Why the world’s top chief executives are so worried about all our futures
By Richard Siddle
They say a week is a long time in politics, well imagine the changes that can happen in a year in big business. This time last year the management consultants PWC released its annual survey of the world’s top 1,378 chief executives in nearly 100 countries. It made for pretty bullish reading as they reported record levels of optimism in terms of overall global growth amongst 59% of the chief executives, up from 29%.
Twelve months on and the picture could not be more different. This time round PWC’s annual report makes for hard reading with a 436% increase in the share of chief executives who expect global economic growth to decline, jumping from 5% to 30% of ceos.
Their mood also differs based on which part of the world they are operating in. US business chiefs saw the biggest drop in optimism, from 63% to 37% with 28% now expecting a decline in growth compared to only 3% in 2018. Not surprisingly Western Europe, which has the imminent departure of the UK from the EU hanging over it, saw an even bigger swing from 4% of ceos to 33% now expecting things to get worse. Nearly 40% of business leaders in the Middle East are also worried about the region’s future, up from 10%, as are 28% of chiefs in the Asia Pacific compared to 5% last year.
What’s more they are lot a more fearful for what lies ahead for their own companies, with 65% admitting they were not confident about hitting their own revenue targets in this financial year - down from 58% in 2017 - and 64% see this downward trend continuing for at least the next three years (versus 55% last time round). North America, Central and Eastern Europe, Asia-Pacific, Africa, and the Middle East have hit record lows of confidence with North America slumping from a 55% confidence index to under 40%.
Out of control
So what’s caused this lack of faith not only in their economic prosperity, but the business world they operate in? Top of the list is the uncertainty of doing business (35% of ceos) and the increased over regulation (35%) in which they have to plot a route through. Linked to them are the other major factors outside of their control, namely trade conflicts (31%), such as the on-going Brexit soap opera and the US/China trade war, and the geopolitical uncertainty that then brings (30%). The American and Chinese stand off is seen as particularly worrying for world growth as it affects both mature and emerging markets.
All of which will be very familiar for the wine buyers, retailers, importers and producers looking to trade and do deals against a backdrop of continued and even escalated uncertainty, heightened by the lack of movement of any sort of Brexit deal that can bring confidence to global trading.
As one chief executive said recently: “It’s like walking into a meeting draggling a lead weight behind you and doing business with one arm tied around your back.”
Policy uncertainty is among the ten most ‘extreme concerns’ in every region and ranks in the top three everywhere except North America (where it is number seven) and Asia-Pacific (number six).
There are other interesting differences between major countries. Trade conflicts, for example, is the number one concern in the Asia Pacific (38%), and second in the US (44%) behind cyber attacks (45%), whilst over regulation is the biggest concern in Western Europe (33%).
Of those that did cite trade conflicts as being of “extreme concern” it’s the one between the US and China that is most worrying. Sixty per cent of US ceos said they were “extremely concerned” by the impact of increased protectionism.
All this uncertainty is having a direct impact on how these ceos are behaving - two thirds of those who said they are “extremely concerned” about trade conflicts are “adjusting” their supply chain and “sourcing strategy” as a result. Particularly so in China were 58% of leaders are moving their “growth strategy to alternative territories” compared to 23% in the US and 25% globally and 44% are shifting production to “alternative territories” compared to 16% globally and 30% in the US.
Interestingly the threat of terrorism has notably dropped from 41% in 2018 to only 13% in 2019 reflecting business leaders increased concerns about other issues outside their control that have an even bigger direct impact on how they operate.
It is not surprising that the UK’s perceived importance as a growth market has dropped by nearly half to 8% of ceos down from 15%. Chief execs are also switching their attention away from the US with only 17% seeing it as a key growth market, compared to 59% last year. Instead businesses are looking to diversify and spread their risks of which Australia seems to be the principal beneficiary. It was not even in China’s top ten growth markets last year, but has now in the number one destination for Chinese investment.
Other key issues that chief executives are grappling centre around the speed of technology (28%) and whether they have the rights kills in their business (34%) to implement and use the right technology to make their companies more effective. This is particularly the case when it comes to analysing and getting value out of their own data and the concern that their competitors are some how further down the line than they are. The reality is they are probably struggling too.
Data about customer preferences and needs is seen as being the most valuable to understand, followed by financial forecasts, then data about brand and reputation, business risks, and employee views and needs. Chief exec point to the ‘lack of analytical talent’ (54%), followed by ‘data siloing’ (51%), and ‘poor data reliability’ (50%) as the primary reasons the data they receive is inadequate. As a result 55% said they were unable to innovate effectively.
All of which means new smarter technologies, like artificial intelligence, are not being rolled out and used as much as the forecasters would have you believe. Even though 63% of ceos believe AI will have a bigger impact than the internet, a quarter have no plans to pursue AI “at the moment” and 35% “have plans to do so in the next three years”. Of those that do only 3% see it as being “fundamental” to the way they do business. PWC sees this as potentially worrying as it estimates AI will contribute growth of US$15.7 trillion in global GDP by 2030.
So what’s to be done? PWC says there is an even greater need for businesses to become more flexible in their approach. To be able to adapt to the challenges in their market and execute successful strategies to overcome them.
Which is probably why 77% of ceos said the number one factor in them driving growth next year will be investing in operational efficiencies, compared to 62% who saw launching a new product or service as being more important.
The final word goes to PWC who sees people, skills and training as being the key driving factors in changing the global perspective. It says: “Business leaders should continue to upskill their current and future workforce as well as cultivate soft skills such as creativity, problem solving and empathy in their corporate cultures.” Before adding: “The results of this year’s ceo survey may seem sobering to some, but they also provide reason for hope. The world’s senior decision makers are realistic this year about the challenges facing them, and this may incent them — and their organisations — to act.”