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Transcript of 11th Annual Global CEO Survey
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Compete&Collaborate
What issuccess ina connectedworld?*
11th Annual Global CEO Survey
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Foreword
This years 11th Annual Global CEO Survey examines howCEOs perceive the business environment in which they areoperating, and how an increasingly connected world aectsthe way their companies unction and achieve success.
Contrary to the results o recent years,
views on short-term business growth
were not universally optimistic. Our
survey reveals a dramatic split in thecondence levels o company leaders
around the world. In the developed
economies o the US, Japan and
Western Europe, CEOs are concerned
that economic decline could result
in recession and aect their ability
to grow. Yet in the newly-emerged
economies, condence remains strong.
In addition, or the rst time since
the survey began, CEOs ranked the
potential downturn in major world
economies as the top threat to their
business growth.
The survey also explores the impact
o an increasingly connected world
on the way in which companies work,
grow, deal with risk and ultimately
achieve business success. How does a
more connected world help companies
assess global risks and provide new
opportunities or reducing them? Many
risks undoubtedly spread arther and
aster in a highly connected world yet in the longer term, CEOs believe
connectivity will bring greater prosperity
and understanding. In act, globalisation
and technology advances have already
eliminated many o the barriers to the
movement o ideas, capital, labour,
products and services.
This years survey is entitled Compete
& Collaborate. Evidence o increasing
collaboration as a source o business
success appears in the survey ineverything rom the pursuit o talent
and technological innovation to
organisational dynamics and regulatory
harmonisation. The mitigation o global
risks will require extensive collabo
rative innovation between the public
and private sectors. The urgent needto address climate change is one
global concern that clearly demands
a collaborative approach, and the
survey indicates progress, with a
growing number o CEOs willing to
commit to government-led action.
But competition is not vanishing
any time soon. In act, the key to
getting the most out o collaboration
is determining how to balance it
with competition and how to inuse
collaboration with traditional
management discipline. More than
ever, executives are being challenged
to evaluate whether their companies
are ully exploiting the power o their
global networks.
As always, I want to thank the more
than 1,150 company leaders and
government ocials rom 50 countries
who took the time to share their
thoughts with us. The success o the
survey is directly attributable to theirenthusiastic participation, and we
are very proud o that continuing
commitment. I am also pleased to
announce that this April we will be
releasing our rst Emerging Market
CEO Survey. Succeeding in emerging
markets has become a major business
priority or CEOs and business
executives. I expect the results will
be o great interest to many.
Samuel A. DiPiazza, JrChie Executive Ocer
PricewaterhouseCoopers
International Limited
To view Sam DiPiazzas video commentary on the 11th Annual Global CEO Survey, visit www.pwc.com/ceosurvey
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Research methodology
This is the 11th Annual
PricewaterhouseCoopers
Global CEO Survey, and
we have ollowed the same
methodology as we used
last year to ensure we are
airly representing the emerging
economies o the world.
We have conducted interviews
in 50 countries worldwide,and varied the number o
interviews in line with their
GDP, measured at market
exchange rates, in 2004.
In total, we conducted 1,150
interviews with CEOs in 50 countries
conducted between early September
and the end o November 2007.
By region, 454 interviews were
conducted in Western Europe, 277
in Asia Pacic, 136 in Latin America,
130 in North America (30 in Canada),
30 in Mexico, 86 in Eastern Europe
and 37 in the Middle East & Arica.
The interviews were spread acrossa signicant range o industries.
Further details, by region and
industry, are available on request.
The interviews were mainly conducted
on the telephone, with the exception
o Japan, where a postal survey
was administered. In China (including
Hong Kong) and Kenya, most o
the interviews were conducted ace
to ace. All the interviews were
conducted in condence and on
an unattributable basis.
The lower threshold or inclusion
in the top 30 countries was companies
with more than 100 employees or
revenues o more than $10 million.
This was raised to 500 employees
or revenues o more than $50 million
in the top 10 countries.
Nearly 40% o the companies had
revenues in excess o $1 billion,
and a urther 39% had revenues
o $100 million to $1 billion. The
remaining 23% had revenues o
less than $100 million. Company
ownership is recorded as private
or 47% o the companies, with
the remaining 53% listed on at
least one stock exchange.
In support o the Global CEO
Survey, 11 in-depth, attributed,
ace-to-ace interviews wereconducted across a number
o countries. These interviews
covered some key topics, including
collaboration across business
networks, regulatory complexity and
talent, and the people equation.
Throughout this report there are
extracts rom these interviews.
The ull Q&As and some video
extracts are available online at
www.pwc.com/ceosurvey.
PricewaterhouseCoopers extensive
network o experts and specialists
has provided its input into the
analysis o the survey. Our experts
span many countries and industries.
For urther inormation on the
survey content, please contact
Sophie Lambin on +44 20 7213 3160.
For media inquiries, please contact
Mike Davies on +44 20 7804 2378.
NOTE: Not all gures add up to 100% due to rounding o percentages and to the exclusion o neither/nor and dont know responses.
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In-depth CEO interviews company proles
AUDI AGAUDI AG is a globally-operatingdeveloper and manuacturer o high-quality, technically-innovative cars.It is based in Ingolstadt (Germany),with a urther main location inNeckarsulm (Germany). Its largestproduction plants outside Germanyare Brussels (Belgium), Gyr(Hungary) and Changchun (China).
Banco Ita Holding FinanceiraBanco Ita is one o the largest retailbanks in Brazil and operates onthe nancial and capital markets inBrazil and abroad. It has more than13 million clients and has structures,products and services that have beendeveloped to meet the needs o smalland medium-sized companies, publicauthorities and institutional investors,private individuals (branches),afuent individuals (Ita Personnalit)and high net-worth clients (ItaPrivate Bank).
Bank Julius Baer
Julius Baer is the leading dedicatedwealth manager in Switzerland.The Group, which has roots dating tothe nineteenth century, concentratesexclusively on private banking andasset management or private andinstitutional clients. With more than3,800 employees worldwide, theJulius Baer Groups global presencecomprises more than 30 locationsin Europe, North America, Latin
America and Asia.
Bharti Enterprises andBharti Airtel Limited
Bharti Enterprises is one o Indiasleading business groups withinterests in telecom, agribusiness,insurance and retail. Bharti Airtelis a part o Bharti Enterprise, andis Indias leading provider otelecommunications services.
Caterpillar Inc.
For more than 80 years, CaterpillarInc. has been driving positiveand sustainable change on everycontinent. With 2006 sales andrevenues o $41.517 billion,Caterpillar is the worlds leadingmanuacturer o constructionand mining equipment, dieseland natural gas engines andindustrial gas turbines.
China Eastern AirlinesCorporation Limited
China Eastern Airlines CorporationLimited (the Company), a jointstock company limited by shares,was incorporated in the PeoplesRepublic o China on 14 April 1995.The Company and its subsidiariesare principally engaged in theoperation o civil aviation.
China Life InsuranceCompany Limited
China Lie Insurance CompanyLimited (the Company) is a lieinsurance company established in
Beijing, China on June 30, 2003according to the Company Lawo the Peoples Republic o China.The Company is the largest lieinsurance company in the country,with the most extensive distributionnetwork in PRC.
Ferrovial GroupFerrovial is one o the worldsleading inrastructure groups interms o earnings, with more than100,000 employees. It is ocusingon investments in our strategicbusiness areas (construction, airports,toll roads & car parks, and services).As a result, just 50 years ater itsoundation, it has become one o theworlds leading groups specialised
in developing, nancing, maintainingand managing transport, urban andservices inrastructure.
H.. Sabanc Holding A..
Turkeys leading industrial andnancial conglomerate, SabancHoldings main business units includenancial services, automotive, tire &tire reinorcement materials, cement,ood and retailing, energy, textilesand some other smaller businesses.
Sims Group Limited
Sims Group Limited is one o theworlds largest recycling companies.Founded in Sydney in 1917, thecompany is listed on the AustralianSecurities Exchange (ASX:SGM) andhad revenue o A$5.6 billion in the2007 nancial year. The Groupskey divisions are Metal Recyclingand Recycling Solutions, now theworlds leading recycler o e-waste(IT, electrical and electronic goods).
X5 Retail Group N.V.
X5 Retail Group N.V. is the largestood retail company in Russia interms o sales. The company usesa multi-ormatted strategy to developthree ormats simultaneously: sotdiscounters, supermarkets andhypermarkets.
