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Inside the mind of the CEO A Luxembourg perspective
www.pwc.lu/ceosurvey
20th CEO SurveyCompeting in a global and uncertain environment p4 / Stakeholders’ expectations are changing p14/ Addressing greater expectations p20 / Betting on the future p30
49 CEOs and 11 sector leaders interviewed in Luxembourg
53%of Luxembourg CEOs believe economic growth will improve in the country vs. 29% of Global CEOs believe economic growth will improve worldwide
95%of Luxembourg CEOs are concerned about over-regulation vs. 80% of Global CEOs
2 | PwC Luxembourg
For the last two decades, PwC has asked business leaders around the globe about the trends reshaping business and society. As we mark the 20th year of our annual CEO Survey, we’ve decided to take a closer look at the opportunities and challenges specific to Luxembourg.
Our 20th Annual Global CEO Survey takes us into the minds of 1,379 CEOs across 79 countries. Responses were collected between September and December 2016. Please follow this link to access the Global findings of the survey: www.pwc.com/ceosurvey
In Luxembourg we collected the answers of 49 CEOs from a broad spectrum of industries. We also had the pleasure to interview 11 sector leaders representing various government-led promotional initiatives such as the Luxembourg Cluster Initiative and Luxembourg for Finance.1
Global CEO Survey Luxembourg CEO Survey
1,379CEOs interviewed in
79 countries
49CEOs interviewed &
11 sector leaders interviewed
1. Please see page 33 and on for more information
1
Inside the mind of the CEO A Luxembourg perspective
Introduction fromJohn Parkhouse
As they look forward to the year ahead, CEOs in Luxembourg are confident about prospects for the local economy while holding a cautious view of the global state of the economy. With the notion that business success in the 21st century will be redefined by more than financial profit, business leaders are focusing on the broader effects that their companies have on the communities they serve, and their impact on the society that they are a part of.
However, even with issues such as regulatory change, geopolitical uncertainty, cyber threats, competition and the availability of key skills at the top of their minds, CEOs in Luxembourg remain extremely optimistic as compared to their Global peers.
This year, advances in technology are by far the most impactful trend to affect both stakeholder expectations and how companies operate. To successfully address the expectations of a connected and digitally smart society, companies are looking to technology to reduce costs and enhance their interactions with customers.
Although some worry that growing globalisation and technology will eliminate jobs, CEOs still need skilful people in their businesses. Creativity can’t be coded – as evidenced by more than half of our surveyed CEOs being optimistic about increasing their headcount over the coming 12 months.
The potential impact of Brexit is also on the minds of CEOs in Luxembourg. Interestingly, CEOs from non-financial sectors are confident that Brexit will not have a major impact on their business in the future, while CEOs operating in the financial sector believe there will be a positive impact in the next five years.
It is clear that business leaders remain extremely bullish as to the opportunities for Luxembourg; it is equally clear that there are some very real challenges which Luxembourg needs to address if we are to remain a globally competitive hub for international business. At PwC, we work across all sectors and with companies of all sizes. We actively support many of the key initiatives helping to reshape the future of Luxembourg. We see the opportunity; we understand the risks and challenges and how Luxembourg is responding. As a result, we believe in our country’s future in the new global business model and our ability to embrace – and in some cases drive – the seismic shift in the use of technology and need for talent that is to come. What we need to do now is to act – to paraphrase a now familiar line – to “Make it Happen”.
I’ll close by expressing my sincere thanks to the Luxembourg CEOs who took the time to participate in the survey and have generously given us their insights. Many thanks also to the sector leaders who have engaged in detailed conversations with us. Their thoughts and insights have been fundamental to the analysis and conclusions in this report.
This year marks the 20th anniversary of our Global CEO Survey. For the first time, we have used the global survey as a basis to ask business leaders in the Grand Duchy about the trends reshaping both business and society. In this report, we highlight their views for the future of Luxembourg and discover what sets our country apart.
John Parkhouse CEO and Senior Partner, PwC Luxembourg
2 | PwC Luxembourg
3
Inside the mind of the CEO A Luxembourg perspective
4 14 20 30 44
Top concerns for Luxembourg CEOs
Facing a wide range of stakeholders
A nation strategy for sustainable growth
Research methodologyRealists or optimists?5
Searching for growth Transforming trends Discussions with sector leaders
About the sectors
CEO profilesGearing up for change
What do stakeholders want?
Acknowledgements and thanks
Addressing technological change
Talent strategies for the digital age
The impact of Brexit
6
14 30 44
16 33
38
45
27
29
24
22
9 18 48
Inside the mind of the CEO A Luxembourg perspective
Section one Section two Section three Section four Further reading
Competing in a global and uncertain environment
Stakeholders’ expectations are changing
Addressing greater expectations
Betting on the future
Further reading
4 | PwC Luxembourg
Over the past twenty years, the world has witnessed tremendous upheavals as a result of globalisation and technological change. Trade flows have quadrupled and global internet traffic has risen by a factor of 17.5 million. The twin forces of globalisation and technological progress have helped to boost living standards and lessen inequality between countries. And, in what’s perhaps the most remarkable achievement of all, they’ve lifted a billion people out of extreme poverty.2
But as globalisation grows, so too does uncertainty. The 2007-2008 Global Financial Crisis (GFC) has shown that economic and financial strains spread faster than ever before and have unforeseen side effects.
Nearly ten years on, the geopolitical and business landscapes still haven’t really returned to what they were. Will they ever?
From the election of Donald Trump in the United States and the rise of right-wing parties across Europe to the June 2016 Brexit vote, many sense that something perilous is spreading: nationalism and isolationist policies that may harm businesses and slow economic growth.
Despite nationalistic policies becoming more prevalent, internationalism is also growing. Certain forces, such as digital connectivity, are ensuring that countries continue to reach out to one another and collaborate on borderless issues, like global security and the environment.
Competing in a global and uncertain environment
Competing in a global and uncertain environment
2. PwC, “20 years inside the mind of the CEO… What’s next?”
5
Inside the mind of the CEO A Luxembourg perspective
Figure 1 Over-regulation and geopolitical uncertainty are top concerns for Luxembourg CEOs
Q: How concerned are you about the following potential economic, policy, social and business threats to your organisation’s growth prospects?
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Social instability
Adequacy of infrastructure
Brexit
Lack of trust in business
Climate change andenvironmental damage
Shift in consumer spendingand behaviours
Government response to �scal de�citand debt burden
Increasing tax burden
Availability of key skills
Cyber threats
Geopolitical uncertainty
Over-regulation
Not very concerned Not concerned at all Somewhat concerned Very concerned
95%
91%
76%
75%
66%
64%
54%
52%
51%
48%
56%
47%
Put simply, the world’s complexity is continually evolving.
At a business level, this means a new leadership style is necessary. The companies that thrive will be those that can successfully navigate technology while preserving the human touch: those that build global relationships while being in touch with their local environment.
Top concerns for Luxembourg CEOsIn today’s world, CEOs face a business environment that’s becoming increasingly complicated to understand and adapt to.
This is why Luxembourg CEOs’ top concern is over-regulation. Added layers of regulations at various levels – national and supranational – inevitably make conducting business more difficult and innovation suffers. This is particularly evident in the financial world.
Geopolitical uncertainty is the second-biggest concern, cited by 91% of Luxembourg CEOs, with cyber threats and the availability of key skills coming a close third and fourth respectively.
Interestingly, Global CEOs also cite over-regulation, geopolitical uncertainty and the availability of key skills as top concerns. Meanwhile cyber threats are only the tenth-biggest concern for Global CEOs. Without a doubt, the reason why cyber threats are considered more important in Luxembourg is because of the sophistication and interconnectivity of the country’s economic environment, with the financial sector – where confidentiality is of uttermost importance – accounting for about a third of GDP.
Not concerned at all Not very concerned Somewhat concerned Extremely concerned
6 | PwC Luxembourg
Searching for growth
Before 2007, the rise in global economic integration looked unstoppable. However, since the Global Financial Crisis, global trade has slowed down significantly and is no longer driving growth the way it once did.
Many factors contribute to this. We have seen a steady rise in protectionist measures, aimed at ensuring that labour-intensive manufacturing does not move out of richer countries. The 2007-2008 crisis brought with it regulatory measures that dented cross-border financial flows. Furthermore, productivity and new technological gains have had a far greater impact on growth than global economic integration.
In this context, we asked CEOs how confident they were with regards to economic growth.
Only 26% of Luxembourg CEOs believe that economic growth will improve globally. This is in line with the global perspective (only 29% of Global CEOs believe that economic growth will improve globally).
Luxembourg CEOs have even lower expectations for growth in Europe. With Brexit on the horizon and elections coming up in the largest European Union Member States, uncertainty is without a doubt influencing their confidence level.
However, Luxembourg CEOs are largely optimistic about local growth prospects: 53% believe that economic growth in Luxembourg will improve in 2017. This optimism is in line with the European Commission’s recently released Winter 2017 Forecast. The forecast for Luxembourg’s GDP growth has been raised: it is now estimated that Luxembourg’s GDP will grow by 4% in 2017 and 3.9% in 2018, more than in any other eurozone country.
