China CFO Survey 2016 Achieving growth under the “New Normal”€¦ · To start a new section, hold down the apple+shift keys and click to release this object and type the section

China CFO Survey 2016Achieving growth under the “New Normal”

To start a new section, hold down the apple+shift keys and click

to release this object and type the section title in the box below.



Contents

Foreword 3

Our survey 4

CFOs optimism for the economic outlook wanes, 5 with policies and regulations regarded as sources of risk

Intensified competition, market growth, and structures have 6 become major industrial challenges for enterprises in the New Normal

Revenue growth and cost reduction have become the business 7 focus of many enterprises considering revenue, strategy, and talent challenges

Effective support for business decisions is the primary challenge 10 for most financial departments

Summary 11

Contacts and Author 12

China CFO Survey 2016 1



2



Foreword

The global economy appears to have entered a diverse stage, characterized by relatively strong growth in the United States and burgeoning recovery in Europe, but weaker growth in China and sluggishness in many other emerging markets. Along with economic uncertainty, companies are also faced with other looming challenges, such as regulatory compliance, cost control, funding, capital management, talent development, and operations management. Also unnerving business executives are negative economic factors, including China’s financial fluctuations, volatility in oil prices, and a potential U.S. interest rate hike.

Each of these challenges are keeping CFOs awake at night as they confront their changing roles. In addition to financial reporting responsibilities, CFOs are now expected to be involved in corporate strategy, business transformation, talent growth, stakeholder management, and even data technology for business forecasts.

Deloitte’s CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead of these challenges and demands. The Program encompasses a wide range of initiatives with the purpose of helping CFOs manage the complexities of their roles, tackle their company’s most compelling challenges, and adapt to strategic shifts in the market. One of the key initiatives is the perception survey, which seeks to collect CFOs’ opinions on business environment, company priorities and expectations, financial priorities, and personal priorities.

We respect the fact that CFOs in different locations will respond differently to prevailing economic conditions because of their distinct perceptions about business prospects and other factors unique to their local business environment. Therefore, we decided to conduct a separate CFO survey in the China marketplace, hoping to understand the real challenges faced by CFOs in China and provide our recommendations. We also hope that the China survey will be an important puzzle piece to help offer a more complete picture and a broader perspective to complement the global survey.

Since 2009, China’s economy has roughly doubled, emerging as a superpower that drives global economic expansion. While Chinese leadership are now embracing slower and more moderate economic growth – which many describe as China’s “New Normal”, we are optimistic that China will remain as the global economy in the medium and long term. The China survey seeks to gauge the views of CFOs with regard to their economic perception, business focuses, and risk strategies in the “New Normal”.

This survey, which we hope you find insightful, is only one of the China CFO Program’s key initiatives. We will keep you posted about our other initiatives that are coming up in the near future. If you have any feedback about the survey or our Program, please do not hesitate to contact us.

William ChouNational Managing Partner China CFO Program Deloitte China




49%

21%

16%

2%

12%

CFO Finance Director Vice President Financial Controller Others

25.8%

18.6%

9.3%

7%4.6%

4.6%

2.3%

2.3%

2.3%

2.3%

2.3%

7%

Consumer Business/Products

Processing/Chemicals

Pharmaceutical/Life Sciences

Others

Manufacturing

Automotive

Technology

Construction

Healthcare

Telecommunications

Media/Entertainment

Investment Banking

Tourism,Hospitality & Leisure

ParticipatingIndustires

11.6%

Deloitte China conducted this China CFO Survey from January to March 2016, with vision to further understand the opinions and plans of CFOs of major enterprises in all industries with regard to economy, industry, enterprise development, and financial management. The survey covered persons in charge of finance in enterprises, of whom 49 percent (figure 1) were CFOs, 21 percent (figure 1) were finance directors, and 16 percent (figure 1) were vice presidents. Most of the respondents were from consumer business and products, manufacturing, and construction, others were distributed among various industries.

Figure 2: Distribution of Participating Enterprises by Industry

Our survey

Figure 1: Title of participants in their organization (n=152)

Source: China CFO Survey 2016, Deloitte Research


4



Further economic turmoil/recession Detrimental governmental policies/regulations

Increasing competition/pricing pressures Working capital availability/cost

Investment/execution missteps Rising commodity prices

57.8%

17.8%

11.1%

6.7%

4.5%2.1%

Figure 4: Potentially high-impact risk factors

Slowdown and an uncertain outlook has further increased executives’ concern about the economy. Over time, CFOs have grown less optimistic about the economic outlook. We can see from the survey results that, of the CFOs surveyed, 50 percent (figure 3) felt worse about the economic outlook over the past 3 months, and only 10.9 percent (figure 3) grew more optimistic. Meanwhile, up to 57.8 percent (figure 4) of CFOs ranked further economic turmoil/recession as the top potential high risk factor among all risk factors, followed by detrimental governmental policies/regulations. Regulatory uncertainties in China’s New Normal and New Rules have fueled CFO fears.

Feedback results showed that more than 70 percent of surveyed enterprises made adjustments in view of China’s New Normal and New Rules. Addressing the change in a proactive manner became one of the countermeasures by enterprises being surveyed in the New Normal.

