A supplement to PwC s APEC CEO Survey PwC s 2016 APEC CEO Survey: Report Navigating growth in uncertain times (with Singapore highlights)
PwC s APEC CEO Survey 2016-17: Report Navigating growth in uncertain times (with Singapore highlights) Our survey results suggest that * business leaders are optimistic about the future: the region has a young population, a rapidly growing consumer class and an attractive outlook for economic growth. As a result, its business leaders are almost twice as likely as their APEC peers to express high confidence in revenue growth in the coming year. Taken as a whole, is the world s seventh largest economy and its fourth largest exporting bloc. Its importance on the global stage will continue to expand, led by growth in emerging economies such as Indonesia, the Philippines, Malaysia, Viet Nam and the opening-up of Myanmar. is not a single bloc such as North America, Europe, China or Japan, however, and the region remains a diverse collection of economies with low intra-regional trade. Our survey reflects that business leaders are calling for the easing of regulatory and other barriers to conduct cross-border trade within the region, and they are showing a desire to look beyond their home markets for long term growth particularly China. This report explores what is on the minds of 316 business leaders surveyed across in six key areas: Outlook for business growth Building regional strength Strategies for growth in China Roll out plans for connected devices Influence of regulatory conditions in cross-border investment Momentum on free trade It also provides additional highlights on the views of 57 business leaders based in Singapore, as the country s economic conditions and outlook are considerably different from that of its counterparts. This year, over half of all respondents in are from organisations with over US$500mn in annual revenue. * This report reflects the survey results gathered across seven of the 10 economies which are part of the APEC** economic forum: Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam. ** The Asia-Pacific Economic Cooperation (APEC) is a regional economic forum established in 1989 to leverage the growing interdependence of the Asia-Pacific 2 PwC s 2016 APEC CEO Survey
Growth from within Outlook for business growth Despite global economic headwinds, majority of business leaders remain open to doing business as they look to their domestic markets for higher growth and returns in the year to come. When asked about revenue growth prospects in the coming 12 months, business leaders emerged nearly twice as as their APEC counterparts (Figure 1), with 40% from cited very compared to 23% from the rest of APEC. Furthermore, 29% of business leaders have more confidence when it comes to increasing their domestic operations profit margins compared to a year ago, a 13 percentage point difference from 2015, while 14% said the same about their international operations (Figure 2). At the same time, business leaders are also finding it increasingly challenging to realise the desired return of investments (ROI) in Asia Pacific, with 27% who said that they feel less in this respect compared to 2015. The bright spot in lies in its expanding market size coupled with a number of favourable factors such as positive GDP growth outlook as well as wage and tax competitiveness (Figure 3). Currently at 620 million people and growing, continued opportunities for market penetration in the region are sustained by the growing aspirations, disposable income as well as purchasing power of its rising middle class. While this trend is expected to drive up the inflow of FDI into some of the region s fastest growing and most dynamic economies such as Viet Nam, Indonesia and the Philippines, business leaders are also gearing up for strong foreign competition entering their home region, particularly from China. The Chinese banks themselves have become very aggressive and very well represented in Asia Pacific countries outside of China. So they have become a very major competitor of the reduced growth for banking services in Asia Pacific. The pie has not grown that much, but the competitors going for this pie have increased significantly, that is another challenge that we face. Samuel Tsien, Group CEO, OCBC Bank Figure 1. Confidence in revenue growth over the next 12 months All of APEC The rest of APEC* 43% 46% 48% 40% somewhat very 50% somewhat Very 36% Not very 15% 12% 8% 28% 28% 27% 19% 2012 2013 2014 2015 2016 9% 1% not very not at all 23% 22% 4% 2016 2016 very not very not at all Q: How are you about your organisation s prospects for revenue growth in your principal APEC economy over the next 12 months? Base: 2016: 1,154, 316 (), 838 (the rest of APEC), 2015: 800, 2014: 635, 2013: 467, 2012: 362 * Refers to the survey results gathered from all other APEC economies excluding those in the region Singapore 3