In-depth interviews available in ull at www.pwc.com/ceosurvey
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1
Contents
Foreword: Compete & Collaborate Fold-out
Introduction: A tale o two worlds 2
Section 1 The business environment 5
1.1 Business condence: Vigour & Circumspection 6
1.2 Mergers & acquisitions: Underlying optimism & Contrasting direction 14
1.3 Global risks: A riskier &/or Saer world 201.4 Climate change: Pragmatism & Heightened awareness 24
Section 2 The impact on business models 31
2.1 People and change: Strategy & Execution 33
PwC view: Managing change through people 39
CEO views: Extracts rom in-depth interviews 41
2.2 Collaborative business networks: Opportunistic & Systematic 45
PwC view: Capturing the value o collaborative business networks 50
CEO views: Extracts rom in-depth interviews 51
2.3 Regulations: Public & Private 55
PwC view: Recipe or eective collaboration 60CEO views: Extracts rom in-depth interviews 63
Regulator views: Extracts rom in-depth interviews 66
Final thoughts: Connect & Succeed 71
Appendices
Research methodologyIn-depth CEO interviews company proles
Acknowledgements
The visual story Separate document
The contents o this document as well as the ull edited transcripts o the interviews are also available at www.pwc.com/ceosurvey
Contents
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In an increasingly connected world,what dierentiates the businessthat thrives rom that which merelysurvives? Our 11th Annual GlobalCEO Survey explores the impact oglobal connectivity on the sourceso growth and risk, the way in whichcompanies work and their relationswith their stakeholders.
The evolving patternIn last years CEO Survey, CEOs toldus that the competitive landscape andnature o value creation were undergoingundamental changes. Three trends,in particular, were transorming theway in which organisations operate:
Globalisation: the increasinglyborderless nature o capital, labour,goods, services and inormation;
Connectivity: new, IT-enabled ormso collaboration, including supply-chain networks and fexible webso employees and contractors; and
Community: the growing emphasison integration o a business with itsneighbours, investors, regulatorsand other stakeholders.
These trends are opening up newmarkets, acilitating the developmento new business models and newways o working, and providing newmeans o interacting with customers.
CEOs continued to stress theimportance o people both or theskills they bring and or the strategic
role they play in the dynamics ochange. They also acknowledged thatthe war or talent is erce, and gettingercer as demand or the best peoplebecomes increasingly globalised.
Our 11th Annual Global CEO Surveydrills more deeply into some othese issues. It examines what theconnected world as we havecalled it means or businesses today.
Our ramework this yearWe have ocused on two majorthemes this year: how CEOs perceivethe business environment in whichthey are now operating; and howconnectivity is aecting the waycompanies unction. We began byasking CEOs what they think aboutthe macro-economic climate, theopportunities or expansion, includingmergers and acquisitions (M&As),the risks to growth and the potential
impact o climate change.
In this years survey, we set out to understand the orces CEOsbelieve will shape the uture, and shed light on the emerging
opportunities and risks, so that businesses can better managetheir own outcomes.
Introduction
A tale otwo worlds
2 11th Annual Global CEO Survey
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3Introduction
Denition o a business network
A business network is a group o participants who conduct transactions(the transmission o products, services, inormation or money) with one anotherto produce capabilities and outcomes that advance a set o shared businessgoals. It is typically led by a company, which orchestrates the interactions oall the participants.
The participants may include customers, distributors, suppliers, channelpartners, logistics providers, regulators and other bodies such as standardsassociations, community members or NGOs. They may be companies,individuals, loosely dened groups or other entities; they may simultaneouslycollaborate and compete with other participants in the same network; and theymay participate in more than one network.
We then addressed the organisationalimplications o globalisation andconnectivity. How are these twoorces changing the business modelscompanies use i.e. where, whenand in what ways they generate aprot? How are they changing thenature o the relationship betweencompanies and their main stakeholders in particular, their people and
regulators? And are collaborativebusiness networks now a prerequisiteor success?
Understanding changeThe story that emerges rom ourndings which are based on theresponses o 1,150 CEOs, in-depthinterviews with a number o CEOsand discussions with various regulatorsand government ocials is complex.But one o the most pervasive motis
is the tension between collaborationand collective action on the one hand,and competition and individualismon the other.
Building market share may now meanhaving to collaborate with a rival toshare technologies. Building a teammay mean having to manage afuctuating network o employees andcontractors. And building a communitymay mean having to work with awide range o non-governmentalorganisations (NGOs) or other entities,each with its own agenda. Moreover,
though collaboration brings rewards, italso carries risks the most signicant,perhaps, being the diusion o powerand loss o managerial control.
This tension is hardly surprising, then.The connected world is still largelyuncharted territory, and many o thechanges that are currently taking placeare not renements o traditionalbusiness practice. They probablyoreshadow yet other changes, whichmay ultimately bring about a revolution,
rather than an evolution, in the waybusinesses operate. Understandingthat pattern will help organisationsgain rom the unolding opportunitiesand minimise the risks.
Ahmet DrdncCEO, H.. Sabanc Group A..
Collaboration and interdependencecreate eciencies that benet allconcerned. But being dependenton others can increase a companysexposure to a range o risks,including those associated withreputation, regulatory compliance,earnings perormance and credibility.However, companies can hardenthemselves against these risks withthe right business continuity andinsurance programmes.
These are extracts rom in-depth interviewsavailable in ull at www.pwc.com/ceosurvey
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4 11th Annual Global CEO Survey
Key ndings
Caution dominates the near-term outlook o CEOs in the industrialisednations o North America, Western Europe and Japan. Conversely,CEOs in much o Asia, Latin America and other emerging markets aremuch more optimistic.
CEOs believe the biggest business risk they ace is the risk o an economicslowdown. This is the only threat (o the 14 they were asked to evaluate)they rank more highly than they did in last years survey.
Fity-seven percent o CEOs believe that collaborative networks will playa key part in uture business models. A substantial number o CEOs inAsia (particularly India) and Latin America are already using collaborativebusiness networks.
CEOs want governments to play a more prominent role on the internationalstage both in promoting the convergence o global tax and regulatoryrameworks, and in leading eorts to address climate change.
CEOs acknowledge that governments cannot, in isolation, tackle climatechange and that collaboration within the business community will becritical. Asian CEOs lead the way in this respect.
CEOs continue to think that people are a key actor in achieving success,but say that it is dicult to nd people with the right combination otechnical and commercial skills. They also point to shortcomings in middleand senior management, and organisational barriers, when it comes tomanaging change.
Jeremy SutclieCEO, Sims Group Limited
From my perspective, technologyis oten a disservice, not a good
service. When youre a tradingcompany, your inormation, your
market inormation, is yourintellectual property and you oten
rely on having more inormation,better inormation and more real-time inormation than the people
you are trading with. Ironically, nowwith email and internet, everybody
has the same inormationinstantaneously. So, to some extent,
it can be said that it takes awayrom our competitive advantage.
These are extracts rom in-depth interviews
available in ull at www.pwc.com/ceosurvey
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Section 1
The business environment
www.pwc.com/ceosurvey
1.1 Business condence
1.2 Mergers & acquisitions
1.3 Global risks
1.4 Climate change
5The business environment
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Condence dips atersurging or ve years
The percentage o CEOs who saythat they are very condent aboutthe potential or business growth overthe next 12 months has allen or therst time since 2002; only 50% orespondents now believe that theshort-term prospects are very good,compared with 52% in 2006. Thisdecline is in marked contrast withthe double-digit increase in the levelo condence recorded in each oour two previous surveys (see gures1.1.1 and 1.1.2)
Optimism about the longer term hasalso sotened; 42% o CEOs are verycondent about the opportunities or
growth over the next three years, downrom 44% in 2006. Those who headthe largest companies (with more thanUS$10 billion in annual revenues) areparticularly concerned;1 only 38% arevery condent about the long-termprospects or growth, compared with47% o CEOs heading companies witha turnover o less than $100m.
1 All subsequent reerences are to US dollars.
Vigour
&Circumspection
Businesscondence
For 11 years, our Annual Global CEO Surveys have trackedhow condent global leaders eel about the prospects or growth.
The overall level o condence has now dipped or the rst timein ve years. But this troubling picture masks two very dierentregional trends. CEOs in the industrialised Western economies areless condent about the prospects or business growth than theywere last year. Those in the emerging economies o Asia, LatinAmerica and the new Europe, by contrast, see increasingopportunities or expansion.
6 11th Annual Global CEO Survey
20082007200520042003
0
10
20
30
40
50
60
70
80
90
100
%s
tatingvery
confident
1.1.2
Short-term condence has dipped slightly in 2007, ollowing a period osustained optimism
Q: How would you assess your level o confdence or the revenue growth o yourcompany over the next 12 months? (Base: All respondents 2003: 916, 2004: 1394,2005: 1316, 2007: 1084, 2008: 1,150)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
Very confident
Somewhat confident
Not very confident
Not confident at all
Dont know/Refused
Next 3 yearsNext 12 months
0%
50
42
40
49
6
7
2
1
2
1
1.1.1
CEOs are generally condent in their prospects or revenue growth in theshort term, but less so in the longer term
Q: How would you assess your level o confdence in prospects or the revenuegrowth o your company over the next 12 months and the next 3 years?(Base: All respondents 1,150)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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The old world iscircumspect, while the
new world is buoyantCEOs in the established, industrialisednations are clearly much less convincedabout the prospects or growth thantheir peers in the emerging economies.Only 35% o North American CEOs arevery condent about the short-termoutlook, down rom 53% in 2007. Theyare more optimistic about the longer-term opportunities. Forty-eight percentare very condent about the potentialor growth over the next three years,
but this is still substantially ewer thanthe 57% who expressed condenceabout the long-term uture in 2007(see gure 1.1.3).
