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Asian Business OutlookPart of the Global Business Outlook
A joint survey effort between
Duke University,
PwC Chinaand
CFO magazine
Asian Business Outlook Duke University /CFO Magazine March 2017 1
Top Concerns of Asian CFOs
1. Economic Uncertainty
2. Currency risk
3. Weak demand for product/services
4. Government policies
5. Difficulty attracting qualified employees
6. Employee productivity
7. Regulatory requirements
8. Rising input or commodity costs
9. Access to capital
10. Corporate tax code
Asian Business Outlook Duke University /CFO Magazine March 20172
Business Optimism Index
Global Trends
Co
un
try /
Re
gio
n
March 2017 Response
35
45
55
65
75
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017
Asia United States Europe
Latin America Africa
Notes: Presented data are the mean value for each region or country, Scale from 0-100
Country Business Optimism Index
Own-Firm Business Optimism Index
Ow
n C
om
pa
ny
35
45
55
65
75
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017Asia United States Europe
Latin America Africa
01020304050607080
01020304050607080
Asian Business Outlook Duke University /CFO Magazine March 2017
High optimism in China is offset by weaker optimism in several other Asian countries
3
Expected Product Price Inflation
Notes: Presented data are the mean or median values for each region or country.
Pro
du
ct
Pri
ce
s
-5%
0%
5%
10%
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017
Asia United States Europe
Latin America Africa-2%
0%
2%
4%
6%
8%
Global Trends
Asian Business Outlook Duke University /CFO Magazine March 2017
March 2017 Outlook
Inflation remains low in Asia, especially compared to Africa and Latin America, however, the differencediminishes
High inflationary pressures in India, the Philippines, and Malaysia are tempered by lower inflation in China and negative expectation in Japan and Singapore.
CFOs in Africa expect flat prices, whereas CFOs inother countries all expect moderate inflation.
Inflation expectations highest in India
Of responding Asian countries, India has the highest expected inflation.
CFOs in Japan and Singapore, conversely, expect prices of their products to fall.
Asian inflationary expectations increase, boosted by India and the Philippines
4
Expected Growth in Sales Revenue
Global TrendsR
even
ue
-5%
0%
5%
10%
15%
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017
Asia United States Europe
Latin America Africa -5%
0%
5%
10%
15%
Asian Business Outlook Duke University /CFO Magazine March 2017
Overall, CFOs in Asia expect modest growth in sales revenue
Asian revenue growth decreases
CFO’s revenue growth expectations decreased fromlast quarter in Asia but increased in othercontinents.
Overall, Asian revenue growth expectations are the lowest.
India expects the most rapid revenue growth, followed by China
Overall Asian growth is pulled down by Japan and Singapore.
India has the highest sales growth, much greater than the inflation rate, attributed partially to surging private consumption.
China’s growth in sales revenue is harmed by the unanimous view of CFOs that Chinese air pollution harms the Chinese economy.
Notes: Presented data are the mean or median values for each region or country.
5
March 2017 Outlook
Global TrendsC
ap
ita
l S
pe
nd
ing
-5%
0%
5%
10%
15%
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017
Asia United States Europe
Latin America Africa
Capital Spending Plans
0%
5%
10%
15%
Notes: Presented data are the mean or median values for each region or country.
Asian Business Outlook Duke University /CFO Magazine March 2017
Asian capital spending will be moderate, with a slight dip from last quarter
Moderate capital spending plans
Asian CFOs expect moderate business spending growth, though expectations have dipped from last quarter.
Business spending expected to increase dramatically in US, supported by the government’s increased spending.
Expectations have dropped drastically in Latin America, partially because of the Odebrecht corruption scandal and the implicated government officials in Peru and Brazil.
Business spending is largely positive in Asia
China, Japan, India, Singapore, Malaysia and Vietnam anticipate growth in capital expenditures
Japan expects the largest growth in capex partially because its economy is boosted by the currency depreciation of the Japanese Yen.
6
March 2017 Outlook
Global Trends
Expected Change in Earnings
Notes: Presented data are the mean public company value for each region or country.
