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Unformatted text preview: www.pwc.com/ceosurvey Growth reimagined Prospects in emerging markets drive CEO confidence Contents 1. Banking & Capital Markets industry summ 2. Pharmaceuticals & Life Sciences industry 3. Technology industry summary www.pwc.com/ceosurvey Keeping pace with accelerating change Banking and Capital markets industry summary Key industry findings from the 14th Annual Global CEO Survey Banking and Capital Markets The global economy is still recovering from the worst economic crisis in 75 years, with many countries grappling with the aftermath of the recession. So we set out to uncover how CEOs are approaching growth during a time when sustainable economic growth is far from certain. We surveyed 1,201 business leaders in 70 countries around the globe, in the last quarter of 2010, and conducted further in-depth interviews with 31 CEOs. The PricewaterhouseCoopers 14th Annual Global CEO Survey documents a surprising level of confidence in this environment; chief executives were nearly as confident of growth this coming year as in the boom years before the crisis. The survey also revealed where CEOs saw growth coming in 2011, and how they were going to achieve it. In Growth reimagined: Prospects in emerging markets, we show how CEO confidence is being driven by targeted investments in particular emerging markets often far from home. This is a summary of the findings in the banking and capital markets sector, which is based on a survey of 69 industry leaders. To explore the full results from the 14th Annual Global CEO Survey, please visit www.pwc.com/ceosurvey Accelerating pace of change The changes in customer behaviour, shift in global economic power and increasing government influence over banking and capital market business are not temporary blips; they herald the beginning of more far-reaching changes. Many banking and capital markets CEOs are facing challenges they won't have seen in their careers. One of the most striking features of the post-crisis environment is the unprecedented savings levels. Many people assume that savings will begin to fall back again and that appetite for consumer credit will increase, once unemployment and other economic concerns recede. However, Richard K. Davis, President and CEO of U.S. Bancorp, who was interviewed as part of the CEO survey, sees high savings and cautious borrowing as an enduring long-term trend. "In the same way, for the younger people who went through this recession, it will forever have an impact on the way they behave, the way they incur debt, the way they spend, the way they save. It will be a permanent change," he said. 2 14th Annual CEO Survey Sector Summary "In the future, we hope to further expand our overseas networks through a range of strategic options that include establishing additional branches and considering select merger and acquisition opportunities. Regardless of the approach, though, our objective is to improve the efficiency and profitability of our "In the same way, for the younger overseas operations." people who went through this recession, it will forever have an Li Lihui, President of the Bank of China impact on the way they behave, the way they incur debt, the way they spend, the way they save. It will be a permanent change." Richard K. Davis, President and CEO of U.S. Bancorp Opportunities for growth The demographic shift and its impact on the banking and wider financial services industry is one of the `mega trends' explored in Project Blue: From ubiquity to precision, our latest analysis of the prospects for banking industry. The rise of the emerging markets is another of the global developments that are set to shape the direction and fortunes of the sector. Our economic forecasts suggest that the GDP of the E7 emerging economies could be bigger than that of the G7 economies by 2020, and that China may overtake the US before the end of the decade2. Many Western banks are looking to offset the slow growth in their home markets by strengthening their presence in South America, Africa, Asia and the Middle East (SAAAME). Most of the banking and capital markets leaders participating in our survey are clearly in this camp. Sixty-one percent think that emerging markets will be more important than developed markets to their organisation's future. However, success will be hard won. Global groups face tough challenges in securing sufficient talent to meet their growth aspirations across the SAAAME markets. Fifty-seven percent of banking and capital markets CEOs see the availability of key talent as a significant threat to their growth prospects. Western banks are also set to face stronger competition from E7 banks, both within the emerging markets and, increasingly, on their own turf. The market capitalisation of some of the E7 banks is now bigger than that of their G7 competitors and they will want to take advantage of their growing scale. Li Lihui, President of the Bank of China, summed up such ambitions, when he said: "In the future, we hope to further expand our overseas networks through a range of strategic options that include establishing additional branches and considering select merger and acquisition opportunities. Regardless of the approach, though, our objective is to improve the efficiency and profitability of our overseas operations." One of the keys to sustaining a competitive position in this new environment will be the ability to tap into the rapidly increasing emerging-toemerging market trade flows. With much of the SAAAME commerce now bypassing the West, developed market banks face the challenge of making inroads into business they may rarely see. Our own analysis points to a similar conclusion. In the US, for example, we estimate that increased life expectancy, together with the decline in defined benefit pensions and resulting uncertainty over retirement funding, could raise the savings rate to as high as 10% of disposable income, a level not seen since the 1970s. (In the years leading up to the financial crisis it was running at below 3%1.) Pension concerns may also slow down any reduction in China's high savings rates and impede attempts to boost consumption there, both factors which could play an important role in stimulating global growth. 1 PwC, The New Rule of 10%: The coming pension crisis, higher savings rates and fundamental changes in the US financial services industry (May 2010). 2 PwC, The World in 2050: The accelerating shift of global economic power: challenges and opportunities (January 2011). 