Overall positive growth outlook from SA CEOs
Two years from the depths of recession, South African and global CEOs’ are confident about future growth, according to PwC’s 14th Annual Global CEO survey, and 2nd Annual South African Survey.
Globally 88% of CEOs said they now have some level of confidence for prospects in the next 12 months, up from 81% last year. Longer term, 94% are confident of growth 3 years from now – an increase of 2%. Renewed confidence was spread across all continents, with CEOs in India, Austria, Colombia, Peru, China, Thailand and Paraguay particularly upbeat about short term growth.
PwC Southern Africa CEO Suresh Kana says South African CEOs remain extremely positive about future prospects, but are well aware of the challenges the country faces; “Eighty two percent of South African CEOs expect their business to grow in the next 12 months. Longer term they are as confident about growth as global CEOs, with 94% believing that growth will occur over the next 3 years. Though the average growth rate of our economy lags that of its emerging market peers, it is well ahead of many more-developed economies. At the same time, fiscal discipline and stability in the banking sector have enabled the economy to hold firm while others have stumbled”.
“CEOs now see opportunity for growth, even in the short term, and are determined to take advantage of better global economic conditions and increased customer demands,” says Dennis Nally, Chairman of PwC International.
Where is growth?
According to Nally, emerging economies like China, India and Brazil are growing at rates that far surpass the developed nations. “The shift in the economic balance of power creates challenges for CEOs in deciding how and where to invest in facilities, people and innovation. Companies that understand and capitalize on the diverging growth patterns of the developed and emerging economies, will be the winners in the years ahead,” he added.
The global survey shows that the best opportunities for growth in the next 12 months will come from the development of new products and services, and from increasing share in existing markets, both cited by 29% of CEOs, and by penetration of new markets (17%). Mergers and acquisitions (14%) and joint ventures (10%), as well as alliances (10%) trailed as growth strategies. Closer to home, 32% of respondents feel that growth during the next year will be achieved through an increased share of existing markets. Mergers and acquisitions were cited by 23% of South African CEOs and both new geographical markets, as well as product or service development, is on the agenda of 16% of CEOs. Thirteen per cent of CEOs will invest in joint ventures and/or strategic alliances to ensure growth.
Potential threats to future business
While 75% of global CEOs cited uncertain or volatile economic growth as a potential threat to their business, local CEOs are more concerned about the availability of key skills, with 72% believing that it holds the biggest threat to future growth. Sixty-three percent of South African CEOs still see volatile economic conditions as a significant threat. Other key concerns in South Africa include over-regulation - cited by 66% of CEOs - and exchange rate volatility cited by 65% of respondents.
The South African survey shows that CEOs are less worried about energy costs with 53% of them stating it as a concern, compared to 70% last year. They also feel more positive about the state of infrastructure in the country with 40% listing it as a concern, compared to 63% in the previous survey. While 34% of South African respondents say they are concerned about government debt, a figure of 61% globally puts matters in perspective.
Rethinking strategy in response to change
The economic realities of the past few years have forced CEOs not only to change the way they think, but also the way they run their businesses.
Most CEOs globally – 84% to be exact – said they had changed their companies’ strategies in the past two years, and about a third said the change was fundamental. In South Africa 88% of CEOs say their companies’ strategy has changed ‘somewhat’ or ‘fundamentally’ in the past two years.
There is a concerted effort to cut costs with 97% of South African CEOs having initiated cost-reduction initiatives in the last year and 66% planning to do so in the next twelve months. Additionally 38% of South African CEOs will be outsourcing a business process or function compared to 28% globally.
Bridging the skills gap
South Africa faces the twin dilemma of unemployment and a shortage of skills. Ninety percent of South African CEOs say their companies will increase their commitment to creating and fostering a skilled workforce over the next three years. This percentage is almost 10% higher than the global average. Seventy five percent of CEOs have committed their companies to reducing poverty and inequality in South Africa compared to 42% globally, and 94% are focussed on increasing their commitment to maintaining the health of their workforce, compared to 71% globally.
Talent management
Recruitment and retention of employees remains a key strategic priority. Good news is that 38% of CEOs in South Africa are expecting their headcount to increase over the next 12 months. Twenty-five percent of local CEOs reported that they had reduced staff numbers by 5% or more the prior year. This compares favourably to the global average of 64%.
Interestingly, 56% of local CEOs plan to set compensation limits for top executives, compared to 40% globally. Kana says South African boards are open to deal with the ever-increasing pressure on the executive ‘pay gap’.
Customers at the centre of innovation
Although there is a greater emphasis on innovation as a driving force for growth globally than locally, South African CEOs are becoming more customer centric.
“As markets mature, there is a growing need for new products and services to drive growth. This leads to an increasingly customer-centric wave of innovation, which not only promises customers a better product experience, but also an opportunity for companies to differentiate themselves from competitors and increase revenues,” says Kana.
In South Africa, new media is also having a considerable impact on consumer behaviour. Ninety-four per cent of CEOs are adjusting their strategies to accommodate customers’ increasing use of mobile devices and social media to voice their needs and preferences to companies.
Additionally ‘giving back’ remains high on the priority list, with 86% of CEOs intending to improve their environmental and corporate responsibility practices as these become increasingly influential in consumers’ purchasing decisions.
Customers’ priorities regarding price and value for money will be addressed with 85% of CEOs aiming to change their pricing strategies over the next three years.
Shared priorities amongst Government and society
Kana says while South African CEOs are cognisant of the responsibilities they and their companies have in society, they also have high expectations about the role government should be playing. “Their concern about the role of government is most pronounced in the areas of reducing poverty and inequality, and creating a skilled workforce. On the other hand, they are far more upbeat about the state of the financial sector and their ability to access affordable capital, no doubt a reflection of the fundamental soundness of this aspect of the economy”.
Ninety-one percent of South African CEOs believe business will actively support Government policies that promote growth that is financially, socially and environmentally sustainable at global, national and local levels.
Partnerships between government and business will be more effective at mitigating key global risks such as climate change, terrorism and financial crisis according to 72% of respondents.
The future
“It is encouraging to see an overall more positive outlook from CEOs. Although recovery is sometimes slow and ‘fragile’, CEOs are gearing up for better times to come,” says Kana.
Survey Methodology
For PwC's 14th Annual Global CEO Survey, 1,201 interviews were conducted in 69 countries during the last quarter of 2010. By region, 420 interviews were conducted in Western Europe, 257 in Asia Pacific, 221 in Latin America, 148 in North America, 98 in Eastern Europe and 57 in the Middle East & Africa.
In South Africa specifically, in-depth interviews were held with 32 CEOs from a spectrum of industries, ranging from financial services, technology and communications to consumer and industrial products and services. Companies represented were predominantly listed on the JSE, though some large private entities and those with multiple listings were also profiled.
This article was originally posted on South Africa Business Communities
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