SINGAPORE, 4 February 2009 – Asia Pacific CEOs remain more upbeat than their global counterparts about short term growth prospects, amidst a looming world economic slowdown. According to the PricewaterhouseCoopers (PwC) 12th Annual Global CEO Survey , nearly a third (31 per cent) of Asia Pacific CEOs are very confident of growing revenues in the next 12 months compared to the global average of 21 per cent in 2008.
Despite Asia Pacific’s relative optimism, confidence levels are significantly lower than in prior years. In 2007, more than half of top executives in Asia Pacific and globally (56 and 50 per cent respectively) were more confident about achieving short-term growth.
Underpinning the sentiment of slowing growth, three quarters (71 per cent) of Asia Pacific CEOs expect that most growth initiatives will be financed through internally generated cash flows. Nearly 70 per cent of the Asia Pacific CEOs say that investments plans will be affected by higher financing costs and restricted access to finance, thus resulting in delays in planned investments.
As a threat to growth prospects, dominating as a top concern amongst Asia Pacific CEOs is the impact of prolonged recession in the world’s major economies. Eighty per cent of respondents in Asia Pacific are moreover concerned that further disruptions in the capital markets will adversely affect business growth.
“Despite the challenges imposed by the global financial crisis, Asia Pacific business leaders are still focused on long term growth. While ongoing market volatility and diminished sources of funding have dampened economic forecasts, the growth potential of emerging and developing markets in the region remains strong” says PricewaterhouseCoopers' Global CEO Samuel A. DiPiazza, Jr.
“The credit crisis is a global phenomenon, and Singapore, as with the other major financial centres, has been quickly and intensely affected. This is a crisis of confidence that is profoundly and globally connected in nature. It has pushed to the fore critical challenges for our businesses – unavailable credit, sluggish capital markets and collapsing demand” says Gautam Banerjee, Executive Chairman, PricewaterhouseCoopers LLP (Singapore).
“Without doubt, the current state of the economy means that it is not ‘business as usual’ for many companies. As a start, Singapore has taken initial steps with the recent budget measures to help weather the storm. What is needed emphatically now is strong leadership from decision-makers in both the public and private sectors and a stronger collaboration between companies and stakeholders, if we were to successfully manage through this downturn, and be prepared for the economic turnaround that will come” comments Mr Banerjee.
People critical to business durability
Nearly all (99 per cent) of Asia Pacific CEOs believe that attracting and retaining key talent will be critical to sustaining long term growth. CEOs also cite high quality customer service offerings (98 per cent) and brand strength and reputation (95 per cent) as vital components to maintaining competitive advantage and long-term growth.
Concerns about the long-term skills shortage is a key factor for CEOs more cautious about downsizing. Sixty-one per cent of Asia Pacific CEOs consider limited supply of candidates with the right skills as a key constraint. Other human resource concerns include recruiting and integrating younger employees, and in providing more attractive career paths and competition for talents within their sectors.
Three quarters of Asia Pacific CEOs believe that creating more flexible work environments and redeploying key talent (76 and 70 per cent respectively) will enhance their talent management strategies.
“Unsurprisingly, keeping key talent is a high priority for all CEOs. Good quality people are valuable assets in any economic environment. CEOs are balancing the need to reduce costs against programmes that support critical talent and improve productivity. Companies that achieve the right balance will be better placed for a return to growth” says Mr Banerjee.
“Businesses must continue to take a long view and to have in place an affirmative people strategy that includes training talents with the right skill-sets” adds Mr Banerjee. “It is not only important that we survive the downturn, and in light of tough competition ahead, it is as important that businesses emerge from the downturn stronger and more resilient.”
JVs catalyst for medium-term growth
Fifty per cent of CEOs in Asia Pacific believe that joint ventures (JVs) and strategic alliances will play a greater role in business growth than cross-border M&A over the next three years.
“To achieve medium term growth objectives, CEOs have had to contend with a lack of capital, tight credit conditions and uncertainty around company and asset valuations” comments Mr Banerjee. “In the current economic environment, more CEOs may be choosing to enter collaborative arrangements such as JVs over M&A in order to spread the cost and risks associated with cross-border arrangements.”
In a sign of tighter liquidity and falling business confidence, overall M&A activity has decreased. Only 19 per cent of the Asia Pacific CEOs had completed a cross-border M&A during the past 12 months.
“The decline in M&A has been most pronounced in the developing regions of Asia and Eastern Europe. Cultural differences, unexpected costs and delivering deal value are the three greatest challenges CEOs face in considering M&A” concludes Mr Banerjee.