14th Annual CEO Survey Sector Summary 3 Hands tied A further challenge to Western banks' current business models and future growth aspirations is set to come from the rise of state-directed capitalism, another of the mega trends highlighted in our analysis. The vast majority of banking and capital markets CEOs (80%) see over-regulation as the biggest threat to their growth prospects (see Figure 1). Their room for manoeuvre could be restricted still further in the coming years. As Western banks go back to basics in the wake of the financial crisis, their fortunes are very much tied to the real economy. Many governments now play a much more active role in directing the economy, following the crisis, and want banks to play a more active role in supporting local business. Nicholas Moore, CEO of the Macquarie Group Limited, believes that this public/private partnership is likely to be extended in the future. "We expect that governments will not only be looking to the private sector for the provision of capital, but increasingly for the delivery of a whole range of social services. For example, in the UK the government is looking at different ways to procure services from the private sector in terms of meeting the government's objectives," he said. The majority of the banking and capital markets CEOs taking part in our survey seem to hold similar views. More than two-thirds (68%) think that business will need to actively support new government policies that promote good growth and are financially, socially and environmentally sustainable. Nearly three-quarters (74%) are also strengthening their focus on rebuilding public trust. However, it could be difficult for Western banks to sustain profitability and growth in this environment. If banks are required to primarily focus on their home markets, the pool of available customers is set to shrink. This may be especially challenging for international banks based in countries with relatively small populations. It may also be harder to release the necessary investment for overseas growth. There may be heightened risks if banks are required to buy government debt or support local businesses, as, in the event of a crisis, they would face both direct losses and the fallout from any resulting downturn. "We expect that governments will not only be looking to the private sector for the provision of capital, but increasingly for the delivery of a whole range of social services. For example, in the UK the government is looking at different ways to procure services from the private sector in terms of meeting the government's objectives." Nicholas Moore, CEO of the Macquarie Group Limited 4 14th Annual CEO Survey Sector Summary Figure 1: Policy and economic threats Respondents who stated `extremely' or -somewhat concerned' Uncertain or volatile economic growth Government response to fiscal deficit and debt burden Over-regulation Exchange rate volatility Lack of stability in capital markets Protectionist tendencies of national governments Inflation 0 0 20 20 40 40 60 60 80 80 100 100 % respondents Global base Total Financial services (200) Financial services Retail & Commercial Banking (69) Q: How concerned are you about the following potential economic and policy threats to your business growth prospects? Base: All respondents (1,201) Source: PricewaterhouseCoopers 14th Annual Global CEO Survey 2011 Yet, although many banking and capital markets CEOs (51%) saw political instability as the most significant global risk, they did not generally rate a number of the underlying causes as important. For example, only 17% see scarcity of natural resources as a significant risk, and only 30% are worried about the impact of inflation. Unstable world The pressure on natural resources is driving up the price of food, commodities and other goods, and creating the potential for social unrest and international conflict. A number of presentations at the latest PwCsponsored `Risk Minds' conference highlighted the destabilising impact of food and commodity price inflation. Recent examples include food riots in various African and Asian states. Threats to food and water security, and the resulting potential for geopolitical instability, also feature prominently in the World Economic Forum's Global Risks 2011 Report, which was launched at Davos in January3. Banks face the challenge of adjusting to a world where assets that are now taken for granted, such as land and water, may become increasingly scarce. They will almost certainly come under growing pressure to invest in sustainable technologies. Yet, although many banking and capital markets CEOs (51%) saw political instability as the most significant global risk, they did not generally rate a number of the underlying causes as important. For example, only 17% see scarcity of natural resources as a significant risk, and only 30% are worried about the impact of inflation. 3 World Economic Forum, Global Risks 2011 (January 2011). 14th Annual CEO Survey Sector Summary 5 It's notable that 87% of banking and capital markets CEOs believe that innovations will lead to operational efficiencies and provide them with a competitive advantage. Sixty-four per cent also believe that their IT investments will help them to tap into new marketing and transactional opportunities such as mobile devices and social media. Facing the future In short, our 14th Annual CEO Survey shows that banking and capital markets CEOs recognise that the world is changing and that their organisations will have to change with it. However, some of them may have underestimated the potential threat to the viability of their business models and the urgency of the pressure to change. While the CEO Survey looks to the near- and medium-term, the effects of many of the longer term mega trends identified in our analysis of the prospects for banking, Project Blue: From ubiquity to precision, are already being felt. As a result, some traditional revenue streams may no longer be sustainable, and some growth plans may need to be rethought or shelved altogether. But there will also be opportunities for smart organisations to take advantage of this new environment and pull ahead of their competitors. Technology and innovation will be critical in enabling banks to cut their costs, respond to changing customer expectations and create the agility needed to capitalise on opportunities. It's notable that 87% of banking and capital markets CEOs believe that innovations will lead to operational efficiencies and provide them with a competitive advantage. Sixty-four percent also believe that their IT investments will help them to tap into new marketing and transactional opportunities such as mobile devices and social media. Ultimately, however, the most successful organisations are likely to be those that can identify and make the most of their principal competitive strengths. This will probably accelerate the move from ubiquity to precision as banks become ever more ruthless in the defence and optimisation of their core franchise. 