Corporate CEOs aim for business growth and higher profits in large, politically stable markets
December 9, 2013 - The most attractive markets for international investments in 2014 are Brazil, China, and India, followed by the United Arab Emirates, Qatar, and Chile. Business growth, higher profits, and the size of the market are the key drivers why CEOs steer company investments towards these markets. Subsidies and tax benefits only have some relevance for their decision. Corruption, crime, and political instability are the greatest barriers for foreign direct investment.
Graph 1: CEOs’ Top 3 Emerging Markets for 2014 Worldwide
These are the key findings of a global survey on investments in 49 Emerging and selected Frontier Markets from amongst 480 CEOs in 51 countries, conducted by the executive search firm Pedersen & Partners. More than 30% of the survey participants are CEOs from international corporations with more than 5,000 employees.
Latin America, Middle East and Asia on the Rise
From a global perspective, countries in Latin America, the Middle East, and Asia are becoming more attractive, while Eastern European and African countries are less likely to become the target for foreign investment in the upcoming year. However, even in regions with high uncertainty, corruption, and political instability, like Africa, some countries offer favorable investment conditions. While political turbulences have driven most international corporations out of Egypt, many companies consider investment in South Africa.
Graph 2: CEOs’ Top 3 Emerging Markets by Region
“While expected business growth drives companies into Emerging Markets, governments can drive business out of them”, says Poul Pedersen, Managing Partner at Pedersen & Partners. “The key role of governments should be to provide a favorable environment for investments. According to our survey, a stable political and legal environment, the absence of corruption and crime, and cutting out red tape are far more important to companies than tax cuts”, says Poul Pedersen.
Success is Based on Capable Managers and Reliable Business Partners
“Most of the participating CEOs state that many critical success factors for their investment in new markets are employing capable managers and finding reliable local business partners”, says Conrad Pramboeck, Head of Compensation Consulting at Pedersen & Partners and project manager of the study. The greatest management challenges that Western companies face in Emerging Markets are management style, lack of strategic thinking, and corruption. “Many companies report that, in most countries, it is certainly possible to find a number of well-educated people with technical skills and proficiency in English. However, it is much more difficult to identify upright, entrepreneurially minded managers with a sense of ownership and good personal fit to the Western business culture.”
The lower cost of labor can only explain foreign direct investment to a certain extent. “Most blue-collar workers and white-collar employees still earn 50% to 80% less in Emerging Markets compared to their counterparts in Western countries. On the other hand, the compensation packages for the best paid executives and managers in Brazil, China, India, and Russia have already reached Western levels”, says salary expert Conrad Pramboeck.
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