53%believe that economic growth in Luxembourg will improve in 2017
Figure 2 Luxembourg CEOs’ expectations for growth
Q: Do you believe economic growth will improve, stay the same, or decline over the next 12 months? Globally, in Europe, and in Luxembourg?
Economic growthGlobally
Improve
Stay the same
Decline
Improve
Stay the same
Decline
Improve
Stay the same
Decline
Economic growth in Europe
Economic growth in Luxembourg
19%
55%
26% 30%
54%
16% 9%
38%
53%
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Competing in a global and uncertain environment
7
Inside the mind of the CEO A Luxembourg perspective
Figure 3 Top countries for growth for Global CEOs
Q: Which three countries, excluding the one in which you are based, do you consider most important for your organisation’s overall growth prospects over the next 12 months?
Figure 4 Top countries for growth for Luxembourg CEOs
Q: Which three countries, excluding the one in which you are based, do you consider most important for your organisation’s overall growth prospects over the next 12 months?
Source: PwC’s CEO Survey, answers from Global CEOs
Despite globally uncertain growth expectations, CEOs are still looking to expand their business abroad in order to increase their customer base.
In light of this, we asked which individual countries they would be turning to. Interestingly, twenty years ago, Global CEOs saw emerging markets as a sure ticket for growth. In 2011, Brazil and China were still in their top 5 destinations for growth. This year, however, only the most developed economies are in the top 5. As it’s become more difficult to determine where growth will come from, CEOs are betting on familiar runners. The United States and China, and to a lesser extent Germany and the UK, remain the countries that most CEOs cite among their top overseas growth markets.
3. STATEC, Foreign trade of Luxembourg by partner countries 1993-2016. Note: the US is ranked 5th ex aquo by STATEC and 6th by our respondents; Switzerland is ranked 6th ex aquo by STATEC and 7th by our respondents; China is ranked 9th ex aquo by STATEC and 9th by our respondents.
US
21%
Brazil
19%
China
39%
Germany
12%
18%India
US
43%
China
33%
Germany
17%
8%
Japan
UK15%
Luxembourg CEOs are looking to neighbouring countries Germany, France and Belgium for growth. The UK and Italy round up the top 5 destinations. Despite Brexit, the UK remains the fourth destination of choice for CEOs in Luxembourg.
These findings are generally in line with data published by STATEC on Luxembourg’s top trading partners.3 We note that the Netherlands, a traditional trading partner of the Grand Duchy and which happens to be the fourth destination for Luxembourg exports, currently seems to be low on the radar of Luxembourg CEOs, according to our survey. On the other hand, the largest non-EU Member States on the receiving end of Luxembourg exports match CEOs’ current priority countries for growth: the US, Switzerland, and China.
38%
55% 55%
35%
23% 18% 15%
10% 8% 5% 5% 3% 3% 3% 3% 3% 3% 3%
Fran
ce
Ger
man
y
Bel
gium U
K
Italy
US
Sw
itzer
land
Nor
dic
s
Chi
na
Can
ada
Jap
an
Slo
vaki
a
Aus
tral
ia
Cze
ch R
epub
lic
Net
herla
nds
Hun
gary
Por
tuga
l
Sp
ain
8 | PwC Luxembourg
According to our colleagues at the Growth Markets Center,4 at the beginning of 2016 many growth markets were experiencing a drop in economic performance. This led to several commentators and investors questioning the future role of these markets as leaders of global growth. However, economic experts are now projecting that growth will return to certain developing markets by 2017 – most notably Brazil, Nigeria and Russia – whilst events in a number of developed markets, such as the UK and the US, have brought uncertainty to their short and medium-term growth prospects.
To get a more accurate picture of trends in growth markets, PwC’s Growth Markets Center has looked at the actual quantum of growth in GDP (rather than the GDP percentage change). As shown in the graphic below, there has been a major shift in the real balance of economic power since 2008, with developing economies overtaking advanced economies in terms of the quantum of GDP growth. By and large, this has remained the case ever since. Despite the current global slowdown, the next major surge in terms of real quantum growth is expected to take effect from the end of 2016, returning these growth markets to the heights experienced in 2011-12 – and more importantly with absolute growth reaching 1.9 times more than expected in developed markets by 2021.
4. PwC Growth Markets Centre, “Winning in maturing markets”, January 2017
Figure 5 Quantum of GDP growth (in USD bn, 1981-2021)
Source: PwC Growth Markets Centre, “Winning in maturing markets”, January 2017
Competing in a global and uncertain environment
1981
1982
1983
1984
1985
1986
1987
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1989
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2017
2018
2019
2020
2021Q
uant
um o
f GD
P g
row
th
(US
D b
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Dominant period for developed markets
High growth trajectory for growth markets
Growth markets overtaking developed
regions
Next leap for growth markets
Developed markets Growth markets
4,000
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(1,000)
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9
Inside the mind of the CEO A Luxembourg perspective
The impact of BrexitAs this survey was conducted in the autumn of 2016, we were able to capture the sentiment around Brexit in Luxembourg and its potential impact in the coming years.
Overall, Luxembourg CEOs from non-financial sectors (manufacturing, transportation and logistics, wholesale and retail trade) are confident that Brexit will not have a major impact on their business outlook in the near future. In the long term, the non-financial players who envisage a negative impact are worried about “unfair” competition from UK players due to deregulation in the UK, as well as a decrease in business from UK clients. On the other hand, the non-financial players who anticipate a positive impact are expecting positive spillovers from financial activities being relocated to Luxembourg, thus increasing demand for their products or services.
CEOs from the financial sector are split with regard to the short-term outcome of Brexit. However, the majority believe that the long-term impact will be positive: they anticipate that financial-sector activities will be transferred to Luxembourg (e.g. outsourcing, delegation, domiciliation of management companies/headquarters) and that Luxembourg fund structures (such as the RAIF) will be used.
Figure 6 How Luxembourg CEOs perceive Brexit
Q: How will Brexit impact your industry in the coming year? In the next 5 years?
Positive
Neutral
Negative
8% 8%
84%
Positive
Neutral
Negative
27% 33%
33%
Positive
Neutral
Negative
22%
45%
7%
Positive
Neutral
Negative
57% 36%
In the coming year
In the next 5 years
40%
Non-FS respondents FS respondents
Non-FS respondents FS respondents
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
10 | PwC Luxembourg
Q: What will the impact of Brexit be on your industry?
“UK generating new (unfair) competition if they are not sticking to EU regulations.”
CEO of a Luxembourg ICT company
“Funds and asset management companies will be redomiciling in large numbers.”
CEO of a Luxembourg-based Bank part of a North-American group
“Our group may move its banking headquarters if necessary.”
CEO of a Luxembourg-based Bank part of a Japanese group
“Possible Brexit impacts in the long term are forex risk and access to market... but they can be managed.”
CEO of a Luxembourg manufacturing company
“The UK will be stronger after leaving the EU. They will be steering their regulation in a more business friendly way. This will be a strong competitive advantage against European companies.”
CEO of a Luxembourg–based insurance undertaking part of a Swiss group
“One year after the referendum vote, there will be a move from UK players to set-up European structures, in particular an increased use of RAIF structures in Luxembourg due to the short time to market.”
CEO of a Luxembourg–based asset manager part of a UK group
Source: PwC’s CEO Survey, comments from Luxembourg CEOs
Competing in a global and uncertain environment
11
Inside the mind of the CEO A Luxembourg perspective
The direct impact that Brexit has on Luxembourg-based companies will depend on their ties with the UK: do they sell in the UK or have operations in the UK?
Only 37% of non-financial-sector respondents sell in the UK, while 63% of respondents from financial sectors service clients in the UK. Clearly, Brexit’s impact on the Luxembourg economy will initially spread through the financial centre.
As financial companies established in Luxembourg are often part of a larger group, they predict that they will continue servicing the UK through other channels (e.g. a UK-based entity or the group headquarters), hence potentially bypassing Luxembourg. Therefore, the outcome of negotiations concerning the European passport for financial services will be important. This will determine which, if any, activities continue to be serviced out of Luxembourg and which activities move outside of the European Economic Area (EEA).
Non-FS respondents FS respondents
Yes Yes
37% 63%
Q: If so, how do you envisage that you will continue to service this market following Brexit?
“We’ll see after the European passport negotiations have concluded.”
CEO of a Luxembourg-based real estate company part of a North-American group
“We also have a UK-based entity that could be leveraged if required.”
CEO of a Luxembourg-based asset-servicing company part of a North-American group
“We are already set up in the UK.”
CEO of a Luxembourg-based insurance undertaking part of a Swiss group
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Figure 7 Servicing the UK market
Q: Do you sell into the UK market today?
12 | PwC Luxembourg
Non-FS respondents FS respondents
No current plans/Not applicable No current plans/
Not applicable
Potentially, but as of today unsure
Yes
41%
6%
53%
100%
Q: If so, which activities?
“Market activities such as FX and securities lending.”
CEO of a Luxembourg-based bank part of a North-American group
“Potential to bring back distribution from our UK global distributor.”
CEO of a Luxembourg-based asset manager part of a UK group
“Financial Services for non-EU resident clients as they are about to leave European providers due to the complexity created.”
