May 4, 2025 • 20 mins
Financial analysts were far more prepared than most CEOs for the US tariffs announced on April 2. Analysts, who serve as a proxy for the financial markets, anticipated tariffs would soon be an enormous issue, mentioning the topic 62% more often than did CEOs during Q1 earnings calls. That’s the conclusion of the second edition of the CEO Radar—a tool to help CEOs determine which issues truly deserve their time and attention. It unpacks the leading topics discussed on almost 4,900 earnings calls worldwide in Q1 2025, enabling chief executives to compare their agendas to those of their peers, and to the market’s expectations. On this episode of the CEO Radar Podcast, Edward Adams of Bloomberg Media Studios is joined by BCG Global Chair Rich Lesser and Michael Brigl, Head of BCG’s Central European practice, to discuss how tariffs are likely to have a long-term effect on corporate operations.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Because you're a subscriber to this Bloomberg podcast, we thought
you'd be interested in a sponsored podcast called CEO Radar,
produced by BCG and Bloomberg Media Studios. It analyzes almost
forty nine hundred earnings calls worldwide to assess what topics
merit a CEO's time and attention. Here's a recent episode.
(00:22):
Rich and Michael, Welcome to the CEO Radar podcast.
Speaker 2 (00:26):
It's great to be here with you.
Speaker 3 (00:28):
Thanks for having us.
Speaker 1 (00:29):
During the first quarter. The analysts who are on these calls,
who function really as a proxy for the market in
our approach, we're talking about tariff sixty two percent more
often than we're CEOs. Even though obviously CEOs talk far
more on these calls than do analysts, the fact that
they were mentioning tariff so much more surprised me a bit.
(00:50):
I thought that we would see CEOs talking more about that,
talking about how they were preparing for what seemed to be,
at least to a lot of experts and inevitability. Rich,
what was your take on why they weren't discussing it
more in first quarter?
Speaker 2 (01:05):
I was thinking the same thing as I read through
the survey, and as I reflected I think there were
two totally separate things going on here. One is, if
you go back to the president's first term in office,
there was a saying, well, two observations. One is it
became frequent to say take him very seriously, but not literally.
(01:26):
And a second was that he will be very responsive
to how the market dynamics evolve in adjusting the actions
and announcements. And I think in many CEO's minds, the
combination of those two statements. They had heard all the
comments about tariffs. The President was quite good at both
on the campaign trail and after the campaign ended about that,
(01:47):
but I think they were still probably underestimating the magnitude
of what he was prepared to do. And I think
the second thing is the CEOs that I speak with
generally have a view that it's best not to be
too commenting in public about the worries you have or
what you think the administration maybe doing right or doing wrong,
(02:08):
and it's much better to engage directly, whether that was
going to Marrow Lago before the inauguration or going to
Washington since the inauguration.
Speaker 1 (02:17):
But wouldn't they have been in a safe zone if
they had talked about we're in case there are tariffs,
we have prepared in the following ways for that so
that they could reassure the market that they wouldn't be
as effected perhaps as other companies are.
Speaker 2 (02:30):
I don't think there's an easy near term response on
how to do that, and I think the last thing
CEOs want to talk about. Some of that response will
be passing price through to their customers or through to consumers,
or things that you really don't want to be saying
unless you have to, unless it's there.
Speaker 1 (02:48):
Michael, we saw some regional differences here in the discussion
of tariffs in the first quarter. Globally, the mentions of
tariffs by CEOs did increase in the first quarter. Certainly,
it's not as if they were totally line to the topic.
It went up five hundred and thirty seven percent around
the world, but in the US it went up about
one thousand percent. In Europe, where you're from, about five
(03:09):
hundred percent increase, and less than a one hundred percent
of an increase by CEOs in Asia talking about tariffs.
That last bit surprised me, given that that's where many
of the global supply chains began and certainly would be
affected by a US set of tariffs. What should take
on why those numbers are different around the world.
Speaker 3 (03:27):
I mean, if I look at the European numbers, the
five time increase to the last quarter, I'd say we
should not make the conclusion that the numbers are not
as high as in the US. Therefore the European CEOs
are less well prepared. I think most CEOs have really
done their homework, and what we've seen when speaking with
(03:48):
the CEOs were a couple of things. I mean, they
were really working on building this geopolitical muscle. We've seen
a lot of scenarios being played through, and I think
what we've seen over time rich a bit like to
your point that this is not happening overnight. I think
many of the businesses have already started a couple of
years ago to think through what should my localization strategy
(04:08):
actually look like. And we've seen that, particularly if we
look at the automotive manufacturers, the big German OEMs. I mean,
they have started over time actually to build up international
footprint and more and more localization strategies. And I think
what we were going what we are going to see
over over time. I think that this strategy is going
to intensify.
