What are they key issues impacting bio/pharmaceutical manufacturing & supply in 2024? What technology may be a game-changer or other moves that will be most noteworthy across the bio/pharma manufacturing value chain? DCAT Value Chain Insights takes an inside look.

Impact factors for 2024
Overall macroeconomic performance is an overarching impact factor for the bio/pharma industry in 2024. Whether it be in the form of global growth and product demand, inflationary pressures on the cost of goods sold, or monetary policy and interest rates for capital allocation, how the economy performs influences manufacturing and supply. At the same time, other variables, such as technology changes or climate pressures, weigh in on as well.

What may be ahead for 2024? A recent CEO survey by the management-consulting firm, PwC, gives on perspective on what CEOs see as most impactful to the performance of their businesses. On a positive note, the proportion of CEOs who believe global economic growth will improve over the next 12-months has more than doubled year-on-year. At the same time, the proportion of CEOs concerned about their long-term business viability has risen to 45% as technology and climate pressures accelerate, according to PwC’s 27th Annual Global CEO Survey, released earlier this month (January 2024).

The survey, which interviewed 4,702 CEOs across 105 countries and territories, found that 38% of CEOs are optimistic about global economic growth prospects over the next 12-months, up from 18% in 2023. CEO expectations of economic decline have also tumbled from a record high in last year’s (2023) survey, 73%, to 45%, as perceived exposure to inflation and macroeconomic volatility fell by 16 percentage points (to 24%) and 7 percentage points (to 24%), respectively. Despite ongoing conflicts, the proportion of CEOs who felt their company is highly or extremely exposed to geopolitical conflict risk fell 7 percentage points (to 18%).

CEOs in most regions of the world are also more likely to be optimistic about domestic economic prospects than pessimistic. However, CEOs in North America and Western Europe buck the trend. In Western Europe, 32% expect their domestic economies to improve, 48% expect a decline; in North America, it is 31% (improve) and 52% (decline), respectively.

Geographically, CEOs see pockets of concern. Inflation remains the top concern for CEOs in the United States, for example, despite receding in terms of expected exposure for global CEOs overall, according to the PwC study. Similarly, geopolitical threats are still among the top concerns for CEOs in Central and Eastern Europe, as well as the Middle East, despite receding for global CEOs overall. This may be because companies have already been taking measures to insulate themselves from the effects of some conflicts—and the full impact of others is still unclear. In Western Europe, CEOs are most concerned about cyber risk over the next 12 months—that’s especially true in France and Germany, where it’s perceived as the top threat. US CEOs also rank exposure to cyber risk high on their list of concerns.

In terms of company growth, CEOs are more likely to plan to increase than decrease their headcount in the next 12-months, with 39% reporting that they expect to increase their headcount by 5% or more. Employers in every region are more likely to increase than decrease headcount, with the Middle East the most bullish on hiring (65%).

Potential disruptions
While the trajectory is positive, confidence is fragile as megatrends, including technological disruption—exemplified by generative artificial intelligence (AI)—and the climate transition converge, according to the PwC study. Almost half (45%) of CEOs say they do not believe their current business will be viable in a decade if it continues on its current path—up from 39% in 2023. Reflecting uncertainty about how they will manage megatrends, CEOs are somewhat less confident than last year in their own company’s prospects for revenue growth over the next 12 months, according to the PwC study.

“As business leaders are becoming less concerned about macroeconomic challenges, they are becoming more focused on disruptive forces within their industries,” said Bob Moritz, Global Chair, PwC, in commenting on the study. “Despite rising optimism about the global economy, they are actually less optimistic than last year about their own revenue prospects, and more acutely aware of the need for fundamental reinvention of their business. Whether it is accelerating the roll-out of generative AI or building their business to address the challenges and opportunities of the climate transition, this is a year of transformation.”