6 14th Annual CEO Survey Sector Summary Contact Robert Sullivan Global leader Banking and Capital Markets Tel: +1 (646) 471 8388 robert.p.sullivan@us.pwc.com 14th Annual CEO Survey Sector Summary 7 www.pwc.com/ceosurvey PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 163,000 people in 151 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. "PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way. Printed on FSC 100% recycled material, supporting responsible use of forest resources. Produced at a mill that is certified to the ISO14001 environmental management. This product has been awarded the NAPM 100% Recycled Mark. www.pwc.com/ceosurvey Growth reimagined Pharmaceuticals and life sciences industry summary Key industry findings from the 14th Annual Global CEO Survey Pharmaceuticals and life sciences industry summary The global economy is still recovering from the worst economic crisis in 75 years, as many countries grapple with the aftermath of the recession. So we set out to uncover how chief executive officers (CEOs) are approaching growth during a time when sustainable economic growth is far from certain. We surveyed 1,201 business leaders in 69 countries around the globe in the last quarter of 2010, and conducted further indepth interviews with 31 CEOs. The PwC 14th Annual Global CEO Survey documents a surprising level of confidence in this environment; chief executives are nearly as confident of growth this coming year as they were in the boom years before the crisis. The survey also revealed where CEOs see growth coming in 2011, and how they are going to achieve it. In `Growth reimagined: Prospects in emerging markets', we show how CEO confidence is being driven by targeted investments in particular emerging markets often far from home. We also identified three strategic focal points to achieve that growth: innovation, talent and a shared agenda with government. These three business imperatives have always had their place on the CEO agenda. But now, with their worst fears about the crisis behind them and an emerging recovery ahead, CEOs are adopting new attitudes and approaches, tailored to dealing with the issues of the multispeed global recovery that they hope is underway. This is a summary of the findings in the pharmaceuticals and life sciences (pharma and life sciences) sector, based on interviews with 53 pharma and life sciences CEOs in 25 countries. To explore the full results of the 14th Annual Global CEO Survey, please visit www.pwc.com/ceosurvey 2 14th Annual Global CEO Survey 5 12 13 18 24 29 24 26 27 27 % 41 30 26 19 18 10 7 7 9 23 1 2 3 4 5 An important part of our innovation strategy is to develop products or services that are environmentally friendly We expect the majority of our innovation to be co-developed with partners outside of our organisation We use M&A as a significant source of innovation We expect the majority of our innovations to be developed in markets other than the country in which I am based We expect government assistance to boost our innovation output Pharma and life sciences Total sample Radical change Last year pharma and life sciences CEOs were more confident about the future than their peers in most other industries, reflecting the sector's resilience in the face of the struggling global economy. This year they're still confident about the potential for both near and mediumterm growth, but they're no longer outpacing CEOs in other sectors. Indeed, they're less optimistic about the prospects for revenue growth over the next three years than CEOs in the overall survey sample. This wariness may reflect the fact that the industry is undergoing radical change, with growing economic pressures and new business models, marketing strategies and research directions reshaping the competitive landscape.1 Pharma and life sciences CEOs are changing their strategies in response: 81% told us they've altered course over the past two years and 36% have modified their strategies `in fundamental ways'. Their reasons for doing so differ dramatically from those of the sample as whole. For companies in most industries economic growth forecasts or uncertainty are the primary drivers of changes in strategy. But pharma and life sciences CEOs are more concerned about competitive threats and industry dynamics (see Figure 1). It's not surprising that they're focusing on these two factors, with patent expirations and intense competition from generics casting a shadow over future revenues, relatively few safe, effective new Figure 1: Competitive threats, industry dynamics and regulation are the most important factors driving change for pharma and life sciences CEOs Q. Of the following 8 factors that may be changing in your business, which have significantly influenced your need to change your strategy? Competitive threats 49 Industry dynamics 59 Regulation 34 Customer demand 62 Economic growth or uncertainty 64 Attitude towards risk 41 Shareholder expectations 36 Capital structure/deleveraging 22 % 16 30 30 53 60 65 70 70 Pharma and life sciences Total sample Base: All respondents who stated `changed in fundamental ways' or `somewhat changed' at Q2a; Total sample 1,009; Pharma and life sciences, 43 Source: PwC 14th Annual Global CEO Survey medicines coming through the pipeline and payers increasingly demanding proof of value for money. Regulation comes next on their agenda reflecting the huge role governments play, both in setting research and safety standards and in purchasing medicines. Many pharma and life sciences CEOs also see customer demand as a critical strategic issue. Here, too, fundamental changes in the sector are at work, as patients take greater control of their healthcare and the emphasis shifts from the treatment of disease to its prevention, particularly in more developed markets. Eighty-one percent of pharma and life sciences CEOs are changing their corporate strategies. Pharma and life sciences Total sample Competitive threats Industry dynamics 1 We have discussed these trends in more detail in our Pharma 2020 thought leadership series, which is available for download at www.pwc.com/pharma2020 Regulation Customer demand Pharmaceuticals and life sciences industry summary 3 Figure 2a: China tops the list of countries considered important to future growth Q. Which countries, not including the country in which you are based, do you consider most important for your growth prospects over the next 3 years? China 47 39 38 21 US Brazil 30 19 25 18 21 12 11 7 8 10 % India Germany UK Russia Pharma and life sciences Total sample Figure 2b: China tops the list of countries considered important to future sourcing needs Q. Which three countries, not including the country in which you are based, do you consider most important to your future sourcing needs? China 45 37 38 15 32 22 26 14 21 8 9 5 6 11 6 6 % Important to future sourcing needs: Pharma and life sciences Important to future sourcing needs: Total sample India US Germany UK Japan Brazil Russia Pharma and life sciences Total sample Base: All respondents (Total sample, 1,201; Pharma and life sciences, 53) Note: Respondents could select up to 3 countries (Figure 2b) Source: PwC 14th Annual Global CEO Survey 4 14th Annual Global CEO Survey Targeting emerging markets The pharma and life sciences sector is becoming increasingly globalised, as demand for medicines rises in the emerging markets; a growing share of R&D migrates to Asia; national and regional agencies collaborate to harmonise the regulations governing the development of new treatments; and healthcare payers share data on the clinical and financial performance of medicines. CEOs in the industry are acutely aware of these trends. pharma sector is growing fast; we estimate that Indian pharma companies will earn $50 billion in revenues by 2020.3 Global pharma companies are partnering with local players, and improvements in IP protection should help spur growth. But, if India is to realise its potential, the government will need to develop a more robust healthcare system and expand coverage to the poorer populations. Global health risks As international commerce and travel increase with globalisation, so does the potential