CEOs are bullish about the United States. Despite pessimism about global growth and high levels of concern about trade conflicts, most CEOs of international, non-US based companies with major US operations (“US Inbound Investors”) are looking for further growth in the United States this year, and many are or soon will be building pipelines to US universities to secure top talent for the future.
PwC’s 22nd Annual Global CEO Survey—of 3,000+ CEOs worldwide—included 162 CEOs of multinational corporations with US operations. This report synthesizes their plans, concerns and insights, and offers suggestions for the way forward.
PwC’s 22nd Annual Global CEO Survey asked global CEOs to list which three countries, outside their home market, they would look to for growth over the next 12 months. For the heads of those US Inbound Investors, the answer is clear: 60% list the United States as their top important market, well ahead of China, Germany and India.
This bullishness comes despite pessimism about global growth and concerns about geopolitical tensions, trade conflicts, cyber threats and more. But as we will see, US Inbound CEOs are taking action to navigate this new global environment.
Their plans and strategies are of interest not just for the companies themselves, but for the US economy. Foreign direct investment (FDI) supports more than seven million jobs in the United States, with jobs paying compensation 26% higher than the US private-sector average, and produces more than $1 billion a day in exports, according to OFII’s analysis of the latest US governmental (or BEA) data.1
So the future of FDI in the United States is, to some extent, the future of the United States itself. We’ll look at how the leading providers of FDI in the United States see that future, beginning with their top concerns.
The United States ranks as the top expected growth market for CEOs, but that emphasis comes amid a gloomy global outlook. CEOs of multinational companies with US operations are significantly more pessimistic about global growth than their peers. Only 29% say global economic growth will improve (compared with 42% of the global sample of CEOs) and 36% believe growth will decline (compared with 29% of global CEOs).
That is an important reality check, yet these CEOs clearly see ways to prosper, as they are confident about their own revenue growth.
83% of CEOs of US Inbound multinationals expect to see revenue growth over the next 12 months, almost identical to the global CEO views (82%). They are even on average slightly more optimistic in expecting revenue growth over the next three years: 88%, compared with 85% for all CEOs globally.
CEOs of multinational companies with US operations are more pessimistic about global economic growth than their global peers...but are equally as confident about their own revenue growth.
How are US Inbound CEOs planning to square this circle and grow despite prospects of a global deceleration? These leaders are controlling what they can and, for a start, maximizing the opportunities at hand. They will boost operational efficiencies (as 85% plan to do) and launch new products or services (as 65% expect to do). Of those who describe themselves as “extremely concerned” about trade conflicts, 53% say they are adjusting their supply chain and sourcing strategy.
Aggressive internal moves are just the start. Nearly half (49%) of US Inbound CEOs report looking for new M&A opportunities, compared with 37% of global CEOs. 42% plan to collaborate with other entrepreneurs or startups, compared with 32% of global CEOs.
CEOs of multinationals have navigated multiple business cycles in multiple territories. But today specific threats are also top of mind for these leaders who have already bet heavily on the United States, and say they are looking for further growth in the United States this year.
Concerns start with geopolitical uncertainty (cited as somewhat to extremely concerning by 85% of US Inbound CEOs, vs. 75% for CEOs globally), followed closely by trade conflicts (82%, vs. 70% of global CEOs) and cyber threats (also 82%, compared with 69% of global). A potential talent/skills shortage comes next, at 81%, near identical to the global 79%—which is unsurprising, since the war for talent is global.
Geopolitical tensions and trade conflicts to some extent blend together, and China-US relations are top of mind. Among the overwhelming majority of US Inbound CEOs who cited trade conflicts as a top threat, 91% specifically called out the US-China trade conflict as a top concern. That’s an impressive sign of how central the US-China relation is to the world economy.
How to react? CEOs of multinational companies with US operations are, once again, controlling what they can. Of the US Inbound leaders who are “extremely concerned” about trade conflicts, more than half (53%) say they are adjusting their supply chain and sourcing strategy, compared with 45% of global CEOs.
In what appears to be another sign of confidence in the United States, CEOs of multinational companies with major US investments are otherwise not making big structural shifts: only 16% report plans to shift their growth strategy to alternate territories (compared with 25% of global CEOs). US Inbound leaders are also slightly less likely than the global sample to report plans to delay foreign direct investments (12% vs. 15%) or CAPEX (19% vs. 22%).
Most CEOs of multinational companies with major US investments do not see an “increasing tax burden” as a top ten threat. However, of those who are extremely concerned about the tax burden, 69% say they are worried about the complexity of tax legislation (vs. 62% of global CEOs). Paying close attention to this area is important. A failure to fully understand the tax law implications for FDI, trade, day-to-day operations and more could lead companies to miss out on benefits, and fail to fully optimize their supply chains and sourcing strategies.