Speaker 2 (04:28):
And if I just pick upon the Asia part of
your question, I also think and again the first term
of the president, we saw Japan and India, both leaders
of both countries, Prime Minister Motive, Prime Minister Abbe do
a really excellent job of building relationships with the White
House with the President, and I think there was probably
(04:50):
some optimism, whereas in Europe, obviously, coming out of Dava's
the Munich Security Conference, it was pretty clear it was
going to be a quite tense relationship. So the fact
that Asia or Asian business leaders may have underestimated the
impacts of tariffs, and I think obviously I think Chinese leadership,
(05:11):
whether it's companies or political leadership, was really keeping relatively
quiet about what the US would do. So I'm not
actually surprised that this didn't get as big a visible
play in these conversations in Asia as we saw in Europe,
and then certainly the US was much more front and center.
Speaker 1 (05:30):
As your data suggests, these tariffs were initially announced and
then were put on hold for a period of time.
I think that's just indicative of a level of uncertainty
that the business community is going through at this point.
Is there any way that people can profit from that
is there somebody who wins in a climate of uncertainty.
Speaker 2 (05:51):
So I just want to start with your comment around
uncertainty because it is the comment I hear the most
right now in the business community. You know, every investment
is a function of risk and reward and returns associated
with it. Right now, the level of uncertainty has really
heightened the risk associated with investments. So I think what
(06:12):
we're seeing first and foremost is a level of caution
around investing, certainly in physical assets. I think the second
thing is in terms of where you can build advantage. Look,
some people will take bets on where things go, and
some of those will be right. The challenges we don't
know which bets will turn out to be right. And
the second thing is once this settles, and I think
(06:34):
all business leaders, whatever their views of what the level
of tariffs they want, I think will hope for clarity
that at least you know where you stand. And once
it does settle, there will certainly be competitive advantage to
some companies relative to others, because even if your cost
go up to tariffs, if your main competitor faces even
higher tariffs, you've built some advantage even if you may
(06:55):
have reduced overall demand, because some price will flow through
to the end market.
Speaker 1 (06:59):
So in the near term, nobody really wins from uncertainty.
I think it's get frozen in place.
Speaker 2 (07:05):
Uncertainty. I used to describe it as deer in headlights
when you looked at the Great Financial Crisis or post
on it. And I don't think we're at that magnitude,
to be clear. But I do think that when there's
massive uncertainty that enters the environment, the first thing people
do say, Okay, let's hold on, let's see, and that
means planned investments don't go forward because people don't know
(07:27):
in this case where to invest. Even if they know
how they want to invest in how much they want
to invest. The where question is really tricky right now.
Speaker 3 (07:36):
But even though Rich, even though we have also from
a European point of view, we have this uncertainty as well.
I think the clarity what's going to happen now going forward,
with how obviously the administration is going to interact with
the different regions, I think brings at least a new
perspective for CEOs how to think about their business models,
(07:57):
how to think around Okay, how do I need to
set up my opera model. And I think from a
European point of view, this has been probably the final
wake up call to think through how how can we
future prove our operating models in order to be competitive
in this in this new competitive world that is that
is going to be set up because again, if I
look at my home market at Germany, the German model
(08:20):
was based on a full export driven model, fully globalized
global supply chains right and and and and that model
was serving the economy the businesses super well. I think
while we have uncertainty, I think we have clarity that
this model was not going to work.
Speaker 1 (08:41):
Let's turn now to the topic of costs. One of
the things we did in this report was we gathered
together similar topics and sort of combine them to gauge
sort of how some of these megatopics are playing out
over time. One of them was costs. So we combined
things like the topic of write downs or job cuts
or an economic slowdown and saw, sort of, on average,
(09:03):
where did those topics rank amongst the most mentioned topics
both by CEOs globally as well as by analysts. What
we found on costs was a divergence there that the
analysts were mentioning those on average about thirty four in
their rank of topics, whereas for CEOs they were down
in sixty sixth place, talking about them much less. What's
(09:26):
your take on why analysts are so focused on this
and CEOs for whatever reason at least so far or not.
Speaker 2 (09:33):
I think when we repeat it in this upcoming quarter,
if I were guessing, I think the cost and productivity
issue is going to come much more to the four.
Speaker 1 (09:41):
Just to give you a little bit more data here,
in both Europe and the US, discussions of growth outweighed
discussions of costs, whereas an Asia it was flipped. They
were talking CEOs were talking more about costs less about
growth in this first quarter.
