Delivering Results Growth And Value In A Volatile World 15th Annual Global Ceo Survey 2012

15th Annual Global CEO Survey 2012
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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 nancial crisis, we nd 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 nding
increasingly hard to develop. No wonder that it easier to hire people in their industries – and
con dence is down from what we saw last the constraints are having uanti able 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
rmly 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 uantitative ndings.

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

Con dence 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
will improve this year (see Figure 2). most important for their future. As a
Incremental improvements in business result, 0% are ‘very con dent’ in
optimism seen in the PwC 15th Annual prospects for revenue growth in their
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
con dence declined in parallel among
President and CEO
CEOs across all regions, except for the
Ec ac ba Group A S
Middle East and Africa.

Figure 2: Half of CEOs expect the global economy to decline in 2012
Q: Do you believe the global economy will improve, stay the same,
or decline over the next 12 months? in the region – in North Africa and

4%
15%

Improve

Stay the same

48% Decline
36%
34% Don’t know



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
con dent 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.
At rst glance, this relative optimism
seems unfounded. The unfolding The rise in investment and commerce
Eurozone crisis alone is creating more to and from emerging economies
room for disappointment. So what does – more pronounced than in any period
this pattern mean? Should we worry over the past decade – creates vast
that the chart suggests we might be market potential. Half of CEOs based
facing 2008 all over again, perhaps in developed markets believe that
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 nancial
Possibly, but we don’t think so. In our problems, but this structural shift is
view, CEO con dence 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
infrastructure spending, sustainability closely integrated world comes
technologies, demand for health care, together. CEOs believe that the forces
education and personal nance of global integration will stay on track:
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 ows will not come
President and CEO
And since the most recent downturn under new constraints.
The Norinchukin Bank
began, negotiations in the World Trade
Organisation’s Doha Round have As a result of these factors, business
foundered and a few governments have leaders’ commitment to doing more
taken measures to protect domestic business globally is, if anything,
industries they consider vital. But that accelerating despite economic,
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
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 nancial 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 M&A) 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
educational systems everywhere to
econ guring o erations to meet
keep up with business needs.
local market needs: CEOs are
simultaneously building local These areas suggest a set of questions
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
(R&D), 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, recon guring 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 am li es: It may feel
those markets which are important to as if disruptions are multiplying as
the future of their business while also their impacts expand across widely
seeking stability and more certainty in dispersed and nely tuned supply
their domestic markets. chains. During 2011, global businesses
had to confront a portfolio of
This was a message we consistently
unrelated high-impact global risks –
heard from CEOs, regardless of where
from political upheaval and a nuclear
they are based. “We adopted a strategy
disaster to massive oods 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 pro t 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
Lenovo. “In emerging markets, we
consequences they have to prepare for
have primarily adopted an ‘attack’
from a range of risks. Many companies
strategy. That means we have to pay
weren’t directly affected by the
more attention to market share at the
improbable Fukushima crisis, for
beginning instead of pro t. We would
example, or the oods in Thailand.
say that it is dif cult to make money if
However, supply chain disruption as
market share is less than 10%.”
severe as those two events caused
Similarly Keith McLoughlin, President should be on every company’s radar.
and CEO of AB Electrolux pointed
out: “Our goal is to maintain market
share in the mature markets. Those
markets generate a lot of earnings
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,
in another. What has changed is the innovate anew, take advantage of local
way operations are con gured. India’s talent and brands, reduce risk and
Tata is now the largest manufacturer in strengthen supply chains.
the UK. Taiwan’s HTC pioneered the
use of Google’s Android software. New Over 60 different economies were
operational strategies are required to named by CEOs as key overseas
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
that’s what CEOs are investing to do: example, are propelling CEOs past a
build fully edged operations, mindset focused solely on the BRICs.

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 identi ed by the most manufacturing capacity in Russia, and
CEOs, and mentioned as economies 30% in China. A similar pattern holds
where they are expanding capabilities. for product development; CEOs are
Equal numbers of CEOs from seeking to source innovation from
developed and emerging markets within their key markets.
identi ed the two countries as
important. China presents a different The recovery in foreign direct
picture of diversi cation: it’s important investment (FDI) in 2010 corroborates
to 37% of CEOs based in developed this trend.2 In ows into Brazil and
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 in ows
Many of their objectives in the next into mature economies on the other
12 months are similar (see Figure 6). hand, are at – or down sharply in
Building manufacturing capacity, for the case of the European Union.
example, is important for many CEOs While FDI out ows from Organisation
in each of their key markets. China for Economic Cooperation and
faces increasing competition as CEOs Development (OECD) member
reach further a eld. 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 R&D/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
Market opportunity, natural resources, talent ... all of these factors matter
when companies decide where and how to locate operations. But tax may be
the most signi cant: 44% of CEOs say tax policies are a ‘signi cant factor’ in
their decision-making on cross-border locations. This has not gone
unnoticed. Nations are increasingly competing on tax to foster in-bound
investment. Businesses, innovation and skilled people will ow to countries
where tax systems encourage and offer the prospect of economic growth.

