• by Jack Loechner , Staff Writer @mp_research, May 18, 2010

According to the McKinsey sixth annual survey asking executives about the forces shaping the world economy, there is little change in how respondents view the importance of global trends compared with previous years, either for business in general or for their own companies' profits. The online survey, in the field in March 2010, generated responses from 1,416 executives around the world, representing the full range of industries, regions, functional specialties, and seniority.

Companies are shifting their strategic planning from crisis mode to a more balanced consideration of short-term profitability and long-term strategic issues, says the report. One-third now focus equally on the short and long terms, compared with one-fifth in 2009.

An ongoing shift in global economic activity from developed to developing economies, accompanied by growth in the number of consumers in emerging markets, are the global developments that executives around the world view as the most important for business and the most positive for their own companies' profits over the next five years.

Executives also identify two other critical positive aspects of globalization: technologies that enable a free flow of information worldwide and, increasingly, global labor markets. These four trends are the ones that half of the respondents say their companies have taken active steps to address.

The findings show that the global economy faces significant challenges as it continues to integrate. 63% of respondents expect increased overall volatility to become a permanent feature of the global economy, and another 23% see sharply higher levels of volatility that will undermine the economy's robustness. In addition, high levels of public debt are a headache in Europe and North America, where most executives fear the debt will have a negative impact on GDP growth.

Emerging markets, with populations that are young and growing, will increasingly become not only the focus of rising consumption and production but also major providers of capital, talent, and innovation. This will make it imperative for most companies to succeed in emerging markets. However, no more than 40% of executives at companies headquartered in developed economies expect a quarter or more of revenues over the next five years to come from emerging markets-and 10% expect none.

To capture growth from emerging markets, the actions most often taken, each cited by around half of the respondents, are building a local presence, developing partnerships or joint ventures with local companies, recruiting talent from emerging markets, and developing new business models. Executives representing Chinese and Indian companies report they are developing new business models at a significantly higher rate than companies from any other region. Perhaps more surprising, respondents at companies headquartered in North America report significantly lower rates of actions to capture emerging-market growth than those from any other region, with fully 20% reporting no actions at all taken to capture emerging-market growth. In addition, large and public companies significantly outpace small and private ones in pursuing actions to capture emerging-market growth.

Executives cite the top four risks faced by their companies in emerging markets as:

·      Breach of intellectual property (40%)

·      Volatility of currency or exchange rates (38%)

·      Geopolitical instability (26%)

·      Lower safety and quality standards (26%)

Executives at North American, high-tech, and telecom companies are most concerned about IP, while companies in the financial sector worry most about currency volatility and energy companies about geopolitical instability.

In addition to questions on individual global trends and emerging markets, the survey explores for the first time four interconnected themes that highlight the opportunities and challenges faced by global economic integration itself and by companies seeking to profit from it:

·      Labor productivity and talent management

·      The global flow of goods, information, and capital

·      Natural-resource management

·      The increasing role of governments

Finally... looking ahead the report concludes:

·      Capturing the opportunities offered by growth in emerging markets, the trend executives say is the most important, will require retooling existing business models and reconfiguring companies' price/ value equations.

·      Respondents express a great deal of trepidation about geopolitical instability and market volatility in emerging markets, so strategies to assess the likelihood of these conditions and manage their risk will be vital.

·      Technology will continue to materially reshape consumer awareness, choice, and interactivity models, and companies should be striving to tap the power of technology to improve their competitive advantage.

To view the complete details of this comprehensive study and report, please visit McKinsey here.