Ceo survey belgium 2012 final

Delivering resultsGrowth and value in a volatile world

Country summary: Belgium

www.pwc.com/ceosurvey

A Belgian perspective on PwC’s 15th Annual Global CEO Survey

ii PwC 15th Annual Global CEO Survey

The 15th Annual Global CEO Survey is based on a total of 1,258 interviews with CEOs in 60 countries, carried out between 22 September and 12 December 2011. 291 interviews were done in Western Europe, of which 34 in Belgium, compared to 17 in France, 38 in The Netherlands and 49 in Germany. None were carried out in Luxembourg. The Belgian CEO interviews were spread across a range of industries: asset management; banking and capital markets; insurance; entertainment and media; healthcare; industrial products; retail and consumer products. Additional insight into what is underpinning CEOs’ outlook, quotes from their interviews and more extensive extracts, as well as responses by sector and location can be found at www.pwc.com/ceosurvey.

Introduction

Key findings in Belgium 1

How is 2012 shaping up?

The year 2012 is unfolding with wide disparities in potential outcomes in many economies, and little prospect for a coordinated turnaround: just 15% of CEOs believe the global economy will improve this year. Belgian top executives are significantly more pessimistic: only 3% believe in recovery, whereas 62% of Belgian CEOs think the global economy is set to decline further. Only the Dutch are more pessimistic, with 68% expecting a worsening economic climate.

But businesses are not on the defensive. Despite uncertainties, CEOs are taking deliberate steps to stretch in markets they believe are most important for their future. As a result, close to 40% are ‘very confident’ in prospects for revenue growth in their companies in the next 12 months. Again, Belgian CEOs are less bullish: only 12% share this view. Strategies no longer rely on riding economic updrafts – or even riding out volatility.

Rather CEOs are manoeuvring to outpace: they are three times more confident in their own capacity to generate growth in their business than they are in global economic growth. Here Belgian CEOs surveyed are surprisingly upbeat: they are four times more confident in their own growth potential than that of the world at large. Correspondingly, Belgian business leaders predict more significant change to their strategies than others: 26% compared to 13% globally, and only 4% in Germany and The Netherlands respectively. The main drivers of strategic reorientation in Belgium are competitive threats, the impact of government debt, changes in risk tolerance and the availability of talent.

The optimism among Belgian business leaders in their ability to generate growth also reflects the tough choices made and hard work done since the crisis began in 2008. With stronger balance sheets, improved cost structures, and a greater awareness of global risks, CEOs have a renewed sense of preparedness when facing today’s challenges. Belgian CEOs are focusing on innovation in products and services for growth in 2012, compared to their Dutch and German neighbours who are focusing more on M&A and increased market share respectively.

“CEOs are very concerned about economic uncertainty and the pace of recovery. The optimism that had been building cautiously since 2008 has begun to recede.”

Karel De Baere, Chairman, PwC Belgium

2 PwC 15th Annual Global CEO Survey

Graphic 1: Do you believe the global economy will improve, stay the same, or decline over the next 12 months?

Base: All respondents (1258; 49; 38; 34)

However, this frugality shouldn’t suggest a lack of appetite for the right investments. Operational improvement remains on the agenda, even after three years of crisis. 66% of CEOs worldwide plan to implement a cost cutting initiative in 2012 – and in Belgium 85% plan to do so. Belgian business leaders also plan more outsourcing and divestment than their neighbours in Germany and The Netherlands in 2012. In terms of investing directly in growth, over a quarter of CEOs, both globally and at Belgian level, anticipate a cross-border acquisition this year. Belgian CEOs are focused on France and Germany as the countries they consider most important for growth abroad, followed by China and Russia. Dutch CEOs are above all focused on Germany as their most important export market.

Difficult conditions in the near term have CEOs paring down ambitions in response to disappointing recoveries in Europe and the US. Over two thirds of the Belgian CEOs interviewed said the ongoing sovereign debt crisis in Europe has had a direct financial impact on their company. Many CEOs are holding back their cash reserves as a buffer against an economic contraction: fewer CEOs are planning a ‘major change’ to capital investment strategies this year than in 2011, while 38% are making no change at all.

Over the next three years, CEOs will be reconfiguring their business models for a world where risks and opportunities are increasingly interconnected, yet where sources of growth are often very much local and may be outside the familiar terrain. The rise in investment and commerce to and from emerging economies is fundamentally altering approaches.