Western European CEOs have alsobecome more guarded in theirexpectations. Forty-our percent arevery condent about the prospects
or growth in the coming year, and36% about the prospects or growthin the next three years down rom
52% and 40%, respectively, in 2007.Japanese CEOs are even warier;only 31% are now very condentabout the short-term outlook.
Various actors help to explain thisoverall air o caution, including thecollapse o the US sub-prime mortgagemarket and ensuing credit crunch;rising energy prices; the shitin the global balance o economicpower; political uncertainties; and the
recent weakness o the US dollar,which slid by 6% against a trade-weighted basket o currencies betweenAugust and November 2007.2 Givenall these challenges, it seems quitereasonable that CEOs in the Westernworld should be nervous about thestate o the economy.
However, CEOs in Asia, Latin America,and Central and Eastern Europe aremuch more condent about the
potential or growth. Indeed, they aremore condent than they were in 2007.So, what accounts or this divergencein views? CEOs in the new world mayhave believed that their boomingeconomies could insulate them to someextent rom the problems aecting theold world.
Asias perormance is being poweredby the expansion o China andIndia where 73% and 90% o
CEOs, respectively, say that theyare very condent about theprospects or growth in the next 12months. Much o Latin America isprospering as a result o demand orcommodities. And Central and EasternEurope is ast becoming one o themanuacturing sectors most avouredoutsourcing locations.
2 The panic about the dollar, The Economist (1 December 2007).
7Business condence
Q: How would you assess your level o confdence in prospects or the revenue growth o your company over the next 12 months? (Base: All respondents 30-100)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
1.1.3
CEOs in emerging economies report remarkably greater business condence.
90-100%70-79%50-59%30-39%10-19% 80-89%60-69%40-49%20-29%0-9%
% stating very confident
India 90%
Mexico 77%
Russia 73%
China/Hong Kong 73%
Australia 52%
Brazil 63%
Germany 57%
Korea 57%
Spain 56%
Netherlands 53%
UK 43%
USA 36%
Canada 33%
Japan 31%
France 28%
Italy 19%
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Nevertheless, although Asian CEOscontinue to express considerableoptimism about the prospects or
growth, they are ar more worriedabout many o the risks which mightjeopardise that growth than CEOs inother parts o the world. This maysuggest that they ear the region isexpanding too rapidly and that thestrain on resources could becometoo great to sustain the pace.
Other risks recede inimportance as economicrisk risesAsked what they think are the biggestthreats to business growth, CEOshave regularly put overregulation andthe availability o key skills at the top othe list in recent years. Now, however,they are equally anxious about the risk
o a potential downturn in the worldsmajor economies. Indeed, this is theonly risk (out o 14) about which they
are more concerned than they were inour last survey (see gure 1.1.4).
They are much less worried aboutoverregulation; only 59% see it abusiness threat, compared with73% in 2007 a change that partlymay refect the easing o the auditrules under the US Sarbanes OxleyAct and increasing amiliarity withits requirements. They are also muchless concerned about terrorism.
And, despite growing public concernabout the risk o climate change,many CEOs clearly do not think thatglobal warming will have a directimpact on their companies potentialor growth in the medium term.
This is understandable. As theeconomy moves centre stage, moreintangible risks are likely to seem less
pressing. Furthermore, in todays highlyconnected world, the potential oreconomic contagion is much greaterthan beore. I North America goes intorecession, or example and there isnow a real danger that it might thevolume o US imports could shrink,thus dampening growth in the worldsexporting economies. A recession inthe US could also drive up nancingcosts (which have already increasedater the collapse o the sub-prime
mortgage market) and cause adownward correction in the price ostocks, real estate and commodities.
8 11th Annual Global CEO Survey
%E
xtreme
ly/Somewhatconcerned
20
30
40
50
60
70
80
Over $10 billion
Asia-Pacific
All CEOs
A
vailabilityof
keyskills
Downturnin
majoreconomies
Over-regulation
Low-cost
competition
Energy
security
Scarcityof
naturalresources
Protectionisttendencies
ofnationalg
overnments
Se
curityofthe
s
upplychain
Technology
disruption
Climate
change
Inadequacyof
basicin
frastructure
Intellectual
propertyrights
Terrorism
Pan
demicsand
otherhealthcrises
1.1.4
Large-company CEOs and those based in Asia-Pacic express greater concern about potential threats
Q: How concerned are you about the ollowing potential threats in relation to your business growth prospects? (Base: All respondents 1,150; Asia Pacifc 277; Over $10 billion 103)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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CEOs are ocusing on thebasic building blocks o growth
Given such concerns, it is probablynot surprising that many CEOs arepulling in their wings. The percentageo respondents who are concentratingon better penetration o their existingmarkets and new product developmenthas increased signicantly, particularlyin North America (see gure 1.1.5).Further evidence o this tendency tostay close to home comes rom theact that only 38% o CEOs have eithercompleted a cross-border merger
and acquisition (M&A) within the past12 months or plan to do so within thenext 12 months, compared with 47%in 2007.
Most CEOs also intend to und theirplans or expansion out o cash fows.Eighty-two percent (three percentagepoints more than in last years survey)say that they will rely on internalsources o nance, although 31%still hope to tap the debt markets despite the act that borrowing is
now more expensive.
Agility, service, talent andtechnology are the main
tools or growthThree-quarters o CEOs believe thattheir main sources o competitiveadvantage are the ability to adapt tochange, rst-rate customer service andaccess to key talent. North AmericanCEOs are especially condent otheir strengths in all three areas.
Sixty-ve percent o respondentsalso cite technological innovation asa core skill although here it is Latin
American CEOs who express mostsel-assurance.
However, the story that emergeswhen CEOs single out their one mostimportant source o competitiveadvantage is rather dierent. For 22%it is technological innovation; or 19%it is better customer service; and or17% it is access to key talent (seegure 1.1.6). Only 14% believe theirmost critical competitive advantageis the ability to adapt to change.
Moreover, North American CEOs dierrom their peers in other parts o theworld in several material respects.
Only 15% think technologicalinnovation is their most importantsource o competitive advantage which seems somewhat surprisingor a region with a long history oentrepreneurialism. Conversely, 29%(more than double the percentageeverywhere except Asia) think accessto, and retention o, key talent is theirgreatest advantage. This suggeststhat North American CEOs believeinnovation can be bought quite easily,
whereas good people are much moredicult to nd.
Convergence and dierentiationaround competitive advantage is anatural ollow-up theme or this yearsCEO Survey that warrants urtherexploration. The upcoming emergingmarkets CEO Survey to be launched inSpring 2008, will explore this topic romthe perspective o emerging marketsand provide insights into how thiscompares to developed nations.
9Business condence
Better penetrationof existing markets
New productdevelopment
Geographicexpansion
Mergers andacquisitions
New jointventures and/or
strategic alliances
2007
Not asked in 2007
20080% 0%
30
20
19
15
13
23
13
21
14
67% of CEOs are looking
beyond penetration of existing
markets for growth opportunities
1.1.5
CEOs are using a wide range o techniques to exploit business opportunities.New product development is considered to be a bigger opportunity orgrowth this year
Q: Which one o these potential opportunities or business growth doyou see as the main opportunity to grow your business in the next 12 months?(Base: All respondents 2008: 1,150, 2007: 1,084)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
Cross-cultural experience
Other
Sole access to scarce resources
Dont know/Refused
Improved sourcing/supplychain management
Ability to implement successfulcollaborative partnerships
Ability to adapt to change
Access to, andretention of, key talent
Improved customer service
Technological innovation
0%
17
22
19
14
7
3
4
2
2
10
1.1.6
Technological innovation and improved customer service are consideredto be the main sources o competitive advantage
Q: Which one o these key sources do you see as your main source o competitiveadvantage in achieving this growth? (Base: All respondents 1,150)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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Doctors, psychologists, teachers andcoaches all cite optimism as a keyingredient in the recipe or health andsuccess. It has even been suggestedthat the power o positive thinkinghelped humans reach the top o theevolutionary pyramid: how else coulda man attack a mammoth and hopeto survive until dinner?
