Crisis, Expansion and Opportunities PwC 12th Annual Global CEO Survey

Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.

This article appeared in the March 3, 2009 issue of the Bangkok Post.

By Prasan Chuaphanich

Battered by the current recession, the confidence of CEOs around the globe has plummeted and executives expect a slow, gradual recovery over the next three years. These were just some of the opinions expressed in our 12 ^th Annual Global CEO Survey, where CEOs opened up and shared opinions ranging from overall lack of confidence in reaching targets to the importance of retaining talent and also gave personal first impressions on the impact of the global crisis. In compiling the survey, PricewaterhouseCoopers spoke to 1,124 CEOs in 50 countries during the last quarter of 2008.

The pattern emerging is that CEO confidence has plunged to its lowest level since 2003, when PricewaterhouseCoopers first began tracking CEOs' forecasts. There is no doubt that CEOs are retrenching, entering ‘survival mode’ and the percentage of CEOs who are ‘very confident’ about their one-year revenue growth prospects fell to just 21%, from 50% in our 2008 survey. This level is the lowest we’ve seen in the last six years. Meanwhile the local outlook remains more optimistic and 31% of Asia Pacific CEOs are more bullish about revenue growth.

Confidence has fallen, and not only in the short term - just 34% of CEOs are very confident about their three-year growth prospects. Most CEOs around the world are planning for a slow recovery and this is evident by some fairly dramatic changes in business plans. CEOs clearly plan to cut costs and delay investments. Nearly 70% say their growth plans will be affected by the financial crisis, 69% of whom plan to delay investment plans, so liquidity and access to capital concerns are at the root of their thinking. 61% say headcount will either stay the same or decrease in 2009 and the percentage of CEOs looking to existing markets as their main opportunity for growth has risen from 30% in 2008 to 37% in 2009, suggesting that many are delaying their expansion plans.

78% of CEOs are trying to create more flexible work environments as part of their people strategies, with the majority saying they are redeploying pivotal employees within the organisation. This suggests companies believe they need to retain and develop capabilities in-house to drive organisational success over the long term yet are also faced with balancing the need to reduce costs against programmes that support critical talent and improve productivity. Naturally, companies that achieve the right balance will be better placed for a return to growth

A ray of optimism is currently shared by CEOs in Asia Pacific who believe that joint ventures and strategic alliances will play greater roles in business growth over the next three years than cross-border mergers & acquisitions. This may reflect the lower costs and risk levels associated with joint ventures, as well as the increasing popularity of collaboration when dealing with the challenges of cross border growth. To achieve medium-term growth objectives, CEOs have to contend with a lack of capital, tight credit conditions and uncertainty around company and asset valuations. However, merger and acquisition activity has decreased and only 19% of Asia Pacific CEOs say they have completed such a transaction within the last year. Still, joint ventures are a different platform when it comes to risk mitigation, as they involve partnerships that tend to play out over many years in changing conditions.

It comes as no surprise to find that CEOs currently expect the worldwide banking crisis to have a broad impact on business, affecting companies across all geographic regions and business sectors. When analysing how their companies will be affected by the credit crisis, nearly 80% feel they face higher financing costs, and nearly 70% say they will delay planned investments as a result. In certain industries uncertainty has risen, and companies in the banking, utilities, construction, entertainment and automotive sectors feel most likely to be impacted. On the positive side, CEOs whose companies are anticipating growth say they will fund it primarily through internal cash flow, followed by the debt and equity markets.

The key theme emerging from this year’s survey is the need to achieve a viable balance between short-term and long-term perspectives. Never before have such daunting threats to short-term business survival
coincided with the need to formulate long-term business strategies geared to address ‘big picture’ risks. What remains unclear is the extent to which global businesses are truly assimilating their experience of
this financial crisis into their long-term thinking.

Prasan Chuaphanich is Joint Executive Chairman of PricewaterhouseCoopers in the Southeast Asia Peninsula region, which comprises Malaysia, Thailand, Vietnam, Cambodia and Laos.

If you would like a full copy of the 12 ^th Annual Global CEO Survey or have any comments, please contact us at leadingtheway@th.pwc.com.