CEOs across the board—including heads of multinationals with US operations—are suffering from a major “information gap”: they know what they need, but they are not getting it.
CEOs of US Inbound multinationals rate ten data categories “critical” or “important.” In not a single one of these ten data categories did a majority say they receive the comprehensive data that they crave to make smarter decisions. The best-performing category was “financial forecasts and projections,” in which 43% of CEOs report receiving comprehensive data. On risks to which the business is exposed, for example, only 20% of US Inbound leaders believe they have comprehensive data.
Equal percentages (49%) of global CEOs and CEOs of US Inbound multinationals cite the “lack of analytical talent,” “data siloing” and “poor data reliability" as the top three obstacles to the data they need.
The talent war is global, and it is heating up. 63% of US Inbound CEOs report that it’s becoming increasingly difficult to hire the talent they need, similar to our global sample (62%).
This lack of talent is a key pain point, and is holding back growth. Two thirds of US Inbound leaders said the skills gap kept them from innovating effectively. Over half (51%) said the skills gap was impacting their quality standards and/or customer experience. Nearly half also blamed the skills gap for causing them to miss a market opportunity (45%) or miss their growth targets (41%).
There are no quick fixes, but many US Inbound leaders are taking action to confront the cracks in their own capabilities.
To get the skills they need, nearly half (45%) of CEOs of US Inbound multinationals call retraining and upskilling the best answer. That’s comparable to the global sample. But more US Inbound leaders (23%) than the global sample (18%) are planning to “hire from outside their industry.”
What connects both these answers—and also offers solutions to the data gap—is artificial intelligence (AI). 87% of US Inbound CEOs say that AI will significantly change the way they do business in the next five years. Nearly half (49%) say they have already introduced AI initiatives in their businesses, even if they are often only for limited uses. That’s significantly more AI initiatives than in the global sample (33%).
Using AI means retraining and upskilling staff, as well as a new workforce strategy. AI can provide tremendous power by turning data into value, but in needs its own data strategy to do so. In short, AI is both a solution and a challenge, and one reason why the heads of US Inbound multinationals are likely planning to ramp up their US presence is the strong AI innovation present in both US companies and universities.
The United States’ ecosystem for AI innovation starts with top universities that attract talent from around the world. In our global survey, 26% of CEOs of US-based companies say they are establishing a direct pipeline from educational institutions to their workforces. US-based CEOs appear to lead the pack on this front in the talent war.
CEOs based in other countries with strong AI ecosystems are less likely to be building such pipelines: only 9% in China, 5% in Japan, 15% in India, 22% in Germany and 23% in the UK.
In contrast, over one out of six (17%) of CEOs of US Inbounds are planning to establish a strong pipeline direct from educational institutions in the United States to their workforces, and that number is likely to grow in the coming years.
What unites all these CEOs from multinational companies with US operations? A determination to grow and thrive despite potentially slower global growth, geopolitical tensions, and trade wars.
Our analysis of the survey findings—which included one-on-one interviews with many CEOs—combined with our work with US Inbound clients in strategy, technology, risk, tax and more, has led us to identify a “no-regrets” strategy: four measures that companies will not regret considering, no matter how the geopolitical winds blow.
1. Monitor how taxes and regulations are evolving: Whether it’s new privacy laws or the details of tax reform, don’t be caught unawares. Understand the possible scenarios and develop contingency plans for an agile response.
2. Close the information gap: Only 20% of CEOs say that they’re currently getting adequate data on risks. Without clean, relevant and labeled data, organizations are stymied in their efforts to be agile in their strategies and to move aggressively on important areas such as AI, which CEOs overwhelmingly "agree" will have a significant impact on their business within the next five years.
3. Digitize business processes and supply chains: Digitization not only opens the door to further automation when applied to supply chains, it greatly improves agility, enabling a company to profit rather than suffer from changes in the trade environment.
4. Update your workforce: Building pipelines to US universities (as 17% of Inbound companies are already doing) and digital upskilling programs, along with targeted M&A and joint ventures, can provide better access to talent in the United States. The workforce of the future needs both talented new hires to fill gaps and employees retrained for new technologies and the new kinds of collaboration that they require.
These four measures can lead to near- and long-term benefits in nearly every imaginable scenario—and in a world full of uncertainties, these are within the CEO’s control. Forward-looking leaders who take actions on these measures today can reap rewards for many years to come.
1. These figures are based on OFII’s analysis of Bureau of Economic Analysis (BEA) data, released November 8, 2018.