We have not measured therelationship between optimism and
corporate attainment in our latestCEO Survey. What we can say,however, is that the most optimisticCEOs those who are very condentabout the potential or short-termgrowth display a number o traitsoten associated with success:namely, adaptability, willingness tocollaborate and aith in people.
Moreover, 67% o those CEOs whoare very condent about the short-term outlook are also very condentabout the prospects or growth in thenext three years. And this same groupo CEOs is more likely to pursuebroader methods o nancing;
consider more cross-border M&As;avour the use o collaborativeapproaches in addressing climatechange, nding talent, reducing costs,innovating and lessening risk; agreestrongly that government anddeveloped nations, respectively,should drive regulatory convergenceand environmental solutions;implement changes without worryingas much about the associatedbarriers; and draw the best out o
people by devoting a greaterproportion o their time to endorsingtheir senior management and humanresources organisations.
O course, the most optimisticCEOs could simply be those whoare currently perorming best andare thus eeling most condent aboutthe uture. Moreover, scepticismunquestionably provides a vitalbalance or unchecked optimism.But the ndings do present reasonto wonder whether optimism is thevitamin C or some CEOs a littletonic in their outlook that paysmany healthy dividends.
Is optimism the vitamin C o CEOs?
Rupert StadlerChairman o the Board o
Management, AUDI AG
I am an advocate o a truly reeeconomy because a ree economyrequires society and individuals to
deal with their own capital andunds. When you talk about a credit
crisis or any other crisis or thatmatter the common actor is
people. It always has to do with theactions and judgments o people.
These are extracts rom in-depth interviewsavailable in ull at www.pwc.com/ceosurvey
10 11th Annual Global CEO Survey
The most optimistic CEOs display a numbero traits oten associated with success
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Yang ChaoChairman, China Lie InsuranceCompany Limited
The marketplace is ercelycompetitive, so you cannot stoplearning. Now is a time o
unprecedented opportunities andchallenges. Yet I nd that there aremore opportunities than challenges,more hopes than diculties.
These are extracts rom in-depth interviewsavailable in ull at www.pwc.com/ceosurvey
11Business condence
North America & Asia Pacicat the axis o change
The worlds economic axis is shiting,as Asias importance waxes. In 2007,or example, China overtook the USas the greatest contributor to globalgrowth, measured at market exchangerates. Our 11th Annual Global CEOSurvey provides some interestinginsights into how CEOs in Asia Pacicand North America are responding ina period o momentous change.
Asian CEOs are bothoptimistic and anxiousAsian CEOs are more condent thantheir North American peers about thepotential or business growth over thenext 12 months. Yet they are also moreworried about every risk save one government protectionism.
In act, they have good grounds oreeling optimistic about the immediateuture. The International Monetary
Fund reports that, in the rst hal o2007, Asias growth exceededexpectations.1 Its nancial systemshave held up well during the globalcredit crisis, and the economicprognosis is generally avourable.
China and India are powering ahead.Asias newly industrialised economies(Hong Kong SAR, Korea, Singaporeand Taiwan) and the ASEAN-5(Indonesia, Malaysia, the Philippines,
Thailand and Vietnam) are alsoprospering, as are the industrialisedeconomies o Australia and NewZealand. Only Japan is still lagging, asit shakes o a long period o defation.
Why, then, should Asian CEOs be soanxious? Our experts in Beijing believethat there is a very simple explanation:burgeoning growth brings greatercompetition both competition orcustomers and competition or niteresources, including everything romenergy to employees. They also pointto the act that Asia is still in theprocess o ashioning its identity as aglobal centre o trade and investment,
and that it is coping with a massiveinfux o multinational companies.In this years survey, or example,Asia is one o the two most populardestinations or cross-border M&As;37% o the CEOs who plan to completea deal within the next 12 months havetheir eyes on the region.
A detailed analysis o our surveyndings supports these ideas.It shows that:
Nearly our-ths o Asian CEOs areworried about the availability o keyskills. This might seem odd, giventhat China alone is thought to haveproduced more than three millionuniversity graduates in 2006, dwarngoutput in the developed world.2However, many Chinese graduatesdo not have the skills multinationalsrequire and some o the most ablepreer to take advantage o theopportunities abroad.
1Regional Economic Outlook: Asia and Pacic (October, 2007), International Monetary Fund, World Economic and Financial Surveys.2Emerging markets: The gender agenda (2007), PricewaterhouseCoopers, Gender Advisory Council.
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12 11th Annual Global CEO Survey
More than two-thirds o Asian CEOsare concerned about being undercutby cheaper rivals with some
justication. China and India stilldominate the global outsourcingmarket, or example, but thePhilippines, Brazil and Russia arebecoming more popular, as lack omanpower drives up costs in moreestablished locations.
More than hal o Asian CEOs arealso apprehensive about variousphysical risks, including scarcity onatural resources (67%), climate
change (59%) and pandemics orother health crises (53%). This ispossibly because they live in aregion that some experts thinkwould suer disproportionatelyrom such risks.
North American CEOsare condent o theircompetitive strengthsOn the other side o the world,by contrast, North American CEOsare proving remarkably resilient,despite increasing caution about theshort-term prospects or growth.
Nearly hal o all North AmericanCEOs a higher percentage thanin any other region remain verycondent about the potential orgrowth over the next three years.
Most North American CEOs alsobelieve they have what it takes to
succeed; they are more condentabout their competitive strengthsthan CEOs in the rest o the world.
And North American CEOs have agreater appetite or change thanCEOs elsewhere. More than 90%say that they have implemented
new business strategies, processesand technologies in the past threeyears a markedly higher percentage
than in any other region.
However, North American CEOsare rather less reliant on overseasexpansion than their peers inother parts o the world. They aremore likely to ocus on their coremarkets; are more inclined to seethe development o business networksas a secondary activity; place lessemphasis on language skills andglobal experience; and express more
doubts about realising the value ocross-border M&As.
Ironically, given their appetite orchange, they also say that they nd itvery dicult to manage major changeprogrammes citing lack o cross-unctional collaboration, lack omanagerial motivation and internalpoliticking as particular obstacles.North Americas culture o ruggedindividualism may well be a actor here.But since North American CEOs haveimplemented substantially more changeprogrammes than their peers in otherregions, this may equally be the voiceo experience. This will be exploredurther in the upcoming emergingmarkets CEO Survey.
O course no survey can hope tocapture the ull range o views thatcan be ound in any one country, letalone two continents as large as Asiaand North America. Nevertheless,
our ndings suggest that many CEOsare already anticipating a global shitin the balance o power. Asian CEOsare preparing to assume the socio-economic responsibilities that comewith greater power, while NorthAmerican CEOs are drawing on theirability to adapt to change.
Our ndings suggestthat many CEOs arealready anticipatinga global shit in thebalance o power
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13Business condence
In-depth CEO interviews
[Free] trade, generally speaking, is not win-lose. Its win-win. Usually when somebody
sells something, theyre happy they have sold it. When somebody buys something,theyre happy they have had the opportunity to buy it. Economists the world overhave lots o dierences, but almost universally believe that ree and open marketsand trade are good things.
World GDP growth, I believe, will be slowed signicantly i we dont continue tonurture global trade liberalisation and allow people to participate eectively inglobalisation. Clearly, over the last 25 years, hundreds o millions o Asians havebeen lited out o poverty on the strength o exports and competing in the globalmarketplace. Now, theyre beginning to import more and everyone is better o.We need to continue to nurture this and allow countries to compete on the basiso the best ideas, the best products, and productivity.
So my key message is that our business leaders, our political leaders, need to ndthe courage to get out there and help educate the public on this subject or werelikely to start building legislative walls around our countries instead o bridges tocompete. That would be a tragic mistake or the world economy.
The biggest single risk that we ace, in terms o a disturbancethat could prooundly lower global GDP growth and thereore thestandard o living o a lot o people, is a rising tide o protectionism.Theres a populist sentiment out there its in the United States,its in Western Europe that is very dangerous. The businesscommunity and political leaders who know better need to stepup and help people understand the benets o [ree] trade.
Jim Owens
Chairman and CEO,Caterpillar Inc.
I think its going to get much worse. The problem o securitisedmortgages is small compared with what well be aced with i theeconomy really takes a turn or the worse.
I believe the greatest threat to the nancial markets lies in a globally overpricedreal estate market and an overproduction o many basic commodities like steel,copper, cement and nickel. Everyone is driving up capacities to satisy demandrom emerging markets such as China and India. But nobody knows how demandwill really develop. Were already seeing the rst indications that production isexceeding demand.
Alex W. WidmerCEO, Bank JuliusBaer
These are extracts rom in-depth interviews available in ull at www.pwc.com/ceosurvey
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The economic prognosis may be gloomy, but many CEOs arestill keen to expand overseas. However, North American CEOs
are more cautious than their peers in other regions, and AsianCEOs avour strategic alliances over M&As.
