share on
Macroeconomic volatility, inflation, and geopolitical conflict stand out among the potential threats they foresee over the next 12 months.
At this time last year, Asia Pacific CEOs’ optimism was at an all-time high, with hope for an economic rebound based on the fact that most countries were reopening for business.
A year on, and there has been a reversal of this confidence. According to PwC's 26th Annual Global CEO Survey, a complex series of challenges are threatening growth opportunities. Heightened geopolitical tensions, rampant inflation, supply chain fragility, new workforce challenges, and the accelerating pressure for action on environmental, social and governance (ESG) issues are all driving a state of disequilibrium in APAC.
Across the 4,410 CEOs worldwide (including 1,634 in APAC) participating in the survey, sentiments are clear: in the short-term, manage external risks to drive profitability to survive. Simultaneously, in the longer term, transform to thrive.
Reversal of prior optimistic sentiment
CEOs across APAC have turned broadly pessimistic, with 69% believing global economic growth will decline over the next 12 months. This is a stark reversal of last year’s result, where a large proportion (76%) anticipated improvement in global growth. In fact, APAC CEOs’ optimism in global economic growth is at a 10-year low.
As the study points out, this may be influenced by factors such as a potential global recession, continued high inflation, and volatile commodity prices.
On a more positive note, APAC remained one of the most optimistic regions about global growth - comparable to other emerging economies including Africa and Latin America.
Namely, the most optimistic markets were China (42%) and Indonesia (29%) where CEOs believe the global economy will improve. Several markets in the region exhibited greater pessimism reflecting their CEOs' view of the enduring impact of global macroeconomic factors:
- Singapore (6%)
- Australia (8%)
- South Korea (10%)
- New Zealand (13%)
- India (13%).
Despite the high level of pessimism in global growth, APAC CEOs are still far less pessimistic about the prospects of their own territories compared to global counterparts.
CEOs in larger APAC territories showed the highest level of optimism in their nation’s economic prospects compared to global CEOs: China (64%), India (57%), and Indonesia (50%).
China’s health and economic policy measures appear to promote its gradual recovery by the second half of 2023 and into 2024. At the same time, the global downturn would have less impact on countries whose economic prosperity is buffered by significant domestic demand. This includes Indonesia and India—the latter which is increasingly seen as a complementary manufacturing hub for the region.
The pessimism amongst APAC CEOs translates into a clear mandate to focus on the ‘here and now’: preserve operating profitability and immediate cash flow generation and defer longer-term value creation.
When asked about potential threats they foresee over the next 12 months, inflation, macroeconomic volatility, and geopolitical conflict stand out. This is similar to their global peers.
CEOs across the region also perceive threats differently depending on economic maturities and nuances of their operating environment — Australia and Japan CEOs worry more about cyber risk, while geopolitical conflict is the top threat for CEOs in China, Hong Kong SAR, and South Korea.
Perspectives change when considering the medium term (defined as five years). Cyber risk and climate change are seen as more important over this horizon, especially for CEOs in Australia, China, Malaysia, and New Zealand. Climate in particular is progressively impacting operations through a cycle of disruption of supply chains and inventory.
Interestingly, smaller companies (revenue less than US$100mn) feel least exposed to climate and cyber risks in the short and medium term compared to larger companies.
In response to near-term challenges, APAC CEOs intend to ‘grow’ out of the crisis, consistent with global peers. Along with 48% who have already started cutting operational costs, the same proportion have also looked at diversifying products and raising prices.
Most do not plan to tackle costs through workforce-related changes. Only 8% have reduced compensation, while 14% have reduced their workforce. This reflects Asia Pacific CEO’s concerns over attrition, which the study expects to continue unabated.
Transforming to maintain viability
Amidst large-scale disruptions, APAC CEOs recognise the need to reinvent their businesses to stay relevant and to thrive in a climate-challenged world. This defines the dual imperative: to balance short-term profitability and long-term transformation. As a whole, 53% of CEOs in the region think their companies will not be economically viable within a decade from now, if they continue on their current path — 14% higher than global CEOs. Similarly, more than one in three believe their businesses will not be economically viable within six years.
The urgency was noted to be even stronger for South Korea, Japan, China, and Hong Kong, with three-quarters of CEOs sharing this sentiment.
Particularly, CEOs across the region understand that their transformation journey must address the disruptive forces impacting the industry from multiple fronts. They must:
- keep pace with their customers (56%),
- appease regulators (54%), and
- manage labour/skill shortages (50%).
The need for transformation is further highlighted by how APAC CEOs split their time, with most of it being occupied by driving current operating performance (24%). However, given the chance to redesign their ideal schedules, APAC CEOs would rather spend more time evolving the business and strategy to meet future demands (25%).
This balancing act further extends to the allocation of corporate resources. APAC CEOs have made investments into upskilling (73%) their number one priority, followed by automation (71%) and deploying advanced technology (67%). While being a lower priority, APAC CEOs were also noted to be more likely than their global counterparts to invest in climate change measures and the metaverse.
Prioritisation of upskilling amongst APAC CEOs.
Successfully balancing short-term profitability and long-term transformation also requires placing people at the heart of their business — evidenced in the prioritisation of upskilling amongst APAC CEOs.
This year’s survey suggests some warning signs which also represent clear areas of opportunity. Reflecting a global trend, less than half (41%) of those in the region think their employees’ behaviours are usually aligned with corporate values and directions (i.e. 81-100% of the time). This suggests their employees feel disconnected from the purpose of their work. The level of misalignment is then emphasised when comparing private (38%) and public companies (46%). This possibly reflects the relatively less structured approach for smaller companies in managing their people and culture experience, compared to their more-scrutinised public peers.
APAC CEOs also have questions about the degree of empowerment in their workforce. About half do not often encourage debate or dissent, nor do they tolerate small-scale failures.
Overall, 73% note their leaders did not often make independent strategic decisions for their function or division. In many organisations, optimal conditions do not appear to be in place for managers and employees to independently cultivate new opportunities or respond to disruptive threats. This indicates a demand for transformative leadership.
Lead image / PwC's 26th Annual Global CEO Survey
share on
