25 January 2006
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 Chris Butler, PricewaterhouseCoopers Partner-in-Charge for Lithuania. "The findings of the survey are absolutely relevant for Lithuanian CEOs, who should take into account that their business expansion should be driven not only by cost reduction but also by search for new markets. This way they will maintain their business competitiveness."
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 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.
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. Butler.
ENDS
PricewaterhouseCoopers(
www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.
PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
For more details on this year's survey please go to: wwwpwc.com/globalceosurvey
Survey Methodology
For PricewaterhouseCoopers' 9th Annual Global CEO Survey, 1,410 interviews with CEOs were conducted in 45 countries during the last quarter of 2005. The majority of interviews were conducted by telephone. The research was coordinated by the PricewaterhouseCoopers International Survey Unit, Belfast, Northern Ireland.
By region, 463 interviews were conducted in Europe, 331 in Asia-Pacific, 301 in South America, 187 in the United States (plus, in North America, 58 in Canada and 14 in Mexico), and 56 in the Middle East and Africa. By industry, financial services companies represent 17 percent of the interviews; technology and media companies represent 14 percent; and companies in the products sector (consumer and industrial products manufacturers, distributors, and retailers) represent 68 percent.
Twenty-three percent of the respondents' companies earn revenues in excess of $1 billion; 10 percent earn $500 million to $1 billion; 58 percent earn less than $500 million; and 9 percent offered no information.
Fifty-two percent of this year's participants are publicly listed on a stock exchange, while 47 percent are privately owned. One percent did not specify their companies' status.