for dangerous strains of viruses to travel around the world. Pandemics and other health crises could also have a major impact on the pharma and life sciences industry. Nearly half of sector CEOs are concerned about how such incidents could affect their companies' growth prospects over the next three years, which is more than double the overall average. They're also much more likely to explicitly deal with the issue in their strategic planning and risk management activities. Such events could offer opportunities for the sector as well as risks. So strategic planning may include how companies can help governments cope with, mitigate and even avoid such events. BRIC appeal Twothirds of the pharma and life sciences CEOs we surveyed anticipate that a substantial amount of their company's future growth will come from emerging markets. Indeed, just over half think emerging markets will be more important than developed markets in this respect. Pharma and life sciences CEOs are looking to China, Brazil and India, in particular, although they're not completely counting out developed markets such as the US and Germany (see Figure 2a). However, they're more likely than their peers in other industries to be changing their corporate strategies to tap the potential of the emerging world. CEOs in every sector consider China critical to their companies' future sourcing needs. Pharma and life sciences companies are no exception: 45% rank China as one of the top three countries to which they'll be turning (see Figure 2b). Shanghai already has lots of pharma offices and some research facilities. We believe it will become the key cluster serving Chinese and wider regional markets by 2040. Investors think so, too; Shanghai has attracted over US$1 billion in pharmaceutical foreign direct investment over the last five years.2 Some 38% of pharma and life sciences CEOs also expect to source much of what they need from India. The Indian Putting customers at the centre of innovation The pharma and life sciences industry has long been driven by innovation. CEOs in the sector overwhelmingly see new products and services as the main route to growth. And they're committed to equipping their companies for the task: 83% are increasing their commitment to generating innovations and safeguarding intellectual property, compared to 67% of the overall survey sample. However, the research landscape is changing dramatically, as we indicated in `Pharma 2020: Virtual R&D Which path will you take?'4 Advances in computer modelling will, for example, 2 `See the future: Top industry clusters in 2040 revealed', PwC (2010). 3 `Global Pharma looks to India: Prospects for Growth', PwC (2010). 4 `Pharma 2020: Virtual R&D Which path will you take?', PwC (2008). Pharmaceuticals and life sciences industry summary 5 enable the development of `virtual' patients who can be used to test the properties of new drugs much sooner in the development process. Building such models will be too large a task for any one organisation to tackle alone, but the results will dramatically accelerate the research process for everyone. Many pharma and life sciences CEOs believe governments can play a valuable role here, primarily by providing tax incentives: 43% expect government assistance to boost their innovation output, which is a significantly higher percentage than in the survey population as a whole (see Figure 3). The places in which research is conducted are changing, too: hence the fact that 43% of pharma and life sciences CEOs think the majority of innovations will be developed in markets other than their home country. Emerging economies are already starting to play a bigger role in innovation in the medical devices industry.5 Some of these countries are also catching up in pharma R&D, although only 34% of pharma and life sciences CEOs anticipate that the top new global brands of the next decade will come from emerging markets. Clearly, the view of the regulators regarding innovation and clinical trials conducted in emerging markets will be critical, too and there have been several recent instances of problems with trial results, but the longterm outlook is positive. Open innovation Pharma and life sciences companies are facing bigger research challenges than ever before. If they're to develop the next generation of medicines, they will need a comprehensive understanding of how the human body works at the molecular level and a much better grasp of the pathophysiology of disease (i.e., the functional changes associated with, or arising from, disease or injury). They will also need to change the way they work, with greater collaboration between the industry, academia, the regulators, governments and healthcare providers an absolute must. Many pharma and life sciences CEOs recognise this imperative: in fact, 42% expect that the majority of their innovations will be codeveloped with external partners. There are already a number of prominent advocates of the importance of open innovation in the life sciences. University of Toronto biochemist Alec Edwards is one of the most vocal. He argues that industry and academia need Figure 3: Innovation drives revenue opportunities for pharma and life sciences companies Q. To what extent do you agree or disagree with the following statements about your expectations regarding your company's innovation over the next 3 years? Our innovations will lead to significant new revenue opportunities Our innovations will lead to operational efficiencies that provide us with a competitive advantage 89 78 77 79 58 64 An important part of our innovation strategy is to develop products or services that are environmentally-friendly We use M&As as a significant source of innovation 45 33 43 29 43 26 We expect the majority of our innovations to be developed in markets other than the country in which I am based We expect government assistance (including financing, tax credits and/or technology transfer) to boost our innovation output We expect the majority of our innovations to be co-developed with partners outside our organisation 42 39 % Pharma and life sciences Total sample Base: All respondents (Total sample, 1,201; Pharma and life sciences, 53) Note: All respondents who stated `agree' or `agree strongly' Source: PwC 14th Annual Global CEO Survey 5 `Medical Technology Innovation Scorecard: The race for global leadership', PwC (2011). 