Ea
rnin
gs
-5%
0%
5%
10%
15%
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017
Asia United States Europe
Latin America Africa -5%
0%
5%
10%
Asian Business Outlook Duke University /CFO Magazine March 2017
Earnings growth is expected to increase slightly in Asia
Positive earnings growth
Asian earnings are expected to grow but at a lower pace compared to United States
All major continents expect earnings to increase
Mixed earnings growth across Asia
China lowers expected earning growth, possibly caused by economic interactions with the US and fluctuations in USD/RMB exchange rate.
India and Japan anticipate big positive earnings growth, while Singapore expects negative growth.
7
March 2017 Outlook
Global Trends# F
T E
mp
loyees
Fulltime Employment Outlook
Notes: Presented data are the mean value for each region or country
#FT=Number of Fulltime Employees
0%
4%
8%
Asian Business Outlook Duke University /CFO Magazine March 2017
-5%
0%
5%
10%
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017
Asia United States Europe
Latin America Africa
Asian CFOs expect fulltime domestic employment to grow moderately next year
Positive employment outlook in Asia
Except for Africa, all other continents CFOs expect positive employment growth in the next year, with the Asian expectations the strongest
CFOs in Europe expect fulltime employment to remain relatively flat, while CFOs in Africa expects fulltime employment to shrink.
Chinas lead employment growth in Asia
China expects strong growth in fulltime employment.
The Philippines has the second highest fulltime employment increase expectation, partially because CFOs’ business optimism is high.
India expects employment to grow moderately, consistent with their expectation about revenue growth
8
March 2017 Outlook
Global TrendsW
ag
es
& S
ala
rie
s
-5%
0%
5%
10%
Mar 2016 Jun 2016 Sept 2016 Dec 2016 Mar 2017
Asia United States Europe
Latin America Africa
Expected Wage and Salary Increases
Notes: Presented data are the mean value for each region or country
0%
2%
4%
6%
8%
10%
Asian Business Outlook Duke University /CFO Magazine March 2017
Asian wages and salaries are projected to increase by 5% over the next year
High but volatile wage growth in Asia
Asia has volatile historical wage increases, and wage growth is expected to rise in 2017
Africa has high wage growth and the trend is expected to continue, with wages outgrowing inflation.
Europe has the lowest wage growth.
Moderate wage growth in most Asian countries
Wages will increase 2.5% in Japan; which is good news in a deflationary environment.
Both India and China anticipate strong wage increases, 9.1% and 7.7% respectively
9
March 2017 Outlook
10
What issues and policies most need to be addressed to improve the business climate in your country?
Improving the business climate
EuropeReduce business regulations 43.2%
Reduce political instability 40.0%
Improve public education and training 38.9%
Improve the judiciary / legal system 31.9%
AsiaCorporate tax reform 38.6%
Reduce business regulations 34.2%
Reduce corruption 32.7%
Improve the price inflation/deflation situation 29.1%
Latin AmericaReduce corruption 57.8%
Improve the judiciary / legal system 40.9%
Corporate tax reform 40.9%
Improve infrastructure 34.4%
AfricaReduce corruption 66.0%
Improve infrastructure 52.8%
Reduce political instability 49.1%
Reduce business regulations 30.2%
Asian Business Outlook Duke University /CFO Magazine March 2017
11
What issues and policies most need to be addressed to improve the business climate in your country?
Improving the business climate
0%
10%
20%
30%
40%
50%
60%
70%
80%
China Japan India Malaysia Singapore
Reduce corruption Improve the judiciary /legal systemCorporate tax reform Improve infrastructureReduce business regulations Improve the price inflation/deflation situation
Asian Business Outlook Duke University /CFO Magazine March 2017
12
Prepared for a Demand Surge?
