PwC global survey finds, Confidence of Asia Pacific CEOs remains strong Asia takes the lead on M&A activity

Bangkok , 6 February 2008 – The confidence of Asia Pacific CEOs continues to grow in strength and has increased to 56% in 2007, compared to 49% in 2006, reflecting the fact that many local companies continue to be the engine of economic growth which has been driving the region’s economic prosperity for more than a decade.

According to PricewaterhouseCoopers 11th Annual Global CEO Survey , this sentiment is not the same for CEOs globally, whose confidence level has declined for the first time since the 2003 survey. Fifty percent of CEOs were ‘very confident’ about revenue growth over the next 12 months compared to 52% the previous year. An important observation is the wide disparity in confidence levels between CEOs in mature and emerging economies.

The overall drop in business confidence globally was most pronounced in North America, where just 35% of CEOs said they were ‘very confident’ about growth, compared to 53% in 2006, a decline of more than a third. Confidence among Western European CEOs also declined to 44%, down by eight percentage points. In contrast, CEO confidence in the surging economies of Asia Pacific, Latin America, and Central and Eastern Europe, increased, rising to about 55% in each of those regions. This growing confidence is especially strong in China and India – where 73% and 90% of CEOs, respectively, were "very confident" about the prospects for growth in the next 12 months.

Such a global split in confidence levels suggests that the coming twelve months should provide a valuable indication of the rate at which the global economy can continue to expand, despite falling confidence levels in the traditional growth engines of the West. This is a particularly pertinent question given the current volatile global economic conditions caused by fears of a US recession.

Asia take leads on M&A
The survey reveals that Asia takes the lead in prospective M&A (merger & acquisition) activity. A further reflection of Asian CEOs’ higher levels of business confidence is their interest in cross-border M&As in the next 12 months. However, they are keen to stay close to home with 73% of Asian CEOs preferring to make their deals within the Asia Pacific Region. Globally, the Asia Pacific region also attracts the most attention with 37% of CEOs wanting to make a transaction.

Twenty-three percent of Asian CEOs have completed cross-border deals within the past 12 months, however, despite fears of a global economic downturn, 34% - a higher percentage than in any other region – say that they intend to do so within the next 12 months.

Mr. Matthew Wyborn, CEO of PricewaterhouseCoopers Mekong which comprises of offices in Thailand, Vietnam, Cambodia and Laos said "What seems rather more surprising is that the CEOs of very large companies lose more sleep over such issues than those running smaller operations, even though big companies typically have more experience of doing cross-border deals. Close to 50% of Asian CEOs (47%) heading companies with revenues in excess of $10 billion worry about handling cultural conflicts (47%) and capturing the value of the deals they undertake."

Moreover, new players from developing countries including sovereign wealth funds with massive cash reserves in Asia and the oil-rich Middle East, and companies in fast-growing economies, prefer to invest in both China and India.

Commenting on the above Matthew "This surge in outbound investment has sparked protectionist sensibilities in certain quarters. However, some Asian and Middle Eastern investors have recognised the need to tread carefully; they are taking minority stakes to maintain a low profile and minimise opposition, particularly when they are investing in politically sensitive industries."

The key ingredient: People
Irrespective of the business models adopted in response to ongoing global change, the war for talent remains a key concern among CEOs worldwide, ranking second only to a potential economic downturn as the biggest threat to business growth. Our findings show Asian CEOs (94%) believe that the people agenda is a top priority for them in achieving success, but that it is difficult to find people with the right combination of technical and commercial skills. CEOs also point to shortcomings in middle and senior management, and organisational barriers, when it comes to managing change.

Among our research sample, CEOs in Asia − despite the region’s substantial working-age populations − were the most concerned over the availability of key skills, with nearly four-fifths of CEOs in the region citing this as a concern. Seventy-eight percent of Asian CEOs agree that their organisation needs to change the way it develops talent. However, globally, CEOs’ commitment to hands-on involvement in people issues is highest in North America, where 85% of CEOs − 18 percentage points more than the global benchmark − believed their time was best spent dealing with the people agenda. Furthermore, CEOs globally said that combined technical and business experience, global work experience and leadership skills are the most difficult areas for their companies to recruit.

Collaborative networks
What differentiates these new collaborative networks from companies’ existing business relationships and alliances? The key difference is that most companies currently collaborate on an opportunistic basis to achieve a specific objective, such as reaching a new market or launching a new product.

In contrast, a business network is a group of participants who come together in an open community of equals to conduct transactions − the transmission of products, services, information or money − with each another to produce capabilities and outcomes that advance a set of shared business goals. These participants may include customers, distributors, suppliers, channel partners, logistics providers, regulators and other bodies – such as standards associations, community members or non-governmental organisations (NGOs). They may be companies, individuals, loosely defined groups or other entities; they may simultaneously collaborate and compete with other participants in the same network; and they may participate in more than one network.

