Only 36 percent of CEOs worldwide are "very confident" of their company’s growth prospects in the next 12 months, according to PwC’s 16th Annual Global CEO Survey. That is down from 40 percent who were 'very confident' of short-term growth last year and 48 percent in 2011, but still above the lows of 31 percent and 21 percent in 2010 and 2009.
Looking at the economy generally, 28 percent of CEOs say the global economy will decline further in 2013, and only 18 percent predict economic improvement; 52 percent say it will stay the same. While the CEOs’ outlook remains gloomy, the forecast is an improvement on last year when 48 percent of CEOs predicted the global economy would decline in 2012.
CEOs in Western Europe were least confident of short-term revenue growth. Faced with ongoing recession, just 22 percent of Western European CEOs said they were very confident of growth, down from 27 percent last year and 39 percent in 2011. Confidence in short-term growth also declined in North America to 33 percent (42 percent in 2012) and in Asia Pacific to 36 percent (42 percent in 2012). Even in Africa, seen by many as the next high-growth economy, CEO confidence in company growth slipped to 44 percent, from 57 percent last year.
Latin American CEOs, however, bucked the trend. Their short-term confidence rose to 53 percent of CEOs, up slightly from last year.
At the country level, confidence varied widely: CEOs are most confident in Russia where 66 percent are very confident of revenue growth in 2013, closely followed by India (63 percent) and Mexico (62 percent). They were trailed by countries, including Brazil (44 percent), China (40 percent), Germany (31 percent), the United States (30 percent), the UK (22 percent), Japan (18 percent), France (13 percent) and finally Korea, where only 6 percent of CEOs are very confident of revenue growth in the year ahead.
Longer term, overall CEO confidence remained stable; 46 percent of CEOs worldwide said they were very confident of growth prospects in the next three years, about the same as last year. CEOs in Africa and the Middle East were most confident of long-term growth, at 62 percent and 56 percent respectively. In North America, 51 percent were 'very confident' of long-term growth, while 52 percent in Asia Pacific were very confident. Long-term confidence was weakest in Europe at 34 percent.
Releasing the survey results on the first day of the World Economic Forum annual meeting in Davos, Dennis M. Nally, chairman of PricewaterhouseCoopers International, said: "CEOs remain cautious about their short-term prospects and the outlook for the global economy. However, given the high levels of concern among CEOs about issues such as over-regulation, government debt, capital market instability, it is no surprise that CEO confidence has declined in the last 12 months.
"We find CEOs working to deal with the ongoing risks. Strategically, CEOs continue to refine their operations, looking to cut costs without reducing value as they manage through sluggish times. They are seeking growth opportunities organically, avoiding large outlays that could strap resources for the future. Most important, they have a clear focus on customers, collaborating with them more closely than ever on programs to stimulate demand, loyalty and joint innovation," he said.
What worries CEOs most?
As the difficult economic conditions persist, CEOs are generally more worried about a wider range of issues than they were a year ago. Top of the list, a concern among 81 percent of CEOs about continuing uncertainty over economic growth.
Sending a clear message to governments around the world, other key CEO worries are the government response to the fiscal deficit (71 percent), over-regulation (69 percent) and lack of stability in capital markets (61 percent). CEO concerns about over-regulation are at their highest since 2006. When asked directly about the government response to the regulatory burden, CEOs are even more blunt, with just 12 percent agreeing that their government has reduced the regulatory burden in the last year.
When asked about the major threats to their business growth, CEOs also cited the increasing tax burden (62 percent), availability of key skills (58 percent) and the cost of energy and raw materials (52 percent).
Dealing with disruption
In order to build organisations that can survive and thrive amid disorder, CEOs are pursuing three specific strategies — targeting pockets of opportunity, concentrating on the customer and improving operational effectiveness.
Targeting pockets of opportunity
Some 68 percent of CEOs are focusing on carefully selected initiatives. They are weighing up all their options, making a few smart investments and consolidating their resources to maximize the odds of success.
Where CEOs see pockets of opportunity, nearly half are pinning their hopes on growth within existing markets, while only 25 percent are turning to new product development. And only 17 percent of CEOs are planning new mergers and acquisitions. For those CEOs planning an M&A, the top target regions are North America and Western Europe, with some evidence that CEOs are looking to take advantage of some difficult economic times to find a bargain.
China topped the list of countries seen overall as most important for future growth, cited by 31 percent of CEOs, followed by the United States (23 percent), Brazil (15 percent), Germany (12 percent), and India (10 percent). Indonesia was listed among the top 10 for the first time this year, two points above Japan. Among large companies (over $ 10 billion), however, China was viewed as most important by 45 percent while the United States dropped to 20 percent.
Concentrating on the customer
Nearly half the CEOs (49 percent) see shifts in consumer buying patterns as a serious business threat and 51 percent said their top investment priority for the next 12 months was growing their customer base. Eighty-two percent of CEOs anticipate making changes to their customer growth and retention strategies – and 31 percent have major changes in mind.
Improving operational effectiveness
Improving operational effectiveness is a top investment priority for CEOs. 77 percent have undertaken cost reduction initiatives in the past 12 months and 70 percent plan to do so in the next 12 months. But CEOs are wary about inadvertently cutting value. One indicator: 48 percent of CEOs have increased their company’s headcount during the past 12 months, while 25 percent have kept it at the same level.
Jobs and the search for talent
CEOs remain relatively cautious on plans for increasing headcount for this coming year. 45 percent of CEOs plan to recruit in 2013 (down from 51 percent in 2012) while 23 percent plan to reduce the size of their workforce.
Looking at which industries are recruiting and which are shedding jobs shows an interesting picture. CEOs most likely to be increasing headcount are in business services (56 percent), engineering and construction (52 percent), retail (49 percent) and health care (43 percent). While the biggest number of CEOs planning headcount reductions are in banking (35 percent), the metal industries (32 percent), and forestry and paper (31 percent).
Whatever their hiring outlook, finding and keeping the right people remains a major challenge for CEOs. Availability of key skills was ranked by CEOs as a major threat to growth prospects, cited by 58 percent worldwide. The skills threat was especially acute among smaller companies and in high growth areas like Africa, the Middle East and Asia Pacific.
And the CEOs most concerned about the skills shortage were those in mining (75 percent), engineering and construction (65 percent), communications (65 percent), technology (64 percent) and insurance (64 percent).
In view of all this, it is unsurprising that more than three quarters (77 percent) of CEOs said they anticipate making changes in their company's strategies for managing talent during the next 12 months, and nearly a quarter (23 percent) said they expect the changes to be major.
Addressing public trust
CEOs also recognise the need to build trust with a wider set of stakeholders. 37 percent worry that lack of trust in their industry could endanger their company’s growth, and 57 percent plan to focus more heavily on promoting an ethical culture. In addition, nearly half of CEOs (49 percent) plan to put more effort into reducing their environmental footprint in the next 12 months.
