OREANDA-NEWS. January 28, 2013. The 16th PwC Annual Global CEO Survey shows that Russian CEOs are more optimistic about the future than their colleagues from other countries.  Russian CEOs are the most optimistic in the world about short-term growth of their companies' revenues. – A massive 95% of them (81% globally) are somewhat or very confident of growth in the next 12 months, and 66% (36% globally) are very confident - one third higher than 48% demonstrated last year. The global indicator of 36% means that it is down from 40% last year and 48% in 2011, reported the press-centre of PwC.    

Looking at the economy generally, 34% of Russian CEOs and 28% executives from other countries believe it will decline further in 2013, and half Russian and other CEOs believe that it will stay the same.

David Gray, Managing Partner, PwC Russia, said: "Russian CEOs are very hopeful. They are hoping that the global economic picture will not deteriorate compared to last year. The Russian economy will continue to grow, but likely at a slower pace. This, however, has not prevented Russian CEOs from planning more M&A deals (most of which, however, will be in the domestic market) and forming strategic alliances. The crisis of 2008 is now a thing of the past: for the second year in a row, Russian CEOs expect to boost headcount, and invest in personnel training and development."

CEOs in Western Europe were least confident of short term revenue growth.  Faced with ongoing recession, just 22% of Western European CEOs said they were very confident of growth, down from 27% last year and 39% in 2011. Confidence in short term growth also declined in North America to 33% (42% in 2012) and in Asia Pacific to 36% (42% in 2012).  Latin American CEOs, however, bucked the trend.  Their short term confidence rose to 53% of CEOs, up slightly from last year.

At the country level, confidence varied widely: CEOs are most confident in Russia where 66% are very confident of revenue growth in 2013, closely followed by India (63%) and Mexico (62%).  They were trailed by countries including Brazil (44%), China (40%), Germany (31%), the US (30%), the UK (22%), Japan (18%), France (13%) and finally Korea, where only 6% of CEOs are very confident of revenue growth in the year ahead.

Longer term, only 39% of Russian CEOs believe that their revenues will grow in the next three years, while global confidence remained about the same as last year: 46% of CEOs worldwide said they were very confident of growth prospects in the next three years. CEOs in Africa and the Middle East were most confident of long term growth, at 62% and 56% respectively. In North America, 51% were 'very confident' of long term growth, while 52% in Asia Pacific were very confident.  Long term confidence was weakest in Europe at 34%.

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 programmes 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% 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%), over-regulation (69%) and lack of stability in capital markets (61%).   CEO concerns about over-regulation are at their highest since 2006.   
 
Of most serious business risks and economic threats, top of list for Russian CEOs is continuing uncertainty over economic growth (76%) followed by the shortage of qualified personnel (73%). Two-thirds of Russian respondents are worried about excessive state regulation, and almost 70% (68%) are most concerned about lack of stability in capital markets. Russian CEOs are less concerned about new players in the market (73%), vulnerability of intellectual property rights and client data (71%), and disruptions in the supply chain (68%).

When asked about the major threats to their business growth, CEOs worldwide also cited the increasing tax burden (62%), availability of key skills (58%) and the cost of energy and raw materials (52%). In Russia, 59% of respondents are concerned about fiscal problems, even though Russia’s sovereign debt is smaller than in most European countries: it stands at only 11% of national GDP. For comparison: it is 91% in the UK, 99% in Germany and 192% in Greece.

Concerning their approach to corporate governance, Russian CEOs (80%) cited centralised control over risk management more frequently than their global peers. In China, 35% CEOs said that their control over risk management is centralised.

When asked about potential scenarios of global economy development, 70% of Russian CEOs see a break-up of the eurozone as unlikely, and 39% of Russian respondents rate recession in the US as unlikely.  Less than one-third of Russian CEOs (27%) concede the possibility of a slowdown in the Chinese economy, now second only to the US economy in volume terms, to growth of under 7.5%. Russian executives think that the global economy is more likely to develop in accordance with the above scenario next year. This being said, China is the most important market (apart from Russia) for one-third of the respondents. European CEOs believe that Germany remains the key market for their companies.

Ways of 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.

1. Targeting pockets of opportunity
Some 68% of CEOs are focusing on carefully selected initiatives.  They’re 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% are turning to new product development. And only 17% 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.