Speaker 2 (09:55):
That is right, and so if I come to the
Asia question, then we'll go to you. Yeah, I think
that when I go. I've been traveling around Asia a
lot over the last few months, and I talked to
my colleagues as well, and the consistent discussion is the
intensity of competition in Asia. First, in China itself, it's
(10:16):
massively competitive because there's lots of overcapacity and the battles
are fierce to be able to once to survive as
these industries are growing. But second that over capacity is
also pushing intense cost competition toward Japan, towards Southeast Asia,
toward India. It's also spilling out to other parts of
the world, but just given proximity, given the volume of
(10:36):
trade activity, there is an enormous competitive intensity on cost
as companies are not just competing locally, but they're often
competing against really strong Chinese competitors who are playing in
those markets as well. So it did not surprise me
at all that when you talk to Asian CEOs that
intensity of cost competition was very high up in Europe.
Speaker 3 (10:59):
I think while the cost topic was not the top
concern of the CEOs, I think it always was over
the last couple of years at least in the top
three or four topics. I think the cost topic will
be impacted by technology, and I think what Jenna I
will do on the productivity and how it will drive
cost curves down I think will will soon be implemented.
(11:23):
I think by CEOs.
Speaker 1 (11:25):
Let's go deeper on technology, particularly in Europe. One of
the things we found this quarter was that mentions of
AI generative AI automation all increased one hundred percent or
more in Europe. Among European CEOs, they're still not talking
about it quite as much as their colleagues are in
North America and in Asia, but they're it's clearly on
the rise. It's almost as if they're trying to catch
(11:47):
up what's behind that trend.
Speaker 3 (11:50):
So if we look at technology and if you look
at the competitiveness of European companies, we're far behind the US.
We're also far behind China, and I think we need
to catch up. An area where we see where Europe
is starting to catch up and actually holding leadership position
is everything industrial AI. I've just been to the hanofha
Messe couple of weeks back. It's one of the biggest
European trade first on the industrial automation. It's great to
(12:15):
see how strong European companies are in this field.
Speaker 1 (12:20):
I want to talk about environmental and climate change topics,
and Rich I'd like you to address what we're seeing
in the US. The US CEOs are running away from
that topic as quickly as they can. Hardly anybody has
mentioned anymore on these earnings calls. Is that because they're
really trying to simply not discuss stuff that is still
going on behind the scenes, or have they ratcheted back
(12:41):
on those climate change initiatives that they had made so
prominent in their calls and say a year or two ago.
Speaker 2 (12:47):
I think there are three things going on right now.
I think first, business leaders, and I would say centered
in North America, but other parts of the world as well,
are much more focused on making sure that the investment
that they make in climate and sustainability bring business value
as well as planetary value, if you put it that way,
(13:08):
And therefore they are being careful to think about what
initiatives they are undertaking. Can they defend them as driving
greater productivity. If you take on a circularity effort, you
often addressing the environment, but you're actually taking cost out
of the system. If you're building a new green business,
you may be helping the planet, but you're also creating
the next generation of growth in a world even separate
(13:31):
from what the US will do that will be spending
trillions of dollars a year on investing to address climate
change over the coming decades. You need a win win,
not just do something that feels right for the climate
but is costly to the business. I think there's a
second thing that most companies in that context are still
trying to keep with the commitments that they've made where
(13:53):
they can make that work. Most companies haven't been walking
away from their commitments, but they're being much more cautious
new commitments. There was a time period where every month
you look and see how many new commitments have come
out in the US, and that is really quite few
right now. And then the third point is I do
think that there's a lot of green hushing going on.
(14:14):
It's become a very political topic. They don't want to
be caught in the politics of it, and that's why
I think the analysts and the US actually gave it
more attention than business leaders gave it.
Speaker 1 (14:24):
And Michael and Europe, as you know, there is a
real bastion of discussion of climate change. In fact, the
discussion of climate change, climate exposure, greenhouse gas emissions all
rose by one hundred percent or more among European CEOs
in the last quarter.
Speaker 3 (14:40):
I think the business cases that we're seeing on circularity
they are starting to work. They will unlock by twenty thirty.
There are studies out there they will unlock trillions of
dollars of GDP growth. And I think there is another
aspect now coming to it. If there is a sovereignty aspect.
If you look about dramati real circularity and keeping the
(15:02):
raw material in certain circle of flows within a certain
region is also a second aspect. I think that is
driving that dynamic why climate topics stay on the agenda
in Europe.