Despite ears o an economic downturn,CEOs continue to recognise thestrategic importance o overseasexpansion. Our latest survey showsthat 24% o respondents havecompleted at least one cross-borderM&A within the past 12 months,while 31% plan to do so within thenext 12 months.
CEOs running very large companies(with annual revenues o more than$10 billion) lead the way; 49% haveacquired oreign rms within the pastyear, and 40% plan to do so in 2008.Conversely, ewer than 20% o CEOsheading companies with annual saleso less than $1 billion have undertakencross-border transactions within thepast 12 months, and ewer than30% intend to do so in the near uture
(see gure 1.2.1).
Western European CEOs have beenparticularly mobile; 28% havecompleted cross-border transactionswithin the past 12 months, and 33%plan to do so within the next12 months. The enlargement o theEuropean Union probably accountsor some o this activity. A number oWestern European companies are
moving into Central and Eastern Europeboth to take advantage o lower labourcosts and to tap into new markets.
However, Asian CEOs are also lookingarther aeld. Twenty-three percenthave completed cross-border dealswithin the past 12 months, and 34% a higher percentage than in any otherregion say that they intend to do sowithin the next 12 months.
Underlying
optimism&Contrastingdirection
Mergers &acquisitions
14 11th Annual Global CEO Survey
Despite ears o aneconomic downturn,CEOs continue torecognise thestrategic importance
o overseas expansion
$100 million to $999 millionLess than $100 million
Over $10 billion$1 billion to $10 billion
0%
Yes
No
Dont know/Refused
12
19
34
49
86
81
65
51
1
2
1.2.1
About hal o companies with $10 billion or more in revenues have completeda cross-border M&A in the past 12 months
Q: Have you completed a cross-border merger or acquisition in the past 12 months?
(Base: All respondents 103-410)Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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North American CEOs plan toocus on their home markets
Western Europe and Asia remainthe most popular destinations;36% o CEOs have their eyes on theormer and 37% on the latter. Interestin Asia is especially strong in verylarge companies. Most CEOs alsopreer to stay close to home than toventure into other regions a trendthat emerged in earlier surveys(see gure 1.2.2).
But two major changes are worth
noting. First, the attractions o Centraland Eastern Europe have nowsurpassed those o North America;29% o those CEOs who plan tocomplete a cross-border M&A in 2008are looking to the new Europe, andonly 27% to North America. Second,North American CEOs have becomemuch more cautious about goingoverseas; 50% intend to ocus on theirhome markets, up rom 35% in 2007.
Cultural conficts anddiculties in capturing value
remain the key concernsCEOs continue to believe that culturaland nancial issues are the biggestbarriers to successul deal-making:43% are concerned about culturalconficts, 43% about realising the ullvalue o the deals they complete and42% about incurring unexpectedcosts. In act, the number o CEOswho are wary o incurring unoreseenexpenses has increased substantiallysince 2007 a reaction that is
understandable in a period oconsiderable economic uncertainty.
What seems rather more surprising isthat the CEOs o very large companieslose more sleep over such issues thanthose running smaller operations, eventhough big companies typically havemore experience o doing cross-borderdeals. More than 50% o CEOs headingcompanies with revenues in excess o$10 billion worry about handling culturalconficts and capturing the value o thedeals they undertake.
Thirty-our percent o all CEOs alsosay that poor management o humanresources is a source o anxiety, while
30% are concerned about confictingworkorce expectations, 26% aboutstakeholder opposition and 25% aboutpolitical intererence. Moreover, thelevel o concern about these three lastissues has increased signicantly since2006, suggesting that they have allbecome more pressing.
Yet only 14% o CEOs anticipate abacklash against oreign investment inlocal markets, a nding which seems
at odds with recent evidence. In early2007, the Eurasia Group argued thatthe risk o ull-scale protectionism isgrowing, as some countries comeunder increasing pressure to cut theirtrade decits, while others experience awave o populist nationalism in reactionto the trend towards globalisation.1More recently, representatives o boththe European Union and US Chambero Commerce noted signs o greatereconomic nationalism in China anddiscrimination against oreigncompanies.2
15Mergers & acquisitions
1The Eurasia Group, Top 7 Political Risks or 2007: Four critical long-term risks, February 2, 2007.2Chinas preerence: Chinese goods, The International Herald Tribune, November 16, 2007.
1.2.2
Majority o planned cross-border M&As are within the same or adjacent region
Acquirer location
Target Location All North America Western Europe Asia Pacifc Latin America CEE
Asia Pacic 37% 26% 29% 73% 10% 5%
Western Europe 36% 21% 55% 25% 19% 25%
Eastern Europe 29% 13% 45% 15% 10% 65%
North America 27% 50% 24% 31% 19% 5%
Latin America 19% 18% 17% 11% 65% 5%Arica 10% 3% 10% 9% 3% 10%
Middle East 10% 3% 12% 13% 3% 5%
Australasia 10% 0% 9% 18% 3% 5%
Q: Where are you planning to make this merger or acquisition? (Base: All respondents who plan to complete a cross-border M&A 20-355)
Note: Small base or CEE
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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North American CEOshave more worries about
cross-border dealsNorth American CEOs are especiallydaunted by the diculties associatedwith doing cross-border deals. Theyworry more than their peers in otherregions but, in this years survey,two concerns are particularly clear.
Fity-three percent o North AmericanCEOs 10 percentage points morethan the global average are nervousabout ailing to maximise the ull value
o cross-border M&As. The alling USdollar obviously has a bearing here.However, public companies in the USare also under greater pressure to
produce quick nancial returns thanprivate companies or listed companiesin countries where the market pressures
are less intense.
Similarly, 53% o North American CEOs 23 percentage points more than theglobal average are concerned aboutthe conficting expectations o overseasworkers. This may, perhaps, stemrom the act that the US has a largedomestic market, and many UScompanies have been able toenjoy considerable growth withoutgoing abroad. They may thereore
be relatively inexperienced when itcomes to managing workers romdierent cultures.
Joint ventures are oequal interest as a source
o business growthCross-border M&As are not the onlysource o business growth in whichCEOs are interested; while 30% avourM&As, another 30% avour jointventures (see gure 1.2.3). Again,however, there are some markedregional variations. Asian CEOs aremore inclined to collaborate with othercompanies than to buy them outright;46% are interested in joint venturesand strategic alliances, and only 27%
in outright acquisitions. Latin Americanand Western European CEOs, bycontrast, ar preer M&As.
3Thomson Financial, Mergers & Acquisitions Review: Third Quarter 2007.
16 11th Annual Global CEO Survey
In the nine months to the end oSeptember 2007, the globaltransactions market was worth$3.6 trillion exceeding the totalor the whole o 2006, accordingto Thomson Financial. The valueo the deals that were announcedin Europe and Asia Pacic rose by62% year-on-year, while North,Central and South America sawincreases o 43%, 79% and 38%,respectively.3
However, deteriorating creditconditions have now sent chillsthrough the market. The value othe deals announced inSeptember 2007 was a mere $192billion the lowest monthly totalsince August 2005. Private equityrms were particularly notable ortheir absence rom the scene; theyaccounted or 23.7% o overalldeal volumes in the rst threequarters o the year, but just 13%
o transactions in August andSeptember 2007.
M&As reach recordlevels beore chillsets in
Dont know/Refused
Neither
0%
Mergers & acquisitions
Joint ventures &strategic alliances
30
30
20
20
1.2.3
Joint ventures and mergers and acquisitions are o equal interest to CEOsas a source o business growth
Q: Over the next 3 years, do you think that cross-border mergers & acquisitions or jointventures & strategic alliances will play a greater role in the growth o your business?(Base: All respondents 1,150)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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PwC view
The credit crisis will bringnew opportunities orcorporate buyers
The renetic deal-making that characterised the rsthal o 2007 may have ended, but the global M&A marketis ar rom moribund. Many companies still have plentyo liquidity and public companies account or the vastmajority o deals, even though private-equity transactions
have garnered most o the headlines.
The credit crisis has also levelled the playing eld whenit comes to pricing. Private equity rms have traditionallyused very large amounts o debt to und their acquisitions,a tactic that has allowed them to pay huge multiples.But they are now required to put more equity into theiroers. With the erosion o this nancial advantage, theability to generate value rom synergies has becomemore important.
Moreover, new players rom developing countries including sovereign wealth unds with massive
cash reserves in Asia and the oil-rich Middle East,
and companies in ast-growing economies likeChina and India are emerging. Dealogic reports that,
by mid-2007, developing countries had completed $128billion worth o deals in developed nations, comparedwith $14 billion in the whole o 2003.
This surge in outbound investment has sparkedprotectionist sensibilities in certain quarters. However,some Asian and Middle Eastern investors have recognisedthe need to tread careully; they are taking minoritystakes to maintain a low prole and minimise opposition,particularly when they are investing in politicallysensitive industries.