In response, CEOs are concluding that their businesses need to pivot across their priority markets, both developed and emerging, to embrace opportunities in markets they may be less familiar with. They are facing several challenges in this regard.


Making it happen

In past economic downturns, the world has experienced rises in protectionism. But this time there has been progress on bilateral and regional levels in fostering cross-border commerce and investment. Alliances continued to evolve into late 2011 with the US-Korea free trade pact and the proposed Trans-Pacific Partnership. Free-trade purists might argue that preferential deals are a form of protectionism. But the reality is that trade and cross-border capital flows have rebounded since the downturn began. Belgian CEOs are much less concerned about protectionism, exchange rate volatility and corruption than CEOs globally, perhaps due to their focus on growth in neighbouring France and Germany.

The tax advantage Market opportunity, natural resources, talent – all of these factors matter when companies decide where and how to locate operations. But tax may be the most significant: 44% of CEOs worldwide (and 47% of Belgian CEOs) say tax policies are a ‘significant factor’ in their decision-making on cross-border locations. CEOs are paying close attention to changing tax conditions as a result of high debts and deficits in developed economies. Governments continue to reform their tax systems to help businesses grow. Over the past seven years more than 60% of economies made paying taxes easier with 244 reforms, according to Paying Taxes 2012. Globally, the total tax rate has fallen by 8.5% since 2006; the time required to comply with taxes declined by more than one day per year; and the number of tax payments required dropped by five.1 Belgian business leaders are much more concerned about the increasing tax burden than their colleagues in Germany and The Netherlands. 53% see increased taxes as a potential threat to the business, compared to 33% and 18% in Germany and The Netherlands respectively.

CEOs believe the forces of global integration will stay on track: 45% believe the world will become more open to free international trade (with 31% dissenting) and 56% are convinced cross-border capital flows will not come under new constraints. The Belgian CEOs surveyed are similarly optimistic about capital flows (50%), but only 26% believe openness to free trade will increase.

How CEOs are able to succeed in this interconnected world, with a potentially slower and more volatile global economy, will hinge on how well they master the three execution challenges mentioned below.

1 http://www.pwc.com/gx/en/paying-taxes/index.jhtml


Build or buy? Acquisitions always have a role to play in growth plans. Responses indicate the potential of a modest pull-back on international deal-making over the next 12 months: 28% of CEOs globally plan to complete a cross-border deal in 2012 (29% for Belgian CEOs), a decline from the 34% last year. The pool of potential buyers is becoming more diverse, however. Firms from China, India and elsewhere have emerged as major international investors in recent years. Acquisitions are always risky. Yet, our research suggests that acquisitions in emerging markets – exactly the type of acquisition that appears to be more popular today – are particularly risky, with lower chances of success even for proven deal-makers. Acquirers will need to learn new post-merger integration competences to make these deals work.

Less global export, more local rapport. How businesses achieve the right mix to leverage global capabilities while servicing distinct local needs is a defining question for growing in dissimilar markets. The tilt is towards decentralising, and creating localised products. Substantial proportions of CEOs, between 20% and 36%, say they are designing new products specifically for local markets.

1. Worldly wise, locally savvy

Developed and emerging economies alike are considered destinations that CEOs believe are critical for their organisations. Over 60 different economies were named by CEOs as key overseas markets, some adjacent to their home market and others on the other side of the world. A sensible strategy for globalisation today means more than building cheaply in one location and selling in another. CEOs are investing to build fully-fledged operations in their priority markets to build relationships with their customers, innovate, take advantage of local talent and brands, reduce risk, improve access to capital, and strengthen supply chains. Building manufacturing capacity, for example, is important for many CEOs in each of their key markets and China faces increasing competition as CEOs reach further afield. CEOs are making deeper commitments to priority markets, guided by domestic customer demands.

Segmentation is at the centre. CEOs place high importance on adapting to local customer preferences. Four billion people live in countries where the per capita income is US$ 1,000-4,000 per year, for example, an ‘emerging middle class’ that is prompting business leaders to fundamentally rethink business strategies. It’s not only products that must be adapted or built anew, but also production, distribution and marketing capabilities – entire business models. Success involves understanding customer segmentation and the dynamics driving it.