6 14th Annual Global CEO Survey to work together and to post all their findings free on the Internet.6 Dr Edwards practices what he preaches as head of the Structural Genomics Consortium, a not-for-profit organisation which is run out of three leading academic and clinical institutions and funded by GlaxoSmithKline (GSK), Merck and Novartis. GSK is engaged in other open innovation initiatives, too. The consumer healthcare division is actively soliciting ideas for products and innovations from external sources, for example, and has formed an open innovation team to guide prospective partners through the submission process. But GSK is certainly not alone. When, for instance, Johnson & Johnson discovered that an HIV drug it had developed wasn't proving very effective in patients, it partnered with hospitals and other institutions working with patients to find out why. What it learned about the clinical complexity of HIV led to the development of two new medicines.7 discussion groups and blogs, they will not only want better, safer medicines, they will also want a range of satellite services they can tailor to their individual needs. There are important implications here for the pharma and life sciences industry. It will need to take consumer preferences into account, particularly when developing new medicines, medical devices and consumer health products. Fiftynine percent of the pharma and life sciences CEOs we surveyed are making strategic changes to encourage consumers to play a more active role in product and service development in the future. And a whopping 70% plan to capitalise on the rise of mobile devices and social networking. Such technologies can be used both to learn what patients think and to help them comply with their medical regimens. M&As a major source of innovation Forty-five percent of pharma and life sciences CEOs say they use M&As as a significant source of innovation. This reflects the increasing number of biotech companies being acquired by pharma concerns. Biotech and pharma are effectively becoming one industry the biopharmaceutical industry in the drive to improve R&D productivity.8 Listening to patients Patients are already beginning to play a bigger role in determining how they are treated, as the amount of money they spend on medicines rises and the Internet gives them access to more information. Armed with insights gleaned from educational websites, 6 Megan Ogilvie, `Secrecy slowing drug research', The Star (April 4, 2009), http://www.thestar.com/article/613662 7 Shirley S. Wang, `J&J's Stoffels Says "Open Innovation" is the R&D Answer', The Wall Street Journal (January 29, 2009), http://blogs. wsj.com/health/2009/01/29/jjsstoffelssaysopeninnovationistherdanswer/ 8 `Biotech Reinvented: Where do you go from here?' PwC (2010). Pharmaceuticals and life sciences industry summary 7 Bridging global skills gaps The `war on talent' was declared more than ten years ago, but few CEOs are prepared to declare victory. They know talent isn't just a numbers game. It means finding, retaining and motivating employees whose skills match the company's strategy, including its geographic fit. Given that 81% of pharma and life sciences CEOs have changed their strategies in the past two years, and that the sector is experiencing farreaching shifts, their companies' talent needs are changing, too. So talent is one of the top items on the CEO agenda for 2011. This heightened interest reflects plans to expand the workforce at a time when twothirds of all CEOs and nearly threequarters of pharma and life sciences CEOs believe the supply of skilled candidates is limited. It's resulting in moves to shore up recruitment and retention capabilities. Figure 4: Finding candidates with the right skills and deploying staff internationally are priorities for pharma and life sciences CEOs Q: Considering the talent required for the success of your business over the next three years, what are the key challenges you expect to face? Limited supply of candidates 74 with the right skills 66 Difficulty in deploying experienced 60 talent globally 45 Competitors recruiting some 53 of your best people 52 Understanding and forecasting talent 53 availability in emerging markets 40 Providing attractive career 53 paths in our industry 50 Challenges in recruiting and 49 integrating younger employees 54 Key employees making career 43 changes for personal reasons 39 Talent with the right technical skills 36 lack flexibility and creativity 44 Retirements of older workers 32 35 Scrutiny of reward structures by 19 regulators and/or investors 23 Poor retention of female talents 15 12 % Nearly three-quarters of pharma and life sciences CEOs believe there is a limited supply of candidates with the right skills Pharma and life sciences Base: All respondents (Total sample, 1,201; Pharma and life sciences, 53) Source: PwC 14th Annual Global CEO Survey Total sample In pursuit of new people Just over half of pharma and life sciences CEOs believe their competitors are out to snatch their best people, and that they're facing difficulties attracting younger employees into traditional career paths (see Figure 4). Both issues are linked to the importance of intellectual capital for the sector. When competitors lure away experienced scientists, pharma companies risk losing valuable intellectual property. And young researchers bring a fresh perspective that can spark creativity. Hence the fact that a higher percentage of pharma and life sciences CEOs are introducing new incentives to hire and hang onto younger employees than is the case in the full sample (55% versus 46%). The emerging markets are becoming a core part of many pharma and life science companies' growth strategies, and talent shortages are just as acute there as in other parts of the world. Pharma and life sciences CEOs haven't completely mastered the issue yet. They're more likely than their peers in other industries to see understanding and forecasting the availability of talent in emerging markets as a hurdle. They're sending employees to global locations, though: 66% of pharma and life sciences are making some or significant changes to their people strategies to deploy more staff on international assignments. It's not always easy. Sixty percent also report that they're having trouble deploying experienced talent globally. That's just the first step. Many multinationals are also looking to build strong managerial and research capability locally. 8 14th Annual Global CEO Survey Achieving shared priorities with government Healthcare has become a major item on the political agenda in countries around the world. The governments of emerging economies like China, India and Brazil want to extend healthcare coverage, but in a way that's still affordable. Meanwhile, developed economies face demographic changes that are driving up healthcare costs. As retirement ages rise, more people will still be working when chronic diseases kick in and so the social and economic value of good medicines and medical devices for such conditions will increase. But the pressure on costs will be huge. There will simply not be enough money in the pot to cover the world's future healthcare needs, unless the pharma and life sciences industry can cut its operating costs and margins on these products. How governments regulate and price medicines and medical devices, and how they support R&D, will have an enormous impact on the sector. So will healthcare regulation, given that governments account for more than a third of the revenues of 42% of the pharma and life sciences companies we surveyed. But pharma and life sciences CEOs aren't confident that regulation will have a positive impact on the industry. In fact, they're more likely to be `extremely concerned' about overregulation hurting growth than the survey population as a whole (see Figure 5). Pharma and life sciences CEO are also quite pessimistic about the potential effect of government initiatives to reduce rising public debt. But many of them have already started to adapt. Nearly half of those we surveyed are making strategic changes to deal with potential public