Leading in the new reality

Mongolia highlights

The year 2022 posed unprecedented challenges to Mongolia, one of the largest landlocked countries in the world, in the form of a decline in international trade and a consistent rise in inflation rates. Mongolia, being heavily dependent on its neighbors, faced disruptions in export and import due to China’s COVID-19 related border closure, and Russia’s invasion of Ukraine. 

In this reality, Mongolian CEOs have slightly more optimistic sentiments compared to their global peers, as 48% believe global economic growth will decline in the next 12 months compared to global 75%. As such, the key observations from our survey highlight that the Mongolian CEOs:

Prioritize short term profitability

• Inflation, macroeconomic volatility and geopolitical conflict are the top three risks Mongolian CEOs will focus on in the next 12 months. ESG-related risks remain a focus for the longer term.
• In response to these challenges, nearly three-quarters of Mongolian CEOs are considering  reducing operating costs and diversifying products and services while emphasizing top talent retention.

Recognize the need for transformation

• 68% (29% more than global CEOs) believe their current business models will not survive within the next decade unless they innovate
• As part of the transformation agenda, Mongolian CEOs are shifting their focus on customer preferences, technology advancements and supply chain management

Place a premium on broad collaborations to drive business value

• Compared to global CEOs, Mongolian CEOs are more likely to work with other established companies, entrepreneurs, and start-ups
• The goal of these partnerships is primarily to create new sources of value rather than to solve societal challenges

Today’s tensions driving tomorrow’s transformation

Globally, CEOs are wrestling with a series of questions that are relevant to successfully executing the dual imperative. While most of those CEOs feel it’s critically important for them to reinvent their businesses for the future, they also face daunting near-term challenges, starting with the global economy, which nearly 75% believe will see declining growth during the year ahead.

Prioritizing short term profitability

Over the next 12 months, CEOs around the world feel most exposed financially to inflation, economic volatility and geopolitical risk. All three are immediate, headline-grabbing issues that can reinforce and compound one another, as, for example, Russia’s war in Ukraine pushes up prices, encouraging central banks worldwide to intervene through growth-dampening interest rate hikes. Mongolian CEOs are on par with their global counterparts - more than half of the CEOs feel highly exposed to inflation, geopolitical conflict and macroeconomic volatility.

The picture changes for CEOs’ medium term (five year) outlook. Over that time frame, for global CEOs, cyber risks and health risks join inflation, macroeconomic volatility and geopolitical conflict in the top tier of risk exposure. The disconnect across time horizons begs the question of whether CEOs run the risk of being blindsided in the near term as they focus on here-and-now threats. In the case of cybersecurity, it’s easy for important business technology investments—launching a new consumer-facing app, developing a business line built around artificial intelligence (AI), expanding into a new market—to inadvertently create cyber vulnerabilities.

Mongolian CEOs stay focused on inflation and macroeconomic volatility in the medium term, and cyber threats join the top-tier risk exposure. In terms of geopolitical conflict, while we see no change from the global perspective, Mongolian CEOs are hopeful for a geopolitical storm to calm down, and the threat of conflict will decrease from 59% to 34% in the next five years.

The climate change exposures, although still not high on CEOs’ agenda, grow from 3% to 17% in the medium term for Mongolian CEOs. Mongolia has been actively advocating for sustainable green development, adopting the “Green Development Policy” and the “Sustainable Development Vision 2030” (later updated to Vision 2050). Moreover, the shift for the green economy has met with a positive attitude in the business community, and Mongolian CEOs also work hand in hand with international development organizations such as the EBRD, ADB, UN Page in fueling the green economy locally.

In the 2022 PwC Investor Survey, it has been noted that innovation is the number one priority for investors, which could help temper both cyber and climate risks and even open up new market opportunities.

Business resilience and workforce strategy

In response to near-term economic challenges, CEOs say they are taking actions to spur revenue growth and cut costs, without delaying strategic M&A initiatives. Interestingly, although 52% of CEOs say they have already begun cutting costs, just 19% are implementing hiring freezes, and only 16% are reducing the size of their workforce. This, in turn, suggests CEOs' interest in retaining employees and scouting new talent. In the traditional sense, cutting costs is related to reducing the workforce—instead, now CEOs are interested in upskilling or reskilling their human capital, who already know the organization and its culture.

Mongolian CEOs are reducing operating costs at a slower pace—only 7% are implementing hiring freezes, and none are reducing the size of their workforce, perhaps due to a persistent shortage of talented workforce and changes in the Labour Law, which became effective as of 1 January 2022. 

The survey data suggests CEOs aren’t laying people off, in part, because of their recent experience with employee attrition, which surged over the past year or so in many markets, a phenomenon that’s been referred to as the “great resignation.” For the most part, survey respondents, global and Mongolian, appear to believe that those elevated churn rates will continue.

Transform to remain viable

In parallel to the near-term threats, CEOs globally and in Mongolia have recognized the potential for disruption ahead as the global pandemic and unstable geopolitical situations gave the global community forewarnings ahead. Nearly 40% of global CEOs think their company will no longer be economically viable a decade from now if it continues on its current path.

