course towards stability - pwc в России · pdf file · 2015-06-03 . 16th...

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16th Annual Global CEO Survey: Appendix with statistics for Russia

Course towards stabilityJanuary 2013

16th Annual Global CEO Survey2

3Appendix with statistics for Russia3

Content

Introduction 4

Potential growth opportunities for the global and Russian economies 5

Corporate opportunities and risks 9

Government priorities: the expectations of business and reality 13

The corporate role in society and stakeholders 14

Seeking new opportunities in existing markets 16

Conclusion 18

Contact information 18


We interviewed the CEOs of Russia’s leading companies to learn how they have changed their approach to managing their companies during the protracted global economic crisis, and what near-term threats they see as most serious for their business. Also, we identified on what issues the CEOs of Russian companies disagree with their peers in Western Europe, the United States and other BRIC countries, and where their views concur.

Although the problems facing the global economy were not resolved in 2012, the worst is already behind us. While Russia is definitely not immune from these problems, macroeconomic data do show that the country’s attractiveness to foreign investors is growing. Therefore, hopes are high for 2013.

The period of political instability in late 2011-early 2012, which had discouraged some investors, has now come to an end. Russia’s political agenda, as well as the political agenda in some other countries, such as Germany and China, has gained clarity and certainty.

Russian President Vladimir Putin has previously articulated the task of achieving a significant improvement in the country’s position in the World Bank’s Doing Business rating: specifically, by 2018 Russia should move up to 20th place. The President has charged the Agency for Strategic Initiatives with responsibility for meeting this target. This is an ambitious goal, especially since Russia currently ranks 112th in the rating, or 8 points up from last year. Undoubtedly, investor confidence in Russia will continue to grow as the Government moves ahead in implementing reforms. From a macroeconomic standpoint, Russia holds an advantage compared to many European countries.

Introduction

Overall, Russian executives remain optimistic. They are hoping that the global economic picture will not deteriorate compared to last year. The Russian economy will continue to grow, but likely at a slower pace. This, however, has not prevented Russian CEOs from planning more M&A deals (most of which, however, will be in the domestic market) and forming strategic alliances. The crisis of 2008 is now a thing of the past: for the second year in a row, Russian CEOs are also planning to boost staff numbers, and invest in personnel training and development.

Given the current instability in the global economy, the stakes placed on emerging markets are only expanding. The Russian economy has recovered at a fast pace since the 2008 crisis despite a dramatic slowdown in growth rates and industrial production. Therefore, we believe that Russia has been and remains an important market with a wealth of opportunities for growth and sustainable development, which both existing players and newcomers to the market can tap into.

5Appendix with statistics for Russia

Figure 1. According to Russian CEOs, the state of the global economy will remain the same in 2013.

Question: Do you think that global economic conditions will remain the same or deteriorate over the next 12 months?

51%

10%5%

34%

Will improve

Will remain the same

Will deteriorate

I don't know

Source: 16th Annual Global CEO Survey.

Potential growth opportunities for the global and Russian economies

Half of the Russian top managers interviewed (51%) said that global economic conditions will not change in the next 12 months. This is largely consistent with the global CEOs’ responses: 52% of the CEOs of major multinationals also expressed confidence that the global economy will not change significantly.

The number of CEOs with pessimistic views on the subject in Russia and internationally is also comparable: 34% of Russian respondents believe that global economic growth will slow down in the next 12 months, while 31% of global CEOs share similar views. This is less than a year earlier, however, when the latter data point was 48%.

Some respondents expect further growth in emerging markets and revitalised growth rates in Europe and the US.

“A lot depends on how well Europe will deal with the political challenges it is facing, and how well the United States deals with the ‘fiscal cliff’ everyone is talking about. I think they will succeed. The new Chinese Government can successfully manage economic liberalisation and inflation. But, the necessary prerequisites are in place for positive changes to take place.”Artyom Konstandyan, CEO, Promsvyazbank.


of Russian respondents believe that global economic growth will slow down in the next 12 months.

“The Russian economy is based, among other things, on an appropriate monetary policy. It is a tool for smart management and governance that makes it possible to significantly reduce the risk of major problems appearing. From this standpoint, Russia’s economy is quite stable, which is clearly demonstrated by the rates of inflation and economic growth, as well as the level of gold and currency reserves and the sovereign debt policy.” Andrei Dubovskov, President and CEO, OJSC MTS.