spending cuts or tax increases at home or abroad. There's no denying that the regulatory environment is changing dramatically and some of these changes will increase Figure 5: Pharma and life sciences CEOs are deeply worried about over-regulation Q: How concerned are you, if at all, about over-regulation? Pharma and life sciences 8 19 28 45 Total 12 28 % 33 27 Not concerned at all Not very concerned Somewhat concerned Extremely concerned Base: All respondents (Total sample, 1,201; Pharma and life sciences, 53) Note: Don't know/refused excluded Source: PwC 14th Annual Global CEO Survey the burden on the industry. For example, new treatments may be subject to pharmacoeconomic evaluations to prove their economic as well as clinical efficiency before government bodies will approve them for reimbursement. We think some of the changes should actually be positive for the industry, though. One instance is the possible convergence in regulation of medical devices, pharmaceuticals, gene therapies and other treatments (something that's already happening in the UK). This could help reduce the cost of regulatory compliance. Another example is live licensing, a staged approach to the approval of new treatments. Live licensing would allow the sponsoring company to market a new therapy on a restricted basis. With each incremental increase in evidence of safety, efficacy and value, the regulator would extend the licence to cover more patients, different indications or different formulations. This approach 5 12 41 23 would mean that many medicines reached the market more rapidly, but it 13 30 would also pose24 considerable 9 challenges, including the need for more 18 26 26 collaboration between pharma7and life sciences companies and the regulators, 24 19 10 and greater use27 new technologies like of electronic health records and pervasive 29 27 18 7 monitoring. % Not concerned at all concerned concerned Not very Somewhat Extremely 1 2 3 4 5 An important part of our innovation str or services that are environmentally fr We expect the majority of our innovati with partners outside of our organisa We use M&A as a significant source of We expect the majority of our innovati other than the country in which I am b We expect government assistance to b Pharmaceuticals and life sciences industry summary 9 But there's another dimension to the relations between the industry and government. This year we found that many CEOs believe business has a common social purpose with governments, and that it should share the burden of achieving certain mutual goals. Pharma and life sciences CEOs are no exception. Nearly half of those we surveyed say their companies are putting more effort into addressing poverty and inequality areas in which the industry can make a huge difference to the world's wellbeing. For many, collaboration is the name of game, and industry examples abound. Bayer is working with the Global Alliance for TB Drug Development on the clinical development of a new tuberculosis therapy that should reduce the current sixmonth treatment regimen by a third. Should the studies prove successful, the new drug will be made available at reduced prices, particularly in developing countries where the disease is more prevalent.9 GSK is also using open innovation to help fight disease in the world's poorest countries. In January 2010, the company announced a number of initiatives, including the funding of an `open lab' for new research, the free release of information on 13,500 compounds that might be useful in devising new treatments for malaria and several collaborations to pool knowledge that might lead to the development of new medicines for other neglected tropical diseases.10 9 `Sustainable Development Report 2009', Bayer AG (2010). 10 `GSK announces "open innovation" strategy to help deliver new and better medicines for people living in the world's poorest countries' (January 2010), http://www.gsk.com/media/ pressreleases/2010/2010_pressrelease_10009.htm 10 14th Annual Global CEO Survey Globalisation reimagined Such moves are not just evidence of the fact that the industry recognises it shares certain social and humanitarian goals with governments, though; they are evidence of its increasingly global outlook. The vast majority of the CEOs in our survey regardless of the sector in which they operate are adopting targeted strategies that signal the advance of globalisation. But companies are not only affected by globalisation; the actions they take will also shape it. The pharma and life sciences industry has long operated on a more global basis than most. Yet it's not immune to the forces of globalisation. It will need to develop new products and pricing strategies for emerging economies, as well as getting closer to patients everywhere. It's clear from the responses of the CEOs who participated in our survey that they are well aware of these challenges and preparing for a future in which the world really is flat. The forces of globalisation are changing the face of the industry. Pharma and life sciences companies will need to develop new products and pricing strategies for emerging economies, as well as getting closer to patients everywhere Pharmaceuticals and life sciences industry summary 11 www.pwc.com/ceosurvey Growth reimagined Prospects in emerging markets drive CEO confidence 14th Annual Global CEO Survey Main report Our CEO Survey coverage includes a full report, indepth interviews and a visual story of the data. Explore the entire story in the full report. Simply download at www.pwc.com/ ceosurvey. To view other publications and learn about PwC services visit www.pwc.com/pharma Contacts Simon Friend Global Pharmaceuticals and Life Sciences Leader +44 20 7213 4875 simon.friend@uk.pwc.com Sara Solomon Global Pharmaceuticals and Life Sciences Business Development & Marketing +44 20 7804 1014 sara.solomon@uk.pwc.com www.pwc.com/pharma PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 163,000 people in 151 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. "PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way. www.pwc.com/ceosurvey Growth reimagined Technology industry summary Key industry findings from 14th Annual Global CEO Survey Technology industry summary The global economy is still recovering from the worst economic crisis in 75 years, as many countries grapple with the aftermath of the recession. So we set out to uncover how chief executive officers (CEOs) are approaching growth during a time when sustainable economic growth is far from certain. We surveyed 1,201 business leaders in 69 countries around the globe in the last quarter of 2010, and conducted further indepth interviews with 31 CEOs. We also identified three strategic focal points to achieve that growth: innovation, talent and a shared agenda with government. These three business imperatives have always had their place on the CEO agenda. But now, with the worst fears of the crisis behind them and an emerging recovery ahead, CEOs are adopting new attitudes and approaches, tailored to deal with the issues of the global recovery that they hope is underway. The following pages are a summary of the findings in the technology sector. To explore the full results from the 14th Annual Global CEO Survey, please