"Competing for the Global Middle Class" Selected Among Best New Research and Ideas

Thought Leadership Digest, January 2012

Ron Haddock, Bill Russo and Ed Tse’s article "Competing for the Global Middle Class" was featured in this January 2012 digest of the best new research and ideas for strategy leaders.

The purpose of our digests is to make it easier for business leaders to find the best research and ideas. Every month, we
trawl the websites of about 30 of the world’s leading consulting firms looking for the latest thought leadership. What we
find, which now totals over 20,000 articles, we categorise by sector and service line, and make available – with supporting
analysis – via a searchable database which we call White Space. In the process of doing so, we get a very good sense of
what’s being said in any particular business area, and which the best quality pieces of thought leadership are. This allows
us to present time-pressed managers with a summary of the things that really merit their attention.

Competing for the global middle class Booz & Company
They say: In a variety of industries, corporate leaders are discovering that they must rethink their product and
service lines, go-to-market strategies, and operating models to build a presence in emerging economies.

We say: A good starting point for the conversation all boards should surely be having about the large and growing
middle-class market in emerging economies.


Competing for the global middle class

Business Intelligence Middle East, January 16, 2012

Source: Booz & Company , Author: Ronald Haddock, Edward Tse, Bill Russo, Karl Nader
Posted: Mon January 16, 2012 10:50 am

UAE. The time has come for senior executives to take the plunge and override their hesitancies about the idea of joining the race for the global middle class market share; without the loyalty of this key segment, they may be left out in the cold as their competitors vie for industry leadership. Thought leader Booz & Company explores the options. 

In 2011, the worldwide economic phenomenon that is known as the global middle class included between 700-900 million people, all of whom had the purchasing power to become consumers of manufactured goods and services.
There is one common denominator across each country in which this demographic can be found: they are all recovering from the global recession with an increasingly urbanized lifestyle.

The value chain of companies that provide this population with goods, services and infrastructure is becoming known as the global middle market. Competing for their share are three different types of company - the local upstarts who are migrating into the domestic middle market as their customers become more prosperous; the global aspirants, who have already developed products for their domestic middle market, and who are looking to expand into the global equivalent, and the multinational incumbents intent on adapting their existing product lines to capture the attractive growth opportunities in emerging middle markets.

“An intelligent approach will allow local upstarts and global aspirants to move up in the corporate chain. Transitional moves, such as joint ventures and regional expansion, aid their advancement by proffering the experience required to compete on a larger scale,” commented Ronald Haddock, a former partner at industry management consultancy, Booz & Company.
No matter which of the three categories they fall into, companies looking to tap into the lucrative global middle market can draw inspiration from Alfred P. Sloan Jr’s reorganisation of General Motors Company in the 1920s; by targeting the consumers in the middle finance-zone (those who were unable to afford luxury vehicles but wanted an option other than the ‘any colour so long as it’s black’ Model T Ford), he propelled GM past the competition to take the leadership spot among carmakers and held that position for the rest of the century.

Recognising the pace of development in the target markets is the first step towards claiming a stake and taking that all-important step up onto the leadership ladder. All industrialising countries follow an ‘arc of growth’, an evolutionary path of economic change that takes them from nascent to mature, with a critical stage of urbanisation and economic momentum in between.

Countries in the ‘momentum phase’ have large, relatively young populations and high economic growth rates, making them the seedbed of the emerging middle-class markets.

“The buying power, needs and desires of the middle class varies dependent upon nation and region, so obtaining a full understanding of the local requirements in desired territories will prove highly beneficial to anyone wishing to successfully harness capital in that specific market,” said Edward Tse, senior partner with Booz & Company and the firm’s chairman for Greater China.

“Identifying the attributes that the targeted consumers value and adapting the product to meet them – or culling undesirable traits from the existing merchandise – is essential to winning customers.”

Considering the huge, indispensible source of sales volume presented by the global middle market, it’s no surprise that competition is already intense. Despite the number of active companies competing for consumer spending, several would-be contenders are being put off by myths that throw a negative light on the situation. 

“There’s talk that it’s too early to enter the middle market in emerging economies, when the reality is that it may already be too late as some industries are already becoming saturated with competitive rivals,” explained Bill Russo, a senior advisor with Booz & Company, based in Beijing.

 “Other companies claim that they can’t make money from emerging economies, but they have to consider that while prices are up to 40 percent lower than in developed nations, sales volume is potentially up to three times greater than in mature markets.”

This explains the motivation of Adidas to develop training shoes under the Reebok brand to sell for as little as 1 dollar across rural India, said Karl Nader, Principal at Booz & Company.

This is the case in the GCC, where multinationals that have been late in the game, face stiff competition from local brands as well as from established international competitors deeply rooted in the local market. These multinationals either fold or resort to inorganic growth options to bridge this gap.

This is evidenced, by Carrefour’s challenges to compete effectively against Panda and Al Othaim in Saudi Arabia, and Coca Cola’s recent acquisition of a 50% stake in Aujan, a significant investment to bridge the gap with PepsiCo, added Nader.

Russo goes on to explain that the attitude of assuming that success will come from the education of consumers, rather than the adaptation of products, will not bear fruit. No matter how valued or desirable the merchandize is, most newly-minted middle-class customers will not be able to afford them.

The final myth laid to rest is that entering the global middle market will be too disruptive to operations, to which he simply says that companies need to develop a business model that is suited to the task in order to succeed.

It may be that an alteration in the mind set of more conventional multinational corporation executives is required, in order for them to compete for the position of industry leader by cashing in on the benefits of the middle-class market. The opportunities in the global middle market may require additional effort in order to successfully reap the rewards on offer, but they’re most certainly worth it at the end of the day.

Click here to download the pdf report by Booz & Company. Registration required.

More reports and whitepapers are available on the Booz & Company website.

About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, government ministries, and organisations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914. Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.

For our management magazine strategy+business visit www.strategy-business.com.

For the Ideation Centre, Booz & Company’s leading think tank in the Middle East, visitwww.ideationcentre.com

For more information, please visit www.booz.com and www.booz.com/me


China car sales slow as US bounces back

China Economic Review, January 13, 2012

Car sales in China grew by only 2.5% last year as the government removed stimulus measures, while the US emerged to become the world's fastest-growing car market, the Financial Times reported. Car and light truck sales in the US grew by 10%, but sales of 12.8 million units were still far below the 18.5 million sold in China. 

Analysts believe the slowdown in China sales was largely due to the withdrawal of tax incentives introduced in 2008; auto sales in China grew by 46% in 2009 and 32% in 2010. Foreign carmakers did better than average, with General Motors (GM.NYSE) posting a 8.3% rise, and Ford (F.NYSE) a 7% increase. 

Analysts believe the auto market will rebound this year, though likely not to 2009 and 2010 levels. "Continued growth of the urban middle class, along with continued investment in China’s transportation infrastructure, will continue to fuel demand growth for the foreseeable future," said Bill Russo, head of Synergistics auto consultancy.

Click here to read this article at www.chinaeconomicreview.com