'The global innovation model is at risk': CEOs see more splintered societies and corporate consolidation on the way

A storm rolling towards Sydney’s Bondi Beach. Photo: iStock

  • Terrorism and cyber attacks have soared up the list of the top concerns of the world’s CEOs, according to the annual PwC survey.
  • Executives believe societies will become more disparate, with different value systems and varying economic models over the coming years.
  • They say over-regulation is the greatest threat to business, while at the same time believing there will be a trend towards more corporate consolidation.


DAVOS, SWITZERLAND — The world’s CEOs think societies will splinter over the coming years while businesses will consolidate, in a stark divergence that would likely lead to more concentrated company power but more complex challenges for the world’s biggest firms like Google and Amazon.

An overwhelming majority of company leaders surveyed by PwC say global society is fragmenting, believing it faces an era of increasingly disparate value systems, more regional trading blocs, varying systems of liberty and law, driven in part by increasingly nationalistic brands of politics.

But CEOs also believe the business world is heading for a period of corporate consolidation and more mergers and acquisitions, according to the 2018 global CEO survey from PwC, released at the start of the World Economic Forum summit in Davos.

“Region by region, the world is edging away from its full-on embrace of a singular and seamless global marketplace, at least in the physical, geopolitical world,” PwC said in its report outlining the survey findings. “Cyberspace and corporate integration are the two spheres in which the world is still moving towards an overarching global model.

“But most CEOs see the world moving in the opposite direction, towards multiple belief systems and rules of law, regional trading blocs and increased tax competition, and rising nationalism and diverse economic models,” PwC said.

While it is unsurprising CEOs perceive a globalism retreat after Brexit and US President Donald Trump’s withdrawal from the Paris climate accord and various trade agreements, the scale of the numerical majorities in the responses shows there is powerful consensus among business leaders about social and business trends.

Executives again named over-regulation as their top source of “extreme” concern in the survey, as they did last year.

Terrorism and cyber security have suddenly soared up the list of issues troubling CEOs, however, joining regulatory worries and geopolitical instability among the issues that 40% of PwC’s sample say are of “extreme” concern.

Overall, the survey shows CEOs are worrying more.

For example, the speed of technological change is ranked fifth on the list of issues of extreme concern, having been named by 38% of the respondents. But last year it was the fifth-highest issue when only 29% of CEOs said they were worried about it.

The corporate consolidation expected by CEOs is a trend that would naturally lead to more powerful global firms, at a time when the market influence of some of the world’s most valuable companies is in the crosshairs of regulators.
Facebook’s purchase of Instagram for $US1 billion and its acquisition of WhatsApp for $US19 billion, and Amazon’s decision to buy US premium grocery chain Whole Foods last year, are among the transactions that show cash-rich major companies are ready to branch out into new areas.

Google was fined over 2.7 billion euros last year by the European Commission in an antitrust case. Google and Facebook are also the subject of a market power investigation by Australia’s corporate regulator, ASIC.

Nationalist political movements – also acknowledged by the CEOs surveyed as a reality – are being shaped in part by voter unhappiness over income inequality and industry disruption stemming from the ability of global giants to disrupt local industries.

Michele Wucker, author of The Gray Rhino an authority on disruptive threats, said in response to the survey: “The visible effects of rising income inequality have been driving a wave of populist sentiment.

“Many people feel that big, multinational corporations and the ultra-rich are getting more than their fair share. But many also blame the bottom of the pyramid. Most of the benefits of globalisation have gone to the top and to the bottom earners, hollowing out of the middle.

“You can’t talk about globalisation without addressing the brewing resentment of the middle and upper middle classes, the mass market for most companies’ goods.”

Broadcast media and retail companies around the world are keenly watching the strategic moves of global digital giants such as Google, Facebook, Netflix and Amazon, whose stock prices have performed strongly for years partly because of continued customer acquisition in new markets around the world.

The expectation of more disparate operating environments between regions and countries is a potential problem for those expanding multinationals like Google, Facebook, and Amazon, as it would likely lead to greater costs in meeting regulatory requirements from country to country.

The PwC survey was based on 1,293 interviews with CEOs in 85 countries, with the sample weighted to ensure it represents CEOs’ views across major countries. Of the companies surveyed, 40% had revenue of $US1 billion or more, and 20% had revenue of up to $US100 million, with the rest in between.

Splintered societies

A vast majority of business leaders expects a more splintered society.

82% of the CEOs surveyed say the world is moving more towards “multiple beliefs and value systems”, while only 16% say it is moving towards “common beliefs and value systems”.

Only 23% say the world is moving more towards a single global marketplace, while 73% say the world is moving more towards regional trading blocs.

On the other hand, 78% believe the world is moving towards more “corporate integration” – mergers and takeovers creating bigger companies and more partnerships.

Here’s the chart with some of those key findings:

PwC says terrorism, geopolitics, and cyber threats being at the top of the list of concerns means that the “threats that trouble CEOs are increasingly existential”.

However, the report also notes the unpredictable nature of political risks in an era where nationalist policies and politicians are on the rise. This has been most spectacularly seen in Brexit and US President Donald Trump’s election and withdrawal from the Paris accord and various trade deals, including the Trans-Pacific Partnership.

PwC says this threatens the business model for some companies that have relied on national governments taking a benign view of globalisation, as well as any associated gains in economic growth.

“As many politicians and policymakers in the world’s major economic powers look inward, the global innovation model long embraced by leading multinationals – one based on the free flow of information, money, and talent across borders – is at risk,” the report says.

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