Business have changed what they care about. What might this mean for the future?
Christos Cabolis analyzes the WCC’s 2021 executive survey responses
Executives’ concerns are becoming more focused on their own needs, and survey responses are also suggesting we are entering a new phase of globalization, with wide-ranging implications for governments and companies. This is a key takeaway from this year’s executive survey, carried out from mid-February to mid-May this year, and informing the results of our 2021 Competitiveness Ranking.
The IMD Executive Opinion Survey is a major component of the IMD World Competitiveness ranking, which measures economies’ levels of competitiveness. Some 4,200 executives from 63 countries offered their opinion on the trends shaping the current economy.
They were asked to appraise many tangible, as well as intangible, aspects of the economic landscape. In addition, we requested a reflection on key economic trends from a corporate leader’s point of view, and asked leaders to identify what they considered to be three top priorities out of 10 available.
The three top concerns of executives in 2022 were inflationary pressures (50%), while geopolitical conflicts and supply chain bottlenecks were closely behind, in the minds of 47% of business leaders respectively. The fourth most “popular” pressing business concern was the prolonged presence of COVID-19 (43%).
Those concerns expressed by business leaders in the five highest-ranked economies in the ranking in 2021 – Switzerland, Sweden, Denmark, the Netherlands and Singapore – were overridingly about issues related to environmental sustainability as well as those related to the pandemic. The number three concern was either geopolitical conflict, corporate social responsibility (CSR) or remote working.
CSR was more frequently at the forefront of the minds of business leaders in Denmark and the Netherlands (a joint 43%), followed by those in Switzerland (32%). Interestingly, executives living and working in Sweden already had geopolitical risk at the forefront of their minds in 2021, while business leaders in Singapore – an economy that attracts high skilled individuals from abroad – were anticipating remote working.
These priorities are also shared by the majority of economies studied (a total of 64).
Concerns are more focused, more local and less global
Comparing our current findings with business leaders’ priorities in 2021 shows us that business leaders’ priorities have become more focused, and demand more immediate action.
In 2021, business leaders were concerned with broad, global issues such as the COVID-19 pandemic and environmental sustainability, which necessitated public-private coordination. Companies implemented, and sometimes strengthened, existing governmental regulations. But now, in 2022, executives focus more on businesses’ operational issues, placing last year’s concerns at a much lower priority level. Take the environmental sustainability issue, for example: it moved from being the second highest concern (60% for the five economies) in 2021 down to the eighth place (14%) in 2022.
This is not surprising. In 2022, daily headlines remind us that inflation has returned to levels that last occurred several decades ago, and discussions about recessions and stagflation are frequent. In fact, in their July update, the IMF lowered world growth projections for next year. This was partly due to the high expectations of inflation, the necessary actions taken by central banks and governments, the disruption of international supply-chains caused by the pandemic, as well as the high uncertainty of geopolitical risks.
Business leaders, therefore, do need to navigate their companies through these specific challenges with the tools available in their industry and, more specifically, their company.
A new phase of globalization?
Given the above, it’s no surprise that different regions are shown to have different priorities. Indeed, by classifying business leaders’ 2022 responses by region, we found strong global patterns. These were:
-Inflation and its implications on economies is the main concern in the Americas, both North and South.
-The war initiated by the Russian invasion of Ukraine is on the minds of executives in Western and Eastern Europe, as well as those in Ex-CIS and Central Asian countries.
-Meanwhile, business leaders in Eastern Asia and Southern Asia & the Pacific are most concerned by the prolonged presence of COVID-19, while in Western Asia and Africa the supply-chain bottlenecks are the main concern.
-Southern Asia & the Pacific as well as Western Europe are those regions with the highest share of executives (over 40%) expressing concern about remote working and hybrid working models.
What should businesses and governments do?
Analysts have been discussing the issue of a move from globalization to regionalization for the past few years, as there have been major disruptions in the way that economies relate to each other. From the increase of tariffs to fighting the pandemic (to name just two recent challenges) economies have turned more heavily inwards when solving their challenges.
And yet, most concerns raised by executives are interconnected. For instance, COVID-19 worsens supply-chain bottlenecks which, in turn, exacerbate inflation. Even though challenges appear with different region-specific intensity, addressing them relies on one connecting thread: the interdependency and interconnectedness of economies with respect to flow of goods, services, people, capital and ideas: in other words: globalization.
However, the re-emergence of geopolitical risks, and the decline of confidence and trust among different countries – Germany had formerly put its trust Russia to be its sole energy provider, for example – has caused a reevaluation of the international relations. There is also the ongoing possibility of another pandemic. This, however, does not bring forth a reversal of, but instead suggests a new phase of globalization.
Businesses and public sector leaders have a tough road ahead. Executives need to address swiftly the specific challenges related to their own industries, and more specifically their own companies. These may be, primarily, inflationary pressures, a higher cost of investing or supply-chain disruptions.
During the last couple of years of the pandemic, technologies that facilitated the virtual connection of people and e-commerce have allowed many markets to work effectively. How can technology adapt in this new set of priorities?
From governments’ point of view, public decision-makers need to navigate a fine line between controlling inflation and avoiding a recession in the economy.
Will the pillars of competitiveness remain the same?
The disruptions we have experienced globally in the last three years have not affected traditional pillars of competitiveness. Indeed, our research and analysis shows that the underlying principles of competitiveness have remained unchanged. The pandemic, with the dual health and economic crises this created, did not affect what we deem to be economies’ competitiveness pillars, and hence what we evaluate in our rankings: the rule of law, institutions, and the underlying processes for investment in infrastructure and education.
Yes, there were differences in those actions chosen or the implementation of policies in different countries. However, our competitiveness pillars remained relatively intact and, equally important, were shared by all the economies we study. In addition, companies continue to think that shareholders should maximize their value.
The question that arises is whether these pillars will remain intact, despite today’s new set of challenges: especially the re-emergence of geopolitical risks. Will they change the rule of law and presently well-functioning institutions?