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GrowthIt’s not necessarily aquestion of lookingat emerging markets,but about reallyunderstanding wherewe think we’re successful,and where we can besuccessful.We actuallyfeel we can grow almost aseffectively in the matureeconomies as we can inthe emerging markets.John NealAnd it isn’t clear-cut which markets offer thebest opportunities. CEOs are broadly upbeatabout established markets – notably the US(see Figure 3). For the first time since we firstasked the question five years ago, the US hasovertaken China as CEOs’ most importantoverseas growth market. It’s not hard to seewhy. National GDP is 7% higher than beforethe crisis, and more jobs have been createdsince that period than were lost. The USeconomy has also benefited from the frackingboom, and higher consumer spending isfuelling healthy corporate profits.Figure 3  CEOs are more optimistic aboutmature markets this yearQ: Which countries, excluding the one in which youare based, do you consider most important for youroverall growth prospects over the next 12 months?2015201438%US33%CEO, QBE Group, AustraliaIncreased productionof shale gas may providethe United States withthe possibility ofbeing self-sufficient.Economically, it mayno longer need to importoil and the money savedcan be used for otherpurposes, giving amajor boost to its GDP.Christian LaubCEO, Credicorp Capital, PeruThe struggle between theUS-centric and Chinacentric spheres is alreadyunderway, and the worldeconomy will be swayedby this new world order.Atsushi SaitoDirector & RepresentativeExecutive Officer, GroupCEO, Japan ExchangeGroup, Inc., Japan72%of CEOs are concernedabout geopoliticaluncertaintyCEOs are also more optimistic about othermature markets compared to a year ago: theUK now ranks higher than Brazil; Japan is seenas a better prospect than Russia; and Australiahas moved into the top-ten. Even the Eurozone– whose economy still hasn’t reached itspre-crisis level and which remains a majorthreat to global growth – is inspiring moreconfidence this year. France, Italy and Spainhave all moved up the ranks, and Germanyretains its third-place position.Doing business in the BRICS, on the other hand,continues to be challenging as those nationsgrapple with a mix of complex structural andpolitical issues. But CEOs recognise the longerterm opportunities, with all of these marketsremaining firmly in their sights.In China, GDP growth has slowed somewhat –but it remains high relative to most othereconomies. The country clearly continues tobe seen as a powerful global growth engine:CEOs are in no doubt that, when it comes tothe most important overseas markets, it’s stilla two-horse race between the US and China.The IMF now estimates China’s GDP to be biggerthan that of the US, in Purchasing Power Parity(PPP) terms. And we think China will overtakeboth the US and the EU in terms of global GDPat market exchange rates just before 2030.In India, hopes are running high, with reformminded Prime Minister Narendra Modi now inpower. The opposite is true for Russia, wherefalling global oil prices and Western sanctionshave hit the rouble and the economy moregenerally, raising the spectre of a steep recession.Brazil is being impacted by weak investmentand a relatively high-inflation, low-growthenvironment. And South Africa’s economicgrowth has been hit by labour market 6%Up fromlast year7%7%7%MexicoSame rankas last year5%Down fromlast year

