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CEOs Of Companies In Emerging Markets Confident Of Growth

by Jason Gorringe, Tax-News.com, London

28 April 2008


CEOs of companies in emerging markets around the world are confident they can maintain high rates of growth funded primarily from internal resources rather than relying on outside investment, according to a new report from PricewaterhouseCoopers.

The report from PwC, entitled "Convergence & Differentiation: What is success in a connected world?", was launched at the World Economic Forum’s on Latin America meeting in Cancun, and suggested that growth in emerging markets is outstripping that of developed nations, blurring traditional economic distinctions.

In addition to the well-established emergence of the BRIC economies (Brazil, Russia, India and China), intra-regional trade and investment is fuelling explosive growth in such countries as Indonesia, South Korea, the Philippines, Singapore and Thailand, the report stated.

"The economic strength and confidence of the emerging markets could at least partially offset the impact of economic slowdowns in the developed world. The flow of capital, goods and labour among emerging economies is now growing faster than trade between emerging nations and developed countries," observed Samuel A. DiPiazza Jr., Global CEO of PricewaterhouseCoopers.

He continued: "The expanding connections of the economies in the developing world could insulate them from the worst impact of a downturn in the US and Western Europe."

The report noted that since 2000, emerging markets have run a current account surplus and have exported capital to the rest of the world.

Emerging markets have also driven the number of initial public offerings (IPOs) to record levels worldwide, with 70% of all IPOs in 2007 coming from emerging economies.

Emerging economies now also account for 45% of world exports, and have amassed 75% of all foreign exchange reserves.

CEOs of companies in emerging economies identified a number of risks to continued growth. They noted that a slowdown in the developed world could slow commodity exports, while fallout from the credit squeeze in the United States could impact local financial markets.

Longer term, CEOs in emerging market countries were sensitive to the potential impact of global climate change. Emerging-market CEOs believe more strongly than their counterparts in developed economics that governments should take a leadership role in determining strategies to combat global warming.

They believe that the developed world should accept more responsibility for the costs to correct its impact, an opinion shared by CEOs in the developed economies.

Asked how they would fund growth, most CEOs from emerging-market economies said they would rely on internally generated cash flow.

The debt market ranked a distant second as a source of capital. The equity markets, divestiture of existing assets, and accessing private equity and venture capital ranked far behind.

Of the 14 CEOs interviewed in-depth for the report, none said that access to capital was a barrier to growth, citing their company's strong credit ratings and a continued influx of foreign capital.

The PwC report identified three sets of "strategic drivers" that contribute to the success of companies in emerging markets and enable them to differentiate themselves in an increasingly converging world.

These differentiators are asset-driven, including financial strength, brands and people; process-driven, including supply chain and innovation; and organisation-driven, including governance and structure.

Ironically, the report found that often the very factors that make companies in emerging markets unique and successful are viewed by some outsiders as limitations.

For example, because emerging markets once faced difficulties in attracting capital, companies became adept at building internal capital reserves and maintaining healthy credit ratings. They also developed disciplined financial structures that serve them well today as their home markets grow quickly and attract foreign investment.

The report also addressed cultural, structural and business networks components of organisations.

It found that in some cases, traditional "command-and control" structures associated with family enterprises gives them the agility necessary to succeed in the current business environment.

Also, according to the report, most emerging market CEOs perceive government as more of an obstacle than a pathway to private-sector development. Emerging-market CEOs more strongly factor in regulatory concerns when making business decisions than do their counterparts in developed economies.

Yet, 30% of emerging market CEOs believe that current governments are creating a business-friendly environment, slightly higher than the 24% of CEOs from developed economies who think likewise, the PwC report concluded.


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