Innovating on multiple fronts. Improving the effectiveness of innovation continues to be a major strategic priority. Three out of four CEOs – at both global and Belgian level – plan to change R&D and innovation capacity in 2012. CEOs in insurance, asset management and retail are more likely than those in other industries to emphasise innovation in new business models – often taking advantage of new technologies. Those in industries with a historical dependence on innovation are among the most likely to change approaches. Pharma and life sciences, for example, has been in the forefront in shifting some research resources to faster-growing economies. While primary R&D is still largely conducted in home markets, businesses are shifting capabilities to their priority markets, partly to seek footholds in fast-growing economies, but also because of improved scientific capabilities.

“ The good news is that the long cycle of the slowdown has given CEOs greater experience of managing their businesses with ever greater efficiencies. 59% of Belgian CEOs are confident they can deliver revenue growth despite the difficult conditions.”



Belgian CEOs

CEOs that were financially impacted by the sovereign debt crisis in Europe 56%

79%

2. Expect the unexpected

Global risks often have local sources and last year was no exception. 56% of CEOs were financially impacted by the sovereign debt crisis in Europe (79% of Belgian CEOs), another 29% by the earthquake and tsunami in Japan, and 21% by the political upheaval in the Middle East. Yet, CEOs report that they are less likely to focus on risk management than on areas ranging from technology investments to reorganisation. Significant defensive steps have already been taken: balance

Finding growth away from home With CEOs looking for growth outside of their home markets, risk practices will have to adapt. Companies cannot control or predict the economic, social and political risk factors influencing their operations in priority markets, but prudent risk managers are getting a better understanding of how these forces can help or hinder their plans. Ongoing risk monitoring and incorporation of new information into business models can allow savvy businesses to pivot away from known risks, plan for unknown risks, and capitalise on opportunities. Risk resilience involves constantly returning to the question, ‘What should my business model be, given the way the political, economic and social conditions are changing in this country?’ 56% of Belgian CEOs intend to change their approach to managing risk in the next 12 months, and 56% state that a change in risk tolerance is driving a change in their strategy (compared to only 34% at global level).

sheets have improved, cash reserves have been built up, and supply chains have added redundancies. These types of solution – financial buffers, supply chain redundancies – point towards one way to approach risk: less emphasis on the probability of events, and more on how business can be disrupted. When the focus is preparing for consequences, discussions are more likely to occur across functions involved in strategy, operations, risk management and business continuity.


Graphic 2: How concerned are you about the following potential business threats to your growth prospects?

Base: All respondents (1258; 49; 38; 34) - Respondents who stated ‘extremely’ or ‘somewhat concerned’


Regional concerns reveal regional risks. The risk of global economic volatility is a common threat for all CEOs. Yet, comparing how CEOs perceive other threats to their business offers some insight into the risks that are top-of-mind in different regions.

Graphic 3: How concerned are you about the following potential economic and policy threats to your business growth prospects?

Base: All respondents (1258; 49; 38; 34) - Respondents who stated ‘extremely’ or ‘somewhat concerned’

• Western Europe: Outlook for taxes, sovereign debt crisis, financial market stability

• North America: Constrained state spending, skills mismatches

• Asia Pacific: Currency volatility, energy costs

• Latin America: Underdeveloped infrastructure

• Middle East and Africa: Skills shortages and corruption


Hiring talent. Worldwide, 43% of CEOs across industries say it’s become more difficult to hire. In Belgium 62% of CEOs surveyed say the situation has worsened, 38% say growth at home was impacted by talent constraints, and 59% said talent expenses rose more than expected. The challenges are acute in both knowledge industries such as pharmaceuticals and life sciences, and technology, and heavy industries such as industrial manufacturing and automotive sectors. In Belgium increased difficulty in hiring is attributed to a deficit of skilled candidates, in particular for production workers (according to 59% of Belgian CEOs surveyed). Even industries that have retrenched workers in large numbers like banking are still struggling to get the right people. Developed market banks are in competition with one another but also with increasingly ambitious and well-capitalised local competitors in faster-growing economies.2 Twice as many banking CEOs plan to expand workforces than to cut them in 2012. Strikingly, 32% of Belgian CEOs surveyed said they will move their operations within 3 years because of talent availability.

“ CEOs say they are having difficulty finding and retaining skilled people in their industries. Belgian CEOs think that creating and fostering a skilled workforce should be a top priority for government.”


2 PwC, “Securing the talent to succeed: Making the most of international mobility in financial services,” Nov. 2011

3. The talent challenge

Theoretically, finding good candidates should be a near-frictionless exercise today. There have never been as many educated people in the world, nor has it ever been as easy for employers to tap this vast pool online. Highly-skilled talent is also highly mobile but just in case, networking advances mean many more tasks can be handled remotely or outsourced.

