Collaborating and innovating for growth

Amid a disruptive and rapidly changing landscape, CEOs of companies headquartered in mainland China and Hong Kong tell us of their increased confidence in the growth of the global economy, as well as their intent to invest in advanced technologies and pursue M&A to grow.

This year’s report features the China findings from a global survey of 1,300 CEOs – including 125 from mainland China and Hong Kong – across a wide range of industries, and provides valuable insight into their investment priorities, growth strategies and concerns.

2018 China CEO Survey

Collaborating and innovating for growth

2018 China CEO Survey

• Growth takes centre stage in China

• Innovating for the future

• Realising outbound ambitions

• Key takeaways

• About this survey

Growth takes centre stage in China

Against the backdrop of a fast-changing and dynamic global environment, the majority of CEOs of companies headquartered in mainland China and Hong Kong are confident about the growth prospects of the global economy (76 percent) and their industry (82 percent), a marked increase compared to 2017. This year’s Global CEO Outlook report featured 1,300 survey respondents from 11 core countries,^₁ with 125 from China, and finds that China CEOs are investing in advanced technologies and pursuing M&A in order to achieve their growth objectives.

China CEOs’ confidence in the growth outlook

^₁ The 11 core countries are Australia, China, France, Germany, India, Italy, Japan, Netherlands, Spain, the UK and the US.

“As a key drive of economic cooperation and connectivity between countries, companies and people across the globe, the Belt and Road Initiative presents significant outbound investment opportunities for China CEOs. Hong Kong, as an international finance centre and global super-connector of trade and investment, is well-positioned to enable Chinese businesses to pursue new Belt and Road opportunities in international markets.” Andrew Weir, Senior Partner, Hong Kong, KPMG China

The CEOs I speak with are increasingly exploring business opportunities arising from the economic growth and integration of the Greater Bay Area. The ongoing development of the region will further enable companies to expand their presence within China, and facilitate their outbound investments as part of the Belt and Road Initiative.” Ayesha Lau, Managing Partner, Hong Kong, KPMG China

Innovating for the future

The survey results show that an overwhelming majority of China CEOs (91 percent) view ‘technological disruption’ as more of an opportunity than a threat, a significant increase from 2017. This finding supports the fact that technological disruption has become the ‘new normal’ for China CEOs, echoing a key message from last year’s China CEO Outlook.

Technological disruption as an opportunity

“Technology and innovation continues to be a national priority, as well as a key focus area for many companies operating in China. We are already seeing many disruptive business models appearing in China, which have significantly impacted traditional industries and improved the lifestyle and experience of consumers. Together with strong infrastructure support, greater government-industry collaboration, and the development of a deep talent pool, we expect Chinese companies to continue to drive cutting-edge technology and innovation in the coming years.” Reynold Liu, Head of Management Consulting, KPMG China

Disruptive technologies such as artificial intelligence (AI), Internet of Things, cloud computing and big data analytics continue to attract significant investment, and are being widely applied across sectors in China. This is highlighted in this year’s results, with a majority of China respondents stating their intent to increase their use of predictive models or analytics over the next three years, compared to less than a third of global CEOs.

Plans to increase the use of predictive models or analytics

In addition, KPMG’s recent report on disruptive technologies notes that AI is developing rapidly in China, and is closing the gap with other technologically advanced countries due to its deep talent pool and large amount of available data. Consistent with this, more than half of the China CEOs surveyed in the 2018 Global CEO Outlook say they have begun a limited implementation of AI, with the key benefits of AI including the improvement of data analytics capabilities, data governance and customer experience. In addition, nine in ten China CEOs expect a significant return on investment (ROI) from AI in five years or less, with 32 percent looking for a significant ROI in less than three years.

China CEOs expect to see significant ROI from AI

Consistent with the view of technological disruption as an opportunity, to pursue growth objectives over the next three years, more China CEOs than their global peers intend to collaborate with innovative start-ups, join industry consortia focused on the development of innovative technologies, and increase investment in disruption detectionand innovation processes.

CEO actions to pursue growth objectives

“With technology and innovative companies fast becoming key drivers of economic growth, we have recently seen the stock exchanges in mainland China and Hong Kong introduce listing reforms to accelerate the development of the new economy. This will help boost China’s entrepreneurial ecosystem, facilitate the growth of the Greater Bay Area, encourage old-economy industries to transform and innovate at a faster pace, and provide a platform for Chinese companies to realise their global ambitions.” Irene Chu, Head of New Economy, KPMG China

“In addition to its role as a major driver of the 13th Five-Year Plan and the Belt and Road Initiative, the Greater Bay Area is fast transforming into an innovation and technology hub. The CEOs I speak with are eager to capitalise on this opportunity to work with tech companies and innovative start-ups to develop and test their ideas, nurture technology talent, forge strategic partnerships and drive innovative growth.” Ronald Sze, Senior Partner, Southern Region, KPMG China

The adoption of new and disruptive technologies can also create a number of associated risks and challenges for companies. For example, nearly half of the surveyed China CEOs state that their organisations are struggling to keep pace with the rate of technological disruption in their sectors. In line with this, “emerging/disruptive technology risk” is among potential risks to growth for China CEOs.

Potential challenges to growth

* Perceived risks such as the US renegotiating NAFTA and the UK leaving the EU.

Cybersecurity is also cited as an important issue for China CEOs. The survey results show that significantly more China CEOs (74 percent) than their global peers (52 percent) agree that a strong cyber strategy is critical to engender trust with key stakeholders.