CEO of a Luxembourg-based insurance undertaking part of a Swiss group
With regard to relocating activities, the picture for the financial industry is very different from other economic sectors. Non-financial-sector companies are more likely to sell directly to UK clients, and therefore do not see the need to move human resources or any other activities in order to continue servicing the UK market.
Companies operating in the financial industry are more likely to have business units in the UK – 41% may potentially have to move some of these activities elsewhere. This may involve relocating some to Luxembourg (e.g. administrative activities related to the management of investment funds), but it may also involve moving activities to the country in which the group headquarters.
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Figure 8 Relocating activities in the wake of Brexit
Q: Do you have any plans to relocate or shift any activities previously located in the UK as a result of the Brexit vote?
Competing in a global and uncertain environment
13
Inside the mind of the CEO A Luxembourg perspective
41%of Luxembourg respondents operating in the financial industry in the UK may potentially have to move some of their activities elsewhere
14 | PwC Luxembourg
Facing a wide range of stakeholdersCompanies have to adapt in a rapidly changing environment in order to meet different stakeholder demands. Previously, companies primarily addressed customer needs; today, they face a wide range of parties – each with their own agenda.
Interestingly, Luxembourg CEOs rank the importance of those different parties in the same order as Global CEOs.
Customers and clients continue to be the most impactful group of stakeholders. As customer expectations change due to the digital experiences offered by companies such as Amazon, Uber, Airbnb and Apple, the traditional B2C interactions are being disrupted. Customers are increasingly calling for enhanced accessibility, convenience, and tailored products and services.
Government and regulators are the second most important group shaping companies’ strategies, according to Global CEOs. In Luxembourg, there is a clear divide between FS respondents (who rank it joint first along with customers and clients) and non-FS respondents (who rank it joint third along with employees). Regulation has become a tough topic for the Luxembourg financial sector in recent years. Recent regulations, such as BEPS (Base Erosion and Profit Shifting) and CRS (Common Reporting Standard), and upcoming ones, such as MiFID 2 (Markets in Financial Instruments Directive 2), are set to determine how businesses continue to be profitable.
Other stakeholders considered to have a significant impact on organisations’ strategies are competitors, employees, supply chain partners and providers of capital.
Other groups such as NGOs, the media and local communities were considered more anecdotal by CEOs.
Stakeholders’ expectations are changing
Stakeholders’ expectations are changing
15
Inside the mind of the CEO A Luxembourg perspective
Luxembourg CEOs
Global CEOs
Customersand clients
Employees(including
trade unions)
34% 21%Supply chain
partnersProviders of
capital (including activist investors)
Governmentand regulators
Industry competitorsand peers
95% 83% 74% 60% 53% 36%
Customersand clients
Employees(including
trade unions)
34% 21%Supply chain
partnersProviders of
capital (including activist investors)
Governmentand regulators
Industry competitorsand peers
90% 69% 67% 51% 48% 41%
Figure 9 Customers and clients remain at the centre of CEOs’ strategies
Q: What impact do the following wider stakeholder groups have on your organisation’s strategy?
Note: Percentage of respondents who indicated a high or very high impact
Source: PwC’s CEO Survey
16 | PwC Luxembourg
Transforming trendsTransforming trend #1: Technological advances
According to Luxembourg CEOs, technological advances are the trend that will have by far the biggest impact on stakeholders’ expectations.
Technology is giving people access to more information about what companies offer – thus raising the bar for the minimum standards expected. In other words, technology empowers clients, regulators, suppliers, employees and capital providers. In particular, mobile connectivity and social media have become fundamental ways of getting information and buying goods and services. The “Uberisation” of a growing number of sectors – offering quick, simple and dynamic ways to access goods and services using mobile apps – is also becoming an important trend in changing customer perceptions of value. Together, these factors are helping reshape how people interact with brands and what they expect of them, albeit in very different ways.
In Luxembourg, financial-sector companies are actively looking at the latest advances in the field of FinTech and are preparing to embrace the digitalisation of their business models. Non-financial-sector companies are on the lookout for developments in Artificial Intelligence, Big Data, Robotisation and Automatisation (the so-called Industry 4.0 revolution).
Transforming trend #2: Shift in global economic power
Luxembourg CEOs believe that the shift in global economic power is the trend that will have the second-biggest impact on wider stakeholder expectations. This shift in power may be seen as either a threat or an opportunity for advanced economies.
Luxembourg is staying a step ahead in order to maintain sustainable growth by creating synergies with emerging economic powers, in particular China. One example in the financial sector is that Chinese banks are being encouraged to set up operations in Luxembourg. As of February 2017, the five largest Chinese banks have settled (or are considering settling) their European headquarters in Luxembourg. Furthermore, Luxembourg is the most important cross-border renminbi (RMB) hub for business in the eurozone. Another example, in the logistics industry, is the Memorandum of Understanding (MoU) set up to evaluate the possibility of a railway connecting China to Luxembourg.
Stakeholders’ expectations are changing
17
Inside the mind of the CEO A Luxembourg perspective
90% 77%
Luxembourg CEOs
63% Luxembourg CEOs
Global CEOs
58% Global CEOs
59% Luxembourg CEOs
24% Luxembourg CEOs
61% Global CEOs
43% Global CEOs
22% Luxembourg CEOs
36% Global CEOs
Technological advances
Shift in global economic power
Demographic shifts
Resource scarcity and climate change
Urbanisation
Figure 10 Technology and the shift in power are transforming stakeholders’ expectations
Q: Which of the following global trends do you believe will be most likely to transform wider stakeholder expectations of business within your sector over the next 5 years? Please select three.
Note: Percentage of respondents ranking first, second or third
Source: PwC’s CEO survey
18 | PwC Luxembourg
Figure 11 Prioritising long-term growth over short-term profitability, as well as corporate responsibility, are at the top of CEOs’ minds
Q: Thinking about the wider stakeholder expectations you see, which of these statements best describe successful organisations in your sector?
What do stakeholders want?As various factors, such as technology, create an environment of higher transparency, CEOs are asking themselves:
• what do stakeholders want?• how do successful companies respond to
multiple, sometimes contradictory, requests?
Luxembourg CEOs consider it imperative to prioritise long-term over short-term profitability, put corporate responsibility at the core of everything, and report on financial and non-financial matters.
In short, CEOs believe customers will put a premium on the manner in which companies conduct themselves in a global society. As one of our Luxembourg respondents put it: “My view is that younger generations value non financial measures more”.
Part of this change in customer values is being amplified by demographics: the millennial generation and its growing purchasing power. Globally, each day, 10,000 people turn 30, and it appears they’re more likely to buy from companies that take action on sustainability issues.5
Perhaps a central concern is the quest for trust. There is a large body of research supporting the idea that, when there is a high level of trust in a company, it drives business performance by attracting new customers and retaining existing ones. A high level of trust also makes employees more committed to staying with the company, partners are more willing to collaborate and investors more prepared to entrust stewardship of their funding. Consequently, those organisations that can build trust seem to garner significant benefits.6
5. PwC, “Redefining business success in a changing world”
6. Idem
87%70%
53%
45%
66%
71%72%
55%
87%
81%
97%
92%
They prioritise long-term over short-term pro�tability
Their investors are seeking ethical investments
Their purpose is centred on creating values for wider stakeholders
Creating value for wider stakeholders helps them to be pro�table
Global CEOs’ answers
They report on �nancial and non-�nancial matters
Corporate responsibility is core to everything they do
Luxembourg CEOs’ answers
Source: PwC’s CEO Survey
“My view is that younger generations value non financial measures more – this being linked to the demand and accessibility of information.”
CEO of a Luxembourg-based asset manager part of a UK group
“Social and Environmental positive impacts will also matter.”
CEO of a Luxembourg ICT company
Stakeholders’ expectations are changing
19
Inside the mind of the CEO A Luxembourg perspective
20 | PwC Luxembourg
Addressing greater expectations
Addressing greater expectations
89% of CEOs in Luxembourg believe that business success in the 21st
century is defined by more than just financial profit
21
Inside the mind of the CEO A Luxembourg perspective
Figure 12 Redefining business success
Q: To what extent do you agree with the notion that business success in the 21st century will be redefined by more than financial profit?
Luxembourg CEOs
Global CEOs
89% 9% 2%
76%
AgreeDisagree Neither
76% 13% 11% Agree
Disagree Neither
Source: PwC’s CEO Survey
As customer expectations change, levels of success can no longer be measured solely in terms of financial profit.
CEOs in Luxembourg have certainly realised this, as 89% of them believe that business success in the 21st century is defined by more than just financial profit (higher than Global CEOs at 76%).
Sustainability, a broad societal expectation arising from a varied range of stakeholders, has grown from almost nothing in the early 1990s to a dominant theme today. This is why we see the notion of “sustainable success” gaining traction all over the world. From traditional behemoths to smaller start-ups, companies are striving to be more sustainable and eco-conscious, all the while hitting ambitious profit targets. Whole business models are being rewritten.
One case in point of a huge multinational company successfully altering its business model is Unilever. The Anglo-Dutch conglomerate launched its Sustainable Living Plan in 2010, with the goal of doubling revenues while halving its environmental footprint. Six years on, Unilever is already on track to meet the vast majority of its goals, which included helping more than a billion people take action to improve their health and well-being by 2020 and halving the environmental footprint of its products by 2030. Costs have been significantly reduced, thanks to savings on energy, waste and time in factories. Risk has been reduced by securing long-term supplies of agricultural raw materials. Further, sales have been boosted by using brands that have put sustainability at the heart of their offer.
