Growth+ What matters most to CEOs expanding across borders today

http://www.pwc.com/us/en/apec-ceo-summit/2016/key-findings/regulatory-conditions.html

Regulatory conditions are always a factor when a business takes on the ultimate risk to invest directly in another economy…

The real calculation is just how much of a factor given other dynamics that affect business growth and profitability. In this study, based in part on PwC’s Survey of over 1,100 business leaders in May-July 2016, we show that regulatory conditions are rising to the top of the risk/reward investment case for cross-border expansion in the 21 member economies of Asia-Pacific Economic Cooperation (APEC).

This marks a change. Five years ago, as developing economies reached parity in attracting foreign direct investment, more business leaders in the region identified access to expanding markets as the most important driver of their investments. Today, CEOs remain focused on access to dynamic markets, but are balancing that against those policy conditions that help or hinder prospects to expand and realize returns in another economy. Over the next few years, as the APEC region remains a magnet for investment, the findings suggest that economies that establish better regulatory conditions will attract a larger share.

In part, this shift reflects growing competition among the world’s policy makers to attract business investment through incentives or reforms and boost their own participation in global value chains. The World Bank’s Ease of Doing Business research sees a convergence taking place in regulatory practices as lower-income economies move to lift business barriers and improve their rankings in competitiveness measures. APEC economies have been particularly active here, a companion PwC study shows.

Executives are also responding to jurisdictional leaps in areas like anti-corruption enforcement. We’re moving away from a world where the border gets to define the rules.

Businesses today are dealing with policy goals and regulations in one economy that may conflict with those in another economy, and differ yet again from global industry standards. Mining group Freeport-McMoRan Inc., facing this very issue, built a project in Congo to the same environmental standards as an existing mine in Arizona. “It’s the right thing to do but ultimately, if you don’t do it, it will come back to haunt you,” Richard Adkerson, Vice Chairman, President and CEO, told PwC in an interview.