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Insights from PwC’s 17th Global CEO Survey – Increased Optimism – but Big Changes Ahead…

By Michael Swanick, Global Pharmaceutical & Life Sciences leader, PwC

The global economic recovery continues to be fragile, but with immediate pressures easing. CEOs are feeling more optimistic and gradually switching from survival mode to growth mode.

That’s the primary conclusion of latest PwC Annual Global CEO Survey – the 17th we’ve conducted. It shows that the changes CEOs are making within their organizations now have less to do with sheltering from economic headwinds and more to do with preparing for the future.

The number of CEOs who believe that the global economy will improve over the next 12 months has doubled to 44%, compared to the previous year. Only 7% of CEOs, compared with 28% last year, think that things will get worse in the year ahead. CEOs are also feeling better about their own companies’ prospects, with 39% now very confident of revenue growth in 2014.

But CEOs are also challenged to decipher some very mixed signals about the global economy. Last year, the advanced economies were struggling, while the emerging economies surged. This year, the advanced economies are mending, while growth in some of the emerging economies is decelerating.

So how are CEOs responding to these nuanced shifts in global growth?

Our findings show that nearly a third of them are focusing on opportunities for growth in the countries where they already do business, with just 14% planning to explore new geographic markets. Many are also revising the portfolio of overseas markets where they will concentrate their efforts. As well as turning to the US to a greater extent than last year, they believe Germany and the UK now look more promising than some of the BRICS economies.

More seismic shifts loom on the horizon. CEOs told us that three global trends – technological advances, demographic changes and shifts in economic power – would have a huge impact on their businesses over the next five years. And the interplay between them will be as significant as the trends themselves.

Quite simply, everything is now in flux – from where and how people live and work, to the wider social and political contexts in which companies interact with their stakeholders. These developments will create many new opportunities for innovation and growth. But to seize these opportunities, companies must be ready to radically reassess how they function. In this new world, the very purpose of business – not just its practices – will come into question.

CEOs are more positive about the state of the global economy than they were last year. Twice as many think it will improve over the next 12 months. Conversely, just 7% think it will deteriorate, compared with 28% in 2013.

But there are marked regional differences in sentiment. Only a quarter of CEOs in Central and Eastern Europe believe the global economy is recovering, versus half of all CEOs in Western Europe and the Middle East. The optimism some CEOs display may therefore stem from relief that certain risks (such as the collapse of the Eurozone) have been averted for now, rather than the conviction that things are really getting better.

Moreover, CEOs are still cautious about whether greater global growth will translate into growth for their own companies. They’re slightly more hopeful about the short-term outlook, but just as wary about opportunities over the next three years as they were 12 months ago.

The global rebalancing act…

CEOs are coming out of survival mode, but the search for growth is getting increasingly complicated as the global economy gradually rebalances itself. In 2012, the advanced economies were spluttering, while the emerging economies sizzled. In 2013, the picture became more nuanced. The advanced economies are mending, while some emerging economies are slowing down – and separating out in the process.

By the third quarter of 2013, the US economy was already 4% bigger than it was in 2007, before the financial crisis was in full swing. The Japanese economy had also recovered all the ground it lost, although a listless performance in the second half of 2013 dented hopes that the Eurozone had done likewise.

While the advanced economies are recovering, some of the emerging economies have been decelerating. The prospect of a shift in monetary policy in the US (which materialized in December 2013) and other advanced economies triggered substantial capital outflows from some emerging countries.

These macroeconomic changes have revived interest in a number of the mature markets and exposed the weak spots in some of the emerging economies, as well as the extent to which they’re diverging.

China remains robust, thanks to vast foreign-exchange reserves and extensive reform measures introduced by the central government. But Brazil is suffering from a huge debt hangover and India has been slow to open up its markets. Meanwhile, Russia is unduly reliant on commodity exports and South Africa’s growth has been impeded by heavy regulation.

Change is in the air…

The business leaders in our survey have sensed the change in the weather. Last year, 53% of CEOs in Latin America were very confident they could increase their company’s revenues over the next 12 months. This year, only 43% feel so sanguine. CEOs in the Middle East, by contrast, have become more upbeat: 69% believe they can boost revenues – up from 53% in 2013.

CEOs in Western Europe are also feeling more heartened, although they remain less confident than CEOs in other regions. There’s been a similar shift in regional views about the outlook for the next three years.

And though CEOs are more worried about sluggish growth in the advanced economies than a slowdown in the emerging economies, the gap is surprisingly small. The hidden costs of doing business in some emerging economies are likewise becoming more apparent. Institutional inefficiencies are one key source of concern. But CEOs in Africa, Latin America and the Middle East are also more apprehensive about infrastructure problems, supply chain disruptions and bribery and corruption than those in the rest of the world.
So how are CEOs responding to these changes?

There’s a changing global footprint. Nearly a third of CEOs see increased share in existing markets as the main opportunity for growth over the coming year, compared to only 14% who say the same for new geographic markets.

CEOs are also looking on multiple fronts for growth opportunities. Many are revising the portfolio of overseas markets on which they will concentrate. They’re turning to the US to a greater extent than they did last year. And they think Germany and the UK now look more promising than some of the BRICS markets.

But those aren’t the only places they’re exploring. When we asked CEOs which countries, other than the BRICS, offered the best prospects for growth in the next three to five years, Indonesia, Mexico, Turkey, Thailand and Vietnam all featured in the top 10.
So what does the future hold?

CEOs told us they think three big trends will transform their businesses over the coming five years. Four fifths of them identified technological advances such as the digital economy, social media, mobile devices and big data. More than half also pointed to demographic fluctuations and global shifts in economic power.

Of course, these trends aren’t new. What has changed is the pace at which they’re unfolding – and the way they’re colliding to create a completely different environment. The digital revolution has put more power in the hands of more people than ever before. Collaborative networks are replacing conventional corporate modes of operating. Consumers are swapping information and advice on the virtual airwaves. And citizens are assuming the journalist’s mantle.

Meanwhile, demographic shifts caused by slow – or no – population growth in some countries are causing a massive redistribution of the world’s workforce. And since work is what generates wealth, that will have a huge bearing on future consumption patterns as well.

Narrowing the focus…

Our survey also took deeper dives into the individual industry sectors. As the leader of PwC’s global pharmaceuticals and life sciences (PLS) practice, I work with CEOs in the PLS business in Philadelphia and around the world who face many of these same challenges.

As they rise to meet these challenges, PLS CEOs told our survey that they believe that technology is transforming the sector and they’re using strength in innovation to make the most of it. They’re also focused on regulation and integrity. Facing the talent challenge is a key priority too, particularly with demographics and shifts in wealth also radically reshaping the sector.

About PwC’s Annual Global CEO Survey

PwC’s 17th Annual Global CEO Survey results were based on interviews with 1,344 CEOs in 68 countries, including 162 CEOs with US-headquartered organizations and 119 pharmaceutical and life sciences sector CEOs. To download a copy of PwC’s 2014 U.S. CEO Survey, click here.

About PwC’s Health Industries Group

PwC’s Health Industries Group (www.pwc.com/us/healthindustries) is a leading advisor to public and private organizations across the health industries, including healthcare providers, pharmaceuticals, health and life sciences, payers, employers, academic institutions and non-health organizations with significant presence in the health market. Follow PwC Health Industries at @PwCHealth.

© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved.
PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity.

Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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