Figure 2: What s changed for business leaders in economies? CEOs more about these, compared to last year Confidence impediments Where more CEOs see challenges Increasing profit margins on domestic operations Securing the talent/skills needed to perform 2015, 16% 2016, 29% 2015, 18% 2016, 23% Increasing profit margins from international operations Realising the desired ROI in Asia Pacific 2015, 11% 2016, 14% 2015, 23% 2016, 27% Forcasting compliance cost and tax liabilities Launching a new product/service or entering a new line of business 2015, 11% 2016, 16% 2015, 16% 2016, 20% Note: Respondents who answered more Note: Respondents who answered less Q: Compared to a year ago, how has your confidence changed about the following? Base: 2016: 316, 2015: 262 Figure 3: Doing business in Southeast Asia Market attractiveness and accessibility heat map Europe(WE & EE) North America Japan China South America Southeast Asia India Africa Middle East Attractiveness Accessibility Forecasted Young Ease of doing Wage Corporate tax GDP Population GDP growth population business competitiveness competitiveness Current US$, Size Constant GDP/capita, % share of total World bank ranking, Min. Wage/month US$, Corporate tax rate %, 2016 2016 %p.a., 2016-2020 15-40 years, 2015 2016 2015 2015 Index High competitiveness Lower competitiveness Note: * Whilst not yet the largest, SE Asia has a population of a similar size to Europe, twice that of the US and a GDP larger than India. It has a high forecast growth rate, just behind that of China and India Source: IMF WEO 2016, US Census bureau, Passport Euromonitor, PwC Analysis 4 PwC s 2016 APEC CEO Survey
Singapore highlights Coping with knock-on effects from the global economic slowdown Due to its strong orientation on international trade, Singapore s economic environment is exposed to global headwinds such as lacklustre growth, lower commodity prices and currency volatility Furthermore, its relatively small market size less than six million people gives local, small medium enterprises (SMEs) little room to expand domestically Last year, the city state saw GDP growth drop to the lowest in five years and it is not expected to pick up significantly in the immediate to near term future Amidst the dim outlook, only 7% of Singapore s business leaders are very about their revenue growth over the next 12 months compared to the average of 40% while 32% responded not very and not at all compared to the average of 10% (Figure A) On a positive note, majority (60%) informed that they are somewhat in the year to come; coupled with the Monetary Authority of Singapore (MAS) holding off on easing measures despite receding growth, this may be indicative of the robustness of the Singapore market Figure A: Confidence in revenue growth over the next 12 months 60% 25% 7% Singapore 2016 somewhat not very very not at all 48% 40% 9% 1% 2016 somewhat very not very not at all Q: How are you about your organisation s prospects for revenue growth in your principal APEC economy over the next 12 months? Base: 57 (Singapore), 316 () Singapore 5
Stronger cross-border investment sentiments Building regional strength The lack of certainty in realising growth and returns from overseas markets has hardly deterred business leaders from making cross-border investments. On the contrary, this year s survey results saw the number of business leaders planning to increase global investments grow from 58% last year to 66% 18 percentage points higher than the rest of APEC (Figure 4). Among those who have plans to increase investments, on average, they are allocating 70% of the increase to APEC economies. While their APEC counterparts are showing signs of reduced cross-border investments, stronger investment sentiment among business leaders may help narrow the gap between them and their larger global competitors. The results are also indicative of the long term imperative for business leaders to do business beyond their borders due to the smaller, individual market size of their home economy. Furthermore, it suggests their forward looking approach to seize opportunities in markets where penetration prospects prevail, particularly in the neighbouring and Asia Pacific economies, as well as in the e-commerce sector and the digital economy. With nearly 60% of the world s population and a growing consumer base, Asia Pacific is expected to see its smartphone penetration rate grow from 43% in 2015 to 66% by 2020, which is indicative of future business prospects in the region s digital economy 1. Consistent with this trend, more than half of business leaders ranked investments in information technology (63%) as well as in advertising, marketing and sales promotion (54%) their top spending priorities in foreign APEC markets over the next 12 months (Figure 5). Figure 4: Cross-border investment plans over the next 12 months (%) 2016 2015 2016 2015 3 5 25 66 6 5 31 58 Rest of APEC 3 12 36 48 2 10 37 51 Increase Stay the same Decrease Don t know Source: 2016 PWC s APEC CEO Survey Q: Thinking of your business investments globally, will your investments increase, stay the same or decrease in the next 12 months? Base: 2016: 316 (), 383 (the rest of APEC), 2015: 260 (), 535 (the rest of APEC) Figure 5: Top three spending priorities in foreign APEC markets over the next 12 months Information Technology Advertising, marketing & sales promotion New product or service development 53% 52% 49% 63% 45% 54% The rest of APEC Q: Thinking of your investments in APEC economies, where do you expect to increase spending during the next 12 months? Base: 173 (), 333 (the rest of APEC) 1. Global entertainment and media outlook 2016-2020, PwC, 2016 6 PwC s 2016 APEC CEO Survey