PwC 18th Annual Global CEO SurveySome other non-BRICS emerging marketscontinue to present growth opportunities forCEOs, however, notably Indonesia, which remainsa top-ten overseas target this year. Mexico,although less favoured than last year, is alsoa top choice, as are Colombia, Korea and Vietnam.Despite the significant differences inopportunities and risks between differentemerging countries, youthful populations anda burgeoning middle class help make thesemarkets generally an attractive opportunity forbusiness. Indeed, the global emerging middleclass could constitute an annual global marketof some 6 trillion by 2021.2 The challengeCEOs face is anticipating which nations offerthe best opportunity for growth, given theirfast-changing environments characterised bycomplex distribution systems and limitedaccess to market information.Figure 4  CEOs are getting more concerned about a wide range of risksQ: How concerned are you about the following potential economic, policy, social andbusiness threats to your organisation’s growth prospects?Top three threatsOver-regulationAvailability of key skillsGovernment response tofiscal deficit and debt burden78%73%72%72%2014Over-regulation 78%Availability of key skills 73%Government response to72%fiscal deficit and debt burdenGeopolitical uncertainty 72%At a regional level, over-regulation and cyberthreats are of most concern to CEOs in NorthAmerica (see Figure 5). Asia Pacific CEOs arethe most anxious about affordable capital,consumer behaviours, new market entrantsand the speed of technological change. AndCEOs in Africa are by far the most worried ofthe lot, across a range of threats as diverse associal instability, inadequate infrastructure,access to key skills, energy costs, and briberyand corruption – all significant barriers to thecontinent in realising its growth potential.Increasing tax burden 70%Cyber threats including 61%lack of data securityShift in consumer 60%spending and behavioursSocial instability 60%Speed of 58%technological changeNew marketentrants 54%Annual averagesAverage % of CEOs expressingconcern about threatsIn fact, CEOs are getting more worriedabout almost all the threats we asked about.Concerns about cyber threats have shot upmost compared to last year – and, in light of therecent attacks on gaming and entertainmentnetworks, the perceived risk will only increase.The speed of technological change and theavailability of key skills are other threats thathave seen a marked rise in concern from CEOs.71%2014Key threatsCauses for concernIn addition to a challenging global growthenvironment, CEOs are grappling with a widerange of risks (see Figure 4). The top threatto business growth prospects is still overregulation, cited by 78% of CEOs, up 6% fromlast year. National deficits and debt burdensand rising taxes also remain top threats. Butconcerns are coming from a variety of otherplaces – many, for example, are anxious aboutgeopolitical uncertainty and social e: All respondents (2015 1,322; 2014 1,344; 2013 1,330; 2012 1,258)Note: Only those threats asked about in each of the past four years were included in thisanalysis. Those were: over-regulation, availability of key skills, government response to fiscaldeficit and debt burden, increasing tax burden, shift in consumer spending and behaviours,high or volatile energy costs, protectionist tendencies of national governments, new marketentrants, inadequate basic infrastructure and supply chain disruption.9

GrowthFigure 5  Concerns vary by regionQ: How concerned are you about the following potential economic, policy, social and business threats to yourorganisation’s growth ialinstabilityAvailabilityof key skillsCyberthreatsSpeed oftechnologicalchangeNorth AmericaNorth America,Central andEastern Europeand Middle EastAfricaAfricaNorth AmericaAsia PacificGlobal high85%78%98%90%80%71%Global average78%72%60%73%61%58%Global low70%54%49%58%45%37%Central andEastern EuropeLatin AmericaLatin AmericaCentral andEastern EuropeGetting to grips with disruptionBusiness leaders are also keenly aware thatfundamental forces of change will impact theirindustries over the long term. Megatrends suchas shifts in global economic power, technologicaladvances and demographic changes – and theinterplay between them – are transformingthe macroeconomic landscape. As businessesrespond to these shifts, the competitiveenvironment across a broad range of industriesis being disrupted. Rajiv Bajaj, ManagingDirector of Bajaj Auto Limited in India, seesdisruption as an opportunity to be a pioneer,to create new categories for profitable growth,saying, “I don’t know of any way of managinga disruption other than to be the creator of it.”Business leaders see regulatory change as thenumber one disruptor within their industriesover the next five years (see Figure 6).Government policies – both national andinternational – are recurrent themes on thelist of CEO concerns (see What’s the hold up?on pages 16–17).Western EuropeNorth Americaand Western EuropeThe challenge we andmany others are facingis that it’s very hard toknow when exactly thedisruption will becomeso big that you actuallydon’t even survivewithout being part ofthat disruption.Pekka LundmarkPresident & CEO,Konecranes Plc, FinlandFigure 6CEOs see regulation, competitionand customer behaviours as thetop industry disruptorsQ: How disruptive do you think the following trends will be for your industryover the next five years?Changes in industry regulation35%31%Increase in number of significantdirect and indirect competitors40%21%61%Changes in customer behaviours39%22%61%Changes in distribution channels32%18%Somewhat disruptive66%50%Very disruptive