Speaker 2 (15:15):
What I think was encouraging on the European side from
a government point of view is so many business leaders
have been frustrated at the amount of bureaucracy and overhead
that comes with the environmental goals in Europe, even if
they fully agree with the ambition, the way it's done
has felt so cumbersome, and I do think the recognition
(15:37):
in the EU that you can keep the ambition, but
you have to make it easier for companies if they're
able to if they're going to be able to be
globally competitive. This model isn't working the way it should.
Speaker 3 (15:49):
But there is progress we're starting to see. Particularly there's
a beautiful Cherman word, the lever of ket and sock falsk.
Speaker 2 (15:54):
Is it okay? What does that work?
Speaker 3 (15:56):
This is about how you need to report on your
supply chain that this is actually going to be stopped now,
so we're starting to see progress on the on the
bureaucracy side.
Speaker 2 (16:07):
Good for all of us. Yes.
Speaker 1 (16:10):
Indeed, in late twenty twenty four we had all expected
to see a huge search in murders and acquisitions. We
haven't seen that yet. Is that really just a function
of the uncertainty that's in the environment now and could
self correct by the end of the year, or is
this something that's going to be a little more long term.
Speaker 3 (16:28):
I think we won't see deals over the next couple
of months because the problem is you cannot underwrite a
business case in this environment. Everything that is that is global,
that has global supply chains. You can't take a bet
on on these business cases. And hence what we're actually
(16:48):
seeing is we see quite a dramatic slowdown in the pipeline.
Speaker 2 (16:52):
As one of my colleagues here in New York is
very involved in that world, said to me, you can't
do a deal if you can't do a two to
three year but tough forecast. And right now people don't
feel confident that they have any but tough forecast they
can rely on, and so it's hard to do a deal.
Speaker 1 (17:08):
So uncertainty can certainly dampen the m and a environment.
Is there anything that uncertainty does permits a CEO to
do that he or she otherwise might not be able
to accomplish. Does it give you some space to be
able to focus on something that in a more growth
oriented period of time you wouldn't be able to.
Speaker 2 (17:27):
Well, you know there's this old especially never let a
crisis go to waste. I think where that will apply
is less around the deployment of capital for deals or
new plants, but absolutely to drive productivity, deeper customer relationships,
investment of innovation into the business. I think people will
(17:49):
realize that the world may only get harder.
Speaker 1 (17:52):
Is there anything that this current situation reminds you of historically?
Speaker 2 (17:57):
Okay, so first I want to be careful about trying
the NUN because there's no health impacts here. But if
you think about those first few months of COVID, we
were all living with so much uncertainty. It's only looking
back that vaccines came along faster that we were able
to get past that in a less tramatic way. But
in April of twenty twenty, just five years ago, we
were sitting with incredible amounts of uncertainty. Companies were really
(18:22):
anxious about what was going to happen. There were talks
about traumatic economic impacts. I would say that uncertainty was
even higher than the uncertainty we're living with, and we
only don't remember it because it got resolved so quickly.
To me, it feels more like that, not the same degree,
and certainly without people losing their lives or anything of
that nature. But it feels a little bit more in
(18:42):
that direction than it felt like the challenges of past
recessions or challenges.
Speaker 3 (18:49):
But I would actually on that point, Rich, I would
actually say that even though we have a lot of uncertainty,
I think some things are becoming clear. And again from
a European perspective for us returning to our old operating model,
fully globalized world supply chains globally set up, I don't
think we will return to that world.
Speaker 2 (19:10):
I totally agree. I think you're right. In the longer term,
I would I think Michael was exactly right that companies
need to understand we're in a new political reality moving forward,
even if the tariffs resolve in a more benign way,
which is not obvious that they will, and being more localized,
more understanding dynamics in different parts of the world, and
(19:30):
I would argue this technology topic is the one secular
trend that's coming. We can do whatever we want around politics, tariffs,
geopolitical dynamics, AI and a whole set of other related
technologies are coming fast. And as it relates to innovation, productivity,
changes to business models, changes to building deeper customer relationships
(19:51):
like those things are coming. And if you let all
these short term challenges get in the way of embracing that,
then I think you're really losing ground competitively, even if
it seems like you're navigating the short term.
Speaker 1 (20:03):
Okay, I'm going to go out on a limb here
that if the three of us are around this table
three months from now, high likelihood we're going to be
talking about uncertainty in the economy even then, Rich and Michael,
thanks for your insights today.
Speaker 2 (20:15):
It's great to be with you.
