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Transcript of ANOTHER BILLION
Friday, May 22, 2015
Two decades of rising prosperity have reshaped and reoriented the global economy, but the effects have been remarkably uneven.The rising tide has created a new class of extremely wealthy individuals across the world.
Perhaps the most surprising story has been the steadily growing wealth of huge numbers of previously very low-income consumers in Asia, Latin America, and Africa.
This is a trend that will continue and grow in importance. It is projected that by 2020 3.2 billion
people will be “middle class,” up from 1.8 billion in 2009. Almost none of this growth will come
from advanced economies; instead, the increase will happen in Asia, Africa, and Latin America. As a rough (and prudent) estimate, a billion new people will be critical in shaping global demand over the next five years or so.
Global companies think new ways of thinking—about categories, cultures, and commonalities are needed. Serving the next billion is a tantalizing prospect, but reaching them profitably is anything but straightforward.
According to, the Unıted Nations Development Programme annual report;
reported: “The South is developing at a pace unprecedented in human history, with hundreds of millions of people being lifted out of poverty in developing
nations and billions more poised to join a new global middle class.
WHAT'S BEHIND THIS TREND?
In a 2010 report, it looked at household-level data in 145 countries and found that Asia accounted for less than a quarter of the global middle class in2010. Its projections, however, have that sharedoubling within a decade which will mean that by 2020 the majority of the world’s middle class will be Asian.
Given economic and demographic change, global demand is shifting toward emerging markets. Reaching and serving “another billion” consumers may require companies to reach beyond existing strategies.
High urbanization rates are contributing to the emergence of the next billion.Urban populations are more prosperous than rural ones.
As emerging-market urbanization continues over the decades ahead,wealth and consumption will inevitably grow.
Fully understand and shape
how categories evolve
The first major implication of
a new market opportunity as large as
the next billion is that many firms
will need to relearn or learn for the
first time how to compete in unfamiliar
Since most of the needs and desires
of the next billion relate to categories
that are mature in the developed world, Western managers sometimes
assume that emerging markets
need little in the way of product
development or nuanced pricing.
They too often regard emerging-market consumers as merely the latest of “late adopters” in categories that have largely played out. In contrast, look at how Nestlé is growing its business in Central and West Africa.
Strategies will need to be informed by a rigorous understanding of how increasing wealth shapes consumer behavior and drives category growth. For most categories, there are reasonably reliable empirical relationships that predict when adoption and significant growth will occur in a market’s socioeconomic development. Leading companies are rethinking how best to manage their category adoption curves.
Managers should study which economic and demographic factors determine the adoption curves and tipping points for their categories.
Segment consumers with global consistency, but local relevance
Corporations understand the value of segmentation-grouping their prospective customers into categories according to common needs and how they respond to marketing actions
How can a company gain the benefits of consistency in global segmentation without the hazards of a one-size-fits-all approach?
Some marketing leaders are rethinking their segmentations to encompass a wider span of consumer types, and to recognize commonalities that exist across many developing economies. For example, in markets that are rapidly urbaniz-ing, the “young adult who moves from a small village to the big city” is common enough, and strategically important enough, to be called a segment.
Look beneath the surface to find meaningful and predictive cultural similarities and differences
The next billion consumers often live in territories woven of many cultural threads. Their heterogeneity will require companies to look beyond surface-level commonalities, such as language and income levels, to find the deeper drivers of consumer behaviors.
Cultural factors exert a huge influence on how consumers perceive and use brands, and on which types of marketing messages are more likely to work with them.
For example, the perception and role of luxury brands is very different depending on whether or not people implicitly accept large imbalances impolitical and economic power.
In addition, Cultural factors have been shown to influence everything from adoption rates for new products to the types of marketing messages that will resonate with consumers.
MODIFY ORGANIZATIONAL STRUCTURE
Organizational structures will (likely) have to reflect national and regional lines because of differing tax and regulatory regimes. Smart companies will find organizational solutions that allow them totranscend the barriers and capitalize on crossborder commonalities.
As companies gain more experience in
emerging markets, expect to see them do
more with the structure of the organization to
improve knowledge transfer and coordination across regions.
Competitive advantage will accrue to companies that first group and categorize submarkets with similar economic, demographic, and cultural characteristics and then develop ways to reliably execute in those kinds of submarkets, regardless of which national borders they happen to sit in.
At The Rockefeller Foundation, Kishora Mahbubani have a vested interest in understanding how finance can be used to solve problems that affect the world’s poorest or most vulnerable people.
So they must engage the talents, resources, and expertise of the private sector. They see innovative finance as a way to energize market building, healthy and sustainable economic activity, and new opportunities for achieving our dual strategic goals: building more inclusive economies and greater resilience.
We see two pathways for innovative finance to create these opportunities.
Pathway 1; is led primarily by businesses themselves and involves direct investment in local business creation. This route to market building relies on global corporations that understand that, in much of the world, markets must be built before they can be served.
Pathway 2; is led by public sector capital and foundation investments which pave the way for later business investments. This path acknowledges that some investments are too risky for private capital to take independently. Incentives and assurances must be provided before businesses can step in.
As businesses increasingly look to engage the developing world, we generally see their approach to marketbuilding investments unfold in three ways.
First, businesses are thinking intentionally about new ways to secure and maintain quality across global supply chains. These increasingly depend upon an explicit commitment to improve the lives and livelihoods of communities that may be fragile and prone to disruptions due to underinvestment,
Second, businesses are recognizing that, to successfully enter new markets, they need access to skilled onthe-ground labor that both understands local value webs and can help translate product and service offers to better meet local conditions. This requires investment.
Finally, businesses are realizing that skillfully investing in local NGOs as partners can unlock critical local market knowledge and in some cases provide an important sales force to reach local consumers.
Forward-looking companies are driving experimentation and innovation