CEO of the CEOs of major multinationals expressed confidence that the global

economy will not change significantly.52%34%

According to some respondents, the Russian economy will post slower growth than last year, but it is well-prepared for global instability. Russian CEOs, in particular, emphasise that the correct monetary policy adopted by Russia helped to reduce inflation in 2011.

Figure 2. CEOs are confident of earnings growth in 2013.

Question: How confident are you of your company’s earnings growth over the next 12 months?

CEOs globally

CEOs in Russia

2008 2009 2010 2011 2012 2013

80%

50%

21%31%

48%40% 36%

60%48%

66%

53%

30%


Many top managers place high hopes on the middle class and its further expansion. Major economic growth will be demonstrated by those Russian regions where small and medium-sized business is developing at a rapid pace. This includes companies from almost all industries. It is no secret that service-oriented companies are very sensitive to changes in personal income levels. Russian СЕОs understand this point very well and factor it in when modelling their business strategies.


66% of respondents are

“fully confident” in business growth

over the next 12 months

Figure 3. Russian CEOs are confident of earnings growth (12 months and 3 years).

Question: How confident are you of your company’s earnings growth in the next 12 months and 3 years?

3 years

12 months

2008 2009 2010 2011 2012 2013

66%

48%

60%

53%

30%

80%

71%53%

77%

50%

52%

39%


Russian top managers have a positive view not only on future global economic growth. Over the years that we have conducted our survey, Russian СЕОs have been quite optimistic in their expectations regarding corporate revenue growth. The survey results show that the proportion of those who are “fully confident” in business growth over the next 12 months has risen by a third to 66%, versus 48% last year.

However, the number of those who are fully confident in long-term revenue growth has decreased: only 39% of respondents from Russia believe that revenues will grow over the long term, while 66% are expecting only short-term (12-month) revenue growth.


of Western European respondents said that they are fully confident of revenue

growth in the next three years.

of US respondents are fully confident of revenue growth in the next three years.

Figure 4. CEO confidence in short-term corporate earnings growth varies significantly depending on the country.

Question: How confident are you of your company’s earnings growth over the next 12 months?

Globally

BRIC

China

Western Europe

USA

Russia

36

52

42

22

30

66

%

Selection: Russia (41), USA (167), Western Europe (312), China (100), Globally (1,330). Clarification: The figure shows the percentage of CEOs who are fully confident in their companies’ earnings growth in the next 12 months. Source: 16th Annual Global CEO Survey.

It is noteworthy that, according to the survey, the CEOs of US and European companies are more confident in the long-term growth of their financial performance: 47% of US respondents and 34% of Western European respondents said that they are fully confident of revenue growth in the next three years. However, optimistic expectations regarding short-term revenue growth were expressed by only 30% and 22% of respondents, respectively.

CEOs from China, the world’s second-largest economy, are more bullish regardless of the timeframe: 42% of Chinese CEOs are fully confident in revenue growth in the next 12 months, while 52% are fully confident that their companies’ financial performance will grow in the next three years.

47%34%

42% of Chinese CEOs are

“fully confident” in revenue growth

in the next 12 months


Corporate opportunities and risks

Most Russian companies whose CEOs participated in the survey operate in Central and Eastern Europe, or Central Asia (which includes Russia, the countries of Central Asia and the Caucasus, and Turkey). Most Russian respondents believe that their companies’ major operations will also be tied to this region (64% of respondents).

As most analysts see it, the future of the global economy depends on whether the problems facing the eurozone and the United States are successfully resolved, as well as whether the “hard landing” scenario for the Chinese economy actually plays out. We asked the CEOs of Russian companies for their views on the probability of each of those scenarios.

Some Russian CEOs are confident that emerging economies will continue to grow in the next 12 months. Less than one-third of respondents (27%) concede the possibility of a slowdown in the Chinese economy, now second only to the US economy in volume terms, to growth of under 7.5%. According to Russian CEOs, this scenario is more realistic for the global economy in the next 12 months than scenarios calling for a collapse of the eurozone or another US recession.

