The West risks squandering a spectacular $10tri market opportunity if countries and companies fail to develop enduring commercial ties with these nations’ newly affluent consumers, according to a new book by The Boston Consulting Group (BCG).
Chinese and Indian consumers are expected to spend a combined total of $64tri on goods and services between 2010 and 2020, propelling a new wave of growth in the global economy, say the authors of ‘The $10 Trillion Prize: Captivating the Newly Affluent in China and India’. By 2020, these consumers will be spending a total of nearly $10tri annually, three times the amount they spent in 2010.
To capture a slice of this prize, business leaders and politicians alike need to take urgent action to build for the long term. They should not postpone their efforts because of the current troubles facing the two emerging economies – something the authors ascribe to the inevitable volatility of emerging markets by drawing parallels with the fast-growing US economy from the 1870s onward.
“We are at a turning point in history where relative wealth will shift from the West to China and India, but absolute wealth, including in the West, should increase,” said Michael J. Silverstein, a co-author of the book and a senior partner at BCG. “It is not a zero-sum game. But Western businesses and individuals wishing to gain their share need to act now. They must choose to be contenders, and remake their dreams for a new world in which China and India play a much larger role – but where the West can still prosper. That’s the real lesson of The $10 Trillion Prize.”
In the book, which has been published by Harvard Business Review Press, the authors present a detailed analysis of the future spending habits of China’s and India’s consumers. They say that to succeed, business leaders need to embrace the two countries and get to know the people: who they are, what they buy and why, how they think and shop, and how their needs and tastes are changing.
The middle class in the two countries is expected to reach 1 billion by 2020, with Chinese consumers born in 2009 predicted to spend 38 times more than those born in 1960. In India, the proportion of middle-class people is expected to grow from 28% in 2010 to 45% in 2020.
The book is intended to serve as a playbook for ‘captivating’ or winning over these newly affluent consumers. The authors highlight a number of strategies that have been successfully deployed by companies such as Kraft, Yum! Brands, PepsiCo, Gucci, LVMH, BMW, and Pernod Ricard.
Among the key lessons and concepts in the book are the following:
Paisa Vasool: this Hindi phrase, which means ‘money’s worth’, is used by consumers when they feel that a product offers them the perfect mix of quality and value. The authors use it to describe an essential strategy whereby companies establish the price that consumers are willing to pay for a product, however low, and then restructure their business so that the product can be manufactured and marketed in an affordable way. They think that this strategy will be adopted in the US and European markets as well, as companies fight aggressively for the attention of middle-class consumers suffering a big drop in their discretionary spending power.
The Boomerang Effect: this term describes the impact or second-order consequences of the rising demand for everything from food and water to housing, luxury goods, transport, and education; namely, price volatility, inflation in supply-constrained commodities, scarcity of resources, and hyper-competition.
The Triple Crown: this phrase relates to how companies can succeed in China, in India, and back home as they rethink how they do business everywhere in the face of new competition from fast-globalising ‘challenger’ companies in China and India.
The Next-but-One Billion: the ‘next billion’ is a familiar concept. But there is another group that should not be ignored, because they could provide a second or third wave of growth over the next ten years or more. There are some 665 million people living below the poverty line in China and India – the so-called ‘left-behinds’. But because of their sheer number (roughly equivalent to all the people in the US and Western Europe), the multiplier effect of modest income growth will translate into consumer markets worth hundreds of millions of dollars.