We thereore believe that the global deals market willrebound, or the undamental actors driving M&A activity the desire to enter new markets, extract synergies, utilisecapital and remain (or become more) competitive havenot changed. But the balance o power between privateequity and corporate deal-makers may shit, as borrowingconstraints restrict the ability to complete large, highlyleveraged deals and increase the importance o synergies.Smaller deals and strategic cross-border transactionsare also likely to predominate in the short term, at least,and joint ventures may become more popular, as Asiasemerging economies assume a more prominent role onthe global stage.
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In-depth CEO interviews
When one compares China Eastern Airlines to Singapore Airlines or to other topinternational airlines one sees many similarities. For example, like the top airlinesChina Easterns air feet is new, and its acilities are modern. Then what is ourweakness? Our weakness lies in our brand, our marketing ability and our serviceoverall. These are areas in which Singapore Airlines is very strong, and so we hopeto improve ourselves with their strengths.
Singapore Airlines has the skills and experience we are looking or, and our corporatecultures are relatively close. But while having Singapore Airlines as a strategicpartner provides us with a great opportunity, it does not by itsel guarantee success.Even when all conditions are avourable, we must still exert ourselves or our goalswill never be met.
The globalisation o the airline industry means that China EasternAirlines has to attain world-class management skills and developan internationally recognised brand. Partnering with a highlyaccomplished and popular airline like Singapore Airlines allowsus to achieve these goals aster.
Li Feng Hua
Chairman, ChinaEastern Airline
Our oreign competitors, on the other hand, intervene in the opposite manner,because they have access to investors and a relatively low level o penetrationo the Brazilian market.
Banco Ita has neither global operations nor direct access to oreigninvestors; nevertheless we have achieved major penetration o theBrazilian business community by serving as a nancial intermediarybetween global investors and businesses in Brazil.
Roberto SetubalCEO, Banco Ita
These are extracts rom in-depth interviews available in ull at www.pwc.com/ceosurvey
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I lay great emphasis on the promotion o the corporate brand.China Lie now wants to turn its amous commercial brand into abrand welcomed by society at large, and also to turn our nationalbrand into an international one. Whenever I say I am rom ChinaLie, I want others to say Oh, thats a good company.
I want China Lie to achieve the same reputation and be on the same rank as othertop international companies. I want our employees to eel a sense o pride in theiremployer. I put great emphasis on branding. Without a brand, you can hardly set
oot in the market. Thats why I emphasise brand in our corporate strategy andpositioning. When people see the China Lie brand we want them to think o anancial services group that deploys its resources rationally, operates a strong corebusiness, adequately mobilises its people, enjoys respect rom society, possesseshigh internal value and strong competitive power, and has a promising uture.I ask all our people to promote China Lie as a company respected by societyand industry so that wherever you go, you will be respected.
Part and parcel o the merger was the transer o Sims and its corporateheadquarters rom Australia to North America. That was sad, but I think thatsjust a refection o what were seeing in Australia today. Outgrowing Australiais probably the wrong word, but were a mature market here and the growthopportunities are oshore. The growth beyond this latest merger is going to beoshore, and its the type o business where you have to be on top o it duringall waking hours, not just the very small window o business hours that overlapwith Europe and New York rom Australia.
Obviously, where merger or acquisition is concerned, cultural t isthe number one criterion, with strategic t a close-running second.
We do have a list o about ve strict acquisition criteria, and ortunatelywere able to tick the boxes with most.
Jeremy SutclieCEO, Sims GroupLimited
Yang Chao
Chairman, China LieInsurance CompanyLimited
These are extracts rom in-depth interviews available in ull at www.pwc.com/ceosurvey
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1 World Economic Forum Global Risk Network & PricewaterhouseCoopers, Global Growth@Risk, 2007.
A connected world ismore vulnerable to riskIn a report produced last year incollaboration with the World EconomicForum, we argued that economicinterdependence means downturnsand shocks are more likely than everto be global.1 The collapse o the
US sub-prime mortgage market inmid-2007 can, perhaps, be seen asproo o this point. Few Western banksproved immune despite the actthat the debts they had assumedoriginated thousands o miles away.
Many risk experts clearly share ourperspective. They contend thatinvestors in every corner o the world,armed with the same inormation, willnaturally make similar bets causingthe markets to ollow a similar
trajectory. This increases the risk thatthe markets will become unbalanced.They also point to the act that two-thirds o the worlds total economicoutput springs rom a small group overy large economies China, India andthe G7 (the US, Japan, Germany, UK,France, Italy and Canada). A majordownturn in these key countries wouldthereore cause considerable problemseverywhere else.
Moreover, some risk experts suggestthat the risk o economic contagionis by no means the only cost ogreater connectivity. There is also amuch higher probability that physical,technological and operational riskswill spread. So, or example, qualityproblems at a Chinese plant recentlyorced one leading US toymakerto recall nearly one million productsrom the market.
A connected world oersmore opportunities ordiversicationThose in the opposing camp arguethat greater connectivity will enablethe world to foat on a more eveneconomic keel, because risks canbe geographically dispersed. I an
established economy alters, theysay, others can take up the slack.
They also suggest that, in aninterconnected world with greaterscientic, technological and educationalties, mutual sel-interest can orestallcertain problems beore they becomeworldwide shocks. There is certainlysome evidence or this in our latestCEO Survey, where 73% o CEOsavour collaboration with their peersto address climate change.
Rupert Stadler, Chairman o the Boardo Management, AUDI AG, puts thecase or mutual sel-interest particularlypowerully. He believes that one othe biggest uture challenges acingbusiness leaders is dealing withgrowth in a responsible way:
What should we be doing nowso that we can pass along aninhabitable planet or our children
and grandchildren? [And] do wehave enough trust in one another toprevent another war? As weve seenin our hemisphere, without war wehave made immeasurable progressover the last 50 or 60 years.Elsewhere, we can see what damagewar can cause. I we can, little bylittle, bring prosperity to manypeople, while managing the earthsresources in a responsible way,this will lead to sustainable growth
and satisaction or us all.
Does greater connectivity increase the risk that local dicultieswill turn into global disasters? Or does it provide opportunities to
diversiy and thus dilute the dangers? The preliminary evidencesuggests that it may actually do both.
A riskier
&/orSaer world
Global risks
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Sel-interested altruismis a more eective strategy
than greedDoes the connected world increaseglobal risks or provide newopportunities or reducing them,then? The answer may well be both.Many risks undoubtedly spreadarther and aster in a highly connectedworld and, in the short term at least,we believe this means that the potentialor global shocks is increasing.
In the longer term, however,connectivity will bring greaterprosperity and understanding, whichwill, in turn, help to create communitieso interest and stimulate greatercooperation. As game theorists haveshown in various experiments, sel-interested altruism is a more eectivestrategy than greed and rationalplayers who repeatedly interactconsistently choose to collaborate.
PwC viewManaging global risks in a connected worldComparison o the results o our 10th and 11th Annual Global CEO Surveysshows that the percentage o CEOs somewhat or very concernedabout global risks i.e. large-scale risks with potential implications acrossindustries and borders has allen in the past 12 months. The only global riskabout which they are more concerned is, predictably, an economic downturn.
The academic risk experts whose views we polled in December 2007
cannot say, with any greater certainty than CEOs, exactly what will happenand when. But they argue that, given the high number o low-probability,high-impact risks, it is reasonably likely that one such risk will materialiseduring the typical CEOs tenure.
Some o these risk experts also think that CEOS are under-investing in themitigation o global risks to the detriment o their own long-term interests.They note that certain risks are interdependent and could thus have morear-reaching commercial consequences collectively than they wouldindividually. Climate change could, or example, exacerbate the scarcityo water in equatorial regions, resulting in conficts between the localpopulace and business about water use in manuacturing acilities. Similarly,
cyber-terrorists could penetrate a global technology network, causing datalosses, security breaches or other business problems.
However, CEOs and risk experts alike recognise that the key issue is not somuch the need or more investment as it is or smarter investment. The realchallenge with global risks is that uncertainty about what to prepare or canresult in two equally bad responses inaction or investment in the wrongmeasures. But CEOs and risk experts generally agree that smarter investmentcan turn dynamic market changes into strategic opportunities or growth.
21Global risks
Yang ChaoChairman, China Lie InsuranceCompany Limited
We are aced with risks every day,and so there cannot be too muchemphasis on risk prevention. Only
ater you have managed risks canyou ensure healthy progress andrapid development o a company.Thats why it is necessary to build astrong oundation. Modern controlmethods, in particular, are to beemphasised. There is a saying Ioten quote, especially when I amtalking to my management team:Corporate governance may notensure the success o a company,but poor corporate governance will
surely destroy a successulcompany. I believe that enhancedinternal control and goodgovernance is the only way tomanage risks and to constantlyenhance our competitiveness.