Moving forward, companies will need to call on a broader and more detailed set of tools to measure indirect value and meet wider stakeholder expectations, which at times may contradict each other. Most importantly, it will be up to them to create their own objectives and measure their own success – be it through employee satisfaction surveys, energy-consumption targets, waste-reduction goals, community involvement, etc.
22 | PwC Luxembourg
Figure 14 Luxembourg CEOs are very confident about their company’s revenue prospects
Q: How confident are you about your company’s prospects for revenue growth over the next 12 months?
Figure 13 Global CEOs are moderately confident about their company’s revenue prospects
Q: How confident are you about your company’s prospects for revenue growth over the next 12 months?
Source: PwC’s CEO Survey, answers from Global CEOs
31
41
52 50
21
31
48
40 36
39 39 35
38
0
10
20
30
40
50
60
70
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
%
Percentage of Global CEOs very con�dent about business growth prospects
N/A
Very confident
Somewhat confident
Not very confident
Not at all confident
51%
42%
2%
5%
Source: PwC’s CEO Survey
Realists or optimists?While Luxembourg CEOs recognise the need to carefully plan for the future, they remain optimistic about future revenues. 51% of CEOs in Luxembourg are very confident about their company’s prospects for revenue growth over the next 12 months − a contrast to only 38% of Global CEOs being upbeat about the immediate outlook for revenue growth.
51% of CEOs in Luxembourg are very confident about their company’s prospects for revenue growth over the next 12 months
This suggests that Luxembourg CEOs have confidence in the various government and private-sector initiatives that aim at creating a new dynamic for the country, as well as in their company’s capacity to serve clients and continue being profitable in this uncertain environment.
However, CEOs need to address greater stakeholder expectations to turn these prospects into reality. But are companies in Luxembourg prepared to make adjustments to their business structure or operating model?
Addressing greater expectations
23
Inside the mind of the CEO A Luxembourg perspective
To meet changing stakeholder expectations, companies may need to examine their current organisational structure and operating models.
Most CEOs in Luxembourg (55%) feel confident that their structure and model are well suited to meet stakeholder expectations and economic challenges. 42% indicated that their structure and model were not currently well suited, however they are planning on making changes. This seems to indicate that Luxembourg organisations are well prepared for the future.
However, when it comes to the concept of “sustainable success” introduced earlier, the picture is more mixed in Luxembourg. 55% of CEOs operating in Luxembourg say that either their companies have always had a purpose that includes their broader impact on society or they have recently changed their purpose to do so. However, 34% of Luxembourg CEOs have not changed their purpose and are not considering doing so: for them, it’s “business as usual”. In contrast, only 16% of Global CEOs are not considering changing their organisational purpose to integrate their societal impact.
Figure 15 Luxembourg CEOs are confident that their organisational structures meet changing stakeholder expectations
Q: Are your current organisational structure and operating model suited to the changing stakeholder expectations and economic challenges?
Figure 16 A majority of organisations factor in their broader impact on society
Q: In which of the following ways has your organisational purpose been influenced by your broader impact on society?
Yes No, and we plan to make necessary
changes in the future
No, and we do not plan to make necessary
changes in the future
55%
42%
3%
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Source: PwC’s CEO Survey
Luxembourg CEOsGlobal CEOs
Not changed, and not considering doing so
Not changed butconsidering doing so
Changed within last three years
Have always had broader purpose
34% 34%
45%
21%
16%
11% 12%
24%
24 | PwC Luxembourg
Figure 17 Greatest barriers to meeting stakeholders’ expectations according to Luxembourg CEOs
Q: Which of the following barriers, if any, is your organisation encountering when responding to wider stakeholder expectations?
Figure 18 Global CEOs share similar thoughts regarding barriers to meeting stakeholders’ expectations
Q: Which of the following barriers, if any, is your organisation encountering when responding to wider stakeholder expectations?
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Source: PwC’s CEO Survey, answers from Global CEOs
Gearing up for changeThere are a number of barriers that CEOs report encountering when responding to the changing expectations of customers and other stakeholders.
Compared to Global CEOs, CEOs in Luxembourg tend to be much more concerned about the additional cost of doing business (83% vs 45%), as well as unclear or inconsistent standards or regulations affecting their business (56% vs 42%).
On a positive note, Luxembourg CEOs believe they have the capability to respond to wider stakeholder expectations: the majority believe they have sufficient information about wider stakeholder expectations and that these are more or less aligned with employee values and their business strategy.
However, in an ever-changing environment, successful companies are the ones that have adopted a “change” strategy and are reviewing their operating models on a regular basis.
83%
56%
31%
25%
22%
17%
14%
11%
11%
6%
Additional cost of doing business
Unclear or inconsistent standards or regulations
Customers' unwillingness to pay
Con�ict between stakeholder interests and �nancial performance expectations
Lack of the right capabilities expectations
Inability to effectively execute our strategy
Insuf�cient information about wider stakeholder expectations
Misalignment between stakeholder expectations and employee values
Misalignment between stakeholder interests and business strategy
Misaligned performance initiatives
Misalignment between
stakeholder interests
and business strategy
45%
42%33%
31% 31%
24%Additional
costs to doing business
Unclear or inconsistent standards or regulations
Con�ict between stakeholder interests and
�nancial performance expectations
Customers’ unwillingness
to pay
Lack of the right
capabilities
23%
Insuf�cient informationabout wider stakeholderexpectations
Inability to effectively
execute on our strategy
20%
Addressing greater expectations
25
Inside the mind of the CEO A Luxembourg perspective
Figure 19 Where changes are being made in response to changing stakeholder expectations
Q: To what extent are you making changes in the following areas in response to changing stakeholder expectations?
58
72
49
61
64
43
63
54
42
50
44
36
14
19
20
25
25
26
31
38
47
47
56
64
28
8
31
14
11
31
6
8
11
3
% % How we manage our brand, marketing and communications
How we manage our brand, marketing and communications
How we use technology to assess and meet wider stakeholder expectations
How we use technology to assess and meet wider stakeholder expectations
How we de�ne and manage risks
How we de�ne and manage risks
How we partner and who we partner with
How we partner and who we partner withWorkforce rights and wellbeing
Workforce rights and wellbeingHow we measure success and what we hold ourselves accountable for
How we measure success and what we hold ourselves accountable for
How we maximise the social value of our R&D and innovation
How we maximise the social value of our R&D and innovation
How we minimise the social and environmental impacts of our business operations
How we minimise the social and environmental impacts of our supply chain
How we minimise the social and environmental impacts of our business operations
How we manage our tax affairs
How we manage our tax affairs
How we develop new ethical products and services
How we develop new ethical products and services
Our values, ethics and codes of conduct
Our values, ethics and codes of conducts
How we minimise the social and environmental impacts of our supply chain
Signi�cant change
44
51
49
45
44
49
57
51
51
44
44
39
18
23
23
30
31
31
33
34
35
48
49
51
34
18
18
15
24
14
9
12
11
6
6
6
Luxembourg CEOs Global CEOs
Some changeNo change at all
Source: PwC’s CEO Survey
CEOs in Luxembourg are more or less aligned with Global CEOs in their strategy for change to respond to stakeholders’ expectations.
However, we note that Luxembourg CEOs’ highest priority is how they manage their brand, marketing and communications.
56% of CEOs in Luxembourg have the use of technology on their minds to better interpret the complex and evolving needs of customers.
While 51% of Global CEOs are making changes to how they use technology to assess and meet wider stakeholder expectations, 56% of CEOs in Luxembourg have the use of technology on their minds to better interpret their customers’ complex and evolving needs.
Around the world today, minimising the social and environmental impact of the value chain lags behind.
26 | PwC Luxembourg
Figure 20 Restructuring activities planned by Luxembourg CEOs in the next 12 months
Q: Which, if any, of the following restructuring activities do you plan to initiate in the coming 12 months?
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Implement acost-reduction initiative
Enter into a new strategic alliance or joint venture
Outsource a business process or function
Complete a cross-border M&A
Complete a domestic M&A
74%43%
34%
29%
20%Insource a previously outsourced businessprocess or function
Sell a majority interestin a business or exit a signi�cant market
End an existing strategic alliance or joint venture
17%
11%
6%
In response to changing stakeholder expectations, the primary restructuring activity mentioned by Luxembourg CEOs is to implement cost-reduction initiatives. While 74% of CEOs mentioned such initiatives, another 43% mentioned that they planned to enter into a new strategic alliance or joint venture. That said, other restructuring activities that are on CEOs’ minds include outsourcing a business process or function and completing a cross-border M&A.
Addressing greater expectations
27
Inside the mind of the CEO A Luxembourg perspective
Addressing technological changeAs we have seen, business leaders are well aware of the impact that technology has on client expectations and are investing in technology, not only to reduce costs but also to enhance interactions with customers.
68% of CEOs in Luxembourg believe that customer-relationship management systems will generate the greatest returns in terms of engagement with wider stakeholders. In comparison, 65% of other CEOs around the globe also see this connecting technology generating the greatest return.