The reality is far different. Shortages are evident everywhere. More CEOs are changing talent management strategies than are adjusting approaches to risk: 23% expect ‘major change’ to the way they manage their talent. Skills shortages are seen as a top threat to growth. And talent shortages are impacting profitability now. One in four CEOs said they were unable to pursue a market opportunity or have had to cancel or delay a strategic initiative because of talent. One in three is concerned that skills shortages will constrain their company’s innovation.


Making talent strategic. CEOs are determined to take a more strategic approach to how they manage their workforce today and plan for future needs. A longer-term, strategic view is needed if they want to close the gap and map how talent needs will change. As part of this effort, CEOs are closely integrating HR with business planning at the highest levels of the company: 79% of CEOs say the chief human resources officer is a direct report.

They are also seeking a better understanding of the scale and effectiveness of their investments in talent. For many CEOs, the information they receive tells them how the business is performing today, but not how investments in employees will generate future growth. Such measurements can’t isolate skills gaps and struggle to identify the pivotal jobs that drive exponential value; they do not measure employee engagement or team performance. These are much harder to measure, which is one reason they’ve been neglected.

2 PwC, “Securing the talent to succeed: Making the most of international mobility in financial services,” Nov. 2011

More comprehensive reporting on employee engagement Employee engagement analysis can give business leaders a clear link between engagement and improved performance measures like retention and discretionary effort. Forward-looking businesses are coupling a clear view of the pivotal roles within their business – the roles that create (or destroy) disproportionate business value – and applying data mining and predictive modelling to gain insight into retention, recruiting or productivity analysis. For example:

• a retention score for each employee, which measures the probability that an employee will leave in the next year;

• use of engagement studies to identify barriers to high performance within specific groups of employees, as well as the tangible improvements that can drive both engagement and business performance; or

• a focus on the direct market-facing impact employee engagement has on measures of business performance such as customer satisfaction or product quality.

Developing talent. Frequent job-hopping is endemic to many markets, at all levels. This is a trend many CEOs would like to counter. Two-thirds say it’s more likely that senior talent will come from promotions within their companies over the next three years. While outsiders bring benefits, the loss in productivity and time when a valuable employee leaves, as well as the expense related to retraining, are better appreciated: 21% say the information they receive on the cost of employee turnover to their organisations is not adequate and 47% receive some information but want more.

The Belgian CEOs surveyed are better informed but hungry for more: only 12% say the information they receive on the cost of employee turnover to their organisations is not adequate but 56% want more information on top of what they currently receive. To better develop talent, however, companies will need to understand what works in one market might not work in another. Mentoring programmes, for example, work in some countries but fail in others, because of how coaching is received in different cultures.


Moving talent. Across all industries, more CEOs would rather local leadership run local business units. Today, 29% of senior managers are transferred from their headquarters country to newer markets; in an ideal world, only 18% of CEOs said they would continue to move their senior leaders from headquarters (12% in Belgium). This is becoming increasingly hard to do in fast-growing economies.

Holding the organisation together. High-potential middle managers are the employees more CEOs fear losing the most (53% at global level compared to 38% in Belgium). These operational managers are often the closest to changing customer demands and the ones charged with executing the strategic direction. This is one reason why formal succession planning in some companies is starting to go deeper into the organisation. Efforts to identify talented managers earlier in their careers, and to specifically devote development resources to them, are being made in more organisations.

3 ‘Taking responsibility: Government and the Global CEO’, PwC Dec. 2011.

Investing in workforce development Skills constraints are going away and governments are responding. India and China have invested heavily to upgrade skills and widen access to education, and are cultivating their substantial diaspora of students and entrepreneurs to encourage their return. Singapore and Malaysia are taking comprehensive, long-term approaches to attract highly-skilled foreigners to enhance their economies. In short, policy-makers are seeing the effects of talent mobility on economic competitiveness and acting to attract and retain talent. This is likely to encourage more global talent mobility, which will impact business talent management strategies.

