After a long wait, we are finally seeing a substantial change in business leaders’ economic outlook. Both Hungarian and global CEOs are optimistic about their company’s prospects for growth and the recovery of the global economy. They remain concerned about economic policy factors, but they are focusing on customers and markets as a strategy to improve the present situation. This is the third year PwC, the world’s largest professional services network, has prepared the Hungarian CEO Survey. The survey was conducted in cooperation with the Confederation of Hungarian Employers and Industrialists (MGYOSZ) and the Hungarian Association of Executives (MOSZ).
Optimism is rising among Hungarian CEOs as the global and local economic outlook they express projects a significant improvement compared to last year. Seventy-two per cent are confident that their companies’ revenues will grow over the next 12 months, and even more (85%) expect growth over the next three years. Almost half (45%) of respondents are already planning to hire more employees. The responses given by the 1,344 CEOs polled for the global survey paint a similar picture: 85% are confident about their companies’ revenue growth in the next year, 92% over the next three years, and 50% want to hire more people.
Exports to Germany remain just as important as last year (25% of Hungarian CEOs see opportunities for growth in this area), but in most cases countries bordering Hungary are perceived as twice as important with regard to Hungarian companies’ prospects for growth (see Figure 1 in the Annex).
What are the drivers behind this optimism?
“We also asked CEOs about the most important factors that improved their company’s competitiveness. Those mentioned exploring new market opportunities, developing customer relationships and product or service development, which are all driven by the companies’ own efforts. Based on the information we received, we concluded that CEOs remain concerned about economic policy factors, and their optimism is rather fuelled by the fact that they are turning to customers and markets with renewed energy,” said Nick Kós, Country Managing Partner of PwC Hungary.
Modest structural changes
Most Hungarian companies started smaller or larger restructuring measures in their organisations last year. Almost three out of four CEOs implemented cost reduction, while every third company underwent a major IT transformation in the 12 months preceding the survey. Both in- and outsourcing activity has dwindled in the past two years, and it seems that business leaders are rethinking the effectiveness of these transformations. In contrast, more CEOs are planning to form a new strategic alliance compared to the preceding year.
“The survey results confirm that SSCs (Shared Services Centers) and BSOs (Business Services Outsourcing) operating in various industries still have room for growth. Government subsidies provided to such companies might pay off within a short period of time, and it is a vital interest for Hungary that the skilled white-collar labour force they employ remain in the country. Structural change is driven by several factors, both globally and in Hungary. These include the constant pressure to reduce costs, technological development, the potential of automation, and especially the changes in the field of energy supply and the shift in global economic power,” added Dr. Péter Futó, President of MGYOSZ.
More CEOs plan to increase headcount
The number of Hungarian CEOs who expect to accelerate hiring has significantly increased (45%) from previous years. Only 10% of the respondents predict a drop in employment. However, this process also holds some challenges: whereas two years ago recruiting middle managers with high leadership potential was the biggest problem, one of the key challenges today is finding skilled labour. Fifty-nine percent of the respondents are concerned about talented youth leaving Hungary, and 45% responded that developing and supporting a skilled labour force should be a top priority for government.
What are the CEOs’ main concerns?
As regards economic and political factors, both global and Hungarian CEOs remain concerned about the increasing tax burden, overregulation and the public deficit as potential threats to their organisations’ growth prospects (see Figure 2 in the Annex).
It is also clear from the responses that Hungarian CEOs are nervous about local and industry-specific taxes and the uncertainty of economic growth. Like their global counterparts, Hungarian CEOs also believe that there is still room for improvement in the tax systems from the perspective of competitiveness and efficiency, and the majority agree that the international tax system needs to be reformed.
As regards expectations concerning the regulatory environment, a top priority for Hungarian CEOs is that the government should put more emphasis on enforcing the existing regulations in a transparent and consistent manner. They expect clear regulations that are designed for the long term.
