What do CEOs think about their growth prospects in Hungary and globally? What has the biggest impact on their operations, and how are they adapting their companies to a rapidly changing market environment? The top executives of 171 companies took part in the 2nd Hungarian CEO Survey, prepared this year by the Hungarian member firm of PwC, the world’s largest professional services network. Seeking answers to the above and to other questions, the survey was conducted in cooperation with the Confederation of Hungarian Employers and Industrialists (MGYOSZ).
Despite the generally negative mood, 60% of Hungarian CEOs are very confident about their companies’ prospects for revenue growth for the next 12 months, while only 5% expect the Hungarian economy to grow. CEOs are even more optimistic about revenue growth in the longer term: 71% expect their prospects to improve over the next three years. The responses given by the 1,330 CEOs polled for the global survey paint a similar picture: 81% of global CEOs are confident about their companies’ growth prospects for the next 12 months, and 90% for the next three years. However, only 18% expect the world economy to improve.
“Based on the 16th Annual Global CEO Survey, PwC Hungary has surveyed the opinions of Hungarian CEOs about the domestic economic outlook and growth opportunities for the second time. One of the questions we asked CEOs was whether they are planning to make investments or they are still focusing on reducing costs. It is clear from the responses that the main purpose of investments is to increase operational efficiency, and cost reductions are the most important factor in improving competitiveness. In spite of this, the mood of Hungarian CEOs has improved somewhat: 60% are confident about their prospects for revenue growth, which is up from 47% last year,” said Nick Kós, Country Managing Partner of PwC Hungary.
Where do CEOs see growth opportunities?
Hungarian CEOs, like their global counterparts, see the potential for growth primarily in the development of new products, and in expanding in their existing domestic markets. Although only a small portion (less than 10%) of Hungarian companies venture abroad, the fact that China ranks as one of the most important countries for growth (9% of respondent put China in this category, making it the third most important destination after Germany and Romania) shows that Hungarian companies are focusing more and more on emerging markets. “The number of Hungarian companies thinking about expanding abroad is still small, which is surprising given that international expansion may represent a significant growth potential for them. Global CEOs have a more positive attitude about this, as they focus more on certain dynamically developing markets,” Nick Kós added.
When asked about potential economic and policy threats to their growth prospects, Hungarian and global CEOs both highlighted the following: government response to fiscal deficit and the debt burden; uncertain or volatile economic growth; increasing tax burden; and over-regulation.
Putting key stakeholders first
“It is clear from our survey that there are three factors which Hungarian CEOs have to deal with more intensively: the increasing influence of the government and regulators on the operation of businesses; focusing more on developing customer relationships; and adapting to a fast-changing business environment,” said Tamás Lőcsei, Partner and Service Line Leader of PwC Hungary’s tax and legal services practice.
According to respondents, the government and regulators clearly have the biggest influence on their business operation. This is not surprising in light of the government’s fiscal measures in the past few years. However, increasing government influence is not unique to Hungary: global respondents expressed similar concerns about the increasing role of government and regulators. The effects of the government’s and regulators’ decisions on businesses give cause for concern both in Hungary and globally. Well over two-thirds of CEOs rated government fiscal policies, the increasing tax burden and the government’s potential over-regulation among economic and political risks that pose a threat to growth, and this is the highest percentage polled since 2006.
However, one important difference is that global CEOs ranked customers first as the most important stakeholders (97% said customers and clients have the most significant influence on their business operation), followed by industry competitors and peers (90%), and government and regulators (85%). In Hungary, the most influential stakeholders are the same as globally, but the ranking is different: government and regulators came in first (according to 83% of respondents), customers second (82%), and competitors third (75%).
Focus on the customer
Based on the global survey, according to a sweeping majority (97%) of CEOs, once again “the customer is king.” This is also supported by the fact that 51% of the respondents said that expanding their customer base is one of the most important priorities for the next 12 months. It is clear from the responses that CEOs are now trying to win over more customers by focusing on fewer, albeit more targeted, growth areas. According to our survey results, in terms of customer-centred operation, there is still room for improvement for Hungarian CEOs: although customers are among the most important stakeholders, they rank lower than the government. It is also surprising that while 82% of global CEOs are planning to devise new strategies to retain their existing customers and increase customer loyalty, less than two-thirds of Hungarian CEOs are planning to do the same. In other words, focusing more on customers and increasing their loyalty represent an as-yet-untapped growth opportunity for Hungarian companies.
How do CEOs cope in these tough times?
Based on Hungarian and global CEOs’ responses, steps taken towards cost reduction and cost-effectiveness are still the most important factors in improving competitiveness (61% of CEOs are considering such measures in Hungary, and 70% globally). Improving operational efficiency thus continues to be the first reaction of CEOs. However, more than half of the respondents are also planning some major development or investment over the next 12 months: 37% of them are considering introducing new technologies, and 31% are specifically targeting the enhancement of production capacity. It may surprise some that 79% of the CEOs we polled (most of whom are in charge of large enterprises) did not experience that, as a result of the crisis, loan financing opportunities were harder to obtain for their companies at the turn of 2012 and 2013. This figure is not much lower for the senior executives of privately owned companies, either: 72% are of the same opinion.
As regards workforce planning, Hungarian CEOs reported slightly improving prospects: 37% do not expect any change in their employee headcount over the next 12 months, while 26% are planning to increase their workforce to some degree. Employee lay-offs are on the agenda for 31% of respondents.
The basis for the 2nd Hungarian CEO Survey is provided by the PwC Annual Global CEO Survey, in which, in addition to the CEOs of global companies, leaders of Hungarian businesses have also been polled for 16 years on present challenges and future prospects.
In the Hungarian survey, we used personal data collection: PwC’s experts interviewed the CEOs of 171 Hungarian companies between October and December 2012. During the interviews, we collected quantitative data by means of questionnaires. We contacted companies from the following industries: automotive, pharmaceutical, energy, tourism, retail and consumer, financial services, telecommunications and media, and industrial production. For our analysis, we considered privately owned, non-state-owned and non-listed companies, in which the owners or their direct trusted representatives are involved in day-to-day operation, separately.
Two-fifths (43%) of respondents carry out business activities only in Hungary; nearly half (48%) are active both in Hungary and in foreign markets; and one-tenth (9%) only operate abroad. Companies with revenues of up to HUF 9.99 billion, between HUF 10 and 49.99 billion, and over HUF 50 billion represented equal shares of the companies we analysed.
About our survey partner:
Under the presidency of Dr. Péter Futó, the Confederation of Hungarian Employers and Industrialists (MGYOSZ) participated in the 2nd Hungarian CEO Survey in 2013 as PwC’s professional partner for the second time. Established 111 years ago, MGYOSZ represents more than 60% of the private sector in terms of invested capital, turnover and number of employees. Its membership includes 6,000 medium-sized and large enterprises, 51 professional and 15 county-level and regional federations. Since 2005, MGYOSZ has been a member of BUSINESSEUROPE, the most influential coalition of employers’ organisations in Europe. MGYOSZ is pleased to have accepted PwC’s offer to take part in the survey, as working closely with PwC has made it possible for MGYOSZ to accurately assess the situation of Hungarian businesses and the opinions and expectations of CEOs, and represent the interests of its members more efficiently.
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