Our findings show clearly that these collaborative business networks have gained global currency, but that most companies have yet to develop a systematic method of capitalising on them. Globally over half of the CEOs we surveyed agree that collaborative networks will be a defining organisational principle for business, and only 17% ‘agree’ or ‘agree strongly’ that the costs and risks of networks currently outweigh the benefits. Nevertheless, 37% still regard the establishment of networks as a secondary activity, suggesting that they have yet to exploit the full potential of collaboration. Taken together, these findings suggest that CEOs believe collaboration and open business models merit serious attention, but that this does not mean they feel confident about how to leverage them effectively in different contexts at the present time.

CEOs in Central and Eastern Europe sit at one end of the spectrum; only 44% ‘agree’ or ‘agree strongly’ that networks will be a defining organisational principle – perhaps reflecting the dominant role that central planning once played in these economies. At the other extreme, 63% of CEOs in Asia Pacific believe that networks will be a defining organisational principle. Indian CEOs (83%) are particularly open to the idea, perhaps as a result of India’s role as a major centre of global outsourcing, a form of networking in which risks and rewards are increasingly shared.

The way forward: Connect and succeed
Overall, perhaps the most pervasive theme of this year’s Global CEO survey is the tension between collaboration and collective action on the one hand, and competition and individualism on the other. This tension reflects the fact that the connected world is still largely uncharted territory, and that many of the changes currently taking place are not merely refinements of traditional business practice.

"Given this ground-breaking trend, the next decade could well prove to be an extraordinary era for business and society – a period in which companies and governments work together to produce an environment capable of supporting wealth creation and social cohesion around the globe. Put simply, the world is connected as never before. And as this year’s Global CEO survey shows, the full power of collaboration is now beginning to emerge."Matthew concluded.


Further highlights of the survey results:

Climate Change Threat Requires Government Action
Climate change, despite the highly-visible debate over global warming, was cited as a concern by only 34% of CEOs worldwide (down from 40% last year), while the remainder said they did not feel this was a threat to their business. Only 37% said their organisation was investing significant resources to address the risks and opportunities presented by climate change. However, in marked contrast to their fear of over-regulation, four-fifths of CEOs, called for an increase in government action to reduce emissions. Support for increased government intervention was highest among CEOs in Asia Pacific, at 90%, and lowest in North America, 64%. CEOs also favoured collaborative efforts to mitigate climate change. Overall 73% of CEOs believed that businesses need to collaborate more effectively with industry peers and business partners in mitigating climate change. This number rose to 82% in Asia Pacific and declined to 58% in North America.

Threat of Over-Regulation Declines
In contrast to previous years, when regulatory issues such as Sarbanes-Oxley dominated CEOs thoughts, the threat of over-regulation declined this year, though it remained among the top three concerns of CEOs. Over-regulation was mentioned by 59% of respondents, down from 73% in the previous survey. CEOs felt labour laws, tax regimes, and education were the top areas in which governments could make improvements. Just 5% felt improvements were needed in regulation over initial public offerings or listings on stock exchanges. Overall, more than half of CEOs said that governments should drive convergence of tax and regulatory frameworks.

Existing Markets, New Products Keys to Short-Term Growth
Concern about the global economy also impacted CEOs' plans for expansion over the next 12 months. More CEOs now see their main opportunities for short-term growth coming from better penetration of existing markets or developing new products rather than from mergers and acquisitions or geographic expansion. As they did last year, CEOs said they preferred to finance future growth from within the company, rather than external sources such as the debt or equity markets.


Notes to Editor:
Survey methodology
For the PricewaterhouseCoopers 11th Annual Global CEO Survey, 1,150 interviews with CEOs were conducted in 50 countries during the last quarter of 2007. The majority of interviews were conducted by telephone. A postal survey was administered in Japan. Face-to-face interviews were conducted in Kenya and China. The research was coordinated by the PricewaterhouseCoopers International Survey Unit, Belfast, Northern Ireland, in cooperation with project managers and a global advisory board of PricewaterhouseCoopers partners. By region, 454 interviews were conducted in Western Europe (Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, UK), 277 in Asia Pacific (Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, Taiwan, Thailand, Vietnam), 136 in Latin America (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, Venezuela) , 130 in North America (US, Canada,), 86 in Central and Eastern Europe (Czech Republic, Estonia, Hungary, Poland, Russia, Ukraine) and 37 in the Middle East and Africa (Saudi Arabia, South Africa, Kenya).

About PricewaterhouseCoopers
PricewaterhouseCoopers Mekong ( www.pwc.com/th ) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.