CEOs cautiously optimistic

by **Cals** Sun 23 Feb 2014, 05:55

Published: Saturday February 22, 2014 MYT 12:00:00 AM
Updated: Saturday February 22, 2014 MYT 8:59:45 AM
CEOs cautiously optimistic
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Challenging: CEOs in South-East Asia see the highest risk, and 90% of them feel that way, over the availability of talent.
The volatility seen in global markets and economic indicators since the start of the year seems to fit the prognosis a survey has for 2014.
PwC, a global consultancy and accounting firm, in its 17th annual global CEO survey says global CEOs are more optimistic about global business prospects than they have been over the past few years.
“The glass is half full. Essentially, CEOs around the world are cautiously optimistic obout what’s going on and that is predicated on the fact there is growth happening in certain parts of the market.
“But there is some pessimism in the emerging market space,” says Sridharan Nair, managing partner of PwC Malaysia.
The survey, which was released when business leaders met at Davos recently, shows that 44% of CEOs surveyed are optimistic that the global economy will improve. That figure was 18% last year. CEOs are also feeling better about the prospects of the companies they run.
But the survey did point to a diverging opinion about the health of the global economy.
While the developed world, which has been battered and bruised economically since the Global Financial Crisis in 2008-2009, is feeling better these days, CEOs aren’t as bullish about the growth in emerging markets as they once were.
In emerging Europe, only a quarter of CEOs think things will be better. In South-East Asia, that percentage though is much higher.
“Twice as many CEOs feels the global recovery will happen in the next 12 months but they may not have that view in Asean,” he says.
“About 45% of the Asean CEOs say they expect an improvement in the global economy. Another 45% expect to see growth in the next 12 months.”
Sridharan says that what struck him about CEOs in South-East Asia is that they will focus on existing markets and not look at new markets.
“That’s because developed markets are having an upturn, and all emerging markets are going to find getting FDIs is going to be more challenging,” he says.
With the tapering of quantitative easing a challenge for emerging economies with money flowing out, he says that for Malaysia, addressing the fiscal deficit is another challenge.
“People have spoken about Asean being the sweetspot in the past two to three years but if you look at the last two years, there is a lot of political volatility too,” he points out, adding that such uncertainty will affect how foreign investors will look at this region.
With a number of emerging economies falling under the weight of their own success by encountering current account deficits and higher inflation, CEOs in such countries also feel there are broader economic concerns they should be worried about.
“If you look at the challenges for emerging markets, there are concerns about the hidden cost of doing business, the issues like corruption, inefficiencies of business and you balance that against developed markets where costs may be higher, they have supply chain efficiencies and available talent,” explains Sridharan over the divergent prospects.
He says CEOs in South-East Asia saw the highest risk, and 90% of them felt that way, over the availability of talent.
“It is going to be the biggest hindrance or risk to their growth.
“This is a much higher percentage than what CEOs elsewhere in the world have said,” says Sridharan.
The PwC survey highlights three transformative points in its publication.
Apart from growth prospects, CEOs also comments on the need for technological improvement and the shift in how they are responding to the changes in their ecosystems.
“The point about technology and the demographic change affecting the workforce is a very significant point,” says Sridharan.
On technology, Sridharan says it gives companies a chance to innovate.
Technological advances seen in recent years have been a lot more consumer centric, especially in the digital world where consumers have been far more flexible to embrace technologies that change the way they interact and consume services then ever before.
With 61% of consumers globally projected to be savvy in using social media and multiple digital devices by 2020, Sridharan asks whether Malaysia has been innovative enough.
Although Malaysia ranks favourably enough in the global competitiveness report when it comes to technology readiness, Sridharan felt there is a lot more that can be done when it comes to technology and innovation in the country.
Another megatrend CEOs are seeing is the changes in demographics and the workforce.

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Sridharan: ‘Let’s get mums back to work.’
“Asia generally has a working population of a lower age and that is beginning to change in places like China,” says Sridharan.
He wonders how companies are actually getting prepared for the workforce of the future and to recognise the need to balance between the old and new workforce.
“That’s why markets are saying let’s get mums back to work and people who have traditionally not entered the workforce,” he says.
Apart from talent, wages are another aspect that will affect emerging economies.
Expected wage growth is rising in such economies and it will present a challenge and opportunity for emerging markets.
PwC has done a global wage projection to 2030 and Sridharan says the study reveals that wage rates of emerging markets will catch up significantly with those of developed economies.
“Higher labour productivity growth will raise wage levels and the other factor is the expectation that during that time, currencies of emerging markets will appreciate and that will cost wage levels to go up as well,” he says.
“From the Malaysian perspective, we have touted ourselves as a low cost centre and having the ease of doing business.
“That could be an opportunity in the short to medium term but the other challenge is talent and the availability of that.”
The result of challenges on businesses has also seen CEOs understand the need for them to take a multi-focus view of their business.
“The term used is hybrid leadership which is balancing between looking at the short term and planning for some of these changes because of these megatrends that will affect your business in the future, and to move away from conveying the traditional notion of value as being made up of of financial numbers only to broader issues like how your business affects society, the environment and so on,” he says.
Sridharan says that one way to bring to life the concept of “hybrid leadership” is in the context of reporting.
He says businesses are making a big push to do broader reporting, which is called integrated reporting.
“Integrated reporting means companies are asked not to just produce a financial statement and the usual annual report but they are suppose to use that as a means to convey the entire value that they bring,” he says.
“There is a big push on reporting about your strategy, talking about what your key objectives are and how that translates into financials and how that affects the whole ecosystem as well.”