CEOs from India are less confident of their companies’ growth than last year, but significantly more confident than their global peers about their growth prospects over the next three years, reveals PwC’s 15th Annual Global CEO Survey.
Around 55 per cent of the CEOs interviewed from India were very confident of their company’s growth prospects over the next 12 months while only 40 per cent of the global CEOs were confident of delivering such growth, revealed the survey.
The Indian CEOs’ confidence is driven by growth prospects in the domestic market and potential in new markets, especially emerging economies. Thirty per cent of Indian CEOs said growth will come from increased share in existing markets while another 30 per cent said growth will be driven by new markets. Some 1,258 CEOs from 60 countries participated in the global survey, including 76 CEOs from India. A report based on the view from India, comparing the responses of Indian CEOs with the findings from China and the global survey, was released at the PwC-Business Standard CEO Summit in New Delhi and Mumbai on 7 February and 10 February respectively. (Click here for graphs)
Indian CEOs are more concerned about bribery and corruption (not a concern globally), followed by uncertain and volatile economic growth and over-regulation. Some 92 per cent of Indian CEOs were ‘extremely concerned’ or ‘somewhat concerned’ about bribery and corruption. Globally, CEOs were also concerned about the government response to fiscal deficits and debt burdens, exchange rate volatility and inflation. Based on in-depth interviews with 38 CEOs, PwC indentified five themes which are engaging Indian CEOs most.
Reaping demographic dividend
India’s growth will remain dependent largely on domestic consumption but the profile of the Indian consumer is changing rapidly due to urbanisation, changing consumer preferences due to rising income, and a young workforce. Seventy per cent of the CEOs named changes in consumer behaviour and spending as the major business threat. Besides, a new consuming class is pushing its way up from the bottom of the pyramid.
Four billion of the world’s population lives in countries like India, China, Indonesia and parts of Africa and Latin America, where the per capita income is between $1,000 and $4,000. Within these countries, there’s a vast segment of the population, representing the ‘emerging middle class’, which is forcing CEOs to rethink their business strategies. A PwC study finds that nearly 600 million of these consumers will live in India by 2021, earning Rs 150,000 to Rs 300,000 a year and accounting for 42 per cent of India’s population.
As a result, CEOs are formulating innovative business models to cater efficiently to the diverse segments—like the upper middle class, the emerging middle class, working women, and generation Y—while embracing new opportunities. For instance, as tier-I cities are fast-reaching saturation, tier-II and tier-III cities are increasingly commanding the CEOs’ attention. Out of the 700 malls planned in the country, almost 40 per cent are expected to come up in tier-II and tier-III cities.
Managing domestic risks
CEOs from India are particularly concerned about regulatory uncertainty, and the increasing cost of compliance. Nearly 86 per cent of the CEOs in India, compared to 45 per cent in China, and 56 per cent globally, are concerned about over-regulation as a serious threat. In 2011, India ranked 132 (out of 183 countries) in the World Bank’s ‘Èase of Doing Business Index’.
Steel maker JSW Steel saw its production plummet drastically this year, after the country’s Supreme Court first banned, and then curtailed, mining of iron ore in Karnataka, home to JSW’s steel plant. Last month, India’s apex court also cancelled 122 telecom licences obtained in 2008; many of them are likely to seek a review of this decision.
CEOs not only complained of extensive regulation but also said that key economic reforms required to support domestic growth are being postponed. With macro-economic environment risks multiplying, Indian CEOs are spending more time in managing these stakeholder concerns and streamlining governance; globally, CEOs want to spend more time with their customers and people.
Managing global disruptions
Businesses operating in India are not insulated from global disruptions. Eighty per cent of the CEOs surveyed from India said that their companies were directly affected by the European debt crisis, 36 per cent were impacted by the political upheaval in the Middle East and 22 per cent by the earthquake and the nuclear crisis in Japan. Nearly 68 per cent of the CEOs from India stated that the ongoing sovereign debt crisis in Europe has triggered changes in their strategy, risk management or operational planning.
Companies are learning that preparedness for uncertainty is about focusing on the consequences of business disruption, and this approach can bring risk discussions to a more strategic level. For instance, “last year’s BP oil spill in the Gulf of Mexico, which cost the oil major billions of dollars, has led many companies to re-ask the question: Is enterprise risk management one of those unfortunate check-the-box activities that every company should be doing because people tell us we should, or is it one that we should embrace?” asked Richard O’ Brien, CEO, Newmont Mining Corporation.
Finally, CEOs from India are challenging conventional wisdom to decide which markets are critical for growth. Besides Asia, markets in Africa and the Middle East are top markets for them. Over 90 per cent of CEOs expect their operations to grow in South Asia, South East Asia, and East Asia; 83 per cent expect to grow in Africa and 79 per cent expect to grow in the Middle East. The large but slower growing western markets have slipped in priority, but continue to be important.
Developing talent
Compared to their global peers, CEOs from India are less concerned about the availability of talent in spite of the widely acknowledged skill gaps in the country. When asked, Indian CEOs said they are investing in improving overall living conditions, formal education systems, and adult and vocational training — among the top priorities relating to workforce development for CEOs operating in India. In contrast, the top priority for global CEOs was investing in ensuring a future supply of potential employees.
Around 66 per cent of the CEOs in India were ‘very confident’ about having access to the talent needed to execute their company’s strategy over the next three years. Neither the Chinese CEOs nor their global peers responded with such confidence. But 87 per cent of CEOs are seeking more data and analysis to make informed decisions around talent. Implementing strategic workforce planning will help leaders look beyond talent shortages today to align the talent needed to fulfil business plans.
Driving innovation & IP
The survey revealed the sharp contrast between the approach adopted by CEOs from India and China towards growth and innovation. CEOs in China stated that talent constraints adversely impacted their ability to pursue a market opportunity and innovate effectively. At 60 per cent, how talent constraints impacted their ability to innovate was the key concern for Chinese CEOs, but this affected only 26 per cent of Indian CEOs.
Baba Kalyani, CMD, Bharat Forge, in an interview to PwC for the survey, explained the lack of innovation: “India does not have the infrastructure for hard-core innovation. For innovation to happen, we need people, industry and organisation to believe and invest in innovation, technical universities that partner in innovation, and most importantly, an eco-system of technologists and engineers. Silicon Valley is able to come up with innovations because it has the necessary ecosystem.” But innovation is necessary for global leadership.