More than half of responding CEOs in Mongolia are concerned about the long-term viability of their businesses, recognizing the need to reinvent to stay relevant amidst large-scale disruptions and to thrive in a climate-challenged world.

Question: If your company continues on its current path, for how long do you think your business will be economically viable?

When asked about the forces most likely to have an impact on their industry’s profitability over the next ten years, more than half of surveyed CEOs globally cited changing customer preferences, regulatory change, skills shortages and technology disruption. Roughly 40% flagged the transition to new energy sources and supply chain disruption. And nearly one-third pointed to the potential for new entrants from adjacent industries.

Mongolian CEOs also understand that their transformation journey must address the disruptive forces impacting the industry from multiple fronts. They must keep pace with their customers (72%), adopt technological advancements (62%), and manage labour/skills shortages (59%) and supply chain disruptions (59%).

The need for transformation is further highlighted by how Mongolian CEOs are building resilience today and are pivoting towards more technology and innovation-oriented investments as well as prioritizing upskilling their workforce. In the next 12 months, the top priority of Mongolian CEOs is making investments in automating processes (59%), followed by upskilling their workforce (41%) and deploying advanced technologies (38%).

How central are you to your company’s reinvention?

To reinvent their business while navigating near-term operating challenges, CEOs need the help of their people—C-suite leaders, middle managers and frontline employees alike. Engaged, empowered organizations move faster, innovate more readily and collaborate more effectively to get things done. For CEOs hoping to enjoy such benefits, this year’s survey suggests some warning signs and areas of opportunity. Forty-three per cent of global CEOs said that leaders in their organization don’t often encourage debate and dissent. Fifty-three per cent said their leaders don’t often tolerate small-scale failures. And seventy-seven per cent said their leaders don’t often make independent strategic decisions for their function or division. 

Compared to their global counterparts, 59% of Mongolian business leaders are more open to dissent and debate and the same per cent are more tolerant of small-scale failures, yet the functional-level strategic decision making are highly dependent on the presence of CEOs at 90%.

Numbers like these suggest that in many organizations, the conditions aren’t in place for managers and employees to run on their own towards major new opportunities or to independently spot and respond to disruptive threats. Business reinvention will be a full-contact sport for CEOs and their top teams during the years ahead, and the data suggests that a special kind of leadership will be required because deep change is possible only when individuals at all levels adapt and grow. CEOs need to double down on setting a shared vision, empowering people to make decisions, and being visible champions for change.

According to PwC’s Global Workforce Hopes and Fears Survey (2022), an increase in pay is a main motivator for making a job change (71%), wanting a fulfilling job (69%) and wanting to truly be themselves at work (66%) round out the top three things workers are looking for. Nearly half (47%) prioritized being able to choose where they work.

The sustainability agenda

Ranked 67th in the Climate Vulnerability Index and 96th in the Human Development Index, Mongolia feels the impacts of climate change and environmental degradation contributing to the decline of pasture productivity, herding livelihoods, tourism and increase in water resource management risks.

Showing respect for our environment and human rights is becoming an important requirement for businesses. As an example, the Supply Chain Due Diligence Law was adopted in 2021 in Germany and became effective in January 2023. Due to the application of this law, Mongolian exporters of goods and products to Germany and companies that work with German companies will immediately need to understand the importance of human rights due diligence, assess their business risks and take necessary action by carrying out human rights risk assessment.

Climate risk

While a majority of global CEOs expect some degree of impact from climate change in the next 12 months—primarily in their cost profiles and their supply chains, Mongolian CEOs indicated their focus on supply chain management at more than 50%. Mongolian business leaders are far less worried about climate-related damage to their physical assets (where 57% do not expect any impact and 43% expect the impact to a limited extent), while global CEOs stand at 34% and 41%, respectively.

A deeper statistical analysis of the survey shows that the CEOs who feel most exposed to climate change are more likely to take action to address it. This kind of reactive approach is understandable, but it creates risks of its own.

Combating climate change requires a coordinated, long-term plan. It won’t be solved if the only companies working on it are those that face immediate financial impact. We also don’t know how much the actions that are being undertaken most frequently—decarbonization initiatives, along with efforts to innovate climate-friendly products and services—will move the needle, particularly in the near term, which, in light of emissions already in the atmosphere, promises continued warming under virtually every scenario.

Working with your ecosystem

The diversity and complexity of today’s business challenges are placing a premium on the ability to collaborate across the boundaries of the corporation. To get a window on these dynamics, we asked CEOs how they forge partnerships—with whom and to what objective.

The results show that companies work with a wide network of collaborators and that those relationships are most often struck to create new sources of value. Addressing societal issues such as climate change was more often a goal of collaboration with non-business entities such as NGOs and government agencies. 

CEOs in Mongolia are 19% more likely to collaborate with established companies/competitors to create new sources of value than organizations globally. As for the collaboration to address societal issues, Mongolian companies tend to choose governments (at national or local level) and NGOs (17% both). Even though larger companies are more likely than smaller ones to address societal issues, in recent years, many up-and-coming start-ups are working actively on diverse social projects.