Over 70% and 39% of Russian CEOs, respectively, believe that the collapse of the eurozone and a recession in the US are highly unlikely.

Even if China’s GDP growth does fall below the 7.5% mark, this would be unlikely to affect the respondents’ business, even though China is the most important market (apart from Russia) for one-third of the respondents. European CEOs believe that Germany remains the key market for their companies.

Threats to global economic growth directly imply a range of economic risks and business exposures, such as instability in capital markets and exchange rate volatility, renewed government regulation, growing corruption, lack of qualified human resources, and other risks that may affect a business’ development.

of CEOs believe that eurozone is unlikely to collapse.

In Russia over 70%

of Russian CEOs do not believe in a recession in the US.

39%


Figure 5. CEOs of Russian companies see economic instability as a threat to their business.

Question: Which risks pose the most significant threat to the development of your business?

Selection: Globally (1330), Russia (41), BRIC (ex. Russia) (259), Western Europe (312).Source: 16th Annual Global CEO Survey.

GloballyBRIC(ex. Russia) Western EuropeRussia

Business risk Economic/political risk

Expenses for energy resources

Instability in capital markets

Changes in customer expenses and behaviour

Higher tax burden

Volatility in foreign exchange rates

Inability to finance growth

Excessive regulation

Higher tax burden


Bribery and corruption



Protectionism

Inflation

Чрезмерное регулироваинеExcessive regulation

Economic slowdown/instability

Inability to finance growth

Higher tax burden



Lack of qualified personnel

Bribery and corruption



Экономический спад / нестабильность

Protectionism



Lack of qualified personnel

Govn’t measures and responses to budget deficits


Higher tax burden




Ris

ks in

des

cen

din

g o

rder

Government measures and responses to budget deficits

Govn’t measures and responses to budget deficits

Lack of qualified personnel Lack of qualified personnel


“When the law can be interpreted in several potentially conflicting ways, there are certain rules of business conduct that you should follow. But, if such rules cease to work at some point, this can place if not entire business, but a specific project, under threat.”Valentina Stanovova, First Vice President, Capital Group.

Russian CEOs noted unstable and volatile economic growth (76%) and lack of qualified human resources (73%) as the business risks and economic threats that concern them the most. Two-thirds of respondents are worried about excessive state regulation, and almost 70% (68%) are most concerned about lack of stability in capital markets.

CEOs from Europe and the US are worried about governmental responses to budget deficits and the size of sovereign debt (77% and 93%, respectively). The concerns of US-based respondents, in particular, are quite clear given the looming “fiscal cliff” and political gridlock in Congress.

1 Source: http://www.usdebtclock.org/world-debt-clock.html.

In Russia, 59% of respondents are concerned about fiscal problems, even though Russia’s sovereign debt is smaller than in most European countries, at only 11% of national GDP. By comparison, it is 91% in the UK, 99% in Germany and 192% in Greece.1

CEOs of Russian companies frequently highlighted weaknesses in legislation as one of the threats to their business.


Russian CEOs are less concerned about the appearance of new players in the market (73%), vulnerability of intellectual property rights and client data (71%), and gaps in the supply chain (68%).2

Russian CEOs give little significance to potential force majeure situations, such as natural disasters, social unrest or epidemics. For instance, 61% of respondents think that social unrest in their country of operations is highly unlikely. At the same time, however, 68% of respondents believe that their businesses would be affected if social unrest were to occur.

As part of our survey, we asked the CEOs of Russian companies about how they develop their strategies and at what level key decisions are made, as well as who participates in decision-making, how risks are managed, and how they build relationships with partners.

In terms of company management, the number of respondents from Russia who mentioned centralised control over risk management was higher than in other countries (80%). Only 20% of respondents said that such control in their company is

decentralised. In China, 35% of CEOs said that their control over risk management is centralised. A third of respondents from Russia noted that they encourage a large number of strategic initiatives in order to successfully implement the most valuable among them. At the same time, only one in five CEOs said that their entire staff, not only management, is involved in the decision-making process in their company.

Figure 6. CEOs expecting some or significant changes in one of the following areas over the next 12 months.

