Global business confidence is at a five-year high, according to a survey by the Economist Intelligence Unit, which found nine out of 10 top executives rating business prospects over the next three years as good or very good.
The dynamism in emerging markets – especially China and India – was the main reason for this optimism, with a majority of the 1,006 executives from around the world planning to invest more in developing countries than in developed economies.
However, the greatest concern among the executives was the shortage of talent in emerging markets, despite the large numbers of students graduating each year in China and India. They say that a relatively low proportion have the skills required by global firms, and that competition for those that do is intense.
“The consequence is wage inflation and high staff turnover,” said James Watson of the EIU.
The survey, which polls more than 1,000 executives every year, is sponsored by UK Trade and Investment, a government body that promotes British exports and inward investment. More than half held top positions in their companies, with Asia and North America each providing a quarter and 40 per cent from Europe.
Nearly a third of the executives rated business prospects “very good”, compared with just six per cent five years ago. Given the strong global economic outlook, growth in sales was regarded as a greater priority for 2007 than controlling costs.
Rising demand in developing economies was cited by 34 per cent as the strongest influence in the global economy, followed by 32 per cent who said global sourcing. Most executives saw emerging markets as a route to cutting costs and viewed developed economies as a source of ideas and innovation.
Nonetheless, there were concerns about political uncertainties in the Middle East and worries about financial risks with interest rates rising and a slowdown in the US housing market. Barriers to trade and investment continued to trouble many of those in the survey.
India-based executives were more optimistic than those based in China, with 70 per cent saying prospects were very good, compared with just 3 per cent of those in China.
But labour shortages were a concern in both countries, with 20 per cent wage inflation in India’s information technology sector and annual staff turnover rates of 20-30 per cent in China.
The global executives said they were investing more on training and development to develop their future leaders, and placing greater emphasis on performance-related pay to retain and motivate their staff.