Speaker 1 (20:16):
Thank you, Ed, and great to have you. For those
of you who'd like to learn more about the CEO Radar,
you can read the full report at Bloomberg dot com
slash CEO Radar. If you like what you hear, we
encourage you to subscribe to this podcast, either on YouTube
or any of the podcasting platforms that you use, we'll
have our next episode drop in early Q three with
(20:37):
entirely new batch of data. I'm Edward Adams of Bloomberg
Media Studios. Thanks for listening.
Because you're a subscriber to this Bloomberg podcast, we thought
you'd be interested in a sponsored podcast called CEO Radar,
produced by BCG and Bloomberg Media Studios. It analyzes almost
forty nine hundred earnings calls worldwide to assess what topics
merit a CEO's time and attention. Here's a recent episode.
(00:22):
Rich and Michael, Welcome to the CEO Radar podcast.
Speaker 2 (00:26):
It's great to be here with you.
Speaker 3 (00:28):
Thanks for having us.
Speaker 1 (00:29):
During the first quarter. The analysts who are on these calls,
who function really as a proxy for the market in
our approach, we're talking about tariff sixty two percent more
often than we're CEOs. Even though obviously CEOs talk far
more on these calls than do analysts, the fact that
they were mentioning tariff so much more surprised me a bit.
(00:50):
I thought that we would see CEOs talking more about that,
talking about how they were preparing for what seemed to be,
at least to a lot of experts and inevitability. Rich,
what was your take on why they weren't discussing it
more in first quarter?
Speaker 2 (01:05):
I was thinking the same thing as I read through
the survey, and as I reflected I think there were
two totally separate things going on here. One is, if
you go back to the president's first term in office,
there was a saying, well, two observations. One is it
became frequent to say take him very seriously, but not literally.
(01:26):
And a second was that he will be very responsive
to how the market dynamics evolve in adjusting the actions
and announcements. And I think in many CEO's minds, the
combination of those two statements. They had heard all the
comments about tariffs. The President was quite good at both
on the campaign trail and after the campaign ended about that,
(01:47):
but I think they were still probably underestimating the magnitude
of what he was prepared to do. And I think
the second thing is the CEOs that I speak with
generally have a view that it's best not to be
too commenting in public about the worries you have or
what you think the administration maybe doing right or doing wrong,
(02:08):
and it's much better to engage directly, whether that was
going to Marrow Lago before the inauguration or going to
Washington since the inauguration.
Speaker 1 (02:17):
But wouldn't they have been in a safe zone if
they had talked about we're in case there are tariffs,
we have prepared in the following ways for that so
that they could reassure the market that they wouldn't be
as effected perhaps as other companies are.
Speaker 2 (02:30):
I don't think there's an easy near term response on
how to do that, and I think the last thing
CEOs want to talk about. Some of that response will
be passing price through to their customers or through to consumers,
or things that you really don't want to be saying
unless you have to, unless it's there.
Speaker 1 (02:48):
Michael, we saw some regional differences here in the discussion
of tariffs in the first quarter. Globally, the mentions of
tariffs by CEOs did increase in the first quarter. Certainly,
it's not as if they were totally line to the topic.
It went up five hundred and thirty seven percent around
the world, but in the US it went up about
one thousand percent. In Europe, where you're from, about five
(03:09):
hundred percent increase, and less than a one hundred percent
of an increase by CEOs in Asia talking about tariffs.
That last bit surprised me, given that that's where many
of the global supply chains began and certainly would be
affected by a US set of tariffs. What should take
on why those numbers are different around the world.
Speaker 3 (03:27):
I mean, if I look at the European numbers, the
five time increase to the last quarter, I'd say we
should not make the conclusion that the numbers are not
as high as in the US. Therefore the European CEOs
are less well prepared. I think most CEOs have really
done their homework, and what we've seen when speaking with
(03:48):
the CEOs were a couple of things. I mean, they
were really working on building this geopolitical muscle. We've seen
a lot of scenarios being played through, and I think
what we've seen over time rich a bit like to
your point that this is not happening overnight. I think
many of the businesses have already started a couple of
years ago to think through what should my localization strategy
(04:08):
actually look like. And we've seen that, particularly if we
look at the automotive manufacturers, the big German OEMs. I mean,
they have started over time actually to build up international
footprint and more and more localization strategies. And I think
what we were going what we are going to see
over over time. I think that this strategy is going
to intensify.