Risk management

Investments in technology

Investments in capital assets

Client base expansion

Russia USA BRIC China

808482796782

736148756764

717468756674

714755757462

%

WesternEurope

Globally

Selection: Russia (41), USA (167), Western Europe (312), China (100), Globally (1,330).Source: 16th Annual Global CEO Survey.

2 Percentage of respondents who are unconcerned about these risks.


Over one half (54%) of Russian CEOs interviewed plan to change their management structure in the next 12 months. It is noteworthy that the number of respondents willing to change their business strategy in the BRICs as a whole, and in each BRIC country separately, is higher than in developed countries.

The majority of CEOs would like to change their corporate strategies addressing customer base expansion, client retention, and client loyalty improvement: 80% of Russian respondents stated this. European and American CEOs have this issue on their agenda as well: over 80% of the respondents intend to focus their attention on changes in this area as well.

In addition, changes will be made to strategies regarding risk management (71%), increasing capital investment (73%) and investing in technology (71%). It is interesting to note that risk management strategies are likely to be changed in those companies that operate in developing rather than developed markets.

In 2012, the most popular way to restructure a business was through cost savings: 85% of the respondents acted this way. A similar trend has been noted in Europe and the US, which are undergoing a crisis.

One in three Russian respondents conducted an M&A transaction, in the domestic or global markets, and nearly the same number created new joint ventures or entered into a strategic alliance.

of Russian CEOs interviewed plan to change their management structure in the next 12 months. 54%

of CEOs would like to change their customer experience, client retention and loyalty strategies.

In Russia over 80%

of Russian CEOs plan to save costs in 2013.

83% It is interesting to note that at the same time Russian companies have intended, both in 2012 and 2013, to increase their staff numbers by more than 8%. This was the answer of every fifth Russian respondent, which is more than in Europe, the US or China.


Government priorities: the expectations of business and reality

Our survey showed that Russian CEOs, to a large extent, see the government as being responsible for creating a favourable business environment. At the same time, they are ready to invest significant funds in many components of the business environment, such as infrastructure, employee health care and training of skilled personnel.

The Russian respondents named financial sector stability (68%), infrastructure development (80%), and training of skilled personnel (56%) as among today’s priorities for government. At the same time, respondents think that private investment should not exclude or substitute for public funding.

More than one-third (34%) of Russian CEOs believe that, to date, infrastructure improvement issues

have not been dealt with effectively. However, only 27% of Russian CEOs stated their readiness to increase investments in this sector (increased investment over the next three years). On the whole, Russian CEOs pay more attention to this issue than their American or European colleagues.

One-third of the respondents plan to increase investment in employee health care.

One task that Russian CEOs are ready to share with the government to a greater degree is the training of skilled personnel. While more than half of respondents believe that this task should be handled by government, at the same time 41% plan to increase investment in this area.

“We invest in people. We have even established a corporate university jointly with the University of Chicago, CHICAGO Booth. We will have 50 people this year, who will undergo training according to a curriculum specially designed by University of Chicago faculty to meet the needs of Promsvyazbank’s strategy.”Artyom Konstandyan, CEO, Promsvyazbank.

Forty-six percent of Russian CEOs view the government’s policy for providing access to minerals and natural resources as not very effective. However, only every tenth respondent said that his company would increase investment in efforts aimed at resolving this issue.

According to Russian CEOs, the least effective government policy regards lessening the corporate tax burden, with 66% of CEOs sharing this opinion.

Almost 40% believe that the government’s support for private sector initiatives is insufficient.

of CEOs share the view that the government ensures financial sector stability.

In Russia over 41%

The view that the government ensures financial sector stability is shared by 41% of Russian CEOs, and one in five said that his company intends to increase investment in efforts aimed at meeting this goal.

Russian CEOs are ready to invest significant funds in such components of the business environment, as infrastructure, employee health care and training of skilled personnel.


The corporate role in society and stakeholdersOur survey showed that for Russian CEOs today, the term “stakeholders” means not only holders of stock but also clients and staff. Globalisation and the growing popularity of social media have largely contributed to this process. We believe that awareness of the important role played by such members of the business community as the media, non-governmental organisations, local communities and social networks is on the rise.

In contrast to Western experience, the “stakeholder” concept is relatively new to Russia. We expect to see growing recognition of the importance of involving not only shareholders and owners but also a broader range of stakeholders in the business development process, and our survey supports this view.