Figure 21 Customer-relationship management systems are perceived as a priority to engage with stakeholders
Q: What connecting technologies do you think generate the greatest return in terms of engagement with wider stakeholders?
68% 65%
46% 53%
38% 50%
32%
32%
32%
24%
5%
Web-enabled collaboration tools
Web-enabled collaboration tools
Social-media communicationsand engagement
Social-media communicationsand engagement
R&D andinnovation
44%
33%
30%
23%
R&D and innovation
Online reportingtechnologies
Online reporting technologies
Investor-relationship tools
Investor- relationship tools
Personal-datasecurity
Personal-data security
Social listeningtools
Sociallistening tools
Customer-relationshipmanagement systems
21%
Customer-relationshipmanagement systems
Web-enabled collaboration tools were cited by Luxembourg CEOs as the second-most impactful technology to generate the greatest return for stakeholder engagement.
However, Luxembourg CEOs are less keen on using social-media tools than Global CEOs. They are also less likely to believe in R&D investment compared to their Global counterparts. This is a reflection of the fact that there is less R&D expenditure in Luxembourg than in other developed economies. R&D intensity – i.e. R&D expenditure as a percentage of GDP – stood at 1.3% in Luxembourg in 2015, while other developed economies have figures above 3% (Austria, Denmark, Japan, South Korea, Sweden) or above 2% (China, Germany, France, United States, etc.).7
Source: PwC’s CEO Survey
7. Eurostat News Release, “R&D expenditure in the EU remained nearly stable in 2015 at just over 2% of GDP”, November 2016
Luxe
mbo
urg
CEO
sG
lobal CEO
s
28 | PwC Luxembourg
Figure 22 Luxembourg FS firms are looking to expand products and services through FinTech
Q: In your opinion, what are the opportunities related to the rise of FinTech within your industry?
Figure 23 Luxembourg FS firms are planning to increase their innovation efforts
Q: What changes do you expect to see in your sources of innovation over the next 3-5 years?
8. PwC’s Global FinTech Report, 2017
9. PwC’s Global FinTech Report, 2016
Reduce headcount costs
54%
Leverage existing data and analytics
46%
Differentiate
35%
Increase customer base
35%
Respond to competition faster
35%
Improve customer retention
23%
Decrease IT infrastructure costs
19%
Expand products and services
54%
Internal efforts
Increase
FinTech partnerships
FinTech acquisitions
Other acquisitions
Other partnerships
13%
83%
17%
34%
66%
28%
68%
4%
25%
67%
8%
0
20%
40%
60%
80%
100%
87%
Stay the same Decrease
Source: PwC’s Global FinTech report 2017, answers from Luxembourg CEOs
Source: PwC’s Global FinTech report 2017, answers from Luxembourg CEOs
In a separate survey,8 CEOs in the Luxembourg financial sector were questioned about the impact of FinTech on their industry and how they are able to leverage it.
FinTech is a dynamic segment at the intersection of the financial services and technology sectors, where technology-focused start-ups and new market entrants innovate the products and services currently provided by the traditional financial-services industry.9
Respondents indicated that consumer banking, as well as fund transfers and payments, were the two areas most likely to be affected over the next five years. They also indicated that disruption would most likely come from ICT and large technology companies.
Luxembourg CEOs indicated that they see opportunities related to the rise of FinTech, specifically in expanding products and services and reducing headcount costs (see figure 22).
Participants were then asked what percentage of their annual turnover they allocated to FinTech matters (investments into FinTech, IT projects, dedicated resources). Luxembourg CEOs allocate 8% on average, while Global respondents allocate 15.4%. This is in line with our earlier comment on R&D intensity being relatively low in Luxembourg.
Finally, participants were asked what changes to their sources of innovation they expected over the next three to five years. A majority of Luxembourg respondents cited internal efforts (87%) and partnerships with FinTech companies (83%), while a minority cited FinTech acquisitions (34%).
Addressing greater expectations
29
Inside the mind of the CEO A Luxembourg perspective
Talent strategies for the digital ageMany worry that globalisation and technology will eliminate their jobs. However, technology also creates new jobs and it’s people’s ability to acquire new skills that has kept them employed through past disruptions, like the industrial revolution. Creativity can’t be coded. CEOs desperately need talent; however, it is difficult for them to find people with the right skills. 24% of Luxembourg CEOs said there was an inadequate skills base in Luxembourg for their needs, while 65% find a somewhat adequate skills base.
Over half of CEOs in Luxembourg expect their headcount to increase over the next 12 months. Similarly, 52% of Global CEOs are expecting their headcount to increase. However, 27% of Luxembourg CEOs expect a decrease in headcount – perhaps as a consequence of their investment in technology.
Figure 24 Finding truly adequate skills is difficult
Q: Do you find an adequate skills base available in Luxembourg to meet your staffing needs?
Somewhat adequateskills base
Highly adequate skills base
Inadequate skills base
65%24%
11%
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Source: PwC’s CEO Survey
Figure 25 CEOs around the world are planning to increase headcount
Q: Do you expect headcount in your company to increase, decrease, or stay the same over the next 12 months?
In conclusion, for decision makers, the main impact that technology has on their hiring agenda is the necessity to anticipate two to three years ahead, as the vast majority of positions are likely to be affected in one way or another and people will be upskilled.
52%
16%
of Global CEOs expect an increase in headcount
51%
of Luxembourg CEOs expect an increase in headcount
of Luxembourg CEOs expect a decrease in headcount
of Global CEOs expect a decrease in headcount
27%
30 | PwC Luxembourg
Betting on the future
Betting on the future
A nation strategy for sustainable growthOver the last three decades, Luxembourg has experienced very dynamic economic growth, based on traditional activities in the financial and non-financial sectors. As it became clear that the current model of economic development was coming to an end, public and private-sector partners started considering that it was time to reinvent the Luxembourg economy and position it towards sustainable growth.
But what is sustainable growth? And what does it mean at national level? Several definitions exist. One that applies well to a nation is the following: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
With this idea in mind, the Luxembourg Government has joined hands with public and private-sector players, launching several initiatives that permeate both the financial and non-financial sectors to create a new society. Below, we have briefly presented a (non-exhaustive) list of these initiatives.
31
Inside the mind of the CEO A Luxembourg perspective
The Third Industrial Revolution
Launched in 2015, the Third Industrial Revolution project is based on the theories of economist Jeremy Rifkin. According to Rifkin, three technologies are about to converge – new communication methods, new energy sources and new modes of mobility – hence allowing for the rise of a new economic model that runs more efficiently and transforms society into a “green, smart and digital society”.
During the course of 2015 and 2016, a strategic study commissioned by the Luxembourg Government was carried out with public and private-sector stakeholders using a participatory approach in collaboration with Jeremy Rifkin and his team of experts. This led to a series of concrete measures being announced by the Luxembourg Government in November 2016. These measures encompass the nine areas of the Rifkin report: energy, mobility, buildings, food, industry, finance, the “smart economy”, the “circular economy” and the “prosumers and social model” (please see figure 26 for more information).
This makes Luxembourg the first European Union Member State to develop a comprehensive systematic plan across all sectors of the economy to embark on the journey towards a green, smart and digital society. Indeed, the Grand Duchy is the first Member State to receive European Investment Bank funds for its transformation into a sustainable country.
Please refer to the dedicated website for more information: www.troisiemerevolutionindustrielle.lu
1 2 3
4
5 6 7
8
9
1 2 3
49
578
EnergyPeople will soon be able to transform their homes into micro-power plants that will bring energy production into the zero-marginal-cost area.
BuildingWith a population that could reach 1 million by 2050, Luxembourg’s need for new smart building facilities will increase.
Food
The Internet of Things needs to impact on agriculture as a whole, from producers to consumers and distribution processes.
Prosumers and social modelThe prosumer sharing economy may put people back at the heart of economic growth, make access to knowledge easier and increase quality of life.
Industry
The need for an Industry 4.0 is becoming real and will require more platforms for co-located strategic industrial and university facilities.
Finance
Luxembourg has a unique opportunity to leverage financial services towards digital interconnection. But future data management and disruption created by FinTech will need to address both regulatory and education issues.
Smart economyBig Data, cognitive radio technologies and mesh networks represent new opportunities. The Third Industrial economy will need to address the issues of the efficient use of resources, digital inclusion and the sustainable growth and social-welfare model.
Circular economyThe circular economy is a significant part of Luxembourg’s wish to reduce its ecological footprint. Based on the mimicking of ecosystems, it represents tremendous opportunities in the fields of carbon emissions and waste reduction.
Figure 26 The Third Industrial Revolution project covers nine thematic areas
6
MobilityA transition to driverless vehicles could be a solution to the congestion problem, but more than that, a complete shift from mobility ownership to mobility-as-a-service is necessary.
32 | PwC Luxembourg
LHoFT and FUNDCHAIN Initiative: fostering innovation in Luxembourg’s financial center
In the financial center, public and private-sector players in Luxembourg saw FinTech emerge on their radars a few years back. At the crossroads between financial services and technological developments, FinTech is a dynamic business segment which has the power to completely reshape Luxembourg’s financial centre and/or challenge its current position within the financial world.