Singapore highlights Decrease in cross-border investments In view of Singapore s sluggish economic outlook, this year s survey results show that its business leaders will be more stringent and vigilant with their cross-border investments in the year to come 47% plan to increase cross-border investments over the next 12 months, a 22 percentage point shift from 2015, while 12% intend to decrease them (Figure B) Among the foreign economies where Singapore business leaders foresee more promising returns are China and Indonesia; on average, they plan to increase their investments in these markets by at least 20% Figure B: Cross-border investment plans over the next 12 months (%) 2016 2015 Your selection 5 12 35 47 2 29 69 Increase Stay the same Decrease Don t know Q: Thinking of your business investments globally, will your investments increase, stay the same or decrease in the next 12 months? Base: 57 (2016), 22 (2015) Singapore 7
Navigating local markets with local partners Strategies for growth in China Around seven in 10 business leaders expect China s economy to achieve less than 6% growth over the next three years; a decline from previous years growth of over 7%, but remains higher than the global growth forecast of c. 3% as projected by the World Bank 2. In the meantime, China s consumer economy is projected to expand by about half, to $6.5 trillion by 2020 3. For both and APEC business leaders who plan to continue and/or boost their investments in China, around half (50% in, and 48% in the rest of APEC) indicated that they would be increasing collaboration with local partners over the next three years. This is reflective of strategies to tap on the experience and capabilities of local businesses to access and navigate China s expanding and unique consumer market (Figure 6). When compared to their APEC counterparts, business leaders appear to have less appetite for building their brand, developing products and services, as well as expanding their business in China. This may suggest lower enthusiasm towards the China market in the short term as prospects in seem stronger and stand to offer more promising returns. Figure 6: Top five strategies to deal with China s economic transition Increase collaboration with partners in China 50% 48% Focus on building brand in China 34% 44% Develop new products and services for existing markets in China 31% 45% Expand geographically within China 27% 44% Develop products and services for different end markets in China 24% 36% 0 10 20 30 40 50 The rest of APEC Q: Considering your outlook for your organisation in the People s Republic of China, which of the following strategies, if any, do you plan to undertake over the next three years? Base: 113 (), 517 (the rest of APEC) 2. Global Economic Prospects, The World Bank, June 2016 3. 3 great forces changing China s consumer market, World Economic Forum, January 2016 8 PwC s 2016 APEC CEO Survey
Singapore highlights Looking outward to China for growth Singapore s business leaders are aligned with their peers in anticipating the changes or shifts in China s economy; 65% expect China s economy to achieve less than 6% growth over the next three years Similarly, among those who plan to do business in China, 51% intend to increase collaboration with local partners Due to Singapore s relatively smaller domestic market size, business leaders looking to China for growth appear more enthusiastic than their peers in building their brand in the country; 40% informed that brand-building will be part of their growth strategy in China over the next three years, followed by developing products and services for different end markets there (34%, Figure C) Figure C: Top five strategies to deal with China s economic transition Increase collaboration with partners in China 51% Focus on building brand in China 40% Develop products and services for different end markets in China 34% Develop new products and services for existing markets in China 31% Expand geographically within China 31% Q: Considering your outlook for your organisation in the People s Republic of China, which of the following strategies, if any, do you plan to undertake over the next three years? Base: 35 Singapore 9
