During the course of this decade, the size of the world’s middle-class, as defined by OECD*, will show an incredible 78% growth from around 1.8 billion people today, to a massive 3.2 billion by 2020.
Yet the most amazing fact is this: 85% of that growth – or 1.2 billion of the world’s new middle-class – will come from Asia.
In terms of consumer spending, the balance of the world is transforming just as dramatically. Global spending by the world’s middle class will more than double over the next 20 years, from just over $21 trillion today to more than $56 trillion by 2030.
And an incredible 80% of this extraordinary increase – more than $35 trillion in additional consumer spending – will come from the emerging middle classes of Asia.
What’s more – this extraordinary growth will be dominated by only two countries.
Today, China and India account for only around 6% of global middle-class expenditure, combined. Yet within 20 years, they will account for a breathtaking 41%.
The Chinese middle-class will be bigger than that of the United States by 2020, and will exceed the EU by 2026.
India’s middle-class will grow even faster, exceeding the US by 2021, China by 2023 – and two years later it will overtake the EU, becoming the world’s largest by 2025.
The rise of the middle class in China and India will represent, quite simply, the most profound business opportunity in our lifetimes. It will also represent one of its biggest challenges.
One Beast, Two Heads
China and India have – between them – been the world’s two largest economies for 18 out of the last 20 centuries. Historically, therefore, the brief era of western domination looks like being a short punctuation in the continued dominance of these two ancient nations.
But while China and India may be connected by history, geography and opportunity – they are dramatically divided. In reality, they share as much similarity as Europe and Africa. The mighty Himalayas have separated them for thousands of years, enabling them to develop entirely independent histories, identities and world views. As recently as 50 years ago, they were at war across the border. And today they are arguably more distinct than they have ever been.
Whereas China began its process of economic liberalization in 1978, India was way behind, and didn’t open up until 1991. Even after that date, the Chinese political system has led dramatic national development in ways that the cumbersome democracy of India simply couldn’t match.
China’s infrastructure is way ahead. Her road, rail and air transport systems are rapidly developing into one of the world’s most modern and efficient. Whereas India’s remains one of the world’s worst. The port in Shanghai can turn around a ship in 8 hours, for example, whereas it could take 3 days in Mumbai.
Socially, the differences are just as dramatic. In India, 42% of the population still lives in poverty, versus only 3% in China. India still suffers from illiteracy rates of around 40%, versus only 10% in China.
These differences have created two dramatically different consumer markets.
Two Heads, A Million Legs
If there are dramatic differences between the two nations, there are even greater differences within each.
India has at least 2,000 ethnic groups and 427 languages. China has around 1,000 ethnic groups – although only 56 are officially recognized by the government – and more than 241 languages, plus hundreds (if not thousands) of dialects.
These fragmented groups are spread across vast distances, and are separated by dramatically different cultures. The majority of China’s middle-class is spread across the country’s 150 cities that have a population of over 1 million. That is a challenge in itself. But it pales into insignificance when compared to the differences between those cities.
No-one in North China can understand a single word that someone from Wenzhou, for example, is saying – and no-one in Guangzhou could understand them either. And even though the cities of Guangzhou and Shenzhen are only separated by one hour’s travel, for example, the differences are equally dramatic.
The population of Guangzhou is largely locally-born, speaks Cantonese, eats Cantonese food and prefers to spend their leisure time at home with their family and friends. Whereas over 80% of the population of Shenzhen are young migrants who have traveled to get jobs from all over the country. So, unlike their Guangzhou equivalents, they speak Mandarin, not Cantonese, they like different cuisines, have different traditions and like to go out to eat and party at night because they don’t have any family in town.
Even though there are fundamental differences like these across every major city in China, it’s still possible to create a distribution strategy that has a fair chance of reaching the country’s massive middle-class.
But in India the challenge is much more extreme, because the country is much less urbanized. Take Mumbai, as an example. By 2030, it is estimated that Mumbai’s economy will be so big, it will be bigger than that of significant countries – bigger than Malaysia’s, for example. Yet Mumbai’s economy will still only account for 5% of India’s national economy.
India will remain so disparate and fragmented that if you want to reach 60% of India’s urban population, you would need a distribution and logistics capability that could reach more than than 3,500 towns and cities. If you can achieve that, you would reach the middle-class opportunities offered by the 10 (out of India’s 28) states that will account for 73% of the country’s GDP.
It’s clear, therefore, that whilst the potential offered by the emerging middle classes of India and China provide arguably the most exciting business opportunity in the world over the next twenty years, the two countries share no significant commonalities between each other and – to make matters even more complex – there is little commonality across each one.
So, What’s The Answer?
Since the middle class in both India and in China will be bigger than the middle-class of Europe within the next 15 years, we need to think of marketing to each country as if they were two different Europes: each offers equal scale and complexity.
There are, of course, many principles which are fundamental if businesses are to effectively exploit the enormous opportunities offered by Asia’s middle class. In my next post, I will focus on two of the most important.
For the second half of this post, which includes recommendations for success, please click here.
To receive more updates on the dramatic developments across Asia, follow Chris Jaques ontwitter.com/HEREcomesNOW.
*OECD defines middle class as: households with daily expenditures between USD10 and USD100 per person in purchasing power parity
The article first appeared on Campaign Aisa