any, of the following restructuring activities do you plan to initiate in the coming 12 months?

Responses of ‘Complete a cross-border merger or acquisition’.

40% 110
% of CEOs anticipating MA

Number of deals (100 = 2008)
30% 100

20% 90

10% 80

0 70
2008 2009 2010 2011 2012F

% of CEOs anticipating MA (left axis)

Number of deals (right axis)

Base: All respondents (2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150)
Note: Number of deals is all completed deals where final stake is greater or equal to 20%.
Source: PwC 15th Annual Global CEO Survey 2012; Dealogic

4 PwC, ‘Levelling the playing field: avoiding the pitfalls of the past when doing deals in emerging markets’ (2012).


“On business development, we would innovating locally need to reach scale Michael White
traditionally start with a standard in order to stay profitable. So global Chairman, President and CEO,
product set and adapt it to the local and regional operations still have an The DIRECTV Group Inc.
needs. That has worked well for us for important role in the mix. The real prize in any emerging
years,” said Lázaro Campos, CEO of market is getting at the base of the
SWIFT. “But in India and China you Segmentation in focus. CEOs expect
pyramid, the B minus and the C
need to forget the products that you’ve to either modify or create products
customer who has income in that
got and start from scratch. Start from for specific markets to suit local
US$8,000–12,000 range. So we’ve
what it is they need and build customer preferences. Some four
changed our product offerings,
from there.” billion of the world’s population live in
our approach, and our business
countries where the per capita income
model to be able to target a more
In every major geographic market is between US$ 1,000-4,000 per year.
affordable offering for that
identified by CEOs, more companies This vast segment represents an
consumer, and that has unlocked
are avoiding a simple export model. ‘Emerging Middle’ class in China,
an enormous amount of growth
Substantial proportions, between 17% India and elsewhere that is prompting
for us in Latin America.
and 36%, say they are designing new business leaders to fundamentally
products specifically for local markets rethink business strategies that have
(see Figure 8). The balance is surely been successful elsewhere.
changing as companies increasingly
operate in dissimilar markets and learn Value propositions designed for
to segment better. The advantages countries at the upper end of the
(and expense) of managing a uniform global income distribution seldom
brand across many markets are being work for the needs of this ‘Emerging
weighed against the different needs, Middle’. It’s not only products that
cultures and price points of different must be adapted or built anew, but also
customer bases, and in many cases, production, distribution and marketing
found wanting. But businesses capabilities – in other words, entire
business models.

Figure 8: Pulling away from an export mindset to meet local demand
Q: or each of the countries that you intend to grow your customer base, which of the following three statements best describes your approach to
F
product and service development? (The top 10 countries mentioned by CEOs in ‘Which countries, excluding the one in which you are based,
do you consider most important for your overall growth prospects over the next 12 months?’)

%
100

30 25 20
34 31 32 33 29
37
37
75

30 46
50 46
34 42 43 50
42 49
39

25
36
27 30
24 24 26
20 22 19
17

0
Germany US France Brazil Japan Australia UK Russia China India

Products and services are the same as in our headquarters’ market
Products and services are modified to meet local market needs
Products and services are developed specifically for local market requirements

Base: China (302); USA (195); Brazil (156); India (139); Germany (110); Russia (88); UK (63); France (50); Japan (50); Australia (45)