Luxembourg for Finance, the agency for financial-sector development, had been closely monitoring these developments and promoting Luxembourg’s position in the area of FinTech. With a view to creating a dedicated platform, the Luxembourg Government and a group of ten public and private-sector players launched the Luxembourg House of Financial Technology (LHoFT) in October 2016.
The purpose of the LHoFT is to drive the digital transformation of the Luxembourg financial industry by connecting FinTech innovators with the financial-services community. It will also help to cement Luxembourg’s role as a leading global hub for financial technology. Focus has been placed on several key technological advances that will bring significant value to financial-sector clients in the coming years:
• Innovative payment solutions;• Core-banking systems;• Digital investment and portfolio management;• Blockchain applications for the fund industry, clearing,
capital markets and trade finance;• Security and authentication;• Data analytics and artificial intelligence;• The use of KYC, compliance and regulatory reporting
solutions.
Another collaborative platform recently launched by public and private-sector players is the FUNDCHAIN Initiative. Started in the summer of 2016 with ten key market players of the fund industry, the University of Luxembourg and the startup Scorechain, it aims to develop Blockchain solutions for the fund industry, using Distributed Ledger Technology and smart-contracts.
Please refer to the dedicated websites for more information: www.lhoft.com; fundchain.lu
The Luxembourg Cluster Initiative: fostering innovation in non-financial sectors
In the non-financial part of the economy, a significant Government-led initiative has started to gain considerable momentum. Originally launched in 2002, the Luxembourg Cluster Initiative aims to develop promising technology-driven sectors that have been identified as key for the sustainable development of the economy. Over the years, new sectors have been identified.
Today, there are ten Clusters, whose missions are to stimulate the development of cutting-edge technologies and encourage business opportunities arising from technology in their respective sectors:
• Automotive Components;• BioHealth;• Creative Industries;• EcoInnovation;• Information and Communication Technology (ICT);• Logistics;• Materials & Production Technologies;• Maritime;• Space;• Wood.
Part of the strategy is the “Knowledge Triangle” concept, which attempts to strengthen links between education, research and innovation. Therefore, the Cluster Initiative plays an essential role in R&D at national level and for the innovation plan of the Luxembourg economy. Synergies between sectors are also highly encouraged.
Please refer to the dedicated websites for more information: www.clusters.lu; www.luxinnovation.lu/Secteurs-clés
Betting on the future
33
Inside the mind of the CEO A Luxembourg perspective
Figure 27 Many synergies exist between the various Luxembourg Clusters and the financial center
Manufacturing
Logistics
Automotive Components
BioHealth
Creative Industries
EcoInnovation
Financial center
ICTMaritime
Space
Wood
Discussions with sector leadersClusters are generally supervised by one respective leader, who is responsible for the Cluster’s strategic development and for fostering links and interactions with other Clusters. As such, Cluster Leaders are first-hand players in and witnesses to the transformation of the Luxembourg economy.
We sat down with Cluster Leaders and other sector leaders of the financial and non-financial industries10 to capture their thoughts
about growth perspectives, opportunities and challenges faced by Luxembourg companies active in these technology-driven sectors.
Overall, Luxembourg’s Cluster Leaders are bullish on short-term economic growth (more so than the Luxembourg CEOs we interviewed). They strongly believe that economic growth will improve both globally and in Luxembourg.
Figure 28 Luxembourg Cluster Leaders’ outlook on economic growth
Q: Do you believe economic growth will improve, stay the same, or decline over the next 12 months?
Global
Improve
Europe Luxembourg
80%40%64%
Stay the same Decline
10. Please see section Acknowledgements and Thanks at the end of the report for a full list of leaders interviewed.
Source: PwC’s CEO Survey, Cluster Leaders’ answers
See Figure 2 for comparison with Luxembourg CEOs
34 | PwC Luxembourg
Figure 29 Luxembourg Cluster Leaders’ outlook on revenue growth prospects
Q: How confident are you about your Cluster’s prospects for revenue growth over the next 12 months?
Figure 30 Top countries for growth according to Cluster Leaders
Q: Which export countries, excluding Luxembourg, do you consider the most important for your overall growth prospects over the next 12 months?
Very con�dent
Somewhatcon�dent
Not verycon�dent
36%
54%
10%
Source: PwC’s CEO Survey, Cluster Leaders’ answers
See Figure 14 for comparison with Luxembourg CEOs
Source: PwC’s CEO Survey, Cluster Leaders’ answers
US
France
ChinaGermany
Israel Switzerland
Brazil
UK Belgium
Mexico
60% 60%
50%
40% 40% 40%30% 30%
20% 20%
However, leaders’ confidence about revenue prospects in the coming 12 months for companies in their sectors is lukewarm. This may be due to the fact that business-development efforts still need to be done – many member companies are still in the starting phases of their business, looking for funding, developing their technology offering though R&D, or looking for clients. Therefore, revenue prospects may remain limited in the short term, but are promising in the long term.
Cluster membership is growing – new members joined in all Clusters in 2016 and the trend should continue throughout 2017. New member companies join to benefit from the development of collaborative R&D projects, to transfer knowledge and best practices, and to participate in networking, marketing and promotional efforts.
Betting on the future
35
Inside the mind of the CEO A Luxembourg perspective
Figure 31 Media coverage
Q: Has your Cluster received positive media coverage outside of Luxembourg in the past year?
Figure 32 Top priorities for Clusters
Q: What direction(s) should be the top priority for your Cluster in the coming year?
Positive coverage
Neutral coverage
No coverage
55%33%
11%
60%
44%
36%
27%
27%
27%
27%
Talent
Promotion
Regulation
Business support
Market access
Infrastructure
Research and Development
Source: PwC’s CEO Survey, Cluster Leaders’ answers
Source: PwC’s CEO Survey, Cluster Leaders’ answers
Helping companies with their international strategy is an important part of the support provided by Clusters to their members. When looking at export countries, some Clusters (EcoInnovation, ICT) are targeting neighbouring countries as a priority. For other Clusters (Automotive Components, BioHealth, Manufacturing, Maritime), export opportunities are further away – in China, the US, Israel or Mexico, for example – due to the concentration of specialist industry players in those countries. Finally, some Clusters (such as Logistics) are spanning both nearby and more distant destinations.
This is why promotional efforts, in particular internationally, are one of the top priorities according to Cluster Leaders. Some leaders consider that they have already had a great impact beyond Luxembourg’s borders in the past year, and all feel that efforts should gear up in 2017. Avenues to take for doing so are numerous: creating international visibility with high-level projects, attending international fairs and exhibitions, participating in cross-border funding campaigns for innovation and R&D, etc.
55% of Cluster Leaders mentioned that their sector received positive media coverage internationally over the past year, and 33% received neutral coverage. Overall, they believe that media coverage is on the rise and will have a significant impact in the near future.
36 | PwC Luxembourg
When it comes to Clusters’ top priorities, talent clearly comes in first. The majority of Cluster Leaders said that the skills base available locally was inadequate, especially if looking at local graduates.
However, this has to be put into perspective with the size of the country, which relies heavily on foreign workers, whether they live in Luxembourg or across the border.11 In some of these technology-driven Clusters, however, up to 90% of workers are foreigners, mostly living cross-border, and companies often need to source top talent (engineers, R&D researchers, etc.) from non-neighboring regions.
So far, Clusters have spent most of their resources attracting companies and high-profile projects to Luxembourg, but little to attract top talent to companies already here. In contrast, the financial center with Luxembourg for Finance (LFF) have made a long term priority to attract top talent by dedicating funds to raising awareness of career opportunities available in Luxembourg.
In the coming years, attracting talent will rapidly become a priority for all Clusters. Many avenues exist, are being explored or further expanded by government initiatives, among which university funding to attract top researchers, family facilities (schools, daycare solutions, etc) to attract talent relocating with their families, expatriate regimes for top executives of international firms, and special resident permits for entrepreneurs of non-EU countries.
Figure 33 Finding truly adequate skills is difficult
Q: Do you find an adequate skills base available in Luxembourg to meet your Cluster’s staffing needs?
Highly adequate skills baseInadequate skills base
Somewhat adequate skills base
9%
54%
36%
Source: PwC’s CEO Survey, Cluster Leaders’ answers
See Figure 23 for comparison with Luxembourg CEOs
11. According to STATEC, 46.7% of the Luxembourg population is of foreign origin, and cross-border workers represent about 40% of people employed in Luxembourg.
54% of Cluster Leaders said there is an inadequate skills base in Luxembourg for their sectors’ needs
Betting on the future
37
Inside the mind of the CEO A Luxembourg perspective
Figure 34 Finding funds is a challenge according to a third of Cluster Leaders
Q: Concerning the financial situation of your Cluster, are there adequate banking funds available in Luxembourg to support your Cluster?
An important topic that was discussed with Cluster Leaders was the concern of funding their sectors. About two-thirds said there was limited to no funding available. Often, when companies are still in their seeding stage or when they need to fund R&D, they are able to obtain public funding from the Luxembourg Government or European institutions. Past the seeding stage, however, banks are playing their role in many cases but are not able to meet the entirety of the funding needs. Because of the perceived high risk associated with investing in start-up companies, the biggest problem Cluster Leaders are seeing is a lack of appetite from private investors such as PE and VC firms. Another reason why private investors and VCs are hesitant may also be due to the fact that in some cases, there is no possibility for an immediate exit (for example, in technological materials, funding should remain stable for about either years, whereas VC firms often plan to cash out after three years). Therefore, funding remains a challenge for many high-tech companies.
