Foreign Expansion Is Top Capital Investment For CEOs

Credit: KPMG Global CEO Outlook

Chief executives of global businesses are confident about their companies’ ability to grow over the next three years and are expressing confidence about the prospects for the global economy, according to a new study from KPMG International, which tracks insights on the coming three years. CEOs also identified expansion outside their home countries as the number-one area to devote significant capital to over the next three years.

According to the “2015 KPMG CEO Outlook Study” of 1,278 CEOs, 69% of CEOs in Europe, 66% in Asia Pacific and 52% in the U.S. are more confident than they were last year about growth and the global economy in the next three years. In assessing their own company’s growth prospects, 70% of European CEOs and 68% of Asia Pacific CEOs indicated they are more confident than a year ago. In the U.S., where the recovery is well underway, 19% are more confident than a year ago with another 46% expressing the same level of confidence about their prospects for growth. Most importantly, CEOs globally are set to hire, with 78% of respondents indicating they are expecting to be in hiring mode through mid-2018.

“The overall message we’ve gotten from CEOs around the globe, is that they are positive about their prospects over the next three years, and importantly that they are looking to hire more people,” said John Veihmeyer, Global Chairman of KPMG International. “There is a more positive change in confidence versus the prior year, in Europe and Asia compared to the U.S., which is in part reflective of the U.S. being in a more advanced stage of the economic recovery.”

According to the KPMG study, CEOs are grappling with escalating competitive pressures. In order of importance: 86% are concerned about the loyalty of their customers; 74% are worried about new market entrants; 72% are worried about keeping pace with new technologies; 68% are concerned about their competitors’ ability to take business away from them; and 66% are concerned about the relevance of their product or service in the next three years.

Central Europe, U.S. Top Expansion Targets

When asked which areas they expect to devote significant capital to over the next three years, CEOs identified expansion outside their home countries as the number one area. U.S. CEOs are focused on Europe, especially Central Europe, followed by South America and China. For CEOs in China, Japan, the United Kingdom, Germany, Spain and France, the U.S. is the region offering the greatest potential for new growth.

“The resiliency of the U.S. economy makes the U.S. an attractive investment target for companies based in Europe and Asia,” said KPMG’s Veihmeyer.

Status Quo: Perhaps the Riskiest Position for any Organization

Importantly, 44% of CEOs indicated that they are only “somewhat comfortable” with their current business model, with 5% expressing that they are “uncomfortable.” In the study, 29% of leaders said their organizations are likely to be transformed into significantly different entities in the next three years.

While the results indicate that CEOs are acutely aware of the need to transform their businesses in order to survive and prosper, almost one-third of CEOs say their business is not taking enough risk with their global growth strategy and more than half (56%) said they have not fully implemented a company-wide process for innovation.

Half of respondents noted additional challenges with how their business needs to improve the way it manages data and analytics and how they need to do more to prepare for a cyber-security event.

“CEOs continue to confront business challenges of unprecedented complexity,” said KPMG’s Veihmeyer. “Many CEOs in our study have repeated what I am hearing when I meet with business leaders—that they need to take more calculated risks with their growth strategies. They know that they are going to have to have to do things differently, and they are looking hard at their organizations to determine how they can transform to stay relevant and strengthen their competitive positions.”

Strategic Priorities Over the Next Three Years

Globally, executives have their sights set on the following, in order of importance: developing new growth strategies, having a stronger client focus, expanding geographically, reducing their cost structures, enhancing speed to market, and fostering innovation. When asked whether their primary focus would be on growth or operational efficiency over the next three years, 94% of U.S. CEOs cited growth, while their Asian and European counterparts said they were focused on operational efficiency.

In terms of issues having the greatest impact on their company’s prospects and performance, the top three issues identified by CEOs were “global economic growth,” followed closely by the “regulatory environment,” and “disruptive technology.”

Click here to learn more about the study.