By: Edwin Fuller
Founder and President of Laguna Strategic Advisors
The facts tell the story. Since 2000 the rise of the world’s emerging markets has been one of the defining, but relatively little reported, features of the global economy.
Consider this: In the next ten years McKinsey & Co. predicts that the annual buying power of people living in just the world’s emerging markets will reach $30 trillion a year. Twenty years ago less than 20% of the world’s population earned enough money to afford little more than the basic necessities of life.
Over the past two decades, thanks to global urbanization, a rapidly expanding middle class, removal of trade barriers, leap-frogging technology, and other positive developments, the world’s consumer class has doubled to about 2.4 billion people. McKinsey predicts that by 2025, this number will double again to 4.2 billion out of a global population of 7.9 billion, and that for the first time in history, there will be more people in the consuming class than those who are still struggling to get by, and that the emerging markets will become the dominant force in the global economy, accounting for 70% of global economic growth. Today they are well on their way to dominance by claiming 50% of the world’s GDP in purchasing power.
We’re already seeing the impact. China is now the world’s largest automobile consumer. Recently its largest e-commerce company, Alibaba Group Holding Ltd., launched a share offering in New York that attracted global attention, becoming the largest stock debut in history. Sort of like a combination of Amazon and eBay, Alibaba is transforming life in China, where 80% of all on-line sales pass through one of its sites. Alibaba now focuses its business in China, but following its splashy September debut on the world’s financial stage, their strategic direction likely will broaden. Meanwhile, in another five years more than half of all Chinese households will be solidly in the middle class, up from 6% in 2010.
Leading the global transformation taking place before our eyes in the emerging markets is a generation of consumers who are now in their 20s and 30s. Last year these markets were home to 85% of the world’s population, 90% of which were under the age of 30. This number is expected to grow at three times the rate of the developed economies now through 2020. And while the BRICs (Brazil, Russia, India and China) are home to almost half of the world’s emerging market population, 1.3 billion other folks live in non-BRIC emerging markets -combining for a population considerably greater than all those living in the developed countries. It may be hard to believe but five non-BRIC emerging markets have populations of more than 100 million each – Indonesia, Pakistan, Nigeria, Bangladesh and Mexico.
So what does all this mean? This economic transformation carries with it a lot of pent-up demand – for a better education for their off-spring, for better food and health care and for the finer things in life, especially to see and experience the world beyond their national borders. For its part, Boeing sees a 5% increase in demand over the next two decades for more than 36,000 new aircraft.
As businesspeople, we need to begin developing a deep knowledge of these markets, their people, their customs and their current and ancient history so as to better understand them and communicate more effectively with them. We need to design our products so that they appeal locally – city by city. When crafting your needs/benefits message, think lifestyle. And finally, start now to carefully build your relationships by finding the right local partners.