|5 Min. Read||Aaron Hakenson||January 19, 2017|
Editor’s Note: This is Part 1 in a 2-part series. Find Part 2 here.
This week, more than 2,500 leaders from academia, business and politics are attending the World Economic Forum in Davos, Switzerland, to discuss everything from artificial intelligence and climate change to capitalism and globalization.
A star-studded cast is in attendance this year: China president Xi Jinping … U.S. vice president Joseph Biden … JPMorgan Chase’s CEO … the managing director of the International Monetary Fund, and many more. And while there’s bound to be plenty of tasty champagne on ice for these tastemakers, reports suggest few are up for celebrating.
These experts, who often champion globalization, appear to be stymied by recent events in mature markets such as the UK and the U.S. The outcomes of the Brexit referendum and U.S. elections illustrate a clear dissatisfaction among their middle classes. Indeed, despite 2015 being a great year for middle-class Americans—in which real median household income grew 5.2%, the best year of economic improvement in decades—the damage from the recent global economic recession still lingers.
A decade of “stagnant median incomes and sluggish growth” have alienated these consumers, analysts say, and have made them leery of globalization. Meanwhile, China’s president delivered a Davos speech on Tuesday that praised economic globalization by saying:
“Pursuing protectionism is just like locking oneself in a dark room. While wind and rain may be kept outside, so are light and air. No one will emerge as a winner in a trade war.”
Naturally, China and other key emerging international markets often support globalization and world trade; their countries have benefitted the most over the past 10 years from the explosion in revenue, improved infrastructures and global commerce. The quality of life for these consumers has blossomed. In fact, the global middle class has grown exponentially—it’s now more than 2 billion, on track to hit nearly 5 billion in 2030.
But what exactly is the “global middle class,” and why should your business serve it now, and in the years ahead?
There’s no way around it: emerging markets are where the greatest economic growth has occurred in recent years. They’re also where the greatest promise for business success exists for expanding companies—especially online. According to 2016 Pew research, middle-class spending in developed nations grew an average of about 0.5% in the past decade, while developing countries have seen an average 8% growth every year.
The global middle class will nearly double in size to 4.9 billion by 2030, Internet Retail reported in 2016. More than 100 million households alone ascended to middle-class status during 2014 and 2015, Credit Suisse wrote last year.
This growth has been most prevalent in Eastern Europe, Latin America and Asia. For instance, “Asia-Pacific countries will comprise nearly two-thirds of the global middle class” by 2030, “dwarfing the projected one-fifth for Europe and North America combined,” The National Interest reported in 2015.
And Asia is where the action will remain, research suggests. Euromonitor International identified four Asian markets with the best “middle class potential”—meaning their populations were poised to benefit from surges in economic prosperity and consumer empowerment: China, India, Indonesia and the Philippines.
“This growth will completely change global wealth distribution,” wrote Ernst & Young analysts in 2015. By engaging specific markets that have a growth “sweet spot”—in which the growth of the middle class is in a virtuous cycle proportional to its economic growth—brands and companies can swiftly cater to these consumers’ evolving buying habits and aspirational tastes. These shoppers want to purchase popular and desirable Western brands and products, and travel.
McKinsey analysts called this phenomenon the rise of the “consuming class.” After thousands of years of Western economic dominance, the world’s economic center of gravity is swinging eastward once more, they suggested.
The global middle class isn’t the only facet of this phenomenon. Mobile and Internet penetration are rapidly growing in these markets, attracting global retailers and brands, as well as investments in infrastructure—from digital payment platforms to order fulfillment. This is supercharging e-commerce in the region. In these markets, smartphones and m-commerce will most certainly reign supreme. By 2019, Cisco Systems expects that nearly 70% of all mobile data traffic will travel over 4G networks (up from 40% in 2014). Indeed, a Nielsen economist insists these consumers have—and will continue to—“leapfrog” over traditional e-commerce channels such as desktop PCs and directly embrace smartphones. For expanding businesses, a mobile m-commerce strategy for these markets is imperative.
Cross-border online commerce will likely be common in these markets, too—a compelling opportunity for savvy first movers. In fact, consumers in Asia, Brazil and Mexico already make about 25% of their online purchases on websites beyond their borders. In another survey, nearly 60% of Chinese online consumers said they’ve shopped at an overseas e-retailer.
Retail e-commerce in Asia-Pacific markets hit $1 trillion last year (representing a year-over-year growth of nearly 32%). This is projected to hit $2.73 trillion by 2020. China will represent most of that growth and revenue; China’s e-commerce industry has seen double-digit year-over-year sales growth—an “online shopping boom,” as Nielsen analysts wrote in 2015. Other industries, such as online banking and travel, are also gaining traction in these emerging markets.
Nearly 100% of respondents in that 2015 Nielsen survey made purchases online, suggesting China’s buying habits are going digital, and in a hurry. In the short term, Southeast Asia will likely suffer from underdeveloped digital payments and logistics solutions—but they won’t remain that way forever.
Tomorrow, we’ll continue our conversation about the growing middle class, and how your business can smartly serve them with translated, localized online content and e-commerce experiences. We’ll take a critical look at the phenomenon—some analysts have a different perspective on this global growth, after all—and also hear from one of MotionPoint’s Global Growth analysts on the matter.
In the meantime, discover some best practices we’ve shared on how to best enter these thriving, emerging markets by visiting these stories on our blog:
Part 2 drops tomorrow!