Most Russian CEOs (51%) see key opportunities in the next 12 months coming from organic growth in the existing domestic market. For another quarter of the respondents such opportunity is represented by mergers and acquisitions. Thus, Russian CEOs pin more hopes on foreign markets than their Chinese peers or BRIC CEOs in general. However, only 12% of the respondents intend to develop business by creating new products or services and this is three times less than among Chinese CEOs.  Russian CEOs (88%) think that a significant number of M&A deals will be carried out in the domestic market. Among those who plan to perform deals outside Russia, 25% are interested in acquiring assets in one of Western Europe countries and the same number is interested in South-East Asian countries.

China topped the list of countries seen overall as most important for future growth, cited by 31% of CEOs, followed by the US (23%), Brazil (15%), Germany (12%), and India (10%).  Indonesia was listed among the top ten for the first time this year, two points above Japan.   Among large companies (over US\\$10 billion), however, China was viewed as most important by 45% while the US dropped to 20%.

2. Concentrating on the customer
More than a half of Russian (54%) and global (51%) CEOs anticipate making changes to their management strategy in the next year, in particular, in respect of customer base growth, client retention and client loyalty – eighty percent of respondents, both in Russia and globally, reported such plans.

3. Performance improvement
Russian CEOs believe that improved operational efficiency will be their investment priority over the next 12 months – 63% of Russian CEOs have such major changes in mind. It is more than in other BRIC countries, Western Europe and the USA where that  objective comes second after client base expansion. It is important to note that Chinese CEOs' investment priorities for 2013 include  research, development and innovation.

Over a half (54%) of interviewed Russian CEOs are planning to change their management strategy in the next 12 months. It is noteworthy that the number of respondents willing to change their business strategy in BRIC in general and each of its countries in particular is higher than in developed economies. Russian CEOs also expect changes in their strategies of managing risk (71%), increasing capital investment (73%) and investing in technology (71%).

83% of Russian and 70% of global CEOs are going to pursue their cost reduction policy in 2013. However, just like in 2012, in the next 12 months Russian companies plan to increase the number of employees by more than 8%. It was stated by every fifth Russian respondent, which is more than in Europe, USA or China.

Jobs and the search for talent
CEOs remain relatively cautious on plans for increasing headcount for this coming year.  45% of CEOs plan to recruit in 2013 (down from 51% in 2012) while 23% plan to reduce the size of their workforce.

The task that Russian CEOs are ready to share with the government to a larger extent is training of qualified personnel: more than half of the respondents believe that the task should be addressed by the government. Meanwhile, 41% of the respondents plan to increase investments in this area.

“If you create a company which follows the principle of developing its personnel and investing in talent along with continuous fostering of their leadership skills, then you will bring up a whole generation of managers who will ensure its further progress. Strong financial reports are short term goals. Bring up a leader who will develop the company and create something to last forever,” said David Gray, PwC Russia Managing Partner.

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% worldwide.

The most audible concerns related to shortage of qualified personnel were voiced by global CEOs from mining (75%), engineering and construction (65%), telecommunications (65%), high-tech (64%) and insurance (64%). In light of the above, it is no wonder that over three quarters (77%) of CEOs worldwide see the need in revising their HR management strategies in the next 12 months, and around a quarter of the respondents (23%) said that they do not anticipate any major shifts.

Addressing public trust and relations between businesses and the government

CEOs worldwide also recognise the need to build trust with a wider set of stakeholders.  37% worry that lack of trust in their industry could endanger their company’s growth, and 57% plan to focus more heavily on promoting an ethical culture.  In addition, nearly half of CEOs (49%) plan to put more effort into reducing their environmental footprint in the next 12 months.

Russian CEOs believe the government to be largely responsible for favourable business environment. Nevertheless, they are ready to invest significantly in many areas, such as infrastructure, healthcare for employees and training of skilled staff.  Russian CEOs believe that a government and business priority should be to invest in the country’s infrastructure (80%), ensure financial sector stability (68%),  create and foster a skilled workforce (56%).  More than one third (34%) of Russian CEOs believe that infrastructure improvement has not been effectively addressed to date.

While 41% of Russian CEOs believe that the government is responsible for maintaining financial sector stability, one in five say that their company intends to increase its investment toward achieving that goal.