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The McKinsey Global Survey of Business Executives , July 2004 The second McKinsey Global Survey of Business Executives finds that corporate leaders are still confident—especially about hiring, IT spending, China, and India—though they’ve tempered their earlier enthusiasm.
The McKinsey Quarterly, 2004 Special Edition:What global executives think
The latest McKinsey Quarterly survey of some 5,500 senior corporate leaders around the world shows that executives from a wide range of industries and regions remain broadly positive about the global economy. These executives have curbed their optimism since early this year, but many plan to step up hiring as well as spending on information technology. The most vigorously upbeat sentiment comes from India, where executives voice strong confidence in the new government's ability to advance economic liberalization, and from a rapidly expanding China, which is confident that it will continue foreign direct investment (Exhibit 1).
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to attract massive
Nonetheless, during a period when oil prices and fears of interest rate hikes rose, executives curbed their earlier enthusiasm about their own economies and industries. Overall, confidence levels have declined by 6 percent since the Quarterly's first survey, in January. The most dramatic decrease came in developing markets.
Many executives also feel ongoing pressure on prices—a sign that competition remains heated. And though the promise of India and China continues to dazzle, not all business leaders believe that those countries can sustain their economic
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reforms. (For information about the survey respondents and on the use of the data, see sidebar "The McKinsey Global Confidence Index.") The survey's regional data provide some of the most intriguing insights into the thinking of business executives. In January, for example, those in emerging markets were the most optimistic participants in the survey, but since then their confidence has fallen three times as far as that of their counterparts elsewhere— to a level below the global average. Although the confidence of executives in India and China declined, it remains so high in these two prime destinations for outsourcing and foreign investment as to buoy sentiment in the developing countries as a whole (Exhibit 2). Concern over the near term is greatest among executives in the developed Asia-Pacific economies: Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea, and Taiwan. Only 48 percent of the region's executives expect conditions in either their national economies or their industries to improve in the next six months. In contrast, European executives are much more enthusiastic about the prospects for their industries—no matter which one they work in—than for their national economies: only 51 percent of them expect even a moderate improvement in the latter, but 62 percent feel confident about the former. A particular bright spot everywhere turned out to be information technology, where investment apparently is on the rise. Half of all chief information officers (CIOs) and chief technology officers (CTOs) who responded to the survey and nearly 40 percent of all other executives indicate that their companies are planning an increase in IT spending over the next six months. Indeed, nearly a third of both groups of respondents say that their companies intend to raise spending on technology by 11 to 25 percent. Despite these encouraging signs, executives don't see much leeway to raise prices. Around the world, most of the respondents say that their companies don't plan any price change, and 9 percent actually report plans to cut their prices. Even among the 26 percent of survey respondents who say that their companies will increase prices, most plan to do so only moderately (Exhibit 3). Yet the survey provides hope for job seekers: after years of declining employment, 43 percent of the respondents say that their companies will start recruiting. Small businesses, however, are far more confident about adding to their payrolls than larger ones are (Exhibit 4, part 1). While Chinese and Indian companies plan to do much of the hiring, nearly half of the North American1 executives say that their companies intend to take on additional employees—11 to 25 percent more, according to 19 percent of them (Exhibit 4, part 2).
The McKinsey Global Confidence Index
The second in The McKinsey Quarterly's ongoing surveys of global executives garnered responses from 5,500 chief executives and other senior corporate leaders around the world: 11 percent from the developed countries of the
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Asia-Pacific region, 31 percent from Europe, 41 percent from North America, and 18 percent from developing markets.1 The next survey is planned for the autumn of 2004. The Confidence Index is a barometer of the attitudes of business executives about the economy's near-term prospects. It expresses, in a single figure, responses to a standard set of four questions (exhibit) about current economic conditions and expectations. An index above 50 means that positive responses outnumber negative ones.
Notes 1 Figures do not sum to 100 percent, because of rounding.
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Notes 1 For the purposes of this survey, North America refers to Bermuda, Canada, and the United States.
India wins in talent and R&D
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Respondents in India completed the survey during those days in May when it became clear that the country's voters had handed the ruling Bharatiya Janata Party a stunning defeat. Despite the uncertainty the change created for local and foreign Not yet a Premium investors, Indian executives express remarkable Member? Enroll now. confidence in the new government—a full 84 percent indicate that they are very or somewhat confident that it can continue to liberalize the economy and to manage economic growth effectively. Such support will be essential if the government is to move ahead on liberalizing trade and the rules for foreign direct investment (see "A richer future for India"). Indian executives are confident not only about their country's government but also about their economy: 66 percent are expecting it to be at least moderately better in six months. Only 56 percent of all executives surveyed are hopeful about their home economies. India also stands out as a source of talent and as a destination for R&D investment. Executives from the developed Asia-Pacific economies—especially the big companies that are first movers in offshore investment and so are most familiar with the labor landscape in India and China—are particularly keen on India. Among respondents from large companies in the Asia-Pacific region, 71 percent see India as an important source of talent; in the world as a whole, 58 percent of such executives share that view. Except in the Asia-Pacific region, more executives of large companies say that they plan to invest in R&D facilities in India than in China (Exhibit 5). The faith of Asia-Pacific executives in India's talent doesn't extend to the new government, however. Just 10 percent of them—a percentage lower than that in any other region—are very confident in its ability to manage the economy.
China has its admirers The rapid growth of China's economy has raised worries that it could overheat, but executives there
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are highly optimistic about the government's efforts to manage growth. Indeed, some 95 percent of them are confident that the country's leaders can continue to liberalize and manage the economy. Others are less certain. A meager 7 percent of North Americans, for example, feel very confident about the Chinese government (Exhibit 6). Indeed, North Americans feel more dubious about China than do executives from any other region. They are more upbeat about India; those from large companies, for example, tend to see it as a more important source of talent. But even with the North Americans' lack of enthusiasm for China factored in, it still wins the race for foreign direct investment. More than half of the executives from large companies across the globe say that they plan to increase their investments in China during the next two years. Only 44 percent of executives from such companies say that they plan to increase their investments in India. Chinese executives agree with these projections: 82 percent expect incoming foreign direct investment to increase over the next two years. Indeed, they are far more hopeful about continued investment in China than are their counterparts elsewhere. The North Americans are the least confident—and least interested. Even so, more executives from all regions expect their companies to invest in China than in India.
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Renewing an interest in IT
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Do CIOs and CTOs know something about their
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budgets that other top executives don't, or are they just more optimistic? Half of them expect spending on IT to increase over the next six months (Exhibit 7), while only 39 percent of other senior executives think that might happen. Among all executives who expect their companies to spend more on IT, nearly a third predict an increase of more than 10 percent; hardly any executives expect IT spending to fall. Tech executives in India and China are more optimistic than those in other parts of the world: 86 percent of the Indian and 75 percent of the Chinese CIOs and CTOs say that their companies plan to increase IT spending. A third of the Chinese CIOs and CTOs report that it will rise by 26 percent or more (Exhibit 8).
But technology executives in the world as a whole are more downbeat about the economy's prospects than other top managers are: just 47 percent of the CIOs and CTOs in the survey thought that economic conditions in their countries had improved during the past six months, compared with 58 percent of the other executives (Exhibit 9). The divergent views of these two groups may play out most critically in the way they perceive the next round of technology purchases.
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Surprisingly, few executives think that sales or purchasing are the corporate functions that depend most on IT; more list production, financial reporting, order fulfillment, or customer service. Some 18 percent of nontechnical executives think that financial reporting and control are the systems most reliant on IT, but only 11 percent of CIOs and CTOs do.
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