The glass half-full

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The PwC global CEO survey 2014 Fit for the future: Capitalising on global trends.

For almost 20 years, PwC has been conducting global CEO surveys in order to get their perspective on economic development and business climate. For the latest survey that was unveiled recently in the Davos Economic Forum, more than 1,300 CEOs from 68 countries were interviewed. A similar survey that we carried out at the same time among Estonian CEOs showed that most of them are convinced that despite certain insecurity, the „glass” should still be regarded as half-full rather than half-empty.

CEOs are more optimistic

The confidence of global CEOs has somewhat improved in a year and is significantly higher than in crisis years, but still below that of economic boom. Worldwide, 39% of CEOs expect revenue of their business to grow this year, up from 36% a year earlier. In Estonia, 41% of CEOs are very confident of their company’s growth prospect, up from 35% in a year. Among Estonia’s most important trade partners, 30% of Scandinavian, 33% of German and 53% of Russian CEOs expect the revenue of their company to increase.

An interesting trend that has developed over the last year is that there is new confidence in several advanced economies (e.g., US, Germany and UK), and certain disappointment in the state of economy of various emerging countries. While the potential of a number of emerging economies (eg Brazil, Russia and India) seems to be vast, widespread corruption and institutional inefficiencies often impede realization of this potential, forcing multinational enterprises to re-focus again on the West. Although in Western Europe, CEOs are in average still more pessimistic than their counterparts in emerging economies, the gap in growth expectations is shrinking.

For Estonian businesses, the three most important foreign markets for revenue growth include Finland (36% of respondents), Sweden (27%), Latvia (21%), Russia (20%), Lithuania (17%) and Germany (11%). In comparison with last year’s survey, expectations towards Latvia have grown significantly, while the shares of Germany and Russia have somewhat decreased.

Technological advances as the most important megatrend

Of global megatrends, most CEOs expect extremely rapid technological advances to transform their business and the society as a whole. This is putting business models of whole economic sectors at risk, for instance e-commerce replacing retail trade or online media making print media obsolete. According to forecasts, by 2020 there will be nearly seven times more networked devices than people in the world.

Apart from technological advances, also demographic shifts will play a significant role, both in terms of accelerating urbanization and ageing of population. In 2020, there will be 8.3 billion people living on Earth who will be consuming 50% more energy, 40% more water and 35% more food than today. Their average age will be notably higher and about 70% of them will live in cities. The pay gap between advanced and emerging economies is shrinking. The changed world will create both risks and opportunities for businesses, making those entrepreneurs who can benefit from global trends the real winners.

Lack of workforce is Estonia’s biggest problem

While at the peak of the crisis, Estonia had one of the highest unemployment rates in the EU, the pendulum is now at the other end. In the opinion of Estonian CEOs, the most important business risks and economic problems are the availability of skilled workforce (86% of respondents considered it significant or relatively significant) and increase in labour costs (75%). Another cause for concern is modest economic growth of partner countries (70%).

As many as 40% of respondents plan to hire more employees during this year, while only 18% plan to lay off workforce. Lack of skilled workforce creates competition for available employees which is reflected in the wages: 90% of respondents said that they plan to increase wages this year, a fifth of them by more than 5%.

In their opinion about the Estonian government, CEOs are unhappy with weak vocational education policy that has failed to bring enough labour with the necessary skills to the labour market. At the same time Estonian CEOs are relatively satisfied with keeping the financial sector stable and development of infrastructure.

In terms of taxation policy, the opinion of CEOs is divided. While they are satisfied with the government’s efforts in creating an internationally competitive taxation system, they are also concerned about the growing tax burden. While in recent years the general tax burden in Estonia has not increased significantly, businesses would clearly want to see the tax burden to decrease. First and foremost, they would like to see lower labour taxes as it would offset some of the growth in wage costs.

Mainly organic growth

We also asked CEOs which business opportunities and geographical markets they link to their growth expectations. While a year ago CEOs mostly expected growth to come from innovation and creation of new products and services, this year’s survey showed that the biggest source of growth is organic growth in existing markets, respectively 43% in Estonia and 27% abroad. Hopefully, this shows that businesses preparing for a new jump are simply trying to earn a maximum profit on existing products and services, and not that Estonian businesses have lost their appetite for innovation.