Jaime Augusto Zobel de Ayala Success involves understanding difference for your company or your
Chairman and CEO customer segmentation and the professional profile: customer service
Ayala Corporation dynamics driving it. Category – even and relations and innovation.”
We had to reinvent the technology price – is not as important as solving a
specific set of consumer problems that CEOs in insurance and asset
of pre-charging our phones to management are among those more
accommodate much smaller are not being met with existing
products. Bajaj, one of India’s leading likely to emphasise innovation in new
denominations. We had to come up business models – often taking
with over-the-air technology that motorcycle manufacturers, recently
launched the Bajaj Boxer, targeted advantage of new technologies.
would transfer funds as needed, Their customers are generating massive
bring the cost down and allow towards the rural consumer. The Boxer
provides a functional benefit of higher amounts of information that they
people to just have the minutes in can now capture, and analysis of this
their phone that they needed for cartage and resilience to poorer rural
roads, features that are highly relevant data is propelling companies towards
a specific period of time. models based on an entirely digital
for the rural markets. The Boxer was
positioned as a sports utility vehicle of supply chain. A far more thorough
motorcycles, directly targeting the understanding of customer behaviour,
Michael Thaman
male consumer with power, sporty based on data now available, can
Chairman of the Board and CEO,
looks and functional benefits, and has change how an underwriter creates
Owens Corning
been a success story for Bajaj Auto.5 policies for customers, for example.
We’ve been quite successful at
that, so we actually believe that Innovating on multiple fronts CEOs in communications, and media
our developing-country strategy Improving the effectiveness of and entertainment, two industries
is giving us manufacturing innovation continues to be a major facing swiftly changing dynamics,
technologies and insights that we strategic priority. Three out of four are the most active on all fronts,
can then take back to our existing, CEOs plan to change RD and whether refocusing innovation efforts
bigger-scale facilities in developed innovation capacity in 2012, of for existing products and services
markets in the Americas or which 24% expect ‘major change’. or for entirely new products in new
Western Europe. models (see Figure 9). But competitive
This is partly related to a widening intensity continues to rise in virtually
definition of innovation. CEOs in all industries, particularly as the
Roger W. Ferguson, Jr industries in the throes of disruptive Internet transforms possibilities.
President and CEO, TIAA-CREF change require radical innovation; Innovation and competition is
Certainly we’ve seen generational if their business cannot quickly increasingly crossing industry
differences, particularly around create new products or services that boundaries, as Francisco González,
social networking and the use of customers will buy, they will not Chairman and CEO of Banco Bilbao
technology, so there are many ways survive. However, innovation does Vizcaya Argentaria (BBVA) SA,
in which we are listening to clients not just mean end product or service pointed out: “Our future competitors
and adapting our practices to changes – it sometimes now includes will not be traditional banks but large
respond to the unique needs of taking costs out of processes or forming technology companies.”
different groups. strategic alliances to collaborate. Each
aspect of the business is fair game for Those in industries with a historical
reinvention. Executives are targeting dependence on innovation are still
changes to their revenue and margin among the most likely to change
models – and the organisation as well approaches. A third of CEOs in
– to find better ways to innovate pharmaceutical and life sciences,
across many dimensions.6 chemicals and technology industries
expect ‘major change’ to RD and
Supporting the capacity to innovate is innovation capacities in their
at the forefront of priorities for CEOs companies as patent expirations and
this year and in recent PwC Global CEO low RD productivity are leaving
Surveys. This is surely a reflection of many large pharmaceuticals with
the accelerating technology advances uncertain revenue streams.
in many industries. Increasingly, being Pharmaceuticals businesses have been
innovative is understood as a primary in the forefront in shifting some
differentiator too. As Luiza Helena research resources to faster-growing
Trajano Inácio Rodriguez, CEO of economies in Asia. Overall RD
retailer Magazine Luiza SA in spending in Asia has surpassed EU
Brazil, told us: “Today, everything’s levels, and Goldman Sachs predicts
a commodity. Service quality is a that it is likely to overtake US levels
commodity, price is a commodity. But before 2020, due in large part to the
there are two things that will make a rapid pace of growth in China.7

5 PwC, ‘Profitable growth for the next 4 billion’ (forthcoming 2012).
6 PwC, ‘Caught in the crossfire’, a 2009 survey of 65 executives on innovation strategies and expectations.
7 Douglas Gilman, ‘The new geography of global innovation’, Goldman Sachs (September 2010).


While primary RD is still largely More innovations created in emerging Antonio Rios Amorim
conducted in home markets, businesses economies are flowing their way back Chairman and CEO
are increasingly shifting some to other markets, according to CEOs. Corticeira Amorim SGPS SA
capabilities to their new priority “To me, one of the interesting things If volume growth is not going to
markets. Spending by foreign affiliates that’s changed globally, particularly in be there, you need to have value
of US multinationals on RD in foreign our company, is where innovation takes growth, and in order to have value
countries, for example, rose to 15.6% place and where it migrates to,” said growth you need to offer the market
of total multinational RD spending Brian Duperreault, President and CEO innovative solutions, products,
in 2009 from 12.5% in 1999, according Marsh McLennan Companies Inc. materials. So, we are focusing a
to a recent report by the US Bureau “Classically, innovation resided in lot more on innovating across
of Economic Analysis.8 The shift in the developed world. We took ideas the board in our company.
research budgets is partly market- and moved them into the emerging
driven as multinationals seek footholds world. There’s now an equal chance,
in fast-growing economies, but is also a and maybe a greater chance, that
result of rising scientific and technology innovative ideas will come out of the
capabilities in foreign countries. “It will developing world, where the action is,
take us another five to seven years to where the need to deliver more for less
become as innovative as companies in is even more heightened. Today we’re
the West,” said Baba Kalyani, Chairman getting as many ideas out of, say, China
and Managing Director, Bharat Forge and India as we were before out of the
Ltd. “But we will get there for sure.” US and Europe.”

Figure 9: Many industries see significant pressure for both process innovations and radical innovation
Q: o what degree are you changing the emphasis of your company’s overall innovation portfolio in the following areas?
T
Responses of ‘significantly increase’.