CEOs are paying close attention to changing tax conditions as a result of
high debts and de cits in developed economies: 29% are anticipating they’ll
change growth strategies as a result, with 19% globally ‘extremely
concerned’ over an increasing tax burden in countries where they operate.

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
IFC, which measures the ease of paying taxes across 183 economies
worldwide. Globally, the total tax rate has fallen by 8.5% since 2006; the
time required to comply with taxes declined by more than one day per year
(54 hours); and the number of tax payments required dropped by ve.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 rms 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 re ecting classic consolidation and this trend is set to continue.
in mature economies: 15% say M&A “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
prices. Yet our research suggests that that over 10% of deals that complete
acquisitions in emerging markets – result in signi cant problems post-
exactly the type of acquisition that completion. In an assessment of ten
appears to be more popular today – public cases, we found that post-deal
are particularly risky, with lower problems cost the buyer on average
chances of success even for proven 49% of the original investment.
deal-makers. In our experience
between 50-60% of deals that go into Modify or e ort? How businesses
due diligence in emerging markets fail achieve the right mix between local
Yang Yuanqing
to complete.4 Dif culty in justifying manufacturing and international
Chairman and CEO, Lenovo
emerging markets valuations is the supply chains to service local needs is
most common reason that deals fail. another de ning question for growing
For example, in China, high growth in new markets. Strategies naturally
and strong competition from other differ; ‘local’ will be home or intra-
foreign bidders, an emerging private regional for some CEOs and a thousand
equity industry and domestic rivals miles away for others. But in 2012, the
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 M&A 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 M&A

Number of deals (100 = 2008)
30% 100

20% 90

10% 80

0 70
2008 2009 2010 2011 2012F

% of CEOs anticipating M&A (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 eld: 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 pro table. 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.
years,” said Lázaro Campos, CEO of
SWIFT. “But in India and China you Segmentation in focus. CEOs expect
need to forget the products that you’ve to either modify or create products
got and start from scratch. Start from for speci c markets to suit local
what it is they need and build customer preferences. Some four
from there.” billion of the world’s population live in
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
identi ed by CEOs, more companies This vast segment represents an
are avoiding a simple export model. ‘Emerging Middle’ class in China,
Substantial proportions, between 17% India and elsewhere that is prompting
and 36%, say they are designing new business leaders to fundamentally
products speci cally 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: For each of the countries that you intend to grow your customer base, which of the following three statements best describes your approach to
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 pro le: customer service
Ayala Corporation dynamics driving it. Category – even and relations and innovation.”
price – is not as important as solving a
speci c set of consumer problems that CEOs in insurance and asset
are not being met with existing management are among those more
products. Bajaj, one of India’s leading likely to emphasise innovation in new
motorcycle manufacturers, recently business models – often taking
launched the Bajaj Boxer, targeted advantage of new technologies.
towards the rural consumer. The Boxer Their customers are generating massive
provides a functional bene t of higher amounts of information that they
cartage and resilience to poorer rural can now capture, and analysis of this
roads, features that are highly relevant data is propelling companies towards
for the rural markets. The Boxer was models based on an entirely digital
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 bene ts, and has change how an underwriter creates
Owens Corning
been a success story for Bajaj Auto.5 policies for customers, for example.