Speaker 2 (04:28):
And if I just pick upon the Asia part of
your question, I also think and again the first term
of the president, we saw Japan and India, both leaders
of both countries, Prime Minister Motive, Prime Minister Abbe do
a really excellent job of building relationships with the White
House with the President, and I think there was probably
(04:50):
some optimism, whereas in Europe, obviously, coming out of Dava's
the Munich Security Conference, it was pretty clear it was
going to be a quite tense relationship. So the fact
that Asia or Asian business leaders may have underestimated the
impacts of tariffs, and I think obviously I think Chinese leadership,
(05:11):
whether it's companies or political leadership, was really keeping relatively
quiet about what the US would do. So I'm not
actually surprised that this didn't get as big a visible
play in these conversations in Asia as we saw in Europe,
and then certainly the US was much more front and center.
Speaker 1 (05:30):
As your data suggests, these tariffs were initially announced and
then were put on hold for a period of time.
I think that's just indicative of a level of uncertainty
that the business community is going through at this point.
Is there any way that people can profit from that
is there somebody who wins in a climate of uncertainty.
Speaker 2 (05:51):
So I just want to start with your comment around
uncertainty because it is the comment I hear the most
right now in the business community. You know, every investment
is a function of risk and reward and returns associated
with it. Right now, the level of uncertainty has really
heightened the risk associated with investments. So I think what
(06:12):
we're seeing first and foremost is a level of caution
around investing, certainly in physical assets. I think the second
thing is in terms of where you can build advantage. Look,
some people will take bets on where things go, and
some of those will be right. The challenges we don't
know which bets will turn out to be right. And
the second thing is once this settles, and I think
(06:34):
all business leaders, whatever their views of what the level
of tariffs they want, I think will hope for clarity
that at least you know where you stand. And once
it does settle, there will certainly be competitive advantage to
some companies relative to others, because even if your cost
go up to tariffs, if your main competitor faces even
higher tariffs, you've built some advantage even if you may
(06:55):
have reduced overall demand, because some price will flow through
to the end market.
Speaker 1 (06:59):
So in the near term, nobody really wins from uncertainty.
I think it's get frozen in place.
Speaker 2 (07:05):
Uncertainty. I used to describe it as deer in headlights
when you looked at the Great Financial Crisis or post
on it. And I don't think we're at that magnitude,
to be clear. But I do think that when there's
massive uncertainty that enters the environment, the first thing people
do say, Okay, let's hold on, let's see, and that
means planned investments don't go forward because people don't know
(07:27):
in this case where to invest. Even if they know
how they want to invest in how much they want
to invest. The where question is really tricky right now.
Speaker 3 (07:36):
But even though Rich, even though we have also from
a European point of view, we have this uncertainty as well.
I think the clarity what's going to happen now going forward,
with how obviously the administration is going to interact with
the different regions, I think brings at least a new
perspective for CEOs how to think about their business models,
(07:57):
how to think around Okay, how do I need to
set up my opera model. And I think from a
European point of view, this has been probably the final
wake up call to think through how how can we
future prove our operating models in order to be competitive
in this in this new competitive world that is that
is going to be set up because again, if I
look at my home market at Germany, the German model
(08:20):
was based on a full export driven model, fully globalized
global supply chains right and and and and that model
was serving the economy the businesses super well. I think
while we have uncertainty, I think we have clarity that
this model was not going to work.
Speaker 1 (08:41):
Let's turn now to the topic of costs. One of
the things we did in this report was we gathered
together similar topics and sort of combine them to gauge
sort of how some of these megatopics are playing out
over time. One of them was costs. So we combined
things like the topic of write downs or job cuts
or an economic slowdown and saw, sort of, on average,
(09:03):
where did those topics rank amongst the most mentioned topics
both by CEOs globally as well as by analysts. What
we found on costs was a divergence there that the
analysts were mentioning those on average about thirty four in
their rank of topics, whereas for CEOs they were down
in sixty sixth place, talking about them much less. What's
(09:26):
your take on why analysts are so focused on this
and CEOs for whatever reason at least so far or not.
Speaker 2 (09:33):
I think when we repeat it in this upcoming quarter,
if I were guessing, I think the cost and productivity
issue is going to come much more to the four.
Speaker 1 (09:41):
Just to give you a little bit more data here,
in both Europe and the US, discussions of growth outweighed
discussions of costs, whereas an Asia it was flipped. They
were talking CEOs were talking more about costs less about
growth in this first quarter.