visit www.pwc.com/ceosurvey. The PwC 14th Annual Global CEO Survey documents a high level of confidence in this environment; chief executives are nearly as confident of growth this coming year as they were in the boom years before the crisis. The survey also revealed where CEOs see growth coming from in 2011, and how they are going to achieve it. In `Growth reimagined: Prospects in emerging markets', we show how CEO confidence is being driven by targeted investments in particular emerging markets--often far from home. Sector demographics In the technology sector, PwC surveyed 59 CEOs from 20 countries. Revenues ranged from less than US$2 million to more than US$10 billion. See the charts below for further details. Chart 1: Sector demographics Subsectors Geography Revenue 7% 19% 20% 12% 32% 1.0-100M 101-250M 251-500M Europe Americas Asia 47% 46% 35% Computers & Networking Software & IT Semiconductors 46% 10% 12% 14% 501-999M 1.4-9B 10B+ 2 14th Annual CEO Survey Technology Summary The new growth picture emerges Having spent the last two years cutting costs and making their companies as efficient as possible, technology CEOs are now optimistic about the business outlook. A full 91% are either `somewhat' or `very' confident of being able to generate higher revenues over the next 12 months--and that figure increases to 93% when looking at the next three years. Many technology CEOs have already prepared the ground with significant strategic changes. Seventy-one percent told us that they'd altered course over the past two years, primarily in response to new industry dynamics and shifts in demand (see Figure 1). Their responses reflect three overarching trends currently affecting every area of the technology industry: the explosion in popularity of mobile devices such as smartphones and tablets; the `consumerisation' of technology; and the adoption of cloud computing. These trends, in combination with the increasing importance of emerging markets, are disrupting everything from business models to talent strategies--and simultaneously creating huge opportunities and challenges. Figure 1: Why technology CEOs have changed their strategies Q: Of the following factors that may be changing in your business, which have significantly influenced your need to change your strategy? Economic growth or uncertainty Competitive threats Industry dynamics Customer demands 60% 63% 71% 71% 54 56 58 60 62 64 66 68 70 72 Base: All respondents who stated `changed in fundamental ways' or `somewhat changed' (52 of 59 respondents). Source: PwC 14th Annual Global CEO Survey 14th Annual CEO Survey Technology Summary 3 Opportunities for innovation Most technology CEOs are looking to innovation as the primary driver for growth. Ninety percent of those we surveyed believe innovation will open up new revenue streams (see Figure 2), and 34% see the development of new products or services as their biggest opportunity for growth over the next 12 months. Figure 2: Technology CEOs are pinning their hopes for growth on innovation Q: To what extent do you agree or disagree with the following statements about your expectations regarding your company's innovation over the next 3 years? We use M&A as a significant source of innovation 33% 41% All CEOs Tech CEOs An important part of our innovation strategy is to develop products or services that are environmentally friendly 64% 64% Our innovations will lead to operational efficiencies that provide us with a competitive advantage 79% 85% Our innovations will lead to significant new revenue opportunities 0 20 40 60 78% 90% 80 100 Base: Respondents who stated `agree' or `agree strongly' (59 of 59 respondents). Source: PwC 14th Annual Global CEO Survey Mobile computing The surge in demand for smartphones and tablets offers one such opportunity for innovation. In the semiconductor industry, for example, it's boosting the need for cost-effective wireless combination chips that also provide the power management, bandwidth and data transfer process speeds needed for video streaming, fast data downloads and continuous connectivity. In the software sector, it's opening up a whole new world of mobile applications and encouraging the shift to the Software-as-a-Service (SaaS) model. And in the hardware sector, tablets are rapidly eclipsing PCs, with `app' stores and elegant user interfaces driving revenues. 4 14th Annual CEO Survey Technology Summary Consumerisation The `consumerisation' of the technology industry offers other opportunities for innovating and generating new revenues. The industry has traditionally developed different products and services for each of its three customer bases: companies, governments and consumers. Businesses and governments demand security and standardisation, while consumers look for convenience, innovation and ease of use. But many companies are now responding to increasingly tech-savvy workers who want to access the same device and apps at work that they use in their personal lives. While on the surface, supporting personal devices in the enterprise environment may seem like nothing more than a strategy to retain employees--an important objective given today's scarcity of key talent-- looking deeper it provides companies with an innovative way to increase productivity among their workforce. Today's `digital native' employees rely on personalised access to a cloud of relevant information accessed through their handhelds to innovate, collaborate and produce and companies who provide this access are benefitting. Tech companies, in turn, are seeing growth opportunities in everything from the need for enhanced data security, more sophisticated networking, and the explosion of mobile devices and applications. Figure 3: Technology customer segmentation Q: For each of the following groups of end-customers, do they directly represent more than 33% of your revenues today? 92% All CEOs 72% Tech CEOs 45% 37% 15% 15% Businesses Governments Consumers Base: Respondents who stated `yes'(1,201 for all CEOs; 59 for Tech CEOs). Source: PwC 14th Annual Global CEO Survey efficient (see Figure 4). Cloud computing does this by allowing companies to scale IT activities up or down without investing in expanded data centres by relying on shared resources outside their IT infrastructure. But given their response to the question about IT investments no longer being necessary, almost none of the CEOs we spoke to expect cloud or SaaS to replace the need to invest in IT. Rather than replacing internal IT, SaaS will be integrated into their overall IT strategy. Cloud is certainly causing a great deal of disruptive change, and it is this very change that is presenting new revenue opportunities and driving innovation for tech companies. A second key reason for investing in IT is the desire to capitalise on the increasing importance of mobile devices and social networking. The business dialog is now digital, supported by mobile devices providing anytime/anywhere capabilities for both voice and data. Savvy companies across all industries are utilising social networks as a marketing medium, an intelligence-gathering medium and as an internal collaboration enabler. Whether it's a Facebook page, a blog or tweets, digital media outlets provide an immense opportunity