Leading companies take the long view and are partnering with their governments to invest in workforce development. Most CEOs believe business has a role upgrading skills outside of their own companies and 78% say they are making direct investments in workforce development. The Belgian CEOs surveyed are even more proactive, with 85% investing directly in workforce development. This is part of a wider trend of businesses reaching back further into the talent pool and seeking to ‘grow their own’ with employer-led universities.3

Foreign multinationals remain desirable employers, but top talent in India and China, among other economies, has many more options with domestic multinationals today, which can offer opportunities to run growing, global businesses and can increasingly match Western compensation packages. While 53% of CEOs expect to move experienced people from the home market to newer markets to fill skills gaps (65% in Belgium), reverse transfers involving moving top performers in emerging markets into developed markets for a short period of time to gain ‘credentials’ can also be effective retention and development measures.


“ Our strategy is all about going local, because it is a market hundreds of times bigger than cross-border.”

Lazaro Campos, CEO Swift

The following questions are distilled from CEOs’ many approaches to resolving the execution challenge, and their insights into the constraints in 2012, and can help business leaders achieve the balance they’ll need to grow their businesses in these volatile times.

What’s next

1. How local is your global growth strategy? CEOs are shifting away from an export mindset to respond more attentively to local markets. Over 70% of CEOs are planning to grow domestic customer bases in their important markets. Competition will be tough, particularly when operating in markets that are dissimilar and far afield. The traditional way of setting a grand global strategy and pushing it out to operations may need to give way to a more agile strategy that can be adapted at local level.

2. How are you balancing global capabilities with local opportunities? CEOs are developing new capabilities in their important markets, and tailoring approaches to ensure that the best of their global expertise supports rather than imposes operational structures on the local business. One in five plan to innovate locally in their important markets; and over a third expect to expand internal service delivery. They’ll need to find the right scale to bring the benefits of their global organisation to the local level and maintain profitability.

3. Is your talent strategy fit for growth? Cost-focused measurements around talent strategy need to give way to measurements around returns on investment, as leaders increasingly implement new approaches to solve their talent shortage problems. Two-thirds of CEOs are seeking better analysis to make and inform investment decisions around people. Implementing strategic workforce planning will help leaders look beyond the talent shortages today to align the talent needed to fulfil business plans.


4. Are your innovations creating value for your customers – or just novelty? When it comes to innovating in and for local markets, delivering the value customers in those markets expect is paramount. Between a fifth and third of all CEOs say they are creating products specifically for their important markets. It will be increasingly important to get segmentation right – at the regional, country, city or even neighbourhood level – and to design operating models around serving those segments. That means looking beyond product design to include factors such as production, distribution and marketing.

5. Do your strategic plans account for the macro impact of micro risks? The range of CEO concerns reflects how diverse sources of risks are: 25% are ‘extremely concerned’ instability in capital markets will impact business, for example. The number of potential risks and their inter-relationships makes it very difficult to predict what will occur where and when, but companies can better deal with uncertainty – and take a more strategic approach to risk – by focusing on the likely consequences, no matter the cause.

6. Are you responding to the needs and constraints of the communities in which you operate? CEOs recognise that sustainable business growth requires working closely with local populations, governments and business partners, and investing in local communities. This can mean creating job training programmes, helping to manage resource constraints or contributing to health solutions. Two-thirds plan to increase investments in the next three years to help maintain the health of the workforce, for example.

7. Where are the biggest opportunities for business and government to coordinate better? Compliance with a growing body of regulations, particularly when operating in disparate markets, is a complex task for most businesses, which is why CEOs consistently report over-regulation as a threat to their growth. However, the successes of the private and public sectors are increasingly intertwined. Half of CEOs believe workforce skills and infrastructure developments are top priorities for their governments. The Belgian CEOs surveyed are clearly more concerned about fostering a skilled workforce (74%), and much less worried about improving infrastructure (32% vs. 53% of CEOs globally). Eight in ten CEOs say their business has a role in workforce development, other than their own employees. Effective partnership models – better communication, improved coordination, and true collaboration – are emerging around the world.

8. Does your governance model account for the ways in which organisations’ and people’s expectations are changing? The organisation of the future will likely be accountable to a different mix of stakeholders from a different mix of markets. Governance models need to adapt, beginning with building a leadership pipeline that reflects potential future demands. It’s a key area of focus globally, with 53% of CEOs concerned about recruiting and retaining high-potential middle managers and a desire to build more diverse leadership teams. Only 38% of Belgian CEOs surveyed shared this concern. They are more preoccupied with recruiting and retaining skilled production workers (59% vs. 33% globally).


Karel De Baere Chairman

Pwc Belgium

+32 2 710 8241

[email protected]

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Ceo survey belgium 2012 final