China CEOs are embracing technological disruption as... | KPMG | CN

China CEOs are embracing technological disruption as a means to transform and grow, finds KPMG survey

China CEOs are embracing technological disruption as...

CEOs of China-headquartered companies welcome technological disruption and embrace it as a means to innovate, transform and remain competitive in the market, finds a new KPMG survey.

1000

Media contact

Related content

The survey, titled 2017 China CEO Outlook – Disrupt and Grow, features China findings from a global KPMG CEO survey, which gathered responses from 1,261 CEOs worldwide, including 125 from China.

While the majority of China CEOs remain confident about the growth prospects of the global economy, the number is down from last year and also lower when compared to their global peers. However, more than 90 percent of China CEOs are confident in the growth outlook of their companies, a higher percentage than their global counterparts. This optimism is reflected in the survey results, which show that over the next three years, two-thirds of China CEOs are predicting top-line growth of 2 percent or more, while over the next year, 97 percent plan to increase their headcount, both ahead of their global peers.

Benny Liu, Chairman, KPMG China, says, “The CEOs I speak with recognise they are operating in a rapidly changing and complex business environment. Domestically, China’s restructuring process and an increasingly sophisticated consumer are leading to both challenges and opportunities, and CEOs are responding to this by embracing technological disruption to innovate their production and distribution models, as well as to create new products.”

‘Focusing on innovation – including new products or services and ways of doing business’ – was selected by most Chinese CEOs as a high priority growth initiative over the next three years (64 percent). Other top growth initiatives are ‘increasing penetration in existing markets’ (62 percent) and ‘penetrating new verticals’ (47 percent). Rather than focusing on mergers and/or acquisitions, China CEOs are planning to deliver on these growth initiatives by scaling up their own business operations and processes (60 percent), entering into collaborative partnerships/joint ventures (39 percent) and undertaking large-scale business model transformations (35 percent).  

Compared with last year, more China CEOs (65 percent in 2017 vs 52 percent in 2016) expect their companies to be transformed into a significantly different entity over the next three years, driven by adopting new technologies; new business and operating models; and adopting new processes.  

Vaughn Barber, Global Chair, KPMG’s Global China Practice, says “Given the importance of ‘innovation’ as a growth initiative, it is not surprising that the majority of China CEOs are also looking to transform their business models through innovation and customer-focused transformation. As we would expect, changes in China’s regulatory and policy environment are also impacting the trajectory of transformation by Chinese firms.” 

In looking at their investment plans over the next three years, the majority of China CEOs indicated that they will maintain a high level of investment in areas such as cybersecurity (86 percent), digital infrastructure (83 percent), emerging technologies (73 percent), workforce training (70 percent) and innovation including new products, services, ways of doing business (68%), mainly driven by a desire to transform their business and operating models, improve bottom-line growth, and improve customer engagement.

The survey highlighted that most China CEOs expect major disruption in their industries as a result of technological innovation (80 percent). They see this ‘disruption’ as an opportunity rather than a threat (75 percent) and are being more proactive in trying to disrupt the market rather than waiting to be disrupted (70 percent). Barber says, “These results suggest that ‘technological disruption’ has become the ‘new normal’ for China CEOs.”

Notwithstanding their overall positive views, China CEOs are also aware of the risks and challenges brought by technological disruption. More than half of them believe that some of the traditional leaders in their sectors will be weakened or eliminated by technological disruption. They also state that their organisations are struggling to keep pace with the rate of technological disruption in their sectors, and are concerned about whether their organisations are staying up to date with new technologies. Consistent with these challenges, ‘emerging technology risk’ continues to be the risk that most China CEOs are concerned about (44 percent in 2017 vs 43 percent in 2016).

The survey also assesses CEOs’ views on globalisation. Almost three-quarters of China CEOs are optimistic about the pace of globalisation, a more upbeat sentiment than their global peers.

At the same time, however, the survey results show that China CEOs have also become more concerned about the impact of geopolitical factors on their companies.

Fifty-seven percent of China respondents said that the uncertainty of the current geopolitical landscape has had a greater impact on their organisations than they have seen in many years, while more than a third said they are reassessing their global footprint as a result of the changing pace of globalisation and protectionism.

In terms of factors that would have the biggest impact on their companies’ growth over the next three years, ‘reputational/brand risk’ and ‘geopolitical factors’ – defined as elections and social unrest/instability – emerged as the first and second choices, rising from fifth and tenth place last year respectively.

Barber says, “Increased concerns about ‘reputational/brand risk’ may reflect a heightened awareness that having a good reputation and a ‘social licence’ to operate is important for companies to be successful, particularly when they are investing and operating in markets outside China.” 

In addition, the survey finds that more CEOs from the US and Europe are prioritising their own domestic economies for growth, whereas CEOs from Asia – including China – seem to be more interested in international markets.

Among the 10 ‘core countries’ in the survey1 , China CEOs are prioritising Australia, Germany and the UK in the overseas market for new growth opportunities, whereas the top three regions are Asia Pacific, Central and South America, and Central Asia. 

Liu concludes, “The China CEOs I’m speaking with are committed to globalisation, and recognise the need to highlight the positive impacts it brings. Together we need to ensure that different countries, different social strata and different groups of people all share in the benefits. They see practical steps such as the ‘Belt and Road’ Initiative as critical to delivering those benefits.”

“We are also hearing from clients that they are investing more of their time and resources in managing geopolitical risk. The CEOs who are leading companies which are winning in this era of disruption are those leading organisations which are agile and prepared to transform their business today to be prepared for tomorrow.” 

– Ends –

1I.e. Australia, China, France, Germany, India, Italy, Japan, Spain, the UK and the US.

About KPMG

KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located. 

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies. 

Connect with us