Search for New Customers and Markets Ranks as Top Priority over Cost-cutting in Globalisation

However Complexity of Operations Increases as Companies Globalise Over 80 percent of Asia Pacific-based CEOs, who plan to do business in China, rank finding new customers and markets as their primary goal ahead cost-cutting, as their companies expand across the globe, according to PricewaterhouseCoopers’ (PwC) 9th Annual Global CEO Survey. The survey focused on globalisation and complexity – two powerful and inevitable forces that front of mind among the more than 1,400 interviewed CEOs in 45 countries. Serving existing customers better (48 percent), is the next impetus cited by Asia Pacific-based CEOs who plan to do business in China, again in line with global responses. “Cutting costs is no longer the sole purpose of globalisation. In the current phase of global expansion, companies are focused on finding and serving new customers in growing markets around the world,” said PricewaterhouseCoopers CEO Samuel A DiPiazza, Jr. “The economies of Brazil, Russia, India, and, of course, China, were once seen primarily as sources of low-cost production. However, they now present substantial growth opportunities for both multinational and locally-based companies, and at the same time are producing a new crop of serious global competitors.” Nearly two-thirds of the 1,410 CEOs surveyed are confident that globalisation will have a positive impact on their business over the next three years. Over 70 percent of these CEOs plan to do business in at least one of the BRICs countries over the next three years,and more than 90 percent of Asia Pacific-based CEOs are excited about the investment opportunities the Asia Pacific region has to offer over the next five years. Of all the economies, China leads as a likely place of business for 55 percent of the CEOs. China was also seen as the location offering the most significant market opportunity, according to 78 percent of respondents planning to do business in at least one of the four BRICs economies. Among these CEOs, India came second with 64 percent, followed by Russia (48 percent) and Brazil (46 percent). Matthew Wyborn CEO of PwC Thailand said “Thailand will also play an important strategic role for many global corporate, given its central location between the two emerging giants of India and China, together with the continued growth in the local economy” Optimism notwithstanding, CEOs are also aware of the obstacles on the road to globalisation. They cite overregulation as the primary barrier (64 percent), followed by trade barriers/protectionism (63 percent), political instability (57 percent) and social issues (56 percent). Terrorism (48 percent) and organised opposition to globalisation (21 percent) are at the bottom of the list of challenges to global expansion. With reference to the financial stability of Asia Pacific, the Asia Pacific-based CEOs are concerned about non-performing loans (60 percent), fluctuating foreign exchange rates (32 percent) and high level of public debt (43 percent). Complexity: Managing the Inevitable An inevitable by-product of pursuing a global strategy is an increased level of complexity in managing and operating an organisation. Overall, seventy-seven per cent (77 percent) of CEOs say that the level of complexity in their company is higher than it was three years ago; and 27 percent believe it is much higher. However, the survey findings suggest that they are not managing complexity very well. Less than 17 percent of CEOs rated their performance in managing complexity as “very good,” regardless of the measurement that was used. According to the survey, CEOs identify extending operations to new territories (65 percent), mergers and acquisitions (65 percent), and launching new products and services (58 percent) as factors adding the most complexity to their organisations. Outsourcing functions to third parties causes the least amount of complexity. External forces that significantly increase complexity include national and international laws and regulations, actions by competitors, and changing customer requirements. With regard to positive complexity arising from value-creating activities, 77 percent of CEOs agree that managing it is a high priority. Almost all respondents (97 percent) are engaged in at least one programme to reduce complexity in their organisation, and 77 percent are engaged in five or more such programmes. CEOs are focusing their complexity-reducing activities primarily in the areas of information technology (84 percent) and organisational structure (79 percent). PwC Asia Leadership Chairman, Gautam Banerjee, concludes: “Understanding the importance of effective complexity management is the first step. CEOs must also be able to translate that understanding into meaningful action. Not all complexity is necessary or adds value. By measuring complexity and eradicating it where it reduces value, CEOs can create strategic advantage in our increasingly global economy” Other findings New to this year’s survey, the respondents were asked to give their views about the extent to which globalisation will lead to convergence in a number of areas. Not surprisingly, corporate governance, accounting, and stakeholder reporting standards lead as areas in which convergence will be affected by globalisation. Least affected are tax codes, stock marketing listing standards and environmental standards. Emerging economy CEOs overall see globalisation as affecting convergence much more than their colleagues in developed economies. Respondents were asked to rank the following seven capabilities that affect a company’s ability to manage complexity: 1. Highly capable people 2. Effective communications 3. Ability to identify activities that are creating value 4. Ability to identify activities that are destroying value 5. Alignment of information technology with business processes 6. Ability to measure complexity 7. A corporate-wide framework for managing complexity While acknowledging their importance, overall, CEOs indicated that they are not performing very well in the seven capabilities. Ironically, the capabilities the CEOs deemed most critical for managing complexity are those in which the CEOs feel their companies are performing the worst. For example, there is a 38 percent point gap between CEOs who rate having highly capable people as extremely important and CEOs who rate their performance in this capability as very good. This and other “capability gaps” range from 38 percent points to 12 percent points, with “ability to measure complexity” and "a corporate-wide framework for managing complexity" exhibiting the smallest percentage point gap. An interesting finding emerged from our survey: the more important the CEOs perceive the capability, the greater the capability gap. Such discrepancies between the CEOs’ understanding of complexity and their ability to manage it signal areas for critical analysis. To effectively manage complexity, CEOs must close the gaps. Soft Copy of the Survey Report For more information on this year’s survey please go to: www.pwc.com/globalceosurvey Survey Methodology For PricewaterhouseCoopers’ 9th Annual Global CEO Survey, 1,410 interviews with CEOs were conducted in 45 countries during the last quarter of 2005. The majority of interviews were conducted by telephone. A postal survey was administered in Japan. Face-to-face interviews were conducted in China and Kenya. The research was coordinated by the PricewaterhouseCoopers International Survey Unit, Belfast, Northern Ireland, in cooperation with project managers and a global advisory board of PricewaterhouseCoopers partners. By region, 463 interviews were conducted in Europe, 331 in Asia-Pacific, 301 in South America, 187 in the United States (plus, in North America, 58 in Canada and 14 in Mexico), and 56 in the Middle East and Africa. By industry, financial services companies represent 17 percent of the interviews; technology and media companies represent 14 percent; and companies in the products sector (consumer and industrial products manufacturers, distributors, and retailers) represent 68 percent. 23 percent of the respondents’ companies earn revenues in excess of $1 billion; 10 percent earn $500 million to $1 billion; 58 percent earn less than $500 million; and 9 percent offered no information. The highest concentration of companies with revenues of more than $1 billion is in Asia-Pacific (34 percent), followed by Europe (30 percent) and the US (16 percent). 52 percent of this year’s participants are publicly listed on a stock exchange, while 47 percent are privately owned. 1 percent did not specify their companies’ status. Notes to Editors About PricewaterhouseCoopers Thailand PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services for public and private clients. More than 130,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. "PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. For more information, please contact: Ms. Pimwisa Thiensri PricewaterhouseCoopers (Thailand) Tel: 0-2344-1000 ext. 4057 or [email protected] Fax: 0-2286-4440 End.

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