Figure 7. Buyers and clients have a significant impact on CEOs’ strategy.

Question: How significant is the impact of stakeholders on your business strategy?

Competitors and partners

Government and regulatory

authorities

Investors

Social networks

Local communities

Buyers

Supply chain partners

Non-government

organisations

Mass media

Staff

%

83

53

32

76

97

61

50

75

85

90

75

60

30

73

94

50

46

80

85

85

74

54

26

71

93

38

40

79

87

87

85

47

34

76

97

55

52

73

86

89

80

32

36

69

99

57

53

75

78

89

63

46

22

68

98

46

32

83

85

88

Russia

China

Western Europe

BRIC

USA

Globally

Clarification: provided is the % of respondents who said that stakeholders have “some” or “significant” impact.Source: 16th Annual Global CEO Survey.


Russian CEOs believe that the most significant impact on their business strategy comes from clients and buyers (98% of respondents think that this group to a greater or lesser degree affects their business), competitors (88%), the government (85%), sources of capital, including creditors and investors (83%), supply chain partners (68%), and company employees (63%). In addition, Russian CEOs attribute less importance to the impact that employees have than their colleagues in the US and Europe.

Half of respondents believe that the mass media has an insignificant or no impact on business strategy formation, 66% think that social network users do not affect their business.

At the same time, 92% of respondents said that they plan to increase the role of social network users in the strategy formation process. A strengthening of this trend was expected given the rapid growth in the number of users of such social networks as Facebook and VKontakte, and the significant increase in Internet users in Russia overall.

The strengthening of social networks’ influence is demonstrated not only by the fact that Internet users (i.e. existing and potential buyers and clients of a company) often discuss the quality of goods and services. Internet advertising has become a more influential platform for companies and advertisers, driving out radio and print media. Moreover, social media is viewed by CEOs as an independent sales channel whose

“Every year, we run Operation Ded Moroz (Grandfather Frost), a charity programme where orphans write us letters saying what presents they would like to get from Ded Moroz. Our employees then choose from these letters and buy the presents that the children have asked for. We then bring the presents to each child directly.” David Gray, Managing Partner, PwC Russia.

importance has been growing (one out of three respondents talked about the role of social media in the process of business strategy formation).

On the whole, changes in relations with stakeholders that Russian CEOs plan directly depend on the CEOs’ views about the role and impact that these relations have on their businesses. For instance, 83% of respondents intend to change their strategy with respect to clients; 74% with respect to sources of capital; 73% with respect to employees; and 71% with respect to supply chain participants.

Almost half of CEOs said that they will continue to focus their attention on reducing their environmental footprint, as well as on charity, social programmes and volunteering.

“We have several precedents of maintaining and powering our telecommunications facilities through alternative energy sources, sun and wind. In every possible way, as a high-tech company, we strive to reduce our adverse impact on the environment.” Andrei Dubovskov, President and CEO, OJSC MTS.

Respondents planning to increase the role of social network users in the strategy formation process – 92%


Seeking new opportunities in existing markets

The majority of Russian CEOs view organic growth as the key opportunity for their company’s business development in 2013: 51% of respondents answered this way. For another quarter of the respondents, the main opportunity is represented by mergers and acquisitions.

One out of ten respondents believes that the key potential for their business development lies in organic growth in existing foreign markets. Thus, Russian CEOs rely on foreign markets more than their Chinese colleagues, for instance, or than CEOs in the BRICs overall. However, only 12% of respondents intend to develop business by creating new products or services, which is three times lower than among Chinese CEOs.

Russian CEOs (88%) think that most M&A deals will take place in the domestic market. Among those who plan to carry out deals outside of Russia, 25% are interested in acquiring assets in Western Europe while the same number is interested in Southeast Asia.

Figure 8. Russian CEOs see corporate growth opportunities in the domestic market.

Question: What opportunities will be of major significance for business development over the next 12 months?

