US to remain top investment destination

Sixty four per cent of the CEOs in the "Global CEO Outlook 2015: The Growth Imperative in a More Competitive Environment" survey said the US would be a top destination for many companies, as geographic expansion will be a high priority for more aggressive growth. Other promising regions are China, 46 per cent; Western Europe, 43 per cent; Central Europe, 40 per cent; and India, 36 per cent.

Nearly all CEOs expect to grow organically but some expressed a growing appetite for acquisitions within the next few years. 

“We see the opportunity to continue to grow internationally, incrementally faster than here in the US,” said Larry D. Zimpleman, CEO of Principal Financial Group, a global financial investment firm.

The firm expanded internationally in the late 1990s. Since then its international business has grown from about a billion dollars in assets under management to over US$100 billion, and now represents almost a quarter of the company’s earnings. 

“I think that will continue to be the case for all sorts of reasons,” said Bill Robinson, KPMG in the UK’s chief economist. One reason: There has been a productivity slowdown over a 40 year period across all European countries, but not in the US, he said. Another reason: the US came through the banking crisis much better than the European economies. On top of that, “the US is still the most vibrant, innovative economy on the planet, with plenty of people and they have high incomes per capita,” he said.

Lower oil prices, the absence of inflation and aggressive quantitative easing in Japan and Europe are driving growth in the global economy, explains Robinson. At the same time, the volatility in oil prices and the risk of low inflation turning into deflation are also fueling uncertainty and causing problems for some industries. “This is simple economics: low oil prices are bad news ifyou’re an oil producer but extremely good news if you’re an oil consumer,” says Robinson, and most industries and their customers are oil consumers. “It’s like a tax cut in the global economy, and according to IMF calculations it could add one per cent to global GDP growth. Lower oil prices are the most important single thing affecting the world economy this year.

“Meanwhile, in Europe and Japan there’s full-scale quantitative easing going on and it’s having quite a significant effect on stock markets, for a start, driving them up, and on currencies as well, driving them down,” he adds, “so, they’re feeling quite competitive.”

In the US, on the other hand, with a stronger dollar, coming off a few years of solid growth, expectations are naturally lower. “With these survey results, we need to understand that the baseline in the US is higher than the baseline in Europe and Japan,” he explains. “My longer-term view is that the US has come out of its recession in much stronger shape than Europe or Japan and it’s doing fine, actually.

Many CEOs report that their companies are far more tied to global growth than to their own domestic market. Every company is also affected by the sweeping and dramatic changes brought by the digital revolution, but each is affected differently by specific megatrends. In the case of Kone, a 105 year-old elevator company headquartered in Finland, the driving force is urbanization and related investment in infrastructure and sustainable living. “The global economy continues to vary a lot and is quite fragile in places,” notes Henrik Ehrnrooth, CEO of Kone. He sees that the market growth will be driven by people continuing to move into cities and work and live in buildings economy.

A key finding in the survey is new technologies are redefining value chains and companies need to remain vigilant to stay relevant. What’s more, much of the technology necessary to stay relevant will be controlled by partners or vendors. CEOs are beginning to look beyond traditional management models to the challenges of operating in a broader ecosystem. Managing talent is a particular challenge amid intensifying technological investment change.

The regulatory environment continues to be increasingly intense, not just in highly regulated sectors, but across all industries that do business across borders. Compliance requirements affect growth, so it should not come as a surprise that CEOs see global economic growth and the regulatory environment as the two most impactful issues for their business.