State-owned enterprises (SOEs) have long been a feature of the global business landscape. And, as the number of SOEs listed in the Global Fortune 500 continues to grow, it seems clear they’ll remain an influential force globally for some years to come.
But this can also pose challenges for a private sector that’s often skeptical of government being too actively involved in business. Indeed, while noting some valid reasons for state ownership, the CEOs responding to our latest ‘pulse’ survey aren’t always complimentary about the role SOEs play in their sectors. They cite concerns about the impact on market competition and how SOEs are sometimes used to bolster protectionist policies. They also worry that SOEs could be a magnet for the pipeline of talent in some countries.
That said, CEOs continue to find a way to work with SOEs. One reason is that SOEs are becoming an increasingly dominant force on the world stage. This reflects, in part, the global shift in economic power from West to East and North to South – 66% of all Fortune Global 500 SOEs in 2014 came from China*. At the same time, this growth also offers up interesting new opportunities for collaboration that can help private and state sectors succeed in the global economy.
So while some CEOs may rail against over regulation and harbour suspicions that SOEs are stifling their own growth, finding common ground between the private and public sector around areas like infrastructure, social value and even innovation might yet offer a path towards better ways of co-existing and working together.
In this latest ‘pulse’, we explore the role of SOEs in the global economy and CEOs’ current perceptions of how they impact their businesses.
Sowing national seeds for success
SOEs globally still have some work to do in winning the trust of the private sector. The majority of CEOs in our ‘pulse’ (83%) had concerns that government ownership distorts competition to some degree. In addition, 67% felt that government ownership influences regulation and enforcement in industry.
We believe, however, that SOEs can take concrete steps to win the trust of the private sector and citizens, delivering real public value by being more actively owned and transparently managed. But their owners – the state at different levels - need to be mindful of allowing SOEs to compete unfairly in markets where private and third sector enterprises can deliver services to the public more efficiently and effectively.
Strength in times of crisis
CEOs may have complaints about the preferential treatment they believe SOEs receive, but they do also see the value of this relationship in times of economic and social upheaval. Forty percent of our ‘pulse’ respondents believe that government ownership can help stabilise an industry during a crisis, while 54% said that protectionist policies have ensured ownership of essential strategic assets remain within national control.
In addition, 72% believe that government ownership helps discourage the entry of foreign competitors – a benefit for domestic private companies in times of economic crisis, but also an obvious barrier to global trade. As Ian Bremmer, president of Eurasia Group, has observed, post 2008 some emerging economies are employing a policy of “guarded globalisation” where they treat multinationals with suspicion and seek to protect local interests.
From health to infrastructure – providing the backbone for economic growth
As PwC’s new report, State-owned enterprises: Catalysts for public value creation?, makes clear, SOEs have a different purpose, mission and objectives to the private sector which relate to some aspect of public service and/or social outcomes. Indeed, private sector CEOs are clear that government ownership can have advantages when it comes to furthering social outcomes.
Societal value in terms of public services such as healthcare and education were areas where 37% of CEOs in our ‘pulse’ agreed that SOEs have a positive influence. There was even greater agreement that SOEs have a role to play in building the physical infrastructure needed for a modern economy. Over half the CEOs in our ‘pulse’ believed that to be true, though far less (just 36%) felt the same with regards to digital infrastructure.
In terms of innovation and talent, both key levers for growth, nearly a quarter of the CEOs in our ‘pulse’ (24%) agreed that SOEs can help with innovation and technology development while 26% believed that SOEs could help develop a talent pipeline for the regional or national economy.
But a spirit of collaboration between private and public sector is going to be crucial for future growth. According to PwC’s recent Government and the Global CEO report based on the findings from this year’s Global CEO Survey, 44% of CEOs, and 49% of state backed CEOs, intend collaborating with government over the next three years to deliver a skilled, adaptable workforce – something that’s critical given the threat that a lack of availability of skills poses to revenue growth.
Companies are looking far and wide, and exploring very unorthodox alliances in order to foster innovation and give themselves a competitive edge. That can include partnering with SOEs for the benefit of both.
A blueprint for the SOE of the future
The reasons for the existence of SOEs may change over time, but it’s indisputable that they’ll continue to be an influential force globally for years to come. How they evolve, however, and what they’ll look like in the future is a key question for debate.
In our view, SOEs have the potential to play a key role in societal and public value creation. But to do so, the future SOE will need to be much more actively owned and managed. The leaders of the SOE of the future will also need to excel and meet the high bar we’d set on having clarity of purpose, the capacity and capability to succeed in their roles and a real commitment to integrity. The more transparent these successes are, perhaps the more convinced CEOs will be about the value of the state-owned enterprise.
Leaders of the SOE of the future will need to meet the following tests:
PwC’s CEO pulse provides a temperature gauge of global CEO sentiment on a variety of topical business issues throughout the year. For this pulse on state owned enterprises we spoke to 153 CEOs across Europe, Latin America, Asia Pacific, Africa, North America and the Middle East in January 2015.
*Source: PwC analysis, Fortune. SOEs in the Global 500 were indicated by Fortune as having 50% or more government ownership.
Nick C. Jones
Director, PwC’s Public Sector Research Centre
Tel: +44 (0) 20 7213 1593
Head of Global Thought Leadership
Tel: +1 617 530 5359
Editor in Chief, Global Marketing & Insights
Editor in Chief, Global Marketing & Insights, PwC United States