Edition 49, Finance

PwC’s Fifth CEO Survey in Mexico

Quinta Encuesta de CEO en México de PwC.By: José Antonio Quesada
Leading Partner
PwC Mexico Customers and Markets

The topics addressed at the 5th ECM range from Mexico’s possibilities as a destination for investment and the country’s interests beyond its borders, to areas such as the tax system, regulatory issues, relations with the government, hiring of the labor force and the internal performance of organizations that define their structure and interaction with the community, among other points that outline the performance of CEOs of Mexico. This article addresses some of these issues.

At the beginning of the Enrique Peña Nieto presidency, the international press, such as The Economist and The New York Times, announced “the Mexican moment” following an optimistic forecast for the Mexican economy that did not materialize, because the growth of GDP in 2013 was 1.1%. However, confidence in the government’s ability to pass reforms became apparent, raising good prospects for the country, according to PwC México’s Fifth CEO Survey in Mexico (5th ECM, in Spanish).
The topics addressed at the 5th ECM range from Mexico’s possibilities as a destination for investment and the country’s interests beyond its borders, to areas such as the tax system, regulatory issues, relations with the government, hiring of the labor force and the internal performance of organizations that define their structure and interaction with the community, among other points that outline the performance of CEOs of Mexico. This article addresses some of these issues.

Good Auguries
The results of PwC’s 17th Annual Global CEO Survey (17th EGAC, in Spanish) indicate that Mexico will be important in the development of businesses located in the main countries of the American continent, especially Brazil, Canada, Colombia and the United States. From this point of view, 10% of the participants in PwC’s 5th ECM believe that a change in the global power would transform their business in the next five years and 74% are somewhat or very concerned about the possibility of slow or negative growth in the developed countries. Therefore, it is clear that in Mexico, directors remain cautious with respect to the growth that the United States can achieve, and for this reason, they may consider seeking opportunities in other regions.

The data seems to show that Mexican companies have a strong interest in participating more in Latin America, a natural market in terms of proximity, language and culture, but also where they have greater opportunities for growth.

The importance that this region has become for Mexico is shown by the fact that 67% of the general directors of the 5th ECM who said they were interested in a merger or acquisition, joint venture or strategic alliance would do it in Latin America. It should be noted that 12% of the directors plan to complete a purchase or establish a joint venture abroad in the next 12 months. It is noteworthy that 33% of Mexican CEOs consider Brazil the most important country for their growth prospects in the next 12 months.

Several of the countries that have experienced the highest growth in the last 14 years are found outside of the American continent and do not appear in the plans of the CEOs of Mexico. For example, only 9% of the directors who participated in the 5th ECM considered China an important country for their growth in the next five years. India is considered important in the short term by 4% of the participating directors.

Despite the little attention that directors in Mexico give to countries of greater economic growth, 71% of the participants in the 5th ECM are concerned about a decline in the high-growth markets. Moreover, 47% of the participants in the survey said they were somewhat or very concerned about an increase in the cost of labor in these markets.

Inwards: Opportunities and Threats
Strong confidence in growth is the most notable information from the 5th ECM. Fifty one percent of the Mexican directors are convinced that their company will grow in the next 12 months, a percentage that is higher than the world average of 39%. In this regard, 74% of the directors feel somewhat or very confident about the medium-term growth and 95% are somewhat or very confident about the next three years.

Directors’ priorities for their companies include: aspects related to the development of talent, such as the generation of skilled labor (that is the opinion of 56% of respondents); the creation of work for young people (45%); and the formation of an ecosystem of innovation (34%).

But the CEOs also have concerns: 56% are extremely concerned about a higher tax burden, well above the 32% of the directors who shared the same concern in PwC’s 17th EGAC.

Apart from taxes, 73% of the CEOs surveyed are concerned about the government’s response to Mexico’s fiscal deficit and public debt. The fiscal deficit has an impact on other business risks. For example, 61% of Mexican CEOs are concerned about the volatility of exchange rates and 60% are concerned with the lack of stability of capital markets, which is consistent with 59% of the world average.

Challenges in the Environment and Internal Opportunities
In regard to the more direct environment of the CEOs, their concern revolves around supply chains, communities, and even their own business. With respect to the first point, 68% of the CEOs interviewed in Mexico strongly agree with the importance of ensuring the integrity of the chain, above the world average of 58%. As for the community, in line with the international response, 95% of the CEOs consider it important to promote a culture of ethical behavior. On the internal organization, only 8% of the respondents did not see the need to change the design or structure of their company, slightly below the 10% world average.

In relation to the structure of their company, 48% strongly believe that it is important to increase the diversity of their board of directors and their workforce, above the 33% world average – data that suggests that this issue is more urgent in Mexico. The relationship with the workforce has improved: 45% believe that the confidence of the employees of their industry has been strengthened in the past five years. Another 45% believe that it remains the same and only 8% say it has deteriorated.

The technological field stands out among the big transformation engines with 86% of the opinions of the CEOs in Mexico; the demographic shift in Mexico with 66%, and the changes in global power with 47%.

The PwC’s 5th CEO Survey in Mexico is useful for understanding the environment in which corporations – whose strategies generate employment, as well as economic and social development – are conducted. The information was collected between September and December of 2013.

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