nnovating on multi le fronts CEOs in communications, and media
Improving the effectiveness of and entertainment, two industries
innovation continues to be a major facing swiftly changing dynamics,
strategic priority. Three out of four are the most active on all fronts,
CEOs plan to change R&D and whether refocusing innovation efforts
innovation capacity in 2012, of for existing products and services
which 24% expect ‘major change’. or for entirely new products in new
models (see Figure 9). But competitive
This is partly related to a widening intensity continues to rise in virtually
de nition 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
if their business cannot quickly increasingly crossing industry
create new products or services that boundaries, as Francisco González,
customers will buy, they will not Chairman and CEO of Banco Bilbao
survive. However, innovation does Vizcaya Argentaria (BBVA) SA,
not just mean end product or service pointed out: “Our future competitors
changes – it sometimes now includes will not be traditional banks but large
taking costs out of processes or forming technology companies.”
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 nd better ways to innovate pharmaceutical and life sciences,
across many dimensions.6 chemicals and technology industries
expect ‘major change’ to R&D 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 R&D productivity are leaving
Surveys. This is surely a re ection 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 R&D
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, ‘Pro table growth for the next 4 billion’ (forthcoming 2012).
6 PwC, ‘Caught in the cross re’, 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 R&D is still largely More innovations created in emerging Antonio Rios Amorim
conducted in home markets, businesses economies are owing 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
markets. Spending by foreign af liates that’s changed globally, particularly in
of US multinationals on R&D in foreign our company, is where innovation takes
countries, for example, rose to 15.6% place and where it migrates to,” said
of total multinational R&D spending Brian Duperreault, President and CEO
in 2009 from 12.5% in 1999, according Marsh & McLennan Companies Inc.
to a recent report by the US Bureau “Classically, innovation resided in
of Economic Analysis.8 The shift in the developed world. We took ideas
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 scienti c and technology innovative ideas will come out of the
capabilities in foreign countries. “It will developing world, where the action is,
take us another ve 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: To what degree are you changing the emphasis of your company’s overall innovation portfolio in the following areas?
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 speci c
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
than on other areas of priority, ampli ed into global ones. Yet the
from strategies for talent to speed with which risk events unfold
organisational structure. Signi cant – and the extent to which their impacts
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. nancially impacted by the sovereign
Board, Wolters Kluwer debt crisis in Europe, another 29% cited
Dimitrios Papalexopoulos, CEO an impact from the earthquake and
of TITAN Cement SA, Greece, tsunami in Japan, and 21% cited the
summarised the changes taking place political upheaval in the Middle East.
in risk approaches since 2008 within
many businesses: “In the past, our risk Key operational moves have already
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 Paci c focused on improving
Chairman and CEO, MOL Plc
couple of years have shown, that has their company’s ability to react more
not been the case. So we have now quickly to a supply chain shock.9
built into our risk management the They sought new locations for their
possibility of more extreme conditions operations and reinforced buildings.
occurring. And our board of directors Changes to supply logistics and
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

9 ‘APEC: The future rede ned’, PwC survey of business leaders in 21 Asia Paci c 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

Companies are also learning that estern uro e:
preparedness for uncertainty is about Outlook for taxes, nancial market
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 scal crises.
consequences, discussions occur across It naturally follows, then, that 70%
people involved in strategy, operations, believe that ensuring stability in the
risk management, crisis management nancial sector should be a top priority
and business continuity management. of their governments. And stability
By contrast, a focus on assessing the includes calls for consistency in new
likelihood of particular risks tends to regulations for the nancial sector.
remain theoretical and the domain of
risk managers rather than the functions entral and astern uro e:
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
risks. The risk of global economic based there much more likely to report
volatility is a common threat, as is the concerns than global average. As with
continued uncertainty in markets as a CEOs in Asia Paci c, concerns related
result of depressed growth and rising to adjusting to rapidly changing
scal debts and de cits in many consumer demands are more prevalent.
developed nations: a concern cited by
over half of CEOs regardless of where North America:
they are based. “We are now into the Constrained state spending, skills
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 de cits are a key
Laércio José de Lucena Cosentino
they con dent 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
crisis that began in 1997. By 2001 or capital market instability. They’re also
2002, most Asian countries had repaid among the least concerned about
their debts to the IMF and Japan,” in ation and protectionism.
said Pailin Chuchottaworn, President
and CEO of PTT Plc, Thailand.

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
operating globally has to have
operational strategies that encompass
and respond to these very different risks.


Douglas R. Oberhelman Asia aci c: Middle East and Africa:
Chairman and CEO, Caterpillar Inc. Currency volatility, energy costs. Skills shortages and corruption.
Currency uctuations are among the The availability of key skills stands out
top economic and policy threats for as an acute concern in the Middle East,
CEOs in Asia, and CEOs there are while CEOs in Africa – the most
more concerned about in ation than optimistic region in terms of their
most others. Skills shortages, rising growth prospects in 2012 – have among
tax burdens and higher energy costs the highest concern levels across a
loom as potential constraints on range of potential threats, notably
expansion plans. over-regulation and of cial corruption.

Latin America:
Underdeveloped infrastructures.
Infrastructure looms larger for
CEOs in Latin America as a growth
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


Tom Albanese
Chief Executive, Rio Tinto

As CEOs seek growth outside familiar markets, they must adapt their rms’
risk practices. Economic, social and political conditions vary by country,
and a more subtle understanding of how these factors will shape the
business environment is critical to spotting new opportunities and
managing unexpected risks.

Many political, regulatory and tax risks are predictable. In developing
countries, market-moving decisions are often made by government of cials
with identi able political motivations or known limitations on their
authority. One European rm operating in Latin America acted on an early
warning of political deterioration and repatriated the rm’s equity, shifting
to local nancing prior to currency devaluation. In a win/win outcome, the
move allowed the company to avoid losses while maintaining operations in
the country.