Connected devices taking shape in operations Roll out plans for connected devices The Internet of Things (IOT) is setting a course for new services, consumer experience and demands, market access opportunities as well as ways of doing business. By 2020, an estimate of 8.6 billion things will be connected online in, which translates to approximately two electronic devices per person 4. Organisations will need to be digitally enabled, connected and savvy, to be well equipped to meet future demands and stay ahead of the curve. Around eight in 10 organisations in have invested in some kind of connected devices as part of digitising their business operations. The top three areas where real time or near-real time data information collection has been embedded into are mobile devices used by employees (indicated by 54% of business leaders), equipment in office locations (44%), as well as transport and logistics (38%, Figure 7). Recognising the need to level-up operational efficiencies in the near term, efforts in data collection will continue to be centred on the three aforementioned areas of operations over the next three years. Corresponding to s consumer market growth, the take-up rate of consumer data-centred devices is also expected to increase in the future. In the meantime, there is no significant evidence indicating clear success in realising the benefits of data collection, such as helping business leaders save cost and increase profit (Figure 8). Our priority at the moment is to build our capability in three major areas. One is to build capability with extreme digitisation process, which means that we need to be able to work very quickly to reengineer process and digitise the process linking to the new channel. Second area which is the most challenging one will be to build data analytics capability. Third area will be the challenges in building the new channel. Vorapak Tanyawong, President, Krung Thai Bank Public Company Limited Figure 7: Data collection, current state and progress in the next three years according to CEOs Current adoption Future adoption (In the next 3 years) Mobile devices used by employees 54% Mobile devices used by employees 46% Equipment in office locations 44% Transport and logistics 43% Transport and logistics 38% Equipment in office locations 41% Registers, POS, equipment that track transactions 31% Devices that track consumer preferences, shipping, geolocation 36% Machinery in factories 25% Registers, POS, equipment that track transactions 33% Q: In what parts of your operation have you embedded real time or near-real time data and information collection (e.g., Internet of Things)? Base: 293 (current adoption), 292 (future adoption) 4. Smarter, More Connected, Channel NewsAsia, 11 October 2016 10 PwC s 2016 APEC CEO Survey
Figure 8: Top five benefits of data collection according to business leaders Operational efficiencies or cost reduction 58% 63% Customer experience and relationship 52% 57% Supply chain responsiveness 43% 41% Employee performance 38% 43% Risk mitigation 40% 40% 0 10 20 30 40 50 60 70 The rest of APEC Q: Thinking about new places for data collection, in which of the following areas do you expect to see the greatest benefit to your business over the next three years? Base: 284 (), 746 (the rest of APEC) Singapore highlights Targeting profit and asset optimisation, and generating new revenue While their peers place more emphasis on the benefits of improving supply chain responsiveness and employee performance (Figure 8), Singapore s business leaders are investing in data collection capabilities with the aim to drive asset optimisation and generate new revenue streams (Figure D) Among the key operations where Singapore s businesses have embedded data collection into are store front devices that track payment and transactions (indicated by 37% of Singapore s respondents), mobile devices used by employees (35%), as well as equipment in offices (29%) Over the next three years, business leaders plan to increase take-up on connected devices that track consumer preferences (31%), as well as devices used in or on products (24%), and on transport and logistics (24%) Figure D: Top five benefits of data collection according to Singapore s business leaders Operational efficiencies or cost reduction 59% Customer experience and relationship 55% Asset optimisation 45% New revenue from services 45% Risk mitigation 41% Q: Thinking about new places for data collection, in which of the following areas do you expect to see the greatest benefit to your business over the next three years Base: 49 Singapore 11
To invest or not to invest? Influence of regulatory conditions on cross-border investment When asked about what matters most in their business decisions to invest in a foreign APEC economy, regulatory environment emerged as a key decision influencer for more than half of the business leaders surveyed (Figure 9). Parallel to s move towards becoming a more economically integrated bloc, more of its business leaders (71%) than their APEC counterparts (54%) expect the regulatory environment to have a greater influence on their cross-border investment decisions over the next three to five years (Figure 10). Figure 9: Top 5 areas of consideration in cross-border investment decision making Index scores The Rest of the APEC CEO Regulatory environment (transparent rules, lack of 55% corruption) # 1 Regulatory environment (transparent rules, lack of 52% corruption) 47% Expanding domestic market # 2 43% Expanding domestic market 44% A skilled talent pool # 3 41% A skilled talent pool 43% Legal environment (land rights and contracts protection) # 4 41% Favorable tax environment 40% Favorable tax environment # 5 37% Legal environment (land rights and contracts protection) Q: What matters most in your business decisions to invest in APEC economies outside of your principal APEC economy? Base: 291 (), 761 (the rest of APEC) Figure 10: Business leaders who expect regulatory environment to have greater influence on investment decisions in 3-5 years Rest of APEC More influence 71% 54% Note: Respondents who answered more influence Q: What influence do you expect (transparent rules, lack of corruption) to have on your investment decision making in APEC economies over the next 3-5 years compared to now? Base: 303 (), 815 (the rest of APEC) 12 PwC s 2016 APEC CEO Survey