Consistent with the focus on cybersecurity and emerging technology risk, the findings indicate that significantly more China CEOs than their global peers say they will need to improve the way they monitor disruption, as well as their innovation processes and execution.

Plans over the next three years to:

“In line with the surveyed China CEOs’ overall view of technological disruption as an opportunity, our clients tell us that they are increasingly focusing on innovation, becoming more data-driven and investing in new cutting-edge technologies. We continue to support our clients as they transform their businesses, and are able to leverage the knowledge and expertise from our recently opened KPMG Digital Ignition Centre in Nanjing to design, build and deliver digitally-enabled technology solutions.” Louis Sun, Head of the KPMG Digital Ignition Centre, KPMG China

Realising outbound ambitions

M&A and collaborative growth are also high on the agenda for many China CEOs. More than three-quarters of China respondents have either a “moderate” or “high” appetite for M&A in the next three years. The survey indicates that the key drivers of M&A appetite among China CEOs are to take advantage of favourable valuations, reduce costs through synergies/economies of scale, and to transform their organisations’ business models faster than organic growth will deliver.

China CEOs’ M&A appetite over the next three years

“As China CEOs seek to pursue outbound M&A opportunities, the scale, variety and complexity of deals are continuing to increase. We are also seeing a stronger focus on post-transaction planning and proper investment oversight. This calls for a greater need for CEOs to focus on achieving synergies from the integration of acquired businesses, and on proactively managing and monitoring business risks in order to maximise investment returns.” Linda Lin, Head of Deal Advisory, KPMG China

KPMG’s Global China Practice adds that as the country has become stronger and its companies more competitive, more Chinese privately and state-owned companies are investing abroad, and outbound M&A is emerging as an important way for them to ‘go out’.

“With a majority of the surveyed China CEOs prioritising emerging markets for expansion, there are significant opportunities for collaboration between Chinese and foreign companies in third-country markets. By working together in a way that combines their respective comparative advantages, companies can access new market opportunities, achieve synergies, and manage risks, while helping to deliver economic and social benefits to host countries. In this way, ‘third-country market cooperation’ can yield win-win-win outcomes.” Vaughn Barber, Global Chair, KPMG Global China Practice

The survey also indicates a move towards greater collaboration between parties, with more than three-quarters of China CEOs ranking “strategic alliances with third parties” as a key growth initiative. Furthermore, a significantly larger proportion of China CEOs than their global peers agree that the only way for their organisation to achieve the agility it needs is to increase the use of third-party partnerships.

Third-party partnerships are key to maintaining an agile business

“The emphasis on strategic alliances reflects the disruption CEOs face – collaboration gives them answers to problems that M&A cannot always solve. Strategic alliances are driven by the capabilities you need to succeed in the future. Take a look at the automotive industry, which is now focused on mobility and not just producing cars. It is a totally new ecosystem that redefines the value chain. Strategic alliances also offer flexibility if you need to add new partners or re-evaluate existing partnerships.” Christoph Zinke, ASPAC Head of Global Strategy Group, KPMG China

“Under the guidance of government policies to elevate technological and business model innovation, China CEOs tell us that they are looking to invest in innovative companies and establish R&D centres and business incubators in foreign markets. By doing this, Chinese companies are able to achieve critical breakthroughs in technology and move further up the industrial value chain. Furthermore, by investing in high-end industries overseas to acquire quality assets, Chinese companies can provide high-quality, international-grade goods and services to consumers back home.”, Jacky Zou, Senior Partner, Northern Region KPMG China

Key takeaways

China CEOs should ensure that their businesses are agile enough to adapt to today’s disruptive and fast-evolving global landscape, and need to be confident in their ability to execute their growth strategies to remain competitive and succeed. The key takeaways are:

“The CEOs I speak with are aware of both the opportunities and challenges associated with today’s rapidly developing and disruptive landscape. The successful CEOs will be those who truly embrace the dynamics of this fast-evolving market environment, and are committed to delivering long-term value by not only focusing on growth, but also on implementing robust and agile business models.” William Gong, Senior Partner, Eastern & Western Region, KPMG China

About this survey

The 2018 Global CEO Outlook is based on a survey of 1,300 chief executive officers (CEOs) from Australia, China, France, Germany, India, Italy, Japan, Netherlands, Spain, the UK and the US. Of the CEOs, 312 came from companies with revenues between USD 500 million and USD 999 million, 546 from companies with revenues from USD 1 billion to USD 9.9 billion, and 442 from companies with revenues of USD 10 billion or more.

This report is based on the responses of the 125 CEOs of China-headquartered companies (94 from mainland China and 31 from Hong Kong) who were interviewed for the 2018 Global CEO Outlook. These 125 CEOs operate in 11 key industries – asset management (11), automotive (13), banking (6), retail/consumer markets (8), energy (11), infrastructure (5), insurance (9), life sciences (13), manufacturing (38), technology (6) and telecommunications (5).

The survey was conducted between 22 January and 27 February 2018.

Note: Some figures throughout the report may not add up to 100 percent due to rounding.

A note about the data

Our data calculations are based on the results of the survey that was conducted for the 2018 Global CEO Outlook.

For the results presented throughout this report for ‘global peers’ and ‘global CEOs (ex China CEOs)’, the responses of China CEOs have been excluded from the calculations.