CEOs are also optimistic about the short-term impact. Over the next 12 months, almost three-fifths (58%) expect it to improve the quality of their products or services and almost half (48%) say it will enhance their ability to build trust with stakeholders. They also expect better outcomes for their business—41% expect it to positively impact revenue and 46% expect it to positively impact profitability.

But while CEOs are increasingly looking to the transformative benefits of generative AI, the great majority say it will require workforce upskilling (69%). They have also expressed concern about an associated rise in cybersecurity risk (64%), misinformation (52%), legal liabilities and reputation risks (46%), and bias towards specific groups of customers or employees (34%) in their companies.

Sustainability and climate issues loom large
As CEOs establish priorities, many are seeing the climate transition as an industry disruptor containing distinct opportunities in addition to risks. Nearly one-third of CEOS expect climate change to shift the way they create, deliver, and capture value over the next three years—up from less than one-quarter who said as much regarding the past five years, according to the PwC study.

CEOs report making progress in climated-related actions Seventy-six percent have either begun or completed steps to improve energy efficiency while 58% report having made similar strides when it comes to innovating new, climate-friendly products, services or technologies. On the other hand, only 45% note having made progress on or completed incorporating climate risk into financial planning (with 31% noting no plans to do so). Action on adaptation to physical climate risks is also lagging at 47% (with 29% noting no plans to act).

As CEOs establish priorities, many are seeing climate change as an industry disruptor containing opportunities and risks. Nearly one-third expect climate change to alter the way they create, deliver and capture value over the next three years—compared to less than one-quarter who said as much regarding the past five years. This may partly explain why 41% of CEOs, including over half of those at chemical companies, say their companies have set lower hurdle rates for climate-friendly investments than for other investments. Geographically, CEOs in Asia-Pacific are more likely than those elsewhere to have accepted lower hurdle rates, even though they were no more likely than CEOs elsewhere to report feeling highly or extremely exposed to climate change, according to the PwC study.

The survey suggests significant support for decarbonization, with only 26% saying that a lack of board or management buy-in is at least a moderate barrier to decarbonization. Instead, CEOs cite regulatory complexity (54%) and lower economic returns for climate friendly investments (51%) as the biggest barriers to be overcome. CEOs are beginning to take on the economic barrier, with four in ten reporting that they have accepted lower hurdle rates for climate-friendly investments than for other investments—in the majority of cases between one and four percentage points lower, according to the study.

Longer-term issues
As CEOs become more aware of the megatrends facing businesses globally, survey respondents expressed increased concern around their long-term business viability. Almost half (45%) of survey respondents note they are concerned their businesses will not be viable beyond the next decade without reinvention, up from 39% in 2023. Notably, the survey shows smaller companies are at greater risk: 56% of CEOs leading businesses generating less than $100 million in annual revenue believe their businesses will only be viable for 10 years or less if it continues running on its current path. This falls to 27% for those making $25 billion or more in revenue annually.

Almost all (97%) CEOs note they have taken steps to change how they create, deliver, and capture value in the past five years, and over three-quarters (76%) have taken at least one action that had a large or very large impact on their company’s business model.

Another sign that the need to reinvent is rising is a notable increase in the pressure CEOs expect over the next three years from factors that influence business model change. Compared to the last five years, for example, CEOs expect changes associated with technology, customer preferences and climate change, among others, to have a far larger impact on the way they create, deliver and capture value. Only the impact of supply-chain instability declines in relative terms as CEOs look ahead to the next three years.

But while CEOs are taking action, they are faced with a number of challenges. Two thirds (64%) cite the regulatory environment as inhibiting their ability to reinvent their business model to at least a moderate extent, 55% point to competing operational concerns, and 52% point to a lack of skills in their company’s workforce. A further obstacle is inefficiency. CEOs perceive significant inefficiencies across a range of their companies’ routine activities—everything from decision-making meetings to emails—viewing roughly 40% of the time spent on these tasks as inefficient. A conservative PwC estimate of the cost of that inefficiency would be tantamount to a self-imposed $10 trillion tax on productivity.