PwC 18th Annual Global CEO Survey 11Figure 7Different industries are being disrupted in different waysQ: How disruptive do you think the following trends will be for your industryover the next five years?Insurance69%Banking andcapital markets54%Pharma andlife sciences59%Power and utilities42%Entertainmentand media64%Communications50%Retail59%Asset management50%Hospitalityand %87%64%62%67%88%69%57%Some industries are, of course, undergoingmore upheaval than others (see Figure 7).Financial services industries are poised forgreatest change, based on the views of CEOsin those sectors. Regulation, unsurprisingly,is the biggest driver of change. Technologyalso plays a key role, in terms of customerbehaviours, competition levels and changesin distribution. In recent years, the traditionalfinancial services arena has been upended bynew entrants in the form of supermarkets anddigital payments providers such as Apple Pay.50%55%69%63%59%57%60%57%51%Increased competition and changes in customerbehaviours are also seen as top-three disruptiveforces. The impact on CEOs’ thinking is clear:those we spoke with were highly focused on thevalue their companies offer, in terms of meetingcustomer needs and differentiating from thecompetition.56%Tough questions about findinggrowth in a disrupted worldWhat changes are you making to your growthstrategy in emerging and frontier economiesto take into account key structural and politicalissues in these countries?How is your growth strategy in mature marketschanging as these nations continue to seeeconomic improvements?71%Changes in distributionchannelsChanges in customerbehavioursIncrease in number of significantdirect and indirect competitors –traditional and newChanges in industryregulationHow widely are you looking to see how yourindustry could be disrupted? How well are youassessing the impact of cross-sector competition,emerging business models and new technologies,for example?In what ways are you using information to assistin making strategic and risk decisions?

CompetitionWhat business areyou in?In the face of an ever-growing set of concerns,the question CEOs are asking is this: How do wemanage the day-to-day business while havingthe confidence and vision to explore a muchwider range of opportunities than we’ve everconsidered before?Rethinking customer valueIn these extraordinary times, businesses thatwant to grow profitably must rethink howthey create value for customers. Operatingwithin traditionally defined demographicsegments, channels, product/service offerings,geographies or industries increasingly doesn’twork. Customers today defy classic notionsof what drives their purchasing decisions.Customer relationships are now much morefluid: they’re moving from one-off transactionstoward broader and longer-term experiencesthat can span different product and serviceofferings, channels, countries and sectors.Companies are, in short, increasingly focusedon customer problems – and looking at how theorganisational capabilities that differentiatethem can be used in cross-disciplinary waysto solve those problems.54%of CEOs have entered anew sector or sub-sector,or considered it, in thepast three yearsIn the past, competitionwas only within [the]sector. Entry to [the]banking sector washighly costly and almostimpossible. However,digital dynamics beganto undermine barriersto entry. In this respect,competitors may emergefrom any industry, suchas technology companies,telco, retailers, socialnetworks, even start-ups.H. Faik AçıkalınCEO, Yapı Kredi, TurkeyAs Dong Mingzhu, President & Chairwomanof Gree Electric Appliances Inc. of Zhuhai,in China, explains, “We used to win marketshare by doing a better job than our competitorswith existing products. I think this is [the]wrong approach. We shouldn’t care too muchabout what our competitors are doing. We needto focus on what consumers want.”The focus on customers, rather than traditionalcompetitive boundaries, is broadening thefield of competition. Indeed, forward-thinkingCEOs are increasingly questioning just whatbusiness they’re really in. It’s also activelytaking businesses into adjacent or completelynew sectors. More than half (56%) of CEOsthink it likely that companies will increasinglycompete in new industries over the next threeyears (see Figure 8). Three in ten have entereda new sector or sub-sector in the past threeyear and 21% have considered doing so.It’s not just large conglomerates moving intoother industries. Over half (51%) of the smallerfirms we polled, with revenues up to 100million, have entered a new sector or subsector, or considered doing so, within the pastthree years, compared with 64% of the largestfirms, with revenues of over 10 billion.