Finally, we asked Cluster Leaders to specify the most important investment they recommended for their sector in the future. Some cited actions they could take up at Cluster level – such as being more active on innovation, identifying flagship projects, and fostering better collaboration between member companies. However, many cited actions that should be taken at national level – such as investing in universities, developing the overall attractiveness of Luxembourg to attract high-skilled workers, and supporting the funding of start-up companies through regulatory or tax incentives.
Adequatefunds
Limited funds
Somefunds
No funds
54%
18% 18%
9%
Source: PwC’s CEO Survey, Cluster Leaders’ answers
38 | PwC Luxembourg
About the sectors
Luxembourg Automotive Components Cluster
The Luxembourg Automotive Components Cluster benefits from its strategic position between France, Germany and Belgium. This enables the 30 members to have quick access to major European car manufacturers and assembly plants.
The Government recently announced the creation of the Automotive Campus in Bissen, which will encourage investment and research into the automotive sector. The campus will try to create synergies among the different players in the automotive industry. For instance, it will include shared infrastructure, such as research labs and buildings, conference rooms, catering areas and exhibition spaces.
The Cluster is currently in the process of developing collaborations with new partners. Three large projects in 2017 will focus on vehicle connectivity.
The vehicle-connectivity strategy is not new and echoes Rifkin’s last report for the Luxembourg Government. In The 3rd Industrial Revolution, Rifkin placed emphasis on the concept of “mobility as a service”, which encompassed several measures, such as accelerating the transition to driverless vehicles and investing in multimodal mobility hubs.
CEOs’ views on the Automotive Campus
According to PwC’s CEO Survey, Automotive CEOs in Luxembourg believe the benefits or opportunities stemming from the Automotive Campus in Luxembourg will have a positive impact on original equipment manufacturers (OEMs) and automotive-industry suppliers and customers alike.
Luxembourg BioHealth Cluster
The Luxembourg BioHealth Cluster seeks to fulfill the Government’s strategic move towards scientific excellence and molecular diagnostics. BioHealth Cluster Leaders are working alongside the Ministry of Health to find new partners to invest in Luxembourg. The focus for 2017 will therefore be on growth and business development outside of Luxembourg. Despite difficulties due to its market size, regulation and uncertainty considering reimbursements, the United States is still considered the biggest opportunity for Luxembourg BioHealth companies.
Along with the BioHealth Cluster’s wish to build bridges with the ICT and Materials and Production Technologies Clusters within the next five years, 2017 may see the emergence of a project in digital health.
Belval City of Sciences
Part of the Luxembourg Government’s strategy relies on the construction of a new site dedicated to science, research and innovation. Upon completion, the park will occupy more than 47 hectares, hosting the new campus of the University of Luxembourg. Other facilities will include public research organisations, Luxinnovation and the Technoport incubator.
Betting on the future
39
Inside the mind of the CEO A Luxembourg perspective
Luxembourg Creative Industries Cluster
Creative players are contributing to Luxembourg’s GDP by adding value to the companies and organisations in which they operate. That said, the Creative Industries Cluster proposes setting up a platform to support the sector and reinforce the position of Creative Industries players in Luxembourg. The Cluster will include activities such as architecture, crafts, visual arts, film and audiovisual design, fashion, the gaming industry, marketing and communication, literature, digital media and media publishing, performing arts, and music.
The Cluster has three missions. First and foremost, it will support and increase competitiveness in the sector. Secondly, it will link up and partner with other players and economic sectors. And finally, it will increase awareness of Luxembourg’s image beyond its borders.
The main objectives set forth by the Cluster include:
• increasing the number of creative businesses;• increasing the adoption of products and
services from creative enterprises;• increasing the country’s attractiveness for
creative talent;• promoting intersectoral innovation in the
cultural and creative industries;• fostering the internationalisation of
Luxembourg creative industries;• promoting the importance of creative
professions in schools;• providing an exchange platform for products
and services, applicants and creative players.
Luxembourg EcoInnovation Cluster
The primary objective of the Luxembourg EcoInnovation Cluster is to enhance the fields of energy, the environment and sustainable development in Luxembourg. In doing so, the Cluster focuses on four core topics: the Circular Economy, Mobility, Sustainable Cities and Smart Technologies. In addition to the Cluster’s activities, the Government is continuing its efforts to support SMEs by providing better access to research and innovation and being involved in flagship projects in Luxembourg and the Greater Region.
Recurring themes of the Cluster’s actions are identifying strengths and opportunities within the sector, connecting different players and undertaking collaborative, R&D and innovation projects.
In 2015, the EcoInnovation Cluster was involved in various flagship projects and programmes, including Material-Flow Database, EcoBusiness Parc, Extended LCA, Papercycle Kirchberg, Reverse Logistics, the Fit for Circularity programme and the creation of the interministerial group.
40 | PwC Luxembourg
EUR 3.7tnassets under management in Luxembourg investment funds
142 banks from 28 countries
2,700issuers from 102 different countries listing securities on the Luxembourg Stock Exchange
307insurance and reinsurance companies regulated in Luxembourg
Luxembourg Financial Center
The Luxembourg financial centre has expanded in the last fifty years to become the second largest fund domicile in the world and the premier private banking hub in the Eurozone. From its origins as a Euroloan centre, the country subsequently developed private banking services and then, from the 1980s, investment funds services. A series of activities were added over the course of the last twenty years and today the Luxembourg financial centre is broadly diversified with activities spanning not only banking and investment funds, but also insurance, private equity, international securities listing, post-trade services and many more areas of the financial sector.
Luxembourg for Finance (LFF) is the agency for the development of the financial centre. It is a public-private partnership between the Luxembourg Government and the Luxembourg Financial Industry Federation. Founded in 2008, its objective is to promote the expertise of the financial centre and the diversification of its services abroad through different communication channels. In addition to being the first port of call for foreign journalists, the agency develops documentation on products and services available in Luxembourg and their relevant legal and regulatory framework. Furthermore, LFF organises seminars in international business locations and takes part in selected world-class trade fairs and congresses.
Betting on the future
Sources: ALFI, December 2016; CSSF, February 2017; LuxSE, June 2016; Commassu, July 2016
41
Inside the mind of the CEO A Luxembourg perspective
Figure 35 Luxembourg CEOs’ outlook on attracting ICT companies to Luxembourg
Q: Which of the following are important to attract new ICT companies to Luxembourg and retain them here?
Figure 36 Luxembourg CEOs’ views on promising technologies
Q: What is the most promising technology that will benefit the growth of your company and your clients within the next 3 years?
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
80%
80%
60%
40%
20%
Flagship companies
Tax incentives
Ef�cient ecosystem
ICT skilled workforce
eGovernment leadership
Data analytics Internet of things Other20%
60% 20%
According to Luxembourg CEOs, flagship companies will help set the industry tone to attract new companies to Luxembourg. Tax incentives will, in parallel, provide the business-friendly tax framework that any business development needs.
More than half of the CEOs believe that data analytics will benefit their clients and the growth of their company within the next three years. While respondents also mentioned that the Internet of Things would have an impact, other issues, such as identity management and electronic signatures, were mentioned.
Luxembourg ICT Cluster
The Information and Communications Technology Cluster works to support all other Clusters. Involved in cyber security, high-performance computing, Big Data analysis, FinTech projects, blockchain and e-skills, the Cluster is partnered with many other Clusters. The Cluster works as a catalyst for other Clusters that require an uptake of ICT.
For example, the Cluster works closely with the construction sector through Building Information Modelling (BIM). BIM aims at building better, cheaper and more durable buildings.
Recently, Eric Busch, Cluster Leader of the ICT Cluster, went to Israel to promote Luxembourg’s advantages in the field of ICT at the CyberTech conference in Tel Aviv. This trip had two goals: on the one hand, trying to convince start-ups to come to Luxembourg, and on the other, finding new partners in the field of cyber security.
42 | PwC Luxembourg
Betting on the future
Q: What are the three main competitive advantages you perceive for Luxembourg as a Transport & Logistics hub?
Q: What is your assessment of the work done by the Logistics Cluster and the Government?
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
CEOs operating in the Transportation and Logistics sector feel that the existing and planned infrastructures, productivity, and geographical location of Luxembourg serve as competitive advantages.
In particular, one CEO feels that there is a diversified service offer and niche strategy in the country.
Other competitive advantages that were mentioned by CEOs include Luxembourg’s tax regime, labour costs, flexibility, and expertise and know-how.
Three main areas that CEOs operating in the transportation and logistics sector would like to see improved include an increased road network, the process for planning permission, and EU regulations.
Traffic congestion is a growing concern in Luxembourg, and has been frequently mentioned by both CEOs operating in the transportation and logistics sector and Cluster Leaders.
Luxembourg Materials & Production Technologies Cluster
The Luxembourg Materials and Production Technologies Cluster supports players in the sector, with the goal of creating and developing new and sustainable business opportunities through collaborative R&D and innovation projects. There are currently more than 60 companies and public research organisations involved in the field of manufacturing technologies.