“For several years now, the increasing tax burden has topped the list of risks for CEOs. Instead of regarding taxation as a necessary evil, it is time to think about it as a resource,” said Tamás Lőcsei, Partner and Service Line Leader of PwC Hungary’s tax and legal services practice.
Which global trends will shape businesses in the near future?
CEOs expect that three major global trends – rapid technological advances, demographic changes, and shifts in economic power –, will have a major impact on the global economic and social environment. “These trends will also affect Hungarian companies. They will create many new opportunities for innovation and growth. But to seize these opportunities, Hungarian companies must be ready to radically reassess how they function. The key to success for CEOs lies in capitalising on these opportunities,” stressed Nick Kós.
Almost two-thirds of Hungarian CEOs perceive technological advances to be relevant to their companies. The most significant changes in this field are brought about by the digital economy, social media, mobile devices and big data. The shift in global economic power and demographic changes affect half of Hungarian companies.
Corporate responsibility – Image boosting or value creation?
The concept of corporate responsibility has changed considerably during the past few years, but the interpretation, treatment and target groups of corporate responsibility still vary among the companies. Although most companies surveyed (81%) maintain some form of sustainability or corporate responsibility programme, this is still not a determining factor in companies’ long-term business strategies and missions. Structured CR programmes and medium-term visions are primarily present in companies that are engaged in any of the polluting industries, such as the automotive or energy industry, or an industry with CR as a specific feature, e.g. the telecommunications sector. Some larger providers of financial services have also adopted a stronger CR approach during the past few years, as the economic crisis and the consequential lack of trust mainly hit companies operating in this sector.
“Among the positive findings of the survey is that CEOs regard customers as the most important stakeholder group. However, it is telling that the government and regulators scored higher than employees, the next generation or suppliers. We see it as a very positive development that CEOs see the promotion of the culture of ethical behaviour and the integrity of supply chains particularly important for business success. The CEOs’ attitude towards taxation needs some improvement and support. The findings of the survey are mostly positive, and they are something that can be built on in the future,” said György Szabó, President of MOSZ.
The aim: to find the right balance
According to Nick Kós, current global trends pose serious challenges to business leaders (see Figure 3 in the Annex). “CEOs must maintain the right balance between preserving existing values and being open to changes. They must develop a hybrid approach to leadership capable of creating a balance between keeping old values and responding to new trends, and thus operating in a way that is sustainable in the long run,” the Country Managing Partner of PwC Hungary summed up.
This is the third year PwC has prepared the Hungarian CEO Survey. The basis for the 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 17 years on present challenges and future prospects.
In the Hungarian survey, we used personal data collection: PwC’s experts interviewed the CEOs of 141 Hungarian companies between October and December 2013. During the interviews, we collected quantitative data by means of questionnaires. We contacted companies that PwC industry groups selected from the automotive, pharmaceutical and health, energy, retail and consumer industries, financial services, telecommunications and media, and manufacturing. 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.
One-third (31%) of the companies surveyed are based in Hungary, while the remaining two-thirds are headquartered abroad. Two-fifths (41%) of respondents carry out business activities only in Hungary; half (50%) are active both in Hungary and in foreign markets; and nearly one-tenth (8%) 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 a nearly equal share of the companies we analysed.
The full survey report in Hungarian and English, a promotional video and further details are available on the following webpage: www.pwc.com/hu/ceosurvey
About our survey partners:
Under the presidency of Dr. Péter Futó, the Confederation of Hungarian Employers and Industrialists (MGYOSZ) participated in the Hungarian CEO Survey as PwC’s professional partner for the third time. Established 112 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.
The Hungarian Association of Executives participated in the survey as PwC’s professional partner for the first time. As an organisation that takes an active role in shaping Hungary’s social and economic life, the Hungarian association of public and business executives aims to strengthen personal and business relationships between Hungarian executives, and was therefore pleased to participate in PwC Hungary’s unique survey.
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