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What CEOs see and what we should do

Tugs have power to spare, but on dark and rainy nights, when the tide is running fast, there are channels that make even tugboat skippers nervous.
David Robinson, Economist, Laurentian University.

Tugs have power to spare, but on dark and rainy nights, when the tide is running fast, there are channels that make even tugboat skippers nervous.

A survey of 1,344 CEOs in 68 countries conducted by PwC, formerly Price Waterhouse Cooper, shows that CEOs around the world are thinking more and more about the unpredictable and unavoidable tides of change.

They expect to be buffeted by changing technology, demographic shifts, climate change and political turmoil. Forty-six per cent of CEOs agree the resource scarcity and climate change megatrend will transform their business At the same time, according to the survey, most of them are optimistic about general trends.

Developing markets will continue to grow, and developed markets will continue to firm up. Navigation could be very tricky, but the tide is running in the right direction.

There are some interesting regional differences. African leaders worry more about urbanization and less about technological change. North American CEOs worry more about demographic changes and less about resource scarcity, climate change and urbanization than their peers in other regions.

Some sectoral differences are relevant for the mining supply and service industry. CEOs in the metals sector expect the global economy will improve, but they are much less confident than their peers in other sectors.

They are also less confident that their own companies will do well. They are more worried about energy costs and exchange rates than their peers and they are unusually worried about supply chain disruption. To handle the risk, mining CEOs are cutting costs and staff.

The views of the metals CEOs hold both good and bad news for the supply sector. The bad news is that they are nervous about what markets will do. This is always true in the mining sector, which tends to oscillate between irrational exuberance and irrational pessimism.

The good news is that cutting staff always means more reliance on suppliers. The work has to go somewhere, so 38 per cent of the CEOs out-sourced a business process or function last year and 28 per cent plan to out-source functions in the coming year.

Metals and mining are energy intensive, which explains why CEOs in the metal sector worry most about energy prices.

Energy CEOs worry too, and their worries are revealing. They are less concerned about technological change than other CEOs and much more worried about new taxes and regulations that might slow down their growth. It’s pretty obvious they are worrying about limits on carbon dioxide emissions and carbon taxes.

More than three quarters pointed to resource scarcity and climate change as major issues. The fact that 42 per cent of energy sector CEOs believe that relations with governments, media and NGOs have deteriorated suggests they are feeling their political position weakening. They are starting to see carbon taxes and emission regulations on the horizon. The rising cost of conventional energy will bring on a grinding transformation of the energy infrastructure in the mining sector. With the change comes opportunity. Someone is going to make a lot of money.

So how do smaller, innovative suppliers get into the game of structural change? They rarely have the capital to develop new systems on spec. They often don’t have the staying power to get their products to market. Nervous customers don’t invest piles of money in untried technologies from unknown firms.

That might put the largest mining supply firms in the driver’s seat. They enjoy a major fiscal advantage because they can spread the costs of investment over a global market. As in other industries, it is possible the giants will scoop up the gains from technological change.

In response, smaller regional firms will look for alliances in marketing and innovation. Alliances between local firms and international partners are happening, but not yet at a rate that will keep the Sudbury area cluster growing rapidly.

Navigating the mixture of opportunity and risk foreseen by global CEOs calls for a more intensive approach to partnering and a more collaborative approach to partner development. It also calls for a more active role for municipal leaders and provincial governments. Successful clusters are more than industry organizations: they are community strategies. It is time to create a Sudbury Area Regional Cluster Council and move to the next stage.