These are extracts rom in-depth interviewsavailable in ull at www.pwc.com/ceosurvey
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In-depth CEO interviews
China is now well integrated into the global economy. Our exports account or an
increasingly larger share o world trade. So when there is nancial turbulence in theworld economy, we eel the eects here. Thereore, I hope that through joint eortsundertaken by various governments, the present economic conditions can bemaintained, and our company will be able to develop urther.
The ull consequences o the sub-prime mortgage crisis are notyet known. But I think that or the time being, the airline industry willnot be directly aected. Instead, I worry that the crisis might hurtthe American economy which, in turn, would hurt the worldwideeconomy and eventually have a negative eect on our industry.When the economy is good, the airline industry fourishes. When theeconomy turns down a little bit, we are the rst to eel its eects.
Third, it involves all the levels o the organisation with decision-making power,including senior management and the various board o directors committees.Fourth, maintenance o the risk system and reporting o risks are independentrom the business lines, although they contribute their knowledge to analyseand determine the most appropriate management models. And nally, the risk-management system has to acilitate decision-making and oster comparablemeasurement o risk independent o the nature o the risk assessed.
Our risk policy is governed by ve key principles. First, it has tocontribute to the generation o a sustainable prot in all businessareas. Second, it must integrate all the strategic and operatingactors which make up the risk prole o Ferrovial, such as economic,regulatory, legal, political, labour and environmental.
Li Feng Hua
Chairman, ChinaEastern Airline
Raael del PinoChairman, FerrovialGroup
These are extracts rom in-depth interviews available in ull at www.pwc.com/ceosurvey
22 11th Annual Global CEO Survey
The risks companies are exposed to today are, in many cases, dicult to anticipateand even harder to respond to eectively. This is the case not only or companies,but also or entire industries and even nation-states. Certainly, at a minimum,companies must try to understand the complexity o todays global businessenvironment and attempt to identiy major risks beore they arise. But we cannotexpect that ree-market mechanisms alone will address these vulnerabilities: acollective global capacity to mitigate the impact o global risks is also required.
That calls or close collaboration among the business community, governments,non-governmental organisations, and think-tanks in an eort to develop earlywarning mechanisms and establish risk-related controls.
It is also possible or companies to transorm these risks intoopportunities. Take the example o two competitor companies,both o which are dependent on the same supplier o a critical
component. When aced with a crisis that disrupts the supplychain say a strike in the suppliers plant the company thatcan switly put a creative solution in place will gain competitiveadvantage in the marketplace.
Ahmet DrdncCEO, H.. SabancGroup A..
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We dont have an internal investments directive saying that i Widmer doesnt
understand it, we wont sell it. Its a question rather o leading by example andpromoting the right corporate culture. We only sell products that we can stand behind;we dont sell products that we wouldnt want in our own portolio.
Because hedge unds are acting more and more like banks but arent subject tothe same capital and transparency requirements we are seeing attempts to regulatehedge unds more closely. Clearly, it would certainly be helpul i these unds weremore transparent. But I dont think its possible to limit volatility by means o controlsor guidelines.
Were geared to a private clientele that demands a low degree orisk. Accordingly, we have a clear product philosophy: we didnt,or instance sell structured credit products. I have never believed inthese products, and would never advise a client to buy a productwhere one has no idea what lies behind it. Here were seeing loansrom bad borrowers being bundled, dressed up dierently, and thenrated even though theyre basically unrateable.
Alex W. Widmer
CEO, Bank JuliusBaer
These are extracts rom in-depth interviews available in ull at www.pwc.com/ceosurvey
23Global risks
The EU nance ministers have mandated the EU regulators in the area o banking,insurance and securities to work on a series o important issues related to theongoing nancial turmoil. We need to put in place eective crisis managementarrangements. I have suggested that we should aim at having a college osupervisors or each cross-border banking group. The college would be composedo the supervisors o the jurisdictions where the group operates. In the event oa crisis such a college would decide on the appropriate measures.
We need to engage in enhancing resilience o the EU nancial systemso it can withstand external shocks. The Capital RequirementsDirective, which is in the process o being implemented in memberstates, will enhance public disclosure, oer incentives to improve riskmanagement and strengthen supervision. But in the ace o closerintegration and greater market interconnectivity, we need to do more.
Charlie McCreevyEuropeanCommissioner orthe Internal Marketand Services
A regulatory view
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CEOs believe that a combinedeort is neededWe asked CEOs whether they agreeor disagree with ve statements aboutclimate change, including how theythink it will aect their companies andto what extent they are personally
committed to environmental causes.We also asked them to tell us whatclimate-related issues concern themmost. Our ndings show that mostCEOs believe greater governmentinput and collaboration are essential(see gure 1.4.1 and 1.4.2).
1. Four-fths o CEOs agree oragree strongly that governments
should lead the eort to address
environmental problems.Asian
CEOs are particularly convinced thatgovernments should assume theinitiative; 90% take this view, a actwhich is not surprising in a region orapidly emerging economies, where
resources are in high demand andecosystems rom the atmosphereto major rivers have already shownsigns o damage. Conversely, only64% o North American CEOs ewer than in any other region support the idea o governmentintervention.
This call or greater governmentinvolvement is all the more remarkable,given that companies generally seekless regulation and more fexibility tomanage their operations. It suggeststhat CEOs recognise the scale othe problem and think that onlygovernments in their role as publicstewards can act in concert toaddress it.
However, some CEOs may also bereluctant to take the initiative onmatters they believe could reducetheir short-term competitiveness.Many o the worlds leading
During the past 12 months, climate change has soared up thepublic agenda. So what are CEOs now doing to combat the threat
o global warming? At rst glance, our survey suggests that theyare largely reactive. But closer inspection shows greater levels ocommitment, especially among CEOs running big companies.
Pragmatism
&Heightenedawareness
Climate change
24 11th Annual Global CEO Survey
0%
Agree stronglyAgreeDisagreeDisagree strongly
I am more active in my private lifethan I am as a CEO in addressing
climate change
Governments should take more of aleadership role in determining mitigation
strategies for climate change
My organisation is investing significantresources to address the risks and
opportunities of climate change
Businesses need to collaborate moreeffectively with industry peers and business
partners in mitigating climate change
Developed countries should accept moreresponsibility and costs than developingeconomies for mitigating climate change
62 39 43
383685
3 6 43 30
11262116
17 21 20 11
1.4.1
CEOs clamour or government leadership in addressing climate change, but they also recognise the value o business collaboration
Q: To what extent do you agree or disagree with each o the ollowing? (Base: All respondents 1,150)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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companies have already madesubstantial eorts to reduce theirenergy consumption and raise
awareness o environmental issues.But without clear global standards,applied equally in all jurisdictions,CEOs may be understandably anxiousabout incurring additional costs.
2. Nearly three-quarters o CEOsbelieve businesses need to
collaborate more eectively with
each other to address climate
change. CEOs in India (93%),Japan (89%), France (82%),
Korea (80%) and Germany(78%) top the chart in calling orcloser collaboration to addressenvironmental concerns. But CEOsin the US (52%), UK (54%), Russia(56%) and the Netherlands (57%)are more doubtul about the valueo collaboration as a means olessening environmental damage.
This powerul endorsement o greatercollaboration may stem rom earlyevidence o the impact businessnetworks can have. Wal-Mart has,or example, ormed a partnershipwith major suppliers to measure thecarbon ootprint o its products and
reduce waste and energy use throughmore ecient packaging. Similarly,Marks & Spencer is increasing its
use o sustainable sources o cotton,wood and paper goods, and sellingree-range poultry and eggs. It is evenconsidering whether to locate acilitieson its suppliers arms to avoid wasteand regenerate energy.
Many companies are also combiningorces to press or greater governmentaction. In December 2007, the leaderso 150 global companies appealedto environmental ministers convening
in Bali to agree on a comprehensive,legally binding ramework to addressthe problem. The EU Corporate LeadersGroup on Climate Change spearheadedthis eort, with signatories includingJohnson & Johnson, Nike, NovoNordisk, Sony, AIG, Allianz, Coca-Cola,Hewlett-Packard, HSBC, Nokia andPacic Gas & Electric. The EUCorporate Leaders Group and USClimate Action Partnership (whosemembers include DuPont, GE, BP,Caterpillar, Alcoa and Duke Energy)had already asked governments tolegislate or reductions in greenhousegas emissions.
Lev KhasisCEO, Chairman o the ManagementBoard, X5 Retail Group N.V.
You have to worry when you readthat in 100 years England might beunder water. I England is going to
drown then St. Petersburg is goingto be under water as well. From mypoint o view anything that causesinstability is bad or business.What we want is stability andpredictability in climate, in particular.