Two highlights worth mentioning regarding activity in this sector are the National Composite Centre and the organisation of industry participation into this platform, and the definition of a potential Additive Manufacturing Centre, to be launched in 2017.
The Cluster offers five types of services:
Businessdevelopment
Product/serviceinnovation Branding Internationalisation Prospection and
promotion
Luxembourg Logistics Cluster
The Luxembourg Logistics Cluster has a number of missions. For starters, it serves its members as a neutral coordinator and an information and communications platform. It also represents its members’ interests by expressing common positions in relation to the future development of Luxembourg as a logistics hub. By acting to increase the recognition of logistics in Luxembourg, the Cluster drives members to innovate and develop their logistical skills.
Comprising an intermodal terminal and a rail-motorway platform, the Multimodal Hub in Bettembourg is one of the Cluster’s flagship projects. The Bettembourg Hub offers efficient multimodal connections to and from major ports and industrial centres in Europe for containers and craneable semi-trailers.
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Inside the mind of the CEO A Luxembourg perspective
Luxembourg Maritime Cluster
The Maritime Cluster brings Luxembourg’s blue economy the fore. Originally created in 2008 as a non-profit organisation, it groups companies and institutions representing the local maritime business community both nationally and abroad. Together, members of the Cluster offer a wide variety of maritime business experience and expertise in shipping, dredging, classification, ship brokerage, banking, law, consultancy and audit, insurance, security and safety, railway and maritime logistics.
2017 will be an important year for the Maritime Cluster. First of all, the Cluster’s management are completing an update of their commercial brochures, reports and website. Along with the strengthening communication tools, a complete update of Cluster statistics will help leadership in preparing for commercial trade shows. The Cluster will also be present at several exhibitions (Euromaritime, Posidonia, SMM, Monaco Yacht Show, Expomar CV) and will run promotions in collaboration with the Commissariat aux Affaires Maritimes. Other key missions this Cluster is looking to carry out include promoting the Luxembourg marine-surveillance sector, creating a directory of members for distribution purposes, and hosting a training session on maritime affairs for the third consecutive year.
Luxembourg Space Cluster
The Luxembourg Space Cluster brings highly specialised companies together with public research organisations in order to develop specific technology topics and collaborative RDI projects. Having been an official member of the European Space Agency (ESA) since 2005, the Cluster focuses on thematic areas such as space telecommunications, global navigation satellite system and location-based applications, earth observation, maritime security and safety, and space-related technologies.
Having focused on numerous projects in 2016, perhaps the most well-known mission initiated by this Cluster is asteroid mining. The idea behind this mission is that asteroids are known to contain minerals, metals and volatile gases, and these asteroids could eventually be mined for nickel, iron, cobalt, ammonia, nitrogen, hydrogen and more.
2017 will be an important year for the Maritime Cluster.
1,500 companies have direct or indirect activities related to wood
Luxembourg Wood Cluster
Introduced in late November 2016 by Francine Closener, the Secretary of State for the Economy, and Camille Gira, the Secretary of State for Sustainable Development and Infrastructure, the Wood Cluster is a new element of Luxembourg’s Cluster Initiative dedicated to the wood-production and processing industry.
The Cluster acts as a platform for exchange between stakeholders in the sector in order to improve the recovery of sustainable materials at local and regional level.
With more than 90,000 hectares of forests and woods in Luxembourg, covering nearly 35% of the national territory, almost 1,500 companies have direct or indirect activities related to wood, employing more than 10,000 people between them.
The initiative aims at boosting the sector through innovation by using new opportunities to bring stakeholders in the wood and forestry sectors together, creating added value both economically and environmentally.
EUR 2bnGross revenue at end of 2016
2%Share in total GDP at end of 2016
700Full-time employees in 2015
Source: Interview of Dr. Patricia Conti, Lëtzebuerger Gemengen, 9 December, 2016
44 | PwC Luxembourg
Further reading
Further reading
Research methodology Our survey was conducted on a sample of 60 respondents, whom we considered the most representative for Luxembourg. Participants included CEOs from various industries, such as asset management, automotive, banking, construction, ICT, insurance, manufacturing, real estate, transportation and logistics, and the wholesale and retail trade.
Our data collection involved an online questionnaire which took place from March to December 2016, in addition to in-depth one-on-one interviews with 11 Cluster Leaders. All questionnaires and interviews were conducted on a confidential basis.
Following the collection of data, which consists of our respondents’ preferences, opinions and factual knowledge, we performed an analysis in order to determine patterns and trends in Luxembourg.
Notes:• Some figures may not add up to 100%,
due to rounding of percentages and the exclusion of “neither/nor” and “don’t know” responses.
• The base for Luxembourg CEO figures is 49 unless otherwise stated. Figure 1: based on 43 respondents; Figure 2: 44; Figure 4; 40; Figure 5: 28; Figure 6: 35; Figure 7: 33; Figure 8: 43; Figure 9: 41; Figure 10: 36; Figure 11: 44; Figure 12: 43; Figure 13: 43 ; Figure 14: 38; Figure 15: 38; Figure 16: 30; Figure 17: 30; Figure 18: 37; Figure 19: 26; Figure 20: 37; Figure 23: 38; Figure 24: 37; Figure 25: 10; Figure 26: 11; Figure 27: 11; Figure 30: 5; Figure 31: 5 ; Figure 33: 48; Figure 34: 48; Figure 35: 43; Figure 36: 48; Figure 37: 40.
60interviews
45
Inside the mind of the CEO A Luxembourg perspective
CEO profilesGetting to know the respondents behind the data, we can see that the majority of them operate within the financial sector and conduct most of their daily business in either English or French. Operations outside of Luxembourg are also mostly based in other western European countries, with a portion also operating in Asia. The considerable majority of companies involved in our survey also mentioned that they had between 25 and 250 employees, with an annual turnover of between EUR 10 and 250 mn.
Figure 37 CEO industries
Figure 38 Languages in which daily business is conducted
Banking
Asset management
Insurance
ICT
Real estate
Manufacturing
Wholesale and retail trade
Construction
Transportation and logistics
22%
18%
16%
12%
10%
8%
8%2%2%
EnglishFrench
German
Luxembourgish Chinese Dutch Italian Portuguese Spanish Swedish
77% 70%
30% 21%
2% 2% 2% 2% 2% 2%
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
46 | PwC Luxembourg
29%
10%
31%
6%
15%
8%
25 and below
Between 26 and 50
Between 51 and 250
Between 251 and 500
Between 501 and 1,000
Over 1,000
8%
15%
3%
38%
23%
13%
Over 1bn
Between 500m and 1bn
Between 250 and 500m
Between 50 and 250m
Between 10 and 50m
Below 10m
Figure 39 Other geographical locations where business is conducted
Figure 40 Number of employees operating in organisations Figure 41 Annual turnover (in EUR)
South America
3%
North America
18%
EasternEurope
28%
Western Europe
63%
Oceania
3%
Asia
35%
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
Further reading
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
47
Inside the mind of the CEO A Luxembourg perspective
Tough questions about…
Competing in a global and uncertain environment:
1. In this new uncertain world, how are you preparing to compete while continuing to optimise your cost base?
2. Where will you increase your investments and where will you scale down?
Stakeholders’ expectations are changing:
1. As customers, employees and other stakeholders increasingly care about what companies stand for, how are you demonstrating your organisation’s purpose and values?
2. Are you prepared for disruption and changing consumer demands in a digital world?
Addressing greater expectations:
1. Have you considered what parts of your business model could benefit from artificial intelligence and further automation?
2. Do you have the right skills within your organisation to keep up with the pace of technological change, innovate and build brand differentiation?
Source: PwC’s CEO Survey, answers from Luxembourg CEOs
48 | PwC Luxembourg
Acknowledgements and thanks
In addition, we’d like to thank PwC collaborators who helped made this survey possible, including a number of partners, directors and industry experts, as well as the Market Research Centre team in Luxembourg.
Freddy Bracke Maritime Cluster www.cluster-maritime.lu
Johnny Brebels Manufacturing Cluster www.materialscluster.lu
Eric Busch12 Luxinnovation, Sector ICT & Digital Economy www.luxinnovation.lu
Patricia Conti Space Cluster www.spacecluster.lu
Thomas Dentzer BioHealth Cluster www.biohealthcluster.lu
Jean-Paul Hengen ICT Cluster www.ictcluster.lu
Marcel Klesen EcoInnovation Cluster www.ecoinnovationcluster.lu
Nicolas Mackel Luxembourg for Finance www.luxembourgforfinance.com
Joost Ortjens Automotive Components Cluster www.automotivecomponents.lu
Georges Schaff Luxinnovation, Sector CleanTech www.luxinnovation.lu
Malik Zeniti Logistics Cluster www.clusterforlogistics.lu
For further information on the survey content, please contact:
Dariush Yazdani
Head of Market Research Centre+352 49 48 48 [email protected]
For media-related enquiries, please contact:
Youcef Damardji
Head of Communications+352 49 48 48 [email protected]
In conclusion, we would like to thank all of the CEOs who have participated in this survey, as well as the Cluster and sector Leaders who generously offered their time to answer our questions:
48
12. Please note that Eric Busch resigned from his responsibilities with Luxinnovation.
49
Inside the mind of the CEO A Luxembourg perspective
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