Speaker 2 (09:55):
That is right, and so if I come to the
Asia question, then we'll go to you. Yeah, I think
that when I go. I've been traveling around Asia a
lot over the last few months, and I talked to
my colleagues as well, and the consistent discussion is the
intensity of competition in Asia. First, in China itself, it's
(10:16):
massively competitive because there's lots of overcapacity and the battles
are fierce to be able to once to survive as
these industries are growing. But second that over capacity is
also pushing intense cost competition toward Japan, towards Southeast Asia,
toward India. It's also spilling out to other parts of
the world, but just given proximity, given the volume of
(10:36):
trade activity, there is an enormous competitive intensity on cost
as companies are not just competing locally, but they're often
competing against really strong Chinese competitors who are playing in
those markets as well. So it did not surprise me
at all that when you talk to Asian CEOs that
intensity of cost competition was very high up in Europe.
Speaker 3 (10:59):
I think while the cost topic was not the top
concern of the CEOs, I think it always was over
the last couple of years at least in the top
three or four topics. I think the cost topic will
be impacted by technology, and I think what Jenna I
will do on the productivity and how it will drive
cost curves down I think will will soon be implemented.
(11:23):
I think by CEOs.
Speaker 1 (11:25):
Let's go deeper on technology, particularly in Europe. One of
the things we found this quarter was that mentions of
AI generative AI automation all increased one hundred percent or
more in Europe. Among European CEOs, they're still not talking
about it quite as much as their colleagues are in
North America and in Asia, but they're it's clearly on
the rise. It's almost as if they're trying to catch
(11:47):
up what's behind that trend.
Speaker 3 (11:50):
So if we look at technology and if you look
at the competitiveness of European companies, we're far behind the US.
We're also far behind China, and I think we need
to catch up. An area where we see where Europe
is starting to catch up and actually holding leadership position
is everything industrial AI. I've just been to the hanofha
Messe couple of weeks back. It's one of the biggest
European trade first on the industrial automation. It's great to
(12:15):
see how strong European companies are in this field.
Speaker 1 (12:20):
I want to talk about environmental and climate change topics,
and Rich I'd like you to address what we're seeing
in the US. The US CEOs are running away from
that topic as quickly as they can. Hardly anybody has
mentioned anymore on these earnings calls. Is that because they're
really trying to simply not discuss stuff that is still
going on behind the scenes, or have they ratcheted back
(12:41):
on those climate change initiatives that they had made so
prominent in their calls and say a year or two ago.
Speaker 2 (12:47):
I think there are three things going on right now.
I think first, business leaders, and I would say centered
in North America, but other parts of the world as well,
are much more focused on making sure that the investment
that they make in climate and sustainability bring business value
as well as planetary value, if you put it that way,
(13:08):
And therefore they are being careful to think about what
initiatives they are undertaking. Can they defend them as driving
greater productivity. If you take on a circularity effort, you
often addressing the environment, but you're actually taking cost out
of the system. If you're building a new green business,
you may be helping the planet, but you're also creating
the next generation of growth in a world even separate
(13:31):
from what the US will do that will be spending
trillions of dollars a year on investing to address climate
change over the coming decades. You need a win win,
not just do something that feels right for the climate
but is costly to the business. I think there's a
second thing that most companies in that context are still
trying to keep with the commitments that they've made where
(13:53):
they can make that work. Most companies haven't been walking
away from their commitments, but they're being much more cautious
new commitments. There was a time period where every month
you look and see how many new commitments have come
out in the US, and that is really quite few
right now. And then the third point is I do
think that there's a lot of green hushing going on.
(14:14):
It's become a very political topic. They don't want to
be caught in the politics of it, and that's why
I think the analysts and the US actually gave it
more attention than business leaders gave it.
Speaker 1 (14:24):
And Michael and Europe, as you know, there is a
real bastion of discussion of climate change. In fact, the
discussion of climate change, climate exposure, greenhouse gas emissions all
rose by one hundred percent or more among European CEOs
in the last quarter.
Speaker 3 (14:40):
I think the business cases that we're seeing on circularity
they are starting to work. They will unlock by twenty thirty.
There are studies out there they will unlock trillions of
dollars of GDP growth. And I think there is another
aspect now coming to it. If there is a sovereignty aspect.
If you look about dramati real circularity and keeping the
(15:02):
raw material in certain circle of flows within a certain
region is also a second aspect. I think that is
driving that dynamic why climate topics stay on the agenda
in Europe.
Speaker 2 (15:15):
What I think was encouraging on the European side from
a government point of view is so many business leaders
have been frustrated at the amount of bureaucracy and overhead
that comes with the environmental goals in Europe, even if
they fully agree with the ambition, the way it's done
has felt so cumbersome, and I do think the recognition
(15:37):
in the EU that you can keep the ambition, but
you have to make it easier for companies if they're
able to if they're going to be able to be
globally competitive. This model isn't working the way it should.