These are extracts rom in-depth interviewsavailable in ull at www.pwc.com/ceosurvey
25Climate change
Region Revenue size
CEE
Latin
America Asia Pacifc
Western
Europe
North
America
Over $10
billion
$1 billion to
$10 billion
$100 million
to $999million
Less than
$100 million
Governments should take more o aleadership role in determiningmitigation strategies or climate change
87% 87% 90% 76% 64% 80% 81% 78% 87%
Developed countries should acceptmore responsibility and costs thandeveloping economies or mitigatingclimate change
76% 88% 75% 71% 61% 65% 73% 71% 78%
Businesses need to collaborate moreeectively with industry peers andbusiness partners in mitigating climatechange
66% 80% 82% 70% 58% 74% 78% 66% 77%
My organisation is investing signicantresources to address the risks andopportunities o climate change
27% 40% 42% 39% 29% 56% 47% 29% 31%
I am more active in my private lie thanI am as a CEO in addressing climatechange
28% 36% 38% 26% 23% 16% 27% 34% 36%
Base 86 136 277 454 130 103 291 410 241
Q: To what extent do you agree or disagree with each o the ollowing? (Base: All respondents)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
1.4.2
Large companies are more likely to agree or agree strongly. They are investing signicant resources to address the risk and opportunities o climate change,while CEOs in developing nations put greater emphasis on government leadership
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3. More than one-third o CEOsagree or agree strongly that
they are investing signifcant
resources to address the risks and
opportunities arising rom climate
change. However, the percentageis considerably higher in very largecompanies. Fity-six percent oCEOs heading organisations witha turnover o more than $10 billiona year are committing signicantresources to climate-related issues.
This is possibly because big companiespossess the ready capital with which to
address the commercial opportunities,install energy-saving technologiesand prepare or changes in regulation.Smaller companies, by contrast,may nd it harder to justiy spendinga lot o money on such initiativeswithout government guidance onthe controls that are needed to allayenvironmental damage.
4. Nearly three-quarters o CEOsexpect developed countries to
accept more responsibility and a
greater share o the costs involved
in mitigating climate change than
developing nations. CEOs in Korea(97%), India (93%), Russia (86%),Spain (85%), Germany (84%) andBrazil (83%) are most convincedthat developed nations should bearthe brunt o the burden, whereasthose in Japan (52%), the US (59%)and the UK (61%) are least likely toshare this view.
In act, the question o how to apportionresponsibility or cutting emissionsbetween the developed and developing
worlds proved one o the knottiestissues at the recent UN Climate ChangeConerence. The resulting Bali ActionPlan acknowledged that deep cuts incarbon emissions will be required, butstopped short o setting specic goalsbecause o the diculty in securinginternational consensus. It provides,instead, or a two-year period onegotiation to develop targets andormulate a new climate-change treatyto replace the Kyoto Protocol, which
expires in 2012.
5. CEOs are no more active in privatethan they are in business about
addressing climate change.Thirty-eight percent o respondentsdisagree or disagree stronglythat they are more environmentallyconscious at home than at work,while only 31% agree or agreestrongly that they are more activein private and 28% are silent onthis score. CEOs in Asia and LatinAmerica are among those mostlikely to dierentiate between theirprivate and proessional lives; 51%o Japanese CEOs, 43% o BrazilianCEOs and 40% o Indian CEOs saythat they are more active inaddressing climate change at homethan they are in the workplace.
CEOs are concernedabout the nancial and
physical consequenceso climate changeThe costs o energy resources andother actors relating to environmentalorces are the ocus o anxiety tomany CEOs. Sixty-our percent aresomewhat or extremely concernedabout rising energy costs (see gure1.4.3), while 49% are nervous aboutincreasing costs in areas such ascompliance and insurance.
However, they also worry aboutthe physical toll climate change isexpected to levy. Thirty-nine percento respondents are concerned aboutpotential supply-chain disruptionsand 28% about the risk to peopleand property rom extreme weatherevents and the like.
Asian CEOs are especiallyapprehensive. Seventy-nine percentworry about the impact o rising energy
costs; 67% about higher complianceand insurance bills; 59% aboutsupply-chain disruptions; 46% aboutgreater pressure rom stakeholders todeal with climate change; and 46%about the physical damage climatechange could infict.
26 11th Annual Global CEO Survey
%
Extremely concernedSomewhat concernedNot very concernedNot concerned at all
Rising threats to the person and/orproperty due to weather events and
changing patterns
Increased pressure from stakeholdersto deal with climate change
Disruptions to supply chain
Increased carbon emission regulations
Other cost increases(e.g. compliance, insurance)
Rising energy costs 2213 36 28
3416 38 11
2831 25 14
3524 26 13
3832 24 13
3635 20 8
1.4.3
Worries about climate change and natural resources surace most visibly as concerns about rising energy costs
Q: How concerned, i at all, are you about each o these potential threats that could impact on the growth o your business? (Base: All respondents 1,150)
Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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1Greenstone Carbon Management research into data publicly disclosed by the Carbon Disclosure Project 2006.2IBM Cuts CO
2Emissions by More Than 1 Million Tons, Saving $115 Million, GreenBiz.Com (September 30, 2005).
Some CEOs see thepositive side
Despite these concerns, 28% oCEOs see climate change as anopportunity to reduce their costs orgenerate additional prots rom newenvironmentally-riendly products andservices. Another 29% believe thatdemonstrating their companiescommitment to the mitigation o climatechange will bring intangible benets(see gure 1.4.4) such as strongerbrands, an enhanced reputation orbetter access to talent.
These ndings are supported byindependent research, which showsthat one-third o FTSE 100 companieshave achieved cost savings as a directresult o setting quantiable targetsto reduce carbon emissions.1 IBMalone is reported to have saved morethan $100m rom cutting its output ocarbon emissions by 1.28 million tonssince 1998.2
CEOs heading very large companies
generally have the most positiveoutlook. Thirty-nine percent anticipatethat climate change could bringeconomic benets in the orm o newproducts or lower energy bills, while46% think that it could bring intangibleopportunities.
PwC view
Will Bali pave the way or a newclimate-change treaty?A year o unprecedented scientic, corporate and public interest in climatechange concluded with the United Nations Climate Change Conerence inBali, which was attended by more than 10,000 participants. Business leadersseeking greater clarity about the long-term regulation o greenhouse gasemissions called on policy-makers to develop a comprehensive, legallybinding ramework or tackling climate change.
The conerence culminated in the adoption o the Bali Action Plan. At rstblush, the plan looks as though it lacks teeth; although it acknowledges thatemissions must be cut dramatically, it alls short o establishing actual targets a act that disappointed many non-governmental organisations. But the planprovides clear evidence o a growing determination to address climate changein both developed and developing nations. It also establishes a process ornegotiating the terms o a new treaty, to be completed by late 2009.
Three issues will particularly concern the business community:
Which countries set targets or themselves, and how ambitious thosetargets are;
What role the carbon markets play in any subsequent regime; and
Whether particular sectors come under the spotlight.
However, the undamental question is whether political changes in theUS will support the development over the next two years o a newinternational agreement to address climate change.
27Climate change
Yes
No
Dont know/Refused
IntangiblyEconomically
0%
28
29
69
69
3
2
1.4.4
More than a quarter o CEOs believe that climate change will benet their
business either intangibly or economically
Q: Do you think that climate change will beneft your business economically(e.g. in revenues, operational efciencies etc.) or intangibly (e.g. in brand or
reputation, or access to talent etc.)? (Base: All respondents 1,150)Source: PricewaterhouseCoopers 11th Annual Global CEO Survey 2008
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In-depth CEO interviews
Over the last decade the global economy has seen a substantialdecline in infation even as economic growth has surged. But assetprices and indebtedness have also gone up. In the long run,nancial market strains could well deepen and trigger a crash inglobal asset prices. This would signal the start o a morepronounced global slowdown.
The new business environment in which innovation has become a key competitivestrategy will also create new risks as a sharp upward demand or talent leads
to a scarcity o highly-skilled labour. On the other hand, we also believe that theemerging ocus on the environment will open resh opportunities by drivingdemand or cleaner production, greener buildings, new environmental saetyproducts and better energy management. These represent attractive investmentoptions over the next decade.
I worry about the listlessness in the industry on updating airplanemodels. With surging oil prices and higher social expectations withrespect to environment issues, the need or new airplane technologyis readily apparent.
But with only two major passenger airplane manuacturers in the world and strongmarket demand or existing models, there is little pressure on the manuacturersto develop next-generation air feets. This really worries me. I really hope thatmanuacturers will develop new airplanes that consume less energy, are morecomortable and sae and address environmental concerns.
Ahmet Drdnc
CEO, H.. SabancGroup A..
Li Feng HuaChairman, China
Eastern Ai