OREANDA-NEWS. January 27, 2012. Nearly half (48%) of Russian CEOs are ‘very confident’ of growth over the next year, according to PwC’s 15th Annual Global CEO Survey. Although below last year’s figure (60%), Russian CEOs’ confidence is higher this year than among their global peers, only 40% of whom were ‘very confident’. The latter figure is down from 48% last year, although still up from the 31% of global CEOs who were ‘very confident’ in 2010, reported the press-centre of PwC.

Despite this upbeat view in Russia, however, a gloomy outlook is still widespread globally as almost half (48%) of 1,258 CEOs polled worldwide and 52% of Russian CEOs believe the global economy will decline further in the next 12 months. Just 15% of global CEOs said the global economy will improve during 2012, while Russian CEOs are even less optimistic with just 4% expecting an upswing.

However, nearly three times as many global CEOs (40%) are confident in their own companies’ growth prospects for the next 12 months than in the outlook for the global economy, suggesting that CEOs believe they have learned how to manage through difficult and volatile economic times.

Longer term, CEO confidence also declined with 52% of Russian CEOs and 47% globally saying they were ‘very confident’ of growth prospects over the next three years. CEOs in Western Europe (38%) and CEE (42%) were least confident of long-term growth, while 53% of CEOs in BRIC countries other than Russia were very confident of long-term growth.

Is the gloom universal, or is there room for optimism?

CEOs worldwide are concerned about the health of the global economy.

Unsurprisingly, the biggest decline in confidence was in Western Europe. Beset by the EU’s sovereign debt crisis, just a quarter (27%) of European CEOs said they were very confident of revenue growth, down sharply from nearly 40% last year. Short-term confidence also fell among CEOs in Asia Pacific, where this data point fell to 42% from 54% last year. China saw the biggest decline in confidence in the Asia Pacific region, with only 54% of CEOs feeling ‘very confident’, down from 72% last year.

In the US, 41% of CEOs said they were very confident of short-term growth, down from 45% last year. Confidence increased, however, among CEOs in Africa, where 57% said they were expecting growth, up from 50% last year.

“CEO confidence is decidedly down as they deal with the aftershocks to the recession. CEOs are disappointed with the course of the global economy and the pace of recovery. The optimism that had been building cautiously since 2008 has begun to recede,” said Dennis M. Nally, Chairman of PricewaterhouseCoopers International.

“The good news is that the long cycle of the slowdown has taught CEOs how to manage their businesses with ever greater efficiencies,” Mr. Nally added. “CEOs now say they are better prepared to deal with an economy defined by volatility in global markets, weak demand in developed economies, and uncertainty in the emerging markets. Many CEOs are confident they can deliver revenue growth despite the difficult conditions.”

Near-term growth opportunities and threats to business

The emerging markets remain a vital growth opportunity for CEOs. Fifty-nine percent of global CEOs and 63% of CEOs in Russia agreed that developing markets were more important to their company’s future than more mature economies. Almost half of CEOs from developed nations said that emerging markets were most important to their future. Top growth targets were the BRIC countries, joined by the United States and Germany. 

“It’s definitely good news for the Russian economy that global CEOs now include Russia among the top ten countries with the best growth prospects over the next year, and that one-third of them plan to invest in Russia. What’s more, even while global CEOs are less confident in future growth, their Russian peers have not lost their optimistic outlook. They are very confident in growth over the next 12 months. We think this could help generate a positive dynamic for Russian business in the near term,” said David Gray, Managing Partner at PwC Russia.

According to 30% of global CEOs, the best strategic growth opportunities in the next 12 months will come from increasing their shares in existing markets and developing new products and services, both cited by nearly one-third (28%) of respondents. But, only 21% and 34% of Russian CEOs, respectively, share these views. New market penetration (18% globally and only 4% in Russia) and joint ventures and alliances (10% globally versus 31% in Russia) trailed as growth strategies. 

Seventy percent of global CEOs and 73% of Russian CEOs plan to adjust their strategies in the next 12 months, driven primarily by customer demand and economic conditions. Cost reduction remains a key, though declining, focus for CEOs: 76% of global CEOs and 75% of Russian CEOs reported cutting costs in the past 12 months. Meanwhile, 73% of Russian CEOs and 66% of their global peers said they would cut costs over the next 12 months.

What’s worrying CEOs? Eighty percent globally and 72% in Russia had some concern about uncertain economic growth; 64% globally and 56% in Russia were concerned about capital markets instability; 66% globally and 52% in Russia were worried about government responses to deficits and debt; 58% globally and 56% in Russia expressed concern about exchange rate volatility; 56% globally and 51% in Russia named overregulation as a concern; 53% globally and 66% in Russia pointed to a shortage of key talent; 50% globally and 62% in Russia were concerned about changes in consumer behaviour and spending; 55% worldwide and 59% in Russia were worried about rising tax burdens; and finally 34% globally and 58% in Russia named bribery and corruption.

The talent challenge on everyone’s agenda

Despite the sluggish economy, businesses are gearing up to hire. More than half (53%) of global CEOs and 63% of Russian CEOs said they had increased headcount in their organisations in the past 12 months, while 51% of global CEOs and 59% in Russia expect hiring momentum to continue. Just 18% of global CEOs and 15% in Russia said they expected to cut their workforce during the coming year.

Finding and keeping the right talent remains a top concern for CEOs. Only 30% of global CEOs and 35% in Russia said they are ‘very confident’ they will have access to the talent needed to execute their company’s strategy, and 43% of global CEOs and 46% in Russia believe that it has become more difficult to hire workers in their industry. Recruiting and retaining high-potential middle managers is the biggest talent challenge, said 70% of Russian CEOs and 53% of global CEOs, followed by hiring skilled production employees and younger workers.

As noted above, a potential shortfall of talent was also cited by 53% of global CEOs and 66% of Russian CEOs as a threat to growth. The availability of skills was seen as a top concern across all geographic regions outside of Europe.

Three-quarters (78%) of global CEOs and 69% of Russian CEOs said they expect to make changes in their talent management strategies during the next 12 months.

“One of the main challenges for CEOs today is managing shortages of key personnel, who can have a significant impact on their business. The winners will be those companies that are proactive in finding solutions to this challenge now, not later. Moreover, as global demographic patterns change, the problem is expected to become more acute, thus requiring quick action. CEOs should focus on investing in the human capital they’ll need to ensure their competitive edge and growth prospects,” said PwC Russia’s David Gray.

New strategies and changes ahead

What else do CEOs hope to change in their companies over the next year? Sixty-eight percent of global CEOs and 55% in Russia said they wished they had more time to spend on developing their company’s leadership and talent pipeline, while 69% of global CEOs and 62% in Russia would like to prioritise meeting with customers. Other CEO time priorities included improving organisational efficiency (62% globally and 63% in Russia), and setting strategy and managing risk (54% globally and 46% in Russia).

Finally, 75% of Russian CEOs and 73% of their global peers said they intend to change their R&D and innovation management strategies during the next 12 months, and 74% of CEOs in Russia and 72% globally said they plan to change organisational structure/M&A. Moreover, 70% of Russian CEOs and 67% globally intend to change their approach to managing risk, and 68% of CEOs in Russia and 61% globally plan to make changes in their capital investment decision-making.