US CEO Confidence Rebounds as Growth and Sourcing Opportunities Emerge

The relatively slower recovery in the US has not deterred CEO optimism. Three years after the start of the recession, US CEOs' short-term confidence has returned to pre-2007 levels and moved back in-line with CEOs around the globe. Almost three-fifths (56 percent) of US CEOs are very confident about business prospects over the next 3 years, according to PwC's 14th Annual Global CEO Survey.

US CEOs who indicate they are "very confident" over the next 12 months rose 10 percentage points from 2007 (35 percent) to 2010 (45 percent), after an extreme dip to 15 percent in 2008 and coming closer to 2006 levels, when 53 percent of US CEOs were very confident in their outlook for revenue growth.

Sources of Growth: Capitalizing on Quality and Innovation

PwC's survey found that US CEOs are expecting to grow their operations internationally, particularly in Asia and Latin America. But growth may not come exclusively from emerging markets. Sourcing within the US seems to be a significant driver of opportunity, as CEOs outside the US see the US as both a market opportunity and a sourcing solution.

In fact, the US is next only to China – and ahead of India and Brazil – as the country most important to CEOs' sourcing needs. These business leaders cite the higher quality of products and services that US companies can produce, but also a number of other advantages: financially-stable, cost-competitive suppliers; companies with decades of proven experience serving international markets; the US's extremely low overall risk profile; and business partners capable of innovating products on the fly.

Leading firms in other countries are also looking to the US for market potential. Once again, after China, the U.S. was the country most often named by non-U.S. based CEOs as important to growth prospects over the next three years – ahead of Brazil, India and Germany. US CEOs recognize these opportunities, as 68 percent say they plan to increase their commitment to generating innovations and safeguarding intellectual property over the next three years.

"Emerging-market-headquartered companies are enhancing their global networks of suppliers and partners," said Bob Moritz, Chairman and Senior Partner, PwC US. "There is a tremendous potential here to create new opportunities, including jobs, to revitalize the US economy. A renewed focus on quality, innovation and talent pools – where we appear to have a competitive advantage – will further establish the US as an attractive sourcing location for these companies."

Shared Priorities Between Business and Government

Governments and private sectors have become allies in many economies around the world, especially as countries tackle structural weaknesses exposed by the recession. This is particularly true around issues like talent, innovation and safeguarding intellectual property, and improving infrastructure.

Unlike global CEOs who envision shared responsibility between business and government to address these three big issues, US CEOs currently see a shared responsibility for just innovation and safeguarding intellectual property. This gap, particularly in talent development, holds the potential to create a short- and long-term threat to the competitiveness of the US economy.

"We cannot overstate the importance of shaping a constructive working relationship between US business and government to help drive growth and create jobs," said Moritz. "The recently announced review of regulations that impede the ability of U.S. businesses to compete around the world is clearly a step in the right direction. But this is only a start. Tangible actions and ongoing collaboration are needed to serve the short- and long-term interest of the economy."

Talent Back on the Strategic Agenda

More global CEOs (82 percent) say they plan to increase their commitment to creating and fostering a skilled workforce than US CEOs (76 percent). US CEOs, however, are more likely to put primary responsibility for talent management on government, whereas global CEOs see it as more of a shared challenge and plan to significantly increase their own commitment.

More than half of global CEOs (51 percent) and 55 percent of US CEOs plan to increase their headcount in the next twelve months but are concerned that they may not have access to people with the right skills in the right places. Fifty six percent of global CEOs expressed this talent availability concern while 38 percent of US CEOs are concerned about talent supply. Many cite issues such as integrating young employees and forecasting talent availability in emerging markets as challenges they and their leadership teams need to address.

"Talent is being shaped in different ways," said Moritz, "and business leaders must be deeply involved in these efforts, strategically and tactically when needed. We expect to see innovative partnerships to develop and deploy talent as the demand for education soars worldwide while many government budgets shrink. Without a strong pipeline of future talent, companies won't have the capacity to pursue new opportunities and organizations won't realize their full potential."

Balancing Risk and the Growth Agenda

US CEOs' confidence is tempered with a greater focus on managing risk and competitive threats to business. More than anywhere else, US CEOs are aggressively addressing risk management, particularly expanding responsibility and accountability throughout their organizations. In fact, more US CEOs (86 percent) say they are changing their strategies to allocate more senior management attention to risk management than global CEOs (72 percent) and adjusting performance incentives to account for risk (54 percent in US vs. 36 percent globally).Further, more US CEOs say they are incorporating risk scenarios into strategic planning (82 percent vs. 67 percent) and allocating more board meeting attention to risk management (68 percent vs. 58 percent).

When asked which global risks posed the greatest potential challenge to growth over the next three years, US CEOs cite political instability first at 39 percent, with 65 percent factoring this into strategic planning and risk management activities. Other key challenges to growth include natural disasters (31 percent cite), pandemics and other health crises (27 percent), terrorism (27 percent), scarcity of natural resources (25 percent) and climate change (17 percent). US CEOs cite economic growth forecasts or uncertainty, however, as the primary factor that has influenced their business strategy in fundamental ways.

"US CEOs stand out from others in being more attuned to risks they face to a sustained recovery," said Moritz. "It's important, however, that CEOs balance such heightened risk awareness with smart risk-taking as the US looks to seize new growth opportunities."