for unprecedented dialog between companies and their various stakeholders. Companies have access to a wealth of information about their customers while customers have the opportunity to influence and or customise product design and service offerings. For tech companies, this explosion in digital communication provides a number of opportunities for growth and innovation. Take Apple as an example. By allowing customers to design apps for their products they've increased the level of innovation for their products without hiring a single employee. The disruption Cloud computing Yet another area that's likely to grow very fast is cloud computing. The main reason why companies in all industries invest in IT is to cut costs and become more Figure 4: IT investment goals Q: To what extent do you agree or disagree with the following statements about capital investments in strategic IT that your company is making over the next three years? All CEOs Our IT investments are made primarily to reduce costs and become more efficient operationally Our IT investments are made primarily to support growth initiatives and leverage emerging innovations, such as mobile devices and social media Our IT investments are frequently the focus of boardroom discussions Our IT investments are no longer necessary now that innovative software is available as a service on the Internet Base: All respondents who stated `agree' or `agree strongly' (1,201 for all CEOs; 59 for Tech CEOs). Source: PwC 14th Annual Global CEO Survey Tech CEOs 66% 54% 42% 2% 69% 54% 39% 10% 14th Annual CEO Survey Technology Summary 5 `We view innovation as being driven by four megadevelopments. The first, of course, has to do with ongoing technological improvements and breakthroughs. The second is the rise of the emerging economies, which will bring entire populations onto digital networks. The third is the new way that digital services are consumed, as exemplified by the preferences of Generation Y. And the fourth is the re-pricing that will be necessary to make digital services ubiquitous around the globe. So you see, innovation is not just technology-led.' Vineet Nayar Vice Chairman and CEO, HCL Technologies, India Some technology CEOs hope to address the lack of talent in key markets via international assignments: 59% say they plan to deploy more staff globally over the next 12 months, but 51% anticipate problems--recognising that experienced employees may be reluctant to relocate to other countries, especially countries with very different cultures. Clearly, this could impede some CEOs' plans to expand in emerging markets. Conclusion Overall, technology CEOs feel confident that their companies and their industry are well positioned to grow in the next few years. New technologies supporting the advancement of mobile devices, social networking and cloud computing are providing a wealth of opportunities to grow revenues through innovation, collaboration and M&As. Many technology companies will also continue to expand globally, particularly in increasingly influential and rapidly expanding markets that offer new revenues as well as suppliers and talent. in existing sales, marketing and customer service models brought on by this new communication method will require innovations in hardware, software and network connectivity. Bridging global skills gaps While technology CEOs see a great deal of opportunity for growth over the next few years, they also recognise the existence of threats. Some are uncertain about whether the global economy has really recovered, for example. They're worried about the prospect of tax increases in countries with high publicsector deficits and the competition from new market entrants, too. However, one of their biggest concerns --as it is for their counterparts in other industries--is the availability of talent. Eighty-four percent of the technology CEOs participating in our survey plan to maintain or increase their companies' headcount over the next 12 months. But 66% report that there's a limited supply of candidates with the right skills, and 64% see the shortage of talent as the most serious threat to their companies' growth. They point, among other things, to challenges in recruiting and integrating younger employees and poaching by competitors. Targeting emerging markets Technology CEOs also have their eyes firmly fixed on emerging markets-- where demand is soaring, thanks to double-digit economic growth and huge consumer populations with increasing disposable incomes. They're particularly interested in China and India, both for the purposes of growth and as future sourcing locations. Hence the fact that 88% expect their key operations in Asia to grow, and that 36% are looking for acquisition targets in the region. But technology CEOs aren't ruling out developed markets. Indeed, the US comes second on the list of countries they regard as most important to their companies' future growth and sourcing requirements. Eighty-one percent therefore anticipate expanding their operations in North America. 6 14th Annual CEO Survey Technology Summary About our technology industry practice PwC works with technology companies around the world to help them fulfill the promise of their great ideas. Whether it's driving innovation to meet the growing consumer opportunity of the global markets, or adopting new `digital' business models, our strong relationships and track record of delivering value have made us the trusted adviser or auditor to the majority of the Global Fortune 500 and Global Financial Times 500 technology companies. There is an ever-present state of change and evolution in each of the technology sectors which today is impacting everything from the structure of their business models to the delivery of products and services to customers. Given our significant client base and considerable resources, our technology professionals work from an exceptional base of experience. We're in touch with your industry--and ready to work with you. For more information on how PwC's technology industry practice can help your company, or to get in touch with a technology industry partner in your area, please visit us at www.pwc.com/ technology or contact one of the professionals listed below. Contacts Raman Chitkara Global Technology Leader +1 408 817 3746 raman.chitkara@us.pwc.com Rob Gittings US Technology Leader +1 408 817 3730 robert.gittings@us.pwc.com Xavier Cauchois European Technology Leader +33 01 56 57 1033 xavier.cauchois@fr.pwc.com Greg Unsworth Asia-Pac Technology Leader +65 6236 3738 greg.unsworth@sg.pwc.com 14th Annual CEO Survey Technology Summary 7 www.pwc.com/ceosurvey PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 163,000 people in 151 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. "PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way. BS-11-0277-A.0211.SHC www.pwc.com/ceosurvey PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 163,000 people in 151 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2010-2011 PwC. All rights reserved. "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member rm of PricewaterhouseCoopers International Limited, each member rm of which is a separate legal entity. ...
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