Additionally, nearly half of business leaders believe that the harmonisation of data privacy and security regulations across APEC is of critical importance to their business as digital technologies revolutionise the way information is exchanged and stored (Figure 11). They are also twice as highly likely as their APEC counterparts to increase cross-border investments if the regulations are harmonised (Figure 12). Overall, the responses from business leaders suggest that cross-border business investment will increasingly flow to economies with the right regulatory conditions for business expansion. I think what we are monitoring closely is how can [regulators] cope with new additional banking, new Fintech, new technological change that is still a question mark, how fast they can adapt and what will be the actual result. For Thailand for instance I think [regulators are] quite open, this is coming, they re receptive but I think they re still struggling to find the right balance, how open should they be and the timing because banking is maybe different from other industries, it s related very closely with national security. Vorapak Tanyawong, President, Krung Thai Bank Public Company Limited Figure 11: Importance of harmonised data security and privacy regulations across APEC for business growth 29% 48% The rest of APEC Note: Respondents who answered critically important Q: How important to your business growth is coordination among regulators in APEC economies towards a goal of uniform data privacy and security rules and standards in the region? Base: 293 (), 786 (the rest of APEC) Figure 12: Significance of harmonised data security and privacy regulations to investment decisions 20% The rest of APEC 41% Note: Respondents who answered highly likely to invest more Q: How likely or unlikely would your organisation to invest more in the APEC region if regulations or standards for data security and privacy were harmonised across the region? Base: 292 (), 786 (the rest of APEC) Singapore 13
Singapore highlights Regulatory environment key factor in shaping investment decisions 57% of Singapore s business leader consider regulatory environment a major factor in shaping their cross-border investment decisions, which is consistent with the average at 55% (Figure E) Additionally, 66% believe that its influence on their decision making will further increase in the next three to five years To a lesser extent than their peers, 35% of Singapore s business leaders find that the harmonisation of data privacy and security regulations across APEC is critically important to their business growth, which is below the average of 48% (Figure F) Meanwhile, 33% of business leaders in Singapore lesser than the average of 41% are highly likely to increase investments if such harmonisation was achieved The findings suggest that businesses in Singapore are less reliant on the standardisation of regulations at the regional level to address data related risks; this may be in part due to the country s pre-existing Personal Data Protection Act (PDPA), which has established clear and stringent guidelines governing the collection, use, disclosure and care of personal data Figure E: Top 5 areas of consideration in cross-border investment decision making Regulatory environment (transparent rules, lack of corruption) Expanding domestic market 57% 54% A skilled talent pool 52% Legal environment (land rights and contracts protection) 43% Favorable tax environment 39% Q: What matters most in your business decisions to invest in APEC economies outside of your principal APEC economy? Base: 54 Figure F: Significance of harmonised data security and privacy regulations across APEC for business growth Critical importance to business growth Highly likely to invest more if policy regulations are harmonised 35% 48% 33% 41% Singapore Q1: How important to your business growth is coordination among regulators in APEC economies towards a goal of uniform data privacy and security rules and standards in the region? Q2: How likely or unlikely would your organisation to invest more in the APEC region if regulations or standards for data security and privacy were harmonised across the region? Base: Q1: 51(Singapore), 293 (), Q2: 51(Singapore), 292 () 14 PwC s 2016 APEC CEO Survey
