27 February 2006 – Over 80 percent of Asia Pacific-based CEOs, who plan to do business in China, rank finding new customers and markets as their primary goal ahead cost-cutting, as their companies expand across the globe, according to PricewaterhouseCoopers’ (PwC) 9th Annual Global CEO Survey. The survey focused on globalisation and complexity – two powerful and inevitable forces that are front of mind among the more than 1,400 interviewed CEOs in 45 countries. Serving existing customers better (48 percent), is the next impetus cited by Asia Pacific-based CEOs who plan to do business in China, again in line with global responses.
“Cutting costs is no longer the sole purpose of globalisation. In the current 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.”
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. Over 70 percent of these CEOs plan to do business in at least one of the BRICs countries over the next three years,and more than 90 percent of Asia Pacific-based CEOs are excited about the investment opportunities the Asia Pacific region has to offer over the next five years.
Of all the economies, China leads as a likely place of business for 55 percent of the CEOs. China was also seen as the location offering the most significant market opportunity, according to 78 percent of respondents planning to do business in at least one of the four BRICs economies. Among these CEOs, India came second with 64 percent, followed by Russia (48 percent) and Brazil (46 percent).
Matthew Wyborn CEO of PwC Thailand said “Thailand will also play an important strategic role for many global corporate, given its central location between the two emerging giants of India and China, together with the continued growth in the local economy”
Optimism notwithstanding, CEOs are also aware of the obstacles on the road to globalisation. They cite overregulation as the primary barrier (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. With reference to the financial stability of Asia Pacific, the Asia Pacific-based CEOs are concerned about non-performing loans (60 percent), fluctuating foreign exchange rates (32 percent) and high level of public debt (43 percent).
Complexity: Managing the Inevitable
An inevitable by-product of pursuing a global strategy is an increased level of complexity in managing and operating an organisation. Overall, seventy-seven per cent (77 percent) of CEOs say 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, the 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.
According to the survey, CEOs identify 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. External forces that significantly increase complexity include national and international laws and regulations, actions by competitors, and changing customer requirements.
With regard to positive complexity arising from value-creating activities, 77 percent of CEOs agree that managing it is a high priority. Almost 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).
PwC Asia Leadership Chairman, Gautam Banerjee, concludes: “Understanding the importance of effective complexity management is the first step. CEOs must also be able to translate that understanding into meaningful action. 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”
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