- Globalisation driven by continued boom in M&A
- Opportunities abound beyond the BRIC countries
- Global warming seen as threat by 40% of CEOs
Over 90% of the 1,100 CEOs surveyed across 50 countries are upbeat about revenue growth in the next 12 months. Longer term, this confidence is undimmed, with 93% of CEOs confident of achieving revenue growth over the next three years. And as the trend towards globalisation continues, CEOs expect this business expansion will be fuelled by improved market penetration, geographic expansion, and mergers and acquisitions, often across borders.
“CEOs around the world, at companies large and small, are increasingly positive about their ability to grow their companies and take advantage of the opportunities globalisation offers for new markets, new products and new customers,” said Samuel A. DiPiazza, PricewaterhouseCoopers' Global CEO. “If CEOs are to make the most of global opportunities for the long term, they must fully understand the realities and risks of funding their growth, working in diverse cultures, managing dispersed resources and competing with a growing set of global players.”
Geographically, CEOs expect growth will continue in the widely-recognised BRIC (Brazil, Russia, India, China) territories, as well as other emerging and developed economies. Beyond the BRICs, the top five countries cited for significant growth opportunities are Mexico, Indonesia, Vietnam, Korea and Turkey, with CEOs generally favouring the nearest developing country as providing the largest growth opportunities.
“Russia remains the focus of great attention on the part of investors in countries all over the world. In nine months of 2006 the volume of foreign investment increased by 55% as compared to the same period in 2005. At the same time, the size and strength of competition for foreign investment is also growing: besides the BRIC countries, a number of other countries with rapidly developing economies are arousing the interest of investors. That is precisely why it is not enough to rely exclusively on the stable economic growth and increased purchasing power of local consumers that are so attractive to investors, but also to increase efforts to improve the investment climate and the image of Russian business overseas,” said Mike Kubena, General Director, PricewaterhouseCoopers Russia.
While nearly three quarters of CEOs agree that continued globalisation is beneficial for both developed and emerging markets, the biggest growth opportunity cited by CEOs is better penetration of existing markets for existing products (23%) with access to new markets via geographic expansion a close second (21%).
“In the past few years we have observed a rise in the mutual interests of the Russian and overseas business communities. Russian companies are building up their presence in overseas stock and commodities markets. At the same time, foreign companies are expanding their activities in Russia, taking full advantage of the opportunities offered by the increasing purchasing power of local consumers. Furthermore, today’s Russian companies are fully in step with the global trend of cross-border consolidation of business and are acquiring assets overseas. A company’s reputation plays a major role within the process of integration happening in the world economy — the outcome of cooperation depends on how transparent a business is, how well its system of governance is structured, and how sustainable it is and open,” commented Mike Kubena.
CEOs are generally cautious about how they might fund their expected growth. Nearly 80% prefer to fund growth from internal cash flow and less than 20% anticipate calling on the equity markets for support. Only 10% are considering private equity or venture capital financing.
To help drive business growth, about half of the CEOs surveyed say they have completed or are planning a cross-border merger or acquisition in the next 12 months, most likely involving a company in a neighbouring country. Appetite for cross border M&A is strongest in Western Europe which is also the most popular target region for CEOs seeking cross border M&A.
Overwhelmingly, gaining access to new markets and customers is the main purpose given for cross border M&A, cited by nearly two-thirds of CEOs. However, CEOs do not underestimate the difficulties faced in cross border acquisition and integration. Cultural issues and conflicts, differences in regulations and unexpected costs are the main obstacles to cross-border M&A activity cited by CEOs.
Generally, CEOs in North America anticipate they will encounter more obstacles to M&A and they have particular worries about cultural issues with 58% citing this problem area. CEOs from Central and Eastern Europe are generally more relaxed about the issues raised by a cross border M&A, although they do have significantly higher worries about political interference than CEOs in the rest of the world.
CEOs are more positive about the impact of globalisation on culture. Nearly 50% of CEOs believe that globalisation is reducing cultural differences; rising to over 50% for CEOs from both North America and Central and Eastern Europe. But an interesting variation is revealed between CEOs in developed and emerging economies, with 43% of developed country CEOs seeing greater globalisation lessening cultural differences, climbing to 58% in emerging economies.
Samuel DiPiazza, PricewaterhouseCoopers Global CEO: “The global winners of tomorrow are those that can change their outlook from local to global in the true sense, and learn to operate in a world now subject to far more influences from a wider array of sources than ever before.”
Barriers to Growth
Despite their overwhelming optimism, CEOs foresee potential barriers to growth, with 73% citing over-regulation as a concern, up from 64% last year. In Asia Pacific, concerns are particularly acute about a looming scarcity of key skills, cited by 88% of CEOs in the region, compared to 72% overall.
Non-business risks such as terrorism, scarcity of oil and other natural resources, political instability and global climate change, were seen as less threatening to business prospects, and about half the CEOs are expending no resources to combat them. However, the current debate about global warming and climate change is beginning to bite, with 40% of CEOs expressing concern about the threat posed by climate change; this figure rises to 58% for Asia Pacific CEOs but significantly drops to only 18% of North American CEOs.
In Asia Pacific, CEOs were generally much more worried about threats to their business than their counterparts elsewhere in the world with 83% concerned about over-regulation, and 80% worried about low-cost competition. However, Asia Pacific CEOs were also better prepared for these threats and were more likely to have expended resources on mitigating them than their counterparts elsewhere.
Notes to Editor:
- For more details, go to www.pwc.com/globalceosurvey
- Russian CEO survey will be release in mid-March 2007 and will cover 51 interview with Russian CEOs.
- For additional information please contact Vera Totskaya, PR Manager at PricewaterhouseCoopers.
- Survey Methodology
For PricewaterhouseCoopers’ 10th Annual Global CEO Survey, 1,084 interviews with CEOs were conducted in 50 countries during the last quarter of 2006. The majority of interviews were conducted by telephone. A postal survey was administered in Japan. Face-to-face interviews were conducted in China and Kenya. The research was coordinated by the PricewaterhouseCoopers International Survey Unit, Belfast, Northern Ireland, in cooperation with project managers and a global advisory board of PricewaterhouseCoopers partners.
By region 428 interviews were conducted in Western Europe, 278 in Asia Pacific, 139 in Latin America (including Mexico), 131 in North America (30 in Canada), 83 in Central and Eastern Europe and 25 in the Middle East and Africa. 30 interviews were conducted in Russia.
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