How CEO decisions turn diversification into investment

Every strategy for economic diversification eventually reaches a practical question of whether companies will invest. Governments can create the conditions for new industries and investment, but businesses still decide where to put their capital, which technologies to adopt, which capabilities to develop and which markets to enter.

These corporate decisions matter because economies are changing alongside markets, technologies and value chains. The ability of companies to reassess where opportunities lie and redirect resources accordingly has become an important part of their resilience.

PwC’s 29th Global CEO Survey, covering 4,454 chief executives across 95 countries and territories, found that 42% said their companies had begun competing in new sectors or industries over the past five years. Companies earning more revenue from new sectors also tended to be more profitable, while their CEOs were more confident about growth.

Entering a new sector will not make sense for every company. The broader point is that established market boundaries are becoming less fixed, requiring executives to reassess where their companies can compete and where capital can generate value.

The UAE provides a particularly relevant example. Nearly 70% of CEOs in the country say their companies have begun competing in new sectors or industries over the past five years. Looking ahead, 74% expect to make one or more significant acquisitions over the next three years, compared with 41% globally. Among UAE CEOs planning acquisitions, 40% expect more than one-fifth of their total deal value to come from sectors outside their core industry, compared with 16% globally.

These figures show how economic diversification translates into corporate investment. As opportunities develop, companies decide whether and where to commit the capital and capabilities needed to pursue them.

The effects of those investment decisions can extend across the wider economy. A company entering or expanding into a new sector can create demand for suppliers, specialist services and expertise. New technologies can require different skills and capabilities, while investment and partnerships can create opportunities for other businesses.

This has important implications for investment destinations. Attracting capital is the beginning of the relationship. The longer-term value of investment also depends on whether companies can reinvest, expand their operations, develop supplier relationships and move into new activities as opportunities emerge. An investment environment that enables companies to continue deploying capital can increase the economic value of that investment over time.

Enabling that continued investment requires regulation, infrastructure, access to finance, talent and an innovation ecosystem that give companies room to grow and adapt. CEOs then make the commercial choices that put those advantages to work, deciding where to commit capital, which capabilities to develop, when to pursue partnerships and when expansion into a new market or activity makes commercial sense.

Individual decisions shape the resilience of companies. Taken across an economy, they also influence how readily capital, technology and expertise move towards new areas of opportunity. For economies pursuing diversification, creating an environment in which companies can continue to invest, expand and adapt helps turn emerging opportunities into sustained business activity.