CFOs optimism for the economic outlook wanes, with policies and regulations regarded as sources of risk

50%

39.1%

10.9%

Less Optimistic More OptimisticNo Change



Figure 3: Changes in CFOs’ views on economic prospects over the past three months


In the survey, CFOs from different industries selected an order for the top three challenges facing enterprises. Correspondents represented diversified industries, but the survey results indicate centralization. 21.3 percent (figure 5) of correspondents believe that competition is the number one challenge facing enterprises, and over 67 percent (figure 5) of correspondents have ranked it as one of the top three challenges for enterprises. This indicates that intensified competition has become a major challenge for enterprises in the New Normal. Market growth and structures are recognized as other challenges second to competition, which reflects that industry growth potential and structural changes, to some degree, have put pressure on some surveyed enterprises. It should be noted that a significant proportion expressed concerns about talent, which implies that talent competition and effective human resource management of some industries have become an important challenge for enterprises. Although industry regulation/legislation are not enterprises’ primary challenge, over 18 percent (figure 5) of correspondents believe that industry regulation/legislation are the third largest industrial challenge for enterprises. Detrimental governmental policies/regulations were deemed as the second largest potential source of risk by CFOs, showing that a large portion of CFOs are quite worried about this source of risk.

Figure 5: Voting of CEOs on the top three industrial challenges of enterprises


First largest industrial challenge of enterpirses

Third largest industrial challenge of enterpirses

Second largest industrial challenge of enterpirses

Competition Market growth and structure

Talent Industry regulation/legislation

Pricing trends Overcapacity

14.9%

9.1%

7%

15%

6.8%

9.3%

8.5%

6.8%

18.6%

15%

15.9%

7%

14.9%

20.5%

20.9%

21.3%

20.5%

25.6%

67.4%

56.3%

33.9%37.9%

31.1% 31%

Intensified competition, market growth, and structures have become major industrial challenges for enterprises in the New Normal


6

First major challenge ofinternal management

Second major challenge ofinternal management

Third major challenge ofinternal management

59.7%

54.8%53%

26.6%

19.6%17.7%

Talent(availability,development,morale and cost)

Revenue growthpotentials

Framing and/oradopting strategy

Cost reduction Managing assetsand working capital

Managing operations and supply chain risks

26.7%

8.9%

13.3%

26.7%

17.8% 2.2%4.4% 4.4%

11.1%

2.2%

13%6.7%

2.1%

13%

8.9%

37%

17.8%

15.2%

Figure 6: Voting of CEOs on three major challenges for internal management of enterprises


At a corporate level, CFOs interviewed have reached consensus on major challenges facing the internal management of enterprises. Revenue growth potentials, framing and/or adapting strategy, and talent received the most votes for “The number one major challenge,” as well as over 50 percent (figure 6) of total votes for the top three major challenges. In the context of continuous economic slowdown, increasingly fierce competition may have negative impacts on revenue growth potentials, making revenue growth the primary challenge for most enterprises, with some facing growth bottleneck. In spite of different rates of voting individually, framing and/or adapting strategy and talent received similar vote totals for the first three major challenges, which indicates that financial officers have attached the same importance to them. It is imperative for some industries to make strategic transitions and better manage talent.

Revenue growth and cost reduction have become the business focus of many enterprises considering revenue, strategy, and talent challenges




First major business focus Second major business focus Third major business focus

Revenue growth Cost reduction Financing & liquidity Capabilitydevelopment

Asset efficiency-workingcapital

77.5%

50.6%45.9%

41.3%

73.3%7%

15.9%25.6%

34.1%

23.3%18.6%

20.9%

6.8%

13.6%

20.5%

6.8%

18.2%

9.1%13.6%

54.6%

Facing various changes, interviewed enterprises have made targeted plans for their businesses. As mentioned above, revenue growth potential is regarded by many enterprises as the primary challenge. As a result, over half of the enterprises interviewed consider revenue growth as the primary business focus, and over 77 percent (figure 7) of enterprises regard revenue growth as one of its top three business focuses. Cost reduction is the second major business focus, earning over 73 percent (figure 7) of total votes. When revenue growth encounters bottleneck, cost control is expected to be an important means to increase profit. Increasing income and decreasing expenditure have become business focuses for most enterprises over the next twelve months. Some enterprises have also shifted the direction of their business development toward asset efficiency, financing and liquidity, and capability development, which, to some extent, shows the efforts of different enterprises in process management, and improvement of financial and corporate capabilities.