Speaker 3 (15:49):
But there is progress we're starting to see. Particularly there's
a beautiful Cherman word, the lever of ket and sock falsk.
Speaker 2 (15:54):
Is it okay? What does that work?
Speaker 3 (15:56):
This is about how you need to report on your
supply chain that this is actually going to be stopped now,
so we're starting to see progress on the on the
bureaucracy side.
Speaker 2 (16:07):
Good for all of us. Yes.
Speaker 1 (16:10):
Indeed, in late twenty twenty four we had all expected
to see a huge search in murders and acquisitions. We
haven't seen that yet. Is that really just a function
of the uncertainty that's in the environment now and could
self correct by the end of the year, or is
this something that's going to be a little more long term.
Speaker 3 (16:28):
I think we won't see deals over the next couple
of months because the problem is you cannot underwrite a
business case in this environment. Everything that is that is global,
that has global supply chains. You can't take a bet
on on these business cases. And hence what we're actually
(16:48):
seeing is we see quite a dramatic slowdown in the pipeline.
Speaker 2 (16:52):
As one of my colleagues here in New York is
very involved in that world, said to me, you can't
do a deal if you can't do a two to
three year but tough forecast. And right now people don't
feel confident that they have any but tough forecast they
can rely on, and so it's hard to do a deal.
Speaker 1 (17:08):
So uncertainty can certainly dampen the m and a environment.
Is there anything that uncertainty does permits a CEO to
do that he or she otherwise might not be able
to accomplish. Does it give you some space to be
able to focus on something that in a more growth
oriented period of time you wouldn't be able to.
Speaker 2 (17:27):
Well, you know there's this old especially never let a
crisis go to waste. I think where that will apply
is less around the deployment of capital for deals or
new plants, but absolutely to drive productivity, deeper customer relationships,
investment of innovation into the business. I think people will
(17:49):
realize that the world may only get harder.
Speaker 1 (17:52):
Is there anything that this current situation reminds you of historically?
Speaker 2 (17:57):
Okay, so first I want to be careful about trying
the NUN because there's no health impacts here. But if
you think about those first few months of COVID, we
were all living with so much uncertainty. It's only looking
back that vaccines came along faster that we were able
to get past that in a less tramatic way. But
in April of twenty twenty, just five years ago, we
were sitting with incredible amounts of uncertainty. Companies were really
(18:22):
anxious about what was going to happen. There were talks
about traumatic economic impacts. I would say that uncertainty was
even higher than the uncertainty we're living with, and we
only don't remember it because it got resolved so quickly.
To me, it feels more like that, not the same degree,
and certainly without people losing their lives or anything of
that nature. But it feels a little bit more in
(18:42):
that direction than it felt like the challenges of past
recessions or challenges.
Speaker 3 (18:49):
But I would actually on that point, Rich, I would
actually say that even though we have a lot of uncertainty,
I think some things are becoming clear. And again from
a European perspective for us returning to our old operating model,
fully globalized world supply chains globally set up, I don't
think we will return to that world.
Speaker 2 (19:10):
I totally agree. I think you're right. In the longer term,
I would I think Michael was exactly right that companies
need to understand we're in a new political reality moving forward,
even if the tariffs resolve in a more benign way,
which is not obvious that they will, and being more localized,
more understanding dynamics in different parts of the world, and
(19:30):
I would argue this technology topic is the one secular
trend that's coming. We can do whatever we want around politics, tariffs,
geopolitical dynamics, AI and a whole set of other related
technologies are coming fast. And as it relates to innovation, productivity,
changes to business models, changes to building deeper customer relationships
(19:51):
like those things are coming. And if you let all
these short term challenges get in the way of embracing that,
then I think you're really losing ground competitively, even if
it seems like you're navigating the short term.
Speaker 1 (20:03):
Okay, I'm going to go out on a limb here
that if the three of us are around this table
three months from now, high likelihood we're going to be
talking about uncertainty in the economy even then, Rich and Michael,
thanks for your insights today.
Speaker 2 (20:15):
It's great to be with you.
Speaker 1 (20:16):
Thank you, Ed, and great to have you. For those
of you who'd like to learn more about the CEO Radar,
you can read the full report at Bloomberg dot com
slash CEO Radar. If you like what you hear, we
encourage you to subscribe to this podcast, either on YouTube
or any of the podcasting platforms that you use, we'll
have our next episode drop in early Q three with
(20:37):
entirely new batch of data. I'm Edward Adams of Bloomberg
Media Studios. Thanks for listening.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!