Shifting wealth of nations – what is overlooked
Middle class spending is crucial for economic growth. So now, with Western middle classes in debt and distress, many economists look to the new emerging-market middle class as the foundation for a new era of global prosperity. However, companies need new approaches to penetrate the developing world’s increasingly prosperous consumer markets.
The last couple of years 70 million people in developing countries joined the middle class, with incomes between $6,000 and$30,000. It is estimated that within 20 years they will surpass their Western pears when it comes to global spending power. The focus is mainly on Asia and it is estimated that in about a decade they will pick up the slack left by overspent America. Emergency market spending is in fact already bolstering the balance sheets of many Western firms.
World focusing on China and India
Needless to say the world is focusing on China and India due to its huge populations as well as rapidly rising economies and middle classes. Correct if you look at the amount of people. But by looking at the issue that way we overlook a very potent and prosperous group of people. Saudi Arabia’s retail sector is booming as more international brands look to move into the kingdom. Saudi Arabia has already overtaken better known retail destinations like Hong Kong, Russia and Japan when it comes to attracting brands. Only London and Dubai are attracting more retailers and shoppers.
Don’t forget Saudi Arabia and the Gulf states
When it comes to per capita spending I’m certain that the middle classes in Saudi Arabia and the other Gulf countries not only earn more but also spend far more than their Asian counterparts. It’s not for nothing many middle class Indians chose to work in the Gulf, despite the fact that they are paid less than the locals. Salaries are higher and you pay no income tax in the Gulf.
Shopping for entertainment
Shopping is a top leisure activity and when the weekend starts the malls are filled with people who literally shop until they drop. A woman who works in a Chanel shop in the area told me an average customer spends an absolute fortune every time they come to the shop. And the same goes for more expensive items like cars, jewellery and electronics. Considering the importance the Chinese put on saving money, I would be very surprised if middle class people in China, with the exception of some mega rich, spend that much.
Emerging middle classes have different tastes
Emerging-market leaders know that the Western system created the worldwide boom of the last quarter century that ended when Lehman Brothers collapsed. Now the boom has moved to emerging markets, and their leaders will increasingly choose to alter Western models to suit their countries. Consequently the fact that all eyes are on Asia and the Gulf is forgotten could turn out to be a fatal mistake. The new emerging middle classes are supporters of globalization but highly nationalistic. And there is a vast difference between nationalism in China and, say, Kuwait.
Back to emerging middle classes in general, we can conclude that the Chinese bought more cars than Americans the last couple of years, and that India has as many Internet users as the U.S. Also it is estimated that by 2030, more than nine out of every 10 mobile phones will be owned by people in the developing world. Coca-Cola actually forecasts a doubling of worldwide revenues to $200 billion over the next decade, thanks to another 1 billion people expected to join the middle class by 2020. So Western companies who haven’t yet focused on developing countries’ middle classes should jump on the band waggon swiftly and not overlook the Gulf.
(photo: flickr – Lars Plougmann)