50

Global average 19

40
Cost reductions to existing processes

6
4
30 1 7
5 12
2
13
8 9 11 20
3 14
10 18
15 17
20 16

10

0
0 10 20 30 40
New business models

1 Banking Capital Markets 6 Metals 11 Chemicals 16 Pharma Life
2 Business and Professional Services 7 Industrial manufacturing 12 Forestry, Paper Packaging 17 Insurance
3 Healthcare 8 Retail 13 Global 18 Technology
4 Automotive 9 Consumer Goods 14 Construction/Engineering 19 Communications
5 Transportation Logistics 10 Hospitality Leisure 15 Asset Management 20 Entertainment Media

Base: All respondents (29-245)

8 Kevin Barefoot and Raymond Mataloni, ‘Operations of US Multinational Companies in the United States and Abroad’, Bureau of Economic Analysis (November 2011).


Resilience to global disruptions
and regional risks
Luiza Helena Trajano CEOs report that they are less likely There’s greater awareness of specific
Inácio Rodriguez this year to focus on changing and evolving risks within different
CEO, Magazine Luiza SA approaches to risk management markets, and how local risks can be
In a globalised world, even localised than on other areas of priority, amplified into global ones. Yet the
crises end up having an impact on from strategies for talent to speed with which risk events unfold
all economies. The 2008 crisis organisational structure. Significant – and the extent to which their impacts
taught us that. defensive steps have already been on the business spread across different
taken: balance sheets have improved risk categories – appear to be
and cash reserves have been built. escalating. In the past 12 months alone,
Nancy McKinstry Enterprise risk is now more frequently 56% of CEOs said their businesses were
CEO and Chair of the Executive discussed in boardrooms. financially impacted by the sovereign
Board, Wolters Kluwer debt crisis in Europe, another 29% cited
Dimitrios Papalexopoulos, CEO an impact from the earthquake and
There is much more need for of TITAN Cement SA, Greece, tsunami in Japan, and 21% cited the
scenario planning than there was a summarised the changes taking place political upheaval in the Middle East.
few years ago. Much more need for in risk approaches since 2008 within
dashboards that senior executives many businesses: “In the past, our risk Key operational moves have already
can look at and understand risk. management and scenario planning improved organisational resilience.
was based on the assumptions After the earthquake and tsunami in
that conditions would change Japan, for example, CEOs based in
Zsolt Hernádi
incrementally. As events of the past Asia Pacific focused on improving
Chairman and CEO, MOL Plc
couple of years have shown, that has their company’s ability to react more
Right now, our ‘homework’ is to not been the case. So we have now quickly to a supply chain shock.9
increase our fitness. What do I mean built into our risk management the They sought new locations for their
by that? Essentially, we must possibility of more extreme conditions operations and reinforced buildings.
maintain our capacity to respond occurring. And our board of directors Changes to supply logistics and
quickly in an unpredictable, ever- has become much more engaged in the increasing contingency plans in
changing environment. enterprise-risk planning process.” supplier networks were also areas that
business leaders in a PwC survey in
July felt were critical to managing
Richard O’Brien future disruptions.10
President and CEO
Newmont Mining Corporation
Last year’s BP oil spill in the Gulf of
Mexico has led many companies to
re ask the question, Is enterprise
risk management one of those
unfortunate check-the-box activities
that every company should be doing
because people tell us we should, or
is it one that we embrace?

9 ‘APEC: The future redefined’, PwC survey of business leaders in 21 Asia Pacific economies (November 2011).
10 ‘Post 3.11 Japan: Global Community’s Perspective’, PwC Global CEO Pulse Survey (July 2011).