Even unpredictable risks can be managed. We cannot know when a natural
disaster or social upheaval will spring a surprise, but we can predict which
markets are most vulnerable to such shocks – and how decision-makers are
Hussein Hachem likely to respond when they hit. Situational awareness and planning can
CEO Middle East and Africa, Aramex ensure that their impact on balance sheets, supply chains and market
demand is anticipated.

As they seek growth in new markets, many executives focus on market-
entry risks, but underestimate the risks that come with sustained market
environment where we can do presence – guring that they have good people on the ground and a
good lay of the land. But just as with the political, economic and social
environments, the business environment has changed rapidly in developed
markets. Business leaders must constantly return to the fundamental
question: “How must my business practices evolve to pro t from the torrent
of change underway everywhere around the world?”

The largest emerging markets – notably Brazil, Russia, India and China
– illustrate this principle. Many large multinationals now regard a presence
in these countries as a competitive imperative. Yet, as we have seen
recently, threats to or changes in political leadership, revelations of
corruption and of cial malfeasance, and perceived economic threats
from abroad can have profound downside impacts on the local business
environment. Early movers and those who understand the shifting terrain
in these countries will have substantial advantages, and unpleasant
surprises await those who enter late or without preparation for the torrent
of change underway in these markets. For example, one rm watching the
opening of a market for its services after the 2005 Chinese accession to
the WTO bought out its joint-venture partner and quickly established
itself in interior cities once closed to foreign rms. The investment greatly
increased its corporate pro le among local and central government
stakeholders and spread the brand name quickly in a lucrative market.
In contrast, one bank’s late arrival in Latin America resulted in a failed
attempt to establish a dominant presence in a market where rivals were
already in the midst of consolidating the market.

What’s true for risk is true for opportunity. As their commercial rivals
focus on yesterday’s bonanza, business decision-makers can use a re ned
understanding of political, social and economic trends to spot the growth
opportunities of tomorrow.


This is the talent crunch. It’s a complex
and frustrating challenge and it’s being
felt worldwide. To give a measure of
the scale of the problem: more CEOs
are changing talent management
strategies than, for example, adjusting
approaches to risk (see Figure 4 on
page 7): 23% expect ‘major change’

The talent challenge to the way they manage their talent.
And skills shortages are seen as a top
threat to business expansion.

Tom Albanese Theoretically, nding a good candidate Talent shortages and mismatches are
Chief Executive, Rio Tinto to ll a position should now be a very impacting pro tability now. One in four
straightforward exercise. There have CEOs said they were unable to pursue
never been as many educated people a market opportunity or have had to
in the world, nor has it ever been as cancel or delay a strategic initiative
simple for employers to tap this vast because of talent (see Figure 11).
pool online. Highly skilled talent is One in three is concerned that skills
also highly mobile; but just in case, shortages impacted their company’s
networking advances also mean that ability to innovate effectively.
many more tasks can be handled “Close to 15 percent of energy-related
remotely or outsourced. investments around the world fail or
are lost because a suitable workforce
The reality is far different. A Chinese is not available,” said Zsolt Hernádi,
automaker attends job fairs in Chairman and CEO of MOL Plc.
Germany, even though China produces
large numbers of graduate engineers There are challenges in hiring across
Marijn Dekkers each year. High jobless rates persist in most industries, as well as in retention
Chairman, Bayer AG the US and Europe, disproportionately in some markets and industries,
among the young, even as businesses as businesses compete for highly
fret that they cannot attract the talented people. CEOs are taking
digitally adept ‘Millennial’ generation many approaches to address the
to pursue careers in their industries. shortfalls, as Andrey Kostin, President
Too many well-educated citizens of the and Chairman of the Management
Middle East and elsewhere are not in Board of JSC VTB Bank, put it:
the workforce at all. “Before, people “In some countries we have constant
looked for jobs. Now, companies look shortages of risk managers or retail
for talent,” said Erdal Karamercan, experts, for example, or local nance
President and CEO of Eczac ba experts with relevant expertise.
Group A S. Sometimes the solution is to relocate
people from other of ces.”

Figure 11: Talent constraints have impacted costs – but also factor in lost opportunities
Q: Have talent constraints impacted your company’s growth and proﬁtability over the past 12 months in the following ways?

Our talent-related expenses rose more than expected 43

We weren’t able to innovate effectively 31

We were unable to pursue a market opportunity 29

We cancelled or delayed a key strategic initiative 24

We couldn’t achieve growth forecasts in overseas markets 24

We couldn’t achieve growth forecasts in the country where we are based 24

Our production and/or service delivery quality standards fell 21

%



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