Complexity of Operations Increases as Companies Globalise, Says PricewaterhouseCoopers’ 9th Annual Global CEO Survey
As companies expand across the globe, especially into the BRICs economies –Brazil, Russia, India, and China – finding new customers and markets, not just cost cutting, is now their primary goal, according to PricewaterhouseCoopers’ 9th Annual Global CEO Survey.
Nearly two-thirds of the 1,410 CEOs surveyed are confident that globalisation will have a positive impact on their business over the next three years. CEOs cite overregulation as the primary barrier to globalisation (64 percent), followed by trade barriers/protectionism (63 percent), political instability (57 percent), and social issues (56 percent). Terrorism (48 percent) and organised opposition to globalisation (21 percent) are at the bottom of the list of challenges to global expansion.
“Cutting costs is no longer the sole purpose for globalisation. In the new phase of global expansion, companies are focused on finding and serving new customers in growing markets around the world,” said PricewaterhouseCoopers CEO Samuel A DiPiazza, Jr. “The economies of Brazil, Russia, India, and, of course, China were once seen primarily as sources of low-cost production. However, they now present substantial growth opportunities for both multinational and locally-based companies, and at the same time are producing a new crop of serious global competitors.”
A New Global Focus: Brazil, Russia, India, China
Overall, 71 percent of respondents say their company plans to do business in at least one of the BRIC countries over the next three years. Not surprisingly, 78 percent of these CEOs view China as the most significant market opportunity, followed by India (64 percent), Russia (48 percent) and Brazil (46 percent). They also see China (52 percent) and India (28 percent) as the greatest competitive threats to other markets. CEOs in the BRIC countries saw competitive advantage in the quality and productivity of their workforces as well as in their political and institutional stability and proximity to large consumer markets
CEOs said that expansion into Brazil, Russia, India and China is motivated by the need to significantly expand their customer base and to serve existing customers effectively. As for other motivations for doing business in the BRICs economies, China leads in terms of cost reduction and increasing capacity. India, with its relatively low labour-cost levels, outpaces Brazil and Russia as a cost-reducing destination. And India ranks highest for accessing a highly skilled talent pool.
Respondents identified a broad range of activities to achieve their strategic objectives in the BRICs. Forming alliances topped the list, followed by opening new offices, developing unique products, outsourcing, mergers and acquisitions, and offshoring. CEOs from more developed countries are pursuing such activities in China more than in the other BRICS. This trend, however, did not hold true for CEOs from developing countries.
Complexity: Managing the Inevitable
Complexity brought on by increased overseas commercial activity and by geopolitical forces is increasing along with globalisation. Overall, 77 percent of CEOs said that the level of complexity in their company is higher than it was three years ago, and 27 percent believe it is much higher. However, survey findings suggest that they are not managing complexity very well. Less than 17 percent of CEOs rated their performance in managing complexity as “very good,” regardless of the measurement that was used.
CEOs identified extending operations to new territories (65 percent), mergers and acquisitions (65 percent), and launching new products and services (58 percent) as factors adding the most complexity to their organisations. Outsourcing functions to third parties causes the least amount of complexity, the survey found.
External forces that significantly increase complexity include national and international laws and regulations, actions by competitors, and changing customer requirements.
Nearly all respondents (97 percent) are engaged in at least one programme to reduce complexity in their organisation, and 77 percent are engaged in five or more such programmes. CEOs are focusing their complexity-reducing activities primarily in the areas of information technology (84 percent) and organisational structure (79 percent).
“Complexity is a fact of life, but not all complexity is necessary or adds value. By measuring complexity and eradicating it where it reduces value, CEOs can create strategic advantage in our increasingly global economy,” said Mr. DiPiazza.