A work in progress Momentum on free trade A handful of business leaders saw free trade advancing in the region over the past year, with 28% reporting that progress has been significant (Figure 13). That being said, there is still more work to be done as over half of them across and APEC found that progress has been slow. Regardless of the highly uncertain outcome of the Trans-Pacific Partnership (TPP), increased free trade within continues to be beneficial to the region s economies and businesses, as they stand to gain more from an enhanced trading environment with greater ease of doing business and increased access to markets*. I think trade pacts can only help, they will not be harmful, but we should bear in mind that the facilitation of trade is something that the private sector needs to hone in and really make it work. If it s just a trade pact out there, and we do our own thing, it doesn t really work. Samuel Tsien, Group CEO, OCBC Bank Figure 13: Progress in free trade Progress has been significant 20% 28% The rest of APEC Progress has been slow 56% 51% Progress has been stalled 5% 16% Progress has been reversed Don t know 1% 1% 10% 12% 0 10 20 30 40 50 60 Q: How would you assess the progress that has been made towards free trade across Asia Pacific region in the last 12 months? Base: 301 (), 815 (the rest of APEC) Singapore highlights Slow progress in free trade Singapore s business leaders who saw significant progress in free trade in the past year are few and far between, at 6% (Figure G) Additionally, 70% responded that progress has been slow These figures are in stark contrast with the more positive sentiments sounded by business leaders on the whole (Figure 13), with 28% saying that "progress has been significant" and 56% saying that "progress has been slow". This is probably attributable to the fact that Singapore's trade has been declining in the past few quarters while certain economies have been witnessing relatively strong performance, such as that of Viet Nam and Malaysia. Furthermore, Singapore business leaders are also wary of the possible unravelling of the Transatlantic-Pacific Partnership due to US politics and hence this might have led to their more pessimistic assessment. Figure G: Progress in free trade Progress has been significant Progress has been slow Progress has been stalled Progress has been reversed Don t know 6% 7% 4% 39% Q: How would you assess the progress that has been made towards free trade across Asia Pacific region in the last 12 months? Base: 54 70% *The survey was conducted between May July 2016, prior to the US Presidential Election Singapore 15
What can we learn from business leaders to compete in today s economy? Concluding thoughts Investment diversification key to growth and resilience Trade prospects and business opportunities are strong within the economies. Meanwhile, the increase in cross-border investments suggest that business leaders are laying the groundwork for regional expansion and long term growth. They see the necessity to target growth in their home and new markets or risk losing market share. Navigating China s shifting economy through increased and stronger partnerships China s transition from an industrial and export driven economy to one that is consumer driven opens up new demand and business opportunities, risks as well as competition. Tapping on the experience and insights of trusted local partners through stronger collaboration is vital to navigating the country s extensive and unique market. Accelerating digital connectivity and addressing data security risks Digital complacency is not an option for businesses as the proliferation of new technologies such as IOT revolutionises the global economy, driving new business models and forging closer relationships with customers and business partners. CEOs are already investing in connected devices and data collection to not lose out in the competition. With many organisations in the region at the nascent or adolescent stage of the digital curve, business leaders tend to look to regulations as a safeguard and guide to manage data-related risks. Balancing policy and market factors in cross-border investment decisions The regulatory environment matters more to business leaders looking at cross-border expansion. Gone are the days when fast growing markets were enough to entice investors to make big bets. Ongoing global economic uncertainty, coupled with increasing scarcity of underpenetrated markets, are calling for more stringent calculations on the projected risks and rewards from investing in a foreign market. Regulatory conditions matter as a prerequisite in business leaders investment decisions. Sources: Global entertainment and media outlook 2016-2020, PwC, 2016 http://www.pwc.com/gx/en/industries/entertainment-media/outlook.html Global Economic Prospects, The World Bank, June 2016 https://www.worldbank.org/en/publication/global-economic-prospects 3 great forces changing China s consumer market, World Economic Forum, January 2016 https://www.weforum.org/agenda/2016/01/3-great-forces-changing-chinas-consumer-market/ Smarter, More Connected, Channel NewsAsia, October 2016 http://www.channelnewsasia.com/tv/tvshows/firstlook/propertyandtech/techknow/smarter-more-connectedasean/3196328.html 16 PwC s 2016 APEC CEO Survey
Connect with us Oon Jin Yeoh Executive Chairman PwC Singapore oon.jin.yeoh@sg.pwc.com Richard Skinner Strategy Leader PwC Singapore richard.skinner@sg.pwc.com 2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.