Figure 7: CFOs’ voting on companies’ three business focuses in the next 12 months


8



Primary focus Secondary focus Third focus

Strategy setting,development and execution

Capital / liquidity Investments/initiatives

Risk Reporting &regulatorycompliance

Performance management

66.7%

48.8% 46.7%

40%35.5%

31.1%

15.6%

24.4%

6.7%

26.7%11.1% 22.2% 11.1%

15.6%

4.4%

11.1%

2.2%

20%

8.9%

13.3%

11.1%

13.3%

8.9%

42.2%

Figure 8: CFOs’ voting on three key focuses


Focuses vary among CFOs of different companies. Companies’ strategy setting, development, and execution are the primary focuses of many respondents, indicating that financial officers interviewed are more actively engaging in the formulation and implementation of their companies’ long-term planning, which is expected to improve the effectiveness and implementation level of the companies’ strategies to some extent. As a carrier of multiple targets including business growth and cost control, corporate strategy is of great significance. Financial officers’ responsibilities, investment / initiatives, and capital / liquidity, continue to be the key focus areas of most financial officers. Certain interviewed financial officers also considered risk control, performance management, and reporting and regulatory compliance as their key focus areas, revealing focus differences among companies.




Financial departments’first major challenge

Financial departments’second major challenge

Financial departments’third major challenge

Support for maturebusiness decisions

Capital / liquidity Ensuring funding,liquidity, and acceptable costs ofcapital

Support a majortransactions

CurrencyMovement

Influencingbusiness strategies

65.9%

29.5%27.4%

31.8%

27.3% 27.3%

9.1%

15.9%

40.9%15.9%

6.8% 4.6%

18.2% 4.5%

11.4%9.1%

9.1%

9.1%11.4%

4.6%

13.6%

9.1%

9.1%

6.8%

Effective support for business decisions is the primary challenge for most financial departments

Financial departments are exposed to multiple challenges in daily work, which vary from company to company as shown in the survey. Over 65 percent (figure 9) of interviewees believe that the primary challenge for financial departments is to provide metrics, information, and tools needed for sound business decisions. Therefore, effective support for business decisions can be regarded as a major challenge for most financial departments. Other items account for no more than 20 percent (figure 9) individually and no more than 35 percent (figure 9) in total, which indicates that financial departments of different companies see significant differences in the two major challenges other than effective support for business decisions. Processes efficiency, ensuring funding, liquidity, and acceptable costs of capital, supporting a major transaction, currency movement, and influencing business strategies—these five items are very close in total percentage, and none of them stand out individually. This suggests that challenges for financial departments of different companies vary due to corporate strategies, business structures, and business areas.

Figure 9: Three major challenges for corporate financial departments


10



CFOs are less optimistic about China’s economy and expect economic turmoil/recession to be a high-risk factor. Most companies have taken proactive measures against potential risks. In the economic New Normal, potential revenue growth bottleneck and intensifying competition are seen as the major industrial challenges. Meanwhile, companies are confronted with multiple challenges concerning development strategies, revenue growth bottleneck, and talent. Faced with these challenges and uncertainties, most companies are focusing on increasing revenue and reducing expenditure to develop business. In addition to the focus on financial aspects, CFOs are paying more attention to and having more of an impact on corporate strategies. Support for business decisions is increasingly important and is also the source of the challenges for corporate financial departments. Exchange rate, process efficiency, and transaction support are also important challenges for financial departments.

Summary




Contacts and Author

ContactsWilliam ChouNational Managing Partner China CFO Program Deloitte ChinaTel: +86 10 8520 7102Email: [email protected]

Emily LeungNational Program Manager China CFO ProgramDeloitte ChinaTel: +852 2852 1686Email: [email protected]

AuthorDeloitte Research TeamEmail: [email protected]

AcknowledgementWe would like to thank all participatng CFOs for their support in completing the Survey.

About Deloitte China’s CFO Program

China CFO Program brings together a multidisciplinary team of Deloitte leaders and experience professionals to help CFOs stay ahead in the face of growing challenges and demands. The Program harnesses our organization’s board capabilities to deliver forward thinking and fresh insights for every stage of a CFO’s career – helping CFOs manage the complexities of their roles, tackle their company’s most compelling challenges, and adapt to strategic shifts in the market.

Contacts

For more information about Deloitte China’s CFO Program, visit our website at: www.deloitte.com/cn/en/chinacfoprogram.html

12

About Deloitte GlobalDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 225,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter.

About Deloitte in Greater ChinaWe are one of the leading professional services providers with 23 offices in Beijing, Hong Kong, Shanghai, Taipei, Chengdu, Chongqing, Dalian, Guangzhou, Hangzhou, Harbin, Hefei, Hsinchu, Jinan, Kaohsiung, Macau, Nanjing, Shenzhen, Suzhou, Taichung, Tainan, Tianjin, Wuhan and Xiamen in Greater China. We have nearly 13,500 people working on a collaborative basis to serve clients, subject to local applicable laws.

About Deloitte ChinaThe Deloitte brand first came to China in 1917 when a Deloitte office was opened in Shanghai. Now the Deloitte China network of firms, backed by the global Deloitte network, deliver a full range of audit, tax, consulting and financial advisory services to local, multinational and growth enterprise clients in China. We have considerable experience in China and have been a significant contributor to the development of China’s accounting standards, taxation system and local professional accountants.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is by means of this communication, rendering professional advice or services. None of the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

©2016. For information, contact Deloitte China.HK-013ENG/SC-16

Documents

China CFO Survey 2016 Achieving growth under the “New Normal”€¦ · To start a new section, hold down the apple+shift keys and click to release this object and type the section