12%

51%10%

2%

24%

2013

Development of new goods or services

Organic growth on exisiting domestic market

Organic growth on existing foreign markets

New operations on foreign markets

JV/alliances/M&A

21%

34%

4%

10%

31%

2012

Development of new goods or services

Increased share on exisiting markets

Entering new geographical markets

M&A

JV/alliances

Clarification: The percentage of CEOs who said that a specific opportunity for business development would be of paramount importance over the next 12 months. Source: 16th Annual Global CEO Survey.

of Russian CEOs view organic growth as the key opportunity for their company’s business development in 2013.

51%


There were more respondents among Russian CEOs who would like to change the scope of their capital investments in the next year than among their peers in the US, Europe or China. Half of European CEOs do not intend to make any changes in this area. One may assume that the thinking of European CEOs has been impacted by five years of recession and the protracted problems in the eurozone. Despite the fact that many of the respondents believe that the European economy’s worst problems are over, the threat of potential eurozone disintegration still remains, albeit to a lesser degree.

As compared to last year, the number of those who would like to make changes in the area of R&D and innovation has decreased. A year ago, 75% of Russian CEOs were ready to change their strategy in this area. Today, that number is only 54%. Moreover, our survey shows that the number of Russian CEOs looking to develop R&D and innovation in the coming year is smaller than in most regions surveyed, including developing markets such as Africa, the Middle East, and other Eastern European countries.

Russian CEOs believe that improved operational efficiency will be the main area for investment over the next 12 months. Sixty-three percent of respondents shared this opinion. This is greater than in the other BRIC countries, Western Europe and the US, where this area comes second after client base expansion.

Russian CEOs also plan to invest in attracting new clients: 41% of respondents shared this opinion. It is interesting to note that 44% of Russian CEOs plan to invest in boosting production capacity, which is three times greater than in the US, Western Europe and China. Chinese

Figure 9. Three priority investment areas over the next 12 months.

Western Europe

53% Client base expansion

48% Improved operational efficiency

40% Improved level of services

USA



40% M&A/JV/ alliances

Russia


44% Production capacities


China

55% R&D and innovation



BRIC



39% R&D and innovation

Globally



38% Improved level of services

Selection: Russia (41), USA (167), Western Europe (312), China (100), Globally (1,330). Source: 16th Annual Global CEO Survey.

CEOs named R&D and innovation as the priority investment area. In Europe and the US, the three priority areas also included improved level of services (European CEOs – 40%), joint ventures and M&A deals (US CEOs – 40%).

Main areas for investment over the next 12 months:

China – R&D and innovation.

Europe and the USA – improved level of services and M&A deals.

Russia – operational efficiency.


Conclusion

Even with the efforts of international leaders and major financial organisations to resolve the problems ailing the global economy, 2013 will still be marked by instability.

Russian CEOs cannot help but take these issues into account, and they acknowledge that the Russian economy may see a reduced growth rate. In this situation, the CEOs are making the right decisions; they are set to continue

optimising their operations without economising on what’s most important - their employees.

Companies are starting to acknowledge the importance of interacting with the greater community in which they operate. In particular, Russian companies pay a great deal of attention to infrastructure development and participation in charity projects.

“If you create a company that trains its people and invests in talent, while at the same time continuously fostering their leadership capabilities, then you will bring up an entire generation of managers who will promote the company’s further growth. Solid financial statements represent an achievement on the short-time horizon only. But, raising up leaders who can grow your company will create something that lasts forever.”David Gray, Managing Partner, PwC Russia.

Contact information

David GrayManaging Partner PwC Russia [email protected] Tel.: +7 (495) 287 1155

Vadim KhrapounPartnerMarkets Leader PwC [email protected].: +7 (495) 967 6168

PwC Russia (www.pwc.ru) provides industry-focused assurance, tax, legal and advisory services. Over 2,300 people work in our offices in Moscow, St Petersburg, Yekaterinburg, Kazan, Novosibirsk, Krasnodar, Voronezh, Yuzhno-Sakhalinsk and Vladikavkaz. We share our thinking, experience and solutions to develop fresh perspectives and practical advice. The global network of PwC firms brings together more than 180,000 people in 158 countries.

“PwC” refers to PricewaterhouseCoopers Russia B.V. or, as the context requires, other member firms of PricewaterhouseCoopers International Limited (PwCIL). Each member firm is a separate and independent legal entity.

© 2013 PricewaterhouseCoopers Russia B.V. All rights reserved.

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