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Global CEO survey
Fear of recession is dominant concern among global CEOs
February 2008
CEOs’ confidence about
prospects for business declined for the first time since 2003 and
fear of a global recession emerged as the major threat to growth in
PricewaterhouseCoopers’ eleventh Annual Global CEO Survey. Compared
to last year, possible economic downturn is the only risk factor to
increase in concern among CEOs. All other risks to growth, including
energy supply, global climate change and terrorism, declined as
business threats. Over-regulation and availability of talent were
also top CEO concerns.
The percentage of CEOs who said they are very confident about
revenue growth over the next 12 months fell two percentage points
from last year to 50%. CEOs, however, remained nearly twice as
confident as they were in 2003. The survey results were released at
the World Economic Forum annual meeting in Davos, Switzerland.
The overall drop in business confidence was most pronounced in North
America, where just 35% of CEOs said they were very confident about
growth, compared to 53% last year, a decline of more than a third.
Confidence among western European CEOs also declined to 44%, down by
eight percentage points. In contrast, CEO confidence in the surging
economies of Asia Pacific, Latin America, and central and eastern
Europe increased, rising to about 55% in each of those regions. This
growing confidence is especially strong in China and India, where
73% and 90% of CEOs respectively were very confident about the
prospects for growth in the next 12 months.
This year’s results marked the first time since the survey’s
inception, 11 years ago, that CEOs cited a potential economic
downturn as the major threat to their business growth prospects.
Until now, CEOs had consistently rated over-regulation as the
primary risk to their business. Terrorism and the threat of
pandemic, once major CEO concerns, were cited by only 31% and 28% of
respondents, respectively.
“The credit crunch and the slowdown in the western economies have
created a clear split in the confidence levels of CEOs around the
world,” said Samuel DiPiazza, global CEO, PricewaterhouseCoopers.
“The possibility that the downturn could worsen into recession looms
large for CEOs in established economies like the US and western
Europe. In the newly-emerged economies CEO confidence remains
strong, perhaps because they have experienced nothing but rapid
expansion for a decade or more.”
The threat of over-regulation declined this year, though it remained
among the top three concerns. Over-regulation was mentioned by 59%
of respondents, down from 73% in the previous survey. CEOs felt
labour laws, tax regimes, and education were the top areas in which
governments could make improvements. Just 5% felt improvements were
needed in regulation over initial public offerings or listings on
stock exchanges. Overall, more than half of CEOs said that
governments should drive convergence of tax and regulatory
frameworks.
Concern about the global economy also impacted CEOs’ plans for
expansion over the next 12 months. More CEOs now see their main
opportunities for short-term growth coming from better penetration
of existing markets or developing new products rather than from
mergers and acquisitions or geographic expansion. As they did last
year, CEOs said they preferred to finance future growth from within
the company, rather than external sources such as the debt or equity
markets.
Globally, 24% of CEOs said their company had completed at least one
cross-border merger or acquisition within the past 12 months, while
31% plan to do so within the next 12 months. CEOs in western Europe
were most likely to have participated in cross-border M&A activity.
The most popular destinations for M&A activity are Asia, western
Europe, eastern Europe and North America.
Interest in M&A in 2008 is highest in Asia Pacific, where CEOs are
most confident, and where Asia Pacific companies have increasingly
become the acquirers rather than the acquired. Asian Pacific CEOs
are planning M&A activity both close to home and abroad. Only 23% of
Asia Pacific CEOs have completed at least one cross-border deal
within the past year, but 34%, a higher percentage than in any other
region, say that they intend to do so within the next 12 months. Of
those Asia Pacific CEOs planning M&A in the next 12 months, 25%
foresee a transaction in western Europe, 31% in North America and
73% closer to home in Asia.
Obstacles to M&A activity were headed by cultural issues and
financial considerations. However, the issues of political
interference or opposition and possible backlash against a foreign
presence in local markets have increased as barriers to cross-border
M&A.
The war for talent remains a key concern among CEOs. Overall, more
than two-thirds of all CEOs, 85% in North America, said their time
was best spent dealing with people issues. CEOs in Asia Pacific,
despite the region’s substantial working-age populations, were the
most concerned over the availability of key skills. Asia Pacific
CEOs were most likely to believe that their organisation needed to
change the way it developed talent.
CEOs said that combined technical and business experience, global
work experience and leadership skills are the most difficult areas
for their companies to recruit. Global experience, however, was
ranked last among a list of skills that are critical to their
organisation.
For
more details regarding PricewaterhouseCoopers’
eleventh Annual Global CEO Survey, go to www.pwc.com/ceosurvey