Rüdiger Grube
Chairman and CEO,
Deutsche Bahn AG
The nuclear disaster in Fukushima
and the political disturbances in
North Africa and the Middle East
Companies are also learning that Western Europe: have had a direct impact on global
preparedness for uncertainty is about Outlook for taxes, financial market supply chains.
focusing on the consequences of stability. Three-quarters of Western
business disruption. This approach European CEOs are concerned about
can bring risk discussions to a more instability in capital markets and Jouko Karvinen
strategic level. In our experience, when three-quarters are concerned about the CEO, Stora Enso Oyj
the focus is on preparing to respond to government response to fiscal crises. We’re deploying our assets and
consequences, discussions occur across It naturally follows, then, that 70% operations in a more flexible
people involved in strategy, operations, believe that ensuring stability in the manner so that we can control
risk management, crisis management financial sector should be a top priority costs not only with regard to
and business continuity management. of their governments. And stability predictable business cycles, but
By contrast, a focus on assessing the includes calls for consistency in new also to cope with unpredictable
likelihood of particular risks tends to regulations for the financial sector. macro-economic events.
remain theoretical and the domain of
risk managers rather than the functions Central and Eastern Europe:
that will have to respond to disruptions. Exchange rates, corruption. These are Tidjane Thiam
two important threats for business Group Chief Executive, Prudential Plc
Regional concerns reveal regional leaders in CEE economies, with CEOs We certainly invest a lot around
risks. The risk of global economic based there much more likely to report regulation. If you look at the
volatility is a common threat, as is the concerns than global average. As with functions of finance, risk and
continued uncertainty in markets as a CEOs in Asia Pacific, concerns related compliance, they are our highest
result of depressed growth and rising to adjusting to rapidly changing growth areas. We invest a lot in
fiscal debts and deficits in many consumer demands are more prevalent. beefing up our resources and our
developed nations: a concern cited by capability to deal with regulators
over half of CEOs regardless of where North America:
at the right level, because it is
they are based. “We are now into the Constrained state spending, skills
strategic for us.
fourth year of the economic crisis and mismatches. Like CEOs in Europe,
none of the European countries have many in North America believe rising
emerged from the downturn – nor are public debts and deficits are a key
Laércio José de Lucena Cosentino
they confident that they soon will. threat, yet they are less concerned
CEO, TOTVs SA
Compare that with the Asian economic about an increasing tax burden and
capital market instability. They’re also You can no longer analyse one
crisis that began in 1997. By 2001 or
among the least concerned about country in isolation; all are part of
2002, most Asian countries had repaid
inflation and protectionism. the same context, so that anything
their debts to the IMF and Japan,”
that happens within a given group
said Pailin Chuchottaworn, President
of countries will affect the whole
and CEO of PTT Plc, Thailand.
world in some way.
Comparing how CEOs perceive
other threats to their business offers
Dimitrios Papalexopoulos
some insight into the risks that are
CEO, TITAN Cement SA
top-of-mind in different regions
(see Figure 10 overleaf). A business Below the surface of the unfolding
operating globally has to have economic crisis, there remains a
operational strategies that encompass deep society-wide concern around
and respond to these very different risks. the issue of sustainability and the
environment. And that is not
going away.


Douglas R. Oberhelman Asia Pacific: Middle East and Africa:
Chairman and CEO, Caterpillar Inc. Currency volatility, energy costs. Skills shortages and corruption.
I find my time increasingly aimed Currency fluctuations are among the The availability of key skills stands out
at government policy makers and top economic and policy threats for as an acute concern in the Middle East,
policy itself, which is a sign of the CEOs in Asia, and CEOs there are while CEOs in Africa – the most
times. I hear this from my peer more concerned about inflation than optimistic region in terms of their
CEOs all over the world. Today, most others. Skills shortages, rising growth prospects in 2012 – have among
government policy seems to be tax burdens and higher energy costs the highest concern levels across a
wrapped so much more around loom as potential constraints on range of potential threats, notably
business than it’s ever been, and expansion plans. over-regulation and official corruption.
we all need to stand up and be
Latin America:
heard. We have to make sure
Underdeveloped infrastructures.
everybody understands what we
Infrastructure looms larger for
need to do to add jobs, to grow and
CEOs in Latin America as a growth
to be internationally competitive.
threat and CEOs naturally call for
governments to address it. Corruption
and over-regulation stand out as
potential barriers to business.

Figure 10: Global economic uncertainty remains the top threat to growth prospects
Q: How concerned are you about the following potential threats to your business growth prospects?

North America Western Europe Asia Pacific Latin America CEE Middle East/Africa

Uncertain or volatile Uncertain or volatile Uncertain or volatile Uncertain or volatile Uncertain or volatile Uncertain or volatile
economic growth economic growth economic growth economic growth economic growth economic growth

Public deficits Public deficits Exchange rate Increasing tax Exchange rate Exchange rate
volatility burden volatility volatility

Over-regulation Unstable capital Unstable capital Over-regulation Unstable capital Availability of
markets markets markets key skills

Unstable capital Shift in consumers Increasing tax Availability of Increasing tax Public deficits
markets burden key skills burden

Availability of Increasing tax Public deficits Exchange rate Public deficits Over-regulation
key skills burden volatility

Shift in consumers Over-regulation Availability of Public deficits Over-regulation Bribery and
key skills corruption

Increasing tax Exchange rate Over-regulation Bribery and Shift in consumers Unstable capital
burden volatility corruption markets

Exchange rate Inability to Energy costs Inadequacy of Availability of Inflation
volatility finance growth basic infrastructure key skills

Protectionism Availability of Shift in consumers Unstable capital Bribery and Increasing tax
key skills markets corruption burden

New market Energy costs Inflation Protectionism Energy costs Shift in consumers
entrants

Energy costs

Business threats Economic and policy threats Denotes equal ranking

Base: North America (236); Western Europe (291); Asia Pacific (440); Latin America (150); CEE (88); Middle East/Africa (53)
Note: Rank of top threats, by % of somewhat or extremely concerned


Final 2012 ceo survey

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