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Global CEOs' Business Confidence Reaches Record Levels

SB Informer
Wednesday, January 24, 2007; 03:50 AM

CEOs’ confidence about prospects for revenue growth has reached a record level: Nearly twice as many CEOs now feel very confident about revenue growth over the next 12 months compared to five years ago, according to PricewaterhouseCoopers’ 10th Annual Global CEO Survey released today at the World Economic Forum meeting in Davos, Switzerland.

Over 90% of the 1,100 CEOs surveyed across 50 countries are upbeat about revenue growth in the next 12 months. Longer term, this confidence is undimmed, with 93% of CEOs confident of achieving revenue growth over the next three years. And as the trend towards globalisation continues, CEOs expect this business expansion will be fuelled by improved market penetration, geographic expansion, and mergers and acquisitions, often across borders.

“CEOs around the world, at companies large and small, are increasingly positive about their ability to grow their companies and take advantage of the opportunities globalisation offers for new markets, new products and new customers,” said Samuel A. DiPiazza, PricewaterhouseCoopers' Global CEO. “If CEOs are to make the most of global opportunities for the long term, they must fully understand the realities and risks of funding their growth, working in diverse cultures, managing dispersed resources and competing with a growing set of global players.”

Geographically, CEOs expect growth will continue in the widely-recognised BRIC (Brazil, Russia, India, China) territories, as well as other emerging and developed economies. Beyond the BRICs, the top five countries cited for significant growth opportunities are Mexico, Indonesia, Vietnam, Korea and Turkey, with CEOs generally favouring the nearest developing country as providing the largest growth opportunities.

While nearly three quarters of CEOs agree that continued globalisation is beneficial for both developed and emerging markets, the biggest growth opportunity cited by CEOs is better penetration of existing markets for existing products (23%) with access to new markets via geographic expansion a close second (21%).

CEOs are generally cautious about how they might fund their expected growth. Nearly 80% prefer to fund growth from internal cash flow and less than 20% anticipate calling on the equity markets for support. Only 10% are considering private equity or venture capital financing.

Barriers to Growth

Despite their overwhelming optimism, CEOs foresee potential barriers to growth, with 73% citing over-regulation as a concern, up from 64% last year. In Asia Pacific, concerns are particularly acute about a looming scarcity of key skills, cited by 88% of CEOs in the region, compared to 72% overall.

Non-business risks such as terrorism, scarcity of oil and other natural resources, political instability and global climate change, were seen as less threatening to business prospects, and about half the CEOs are expending no resources to combat them. However, the current debate about global warming and climate change is beginning to bite, with 40% of CEOs expressing concern about the threat posed by climate change; this figure rises to 58% for Asia Pacific CEOs but significantly drops to only 18% of North American CEOs.

In Asia Pacific, CEOs were generally much more worried about threats to their business than their counterparts elsewhere in the world with 83% concerned about over-regulation, and 80% worried about low-cost competition. However, Asia Pacific CEOs were also better prepared for these threats and were more likely to have expended resources on mitigating them than their counterparts elsewhere.

Balancing the Global Equation

To help drive business growth, about half of the CEOs surveyed say they have completed or are planning a cross-border merger or acquisition in the next 12 months, most likely involving a company in a neighbouring country. Appetite for cross border M&A is strongest in Western Europe which is also the most popular target region for CEOs seeking cross border M&A.

Overwhelmingly, gaining access to new markets and customers is the main purpose given for cross border M&A, cited by nearly two-thirds of CEOs. However, CEOs do not underestimate the difficulties faced in cross border acquisition and integration. Cultural issues and conflicts, differences in regulations and unexpected costs are the main obstacles to cross-border M&A activity cited by CEOs.

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