PwC 18th Annual Global CEO Survey 13Cross-industry moves aren’t a newphenomenon, of course. Corporate historyis packed with stories of companies thatshifted focus to take advantage of new marketopportunities. Nokia, for example, famouslybegan life as a paper mill. But what the digitalage has done is supercharge the opportunitiesfor business transformation and demonstratehow vulnerable companies are if they don’tunderstand what their customers want.Figure 8Over half of CEOsthink that cross-sectorcompetition willbecome more commonQ: How likely do you think it will be that organisationswill increasingly compete in new sectors otherthan their own, over the next three years?Likely56%Neither/nor15%Unlikely26%What will this shift in market strategy meanfor business as a whole? The companies thatbest adapt to meet their evolving relationshipwith customers will have to embracefundamental changes in their organisations’DNA rather than approach it as a marketingand brand-positioning exercise. And, asorganisations increasingly define theirown unique competitive spaces, CEOs mustcarefully manage how they diversify.56%of CEOs think competitionwill increasingly comefrom other sectors orsub-sectorsWe will hire professionalcompanies to advise uson restructuring, so thatin the next five to tenyears [we] will becomea leading constructionmaterial distributioncorporation, rather thana corrugated steelproduction corporation,as we are at the moment.Le Phuoc VuChairman, Hoa SenGroup, VietnamA few key capabilitiesA desire to be close to the customer canconflict with the desire for efficiency and focus.It brings increased complexity, for one thing,due to the need for customisation or to align thecustomer experience across channels, productsor industries. It also requires investment toenhance capabilities.The metro train is initself a competitor forthe two-wheeler maker.There is no doubt that ametro coming up in Delhihas in some way affecteddemand for motorcycles.Rajiv BajajCompanies that can successfully manage thetension between breadth and focus will bethose that use their differentiating capabilitiesas the basis for expansion. They will be thosethat diversify by extending their value chainsrather than creating new ones; those that lookat their own unique strengths to determinethe competitive spaces they can thrive in; andthose with strong coherence between theircapabilities, value proposition and portfolioof product/service offerings.Managing Director,Bajaj Auto Limited, India

CompetitionIndeed, some moves into different sectors mayseem entirely unexpected, until assessed from acapabilities perspective. One example is CEMEX,the Mexico-based cement company that hasmoved into microfinance in emerging countriesand infrastructure solutions globally, drawingon strong relationship building and innovationcapabilities to do so. Another is Danaher, whichhas acquired many companies in sectors asdiverse as dental tools and environmentalmetrics. The success of these businesses is drivenby the highly effective and speedy deploymentof the Danaher Business System, a continuouscycle of change and improvement – one of thecompany’s key capabilities.There’s evidence that focusing on a fewcapabilities is key to successful growth strategies.PwC studied Fortune 500 companies thatexhibited signs of long-term revenue declinessince 2009 and found successful recoverieswere closely tied to defining and rebuildingexisting capabilities.3To be sure, however, the ability to diversify ina focused way presents significant challenges.There are hard decisions to be made betweenwhich of potentially numerous growth strategiesmake the most economic and competitive sense.And what constitutes a coherent strategy maynot be immediately obvious when CEOs considerthe myriad ways their business could bedisrupted in the longer term.No matter how CEOs choose to rethink theircapabilities, there are three factors they’vetold us are vital for success:1. Creating new value in new ways throughdigital transformationCompanies that can effectively combine thesehighly interdependent approaches aroundsimple yet powerful value propositions will bepositioned as winners in the new competitivelandscap

respondents' willingness to free up their valuable time to make this survey as comprehensive and accurate as possible. We're especially grateful to the 33 CEOs who sat down with us to hold deeper and more detailed conversations. You'll see their comments throughout this report. of CEOs have entered a new sector, or considered