40%
60%
80%
100%
Europe Asia Latin America Africa
Machinery Capacity Inventories Access to raw materials / suppliers Human capital
If orders for your product/service sharply increased over the next few months, would you have enough _____ to meet sharply higher demand? (% Yes shown below)
Asian Business Outlook Duke University /CFO Magazine March 2017
13
Response to US trade proposals
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Europe Asia Latin America Africa China Japan India Malaysia Singapore Philippines
Retaliate against the US proposal Resist but do not retaliate Remain neutral Cooperate with the US proposal
In response to recent trade proposals put forth by the US government, should your government…
Asian Business Outlook Duke University /CFO Magazine March 2017
14
Reactions to US trade proposals
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Europe Asia Latin America Africa China Japan India Malaysia Singapore Philippines
Retaliate against the US proposal Resist but do not retaliate Remain neutral Corporate with the US proposal
In response to recent trade proposals put forth by the US government, should your company …
Asian Business Outlook Duke University /CFO Magazine March 2017
15
Trade alliancesHow do you think trade alliances between countries affect your country’s economy?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Europe Asia LatinAmerica
Africa
Negative No effect Positive
Most emerging markets CFOs think trade alliances have a positive effect on their countries and their own firms
54% of US CFOs think trade alliances have a positive effect on their country but only 30% think the alliances help their own firms
In comparison, 61% of Asia CFOs think trade alliances can help their country and 64% of them believe the alliances can help their own firms
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Europe Asia LatinAmerica
Africa
Negative No effect Positive
How do you think trade alliances between countries affect your company overall?
Asian Business Outlook Duke University /CFO Magazine March 2017
16
Do trade alliances affect the number of workers employed?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Europe Asia Latin America Africa
Negative No effect Positive
Slightly more than half of Latin American CFOs think trade alliances help increase employment in Latin America
Only about 15% of US CFOs think trade alliances increase employment in the US, whereas 25.6% of Asia CFOs think trade alliances will increase employment in their countries.
Asian Business Outlook Duke University /CFO Magazine March 2017
Public TrustRecent data from the Edelman Trust Barometer shows public trust continues to decline
in business and government leadership. To what degree, if any, has a lack of public trust
in business and government affected…
17
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Europe Asia LatinAmerica
Africa
Not at all Very little
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Europe Asia LatinAmerica
Africa
Not at all Very little Moderately A great deal
your company your business environment
Asian Business Outlook Duke University /CFO Magazine March 2017
Response by Companies to Lack of Public Trust
How much do you agree or disagree with the following statements in relation to public concerns
about business trust? (Asian responses shown)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Public perceptions and trust considerations affectmy company's business decisions
We have strengthened our governance policies andprocedures
We have emphasized increased transparency in ourbusiness dealings and reporting
We use marketing and public relations tocounteract the lack of public trust
Our revenues are lower because of a lack of publictrust
Our CEO has chosen to speak out on controversialissues in an effort to regain public trust
We have made organizational changes in responseto the lack of public trust
StronglyDisagree
Disagree
neutral
Agree
Strongly Agree
18Asian Business Outlook Duke University /CFO Magazine March 2017
Air pollution in ChinaTo what degree does air pollution affect the Chinese economy?
29.40%
70.60%
0%
20%
40%
60%
80%
China only
very negative
negative
no effect
positive
very positive
19Asian Business Outlook Duke University /CFO Magazine March 2017
Japan’s Advice to President Trump
For the good of the Japanese business community, should President Donald Trump…
96.3%
100.0%
85.2%
55.6%
88.9%
92.6%
85.2%
48.1%
0% 20% 40% 60% 80% 100%
Build a wall along the Mexican border
Impose a border tax
Impose a substantial tariff on Mexican and Chinese goods
Ease repatriation of foreign profits earned by US firms
Maintain the immigration restrictions he has imposed on foreign nations
Reduce H1-B visas (highly skilled worker) visas
Adhere to prepared remarks during public speeches
Stop using Twitter
Yes No
20Asian Business Outlook Duke University /CFO Magazine March 2017
Japan’s working hours reduction initiative
How will the Japanese Government's initiative to reduce working hours affect your company's.....
21Asian Business Outlook Duke University /CFO Magazine March 2017
0%
20%
40%
60%
80%
Sales Productivity Profit
very negative
negative
no effect
positive
very positive
Return on Assets (ROA)
0%
2%
4%
6%
8%
10%
12%
14%
16%
US Europe Asia Latam China Japan India Singapore Malaysia Philippines Indonesia
Approximate ROA in 2016 Expected ROA in 2017
Profit growth in Asia is expected to be weaker than other regions such as US, Europe and Latin America.
Profit margins are expected to rise in all regions, relative to 2016 profits
CFOs in most Asian countries expect ROA to be higher in 2017, relative to 2016, except for CFOs in the Philippines
CFOs in India expect the highest ROA in 2017 among Asian countries while China and Singapore expect the lowest ROA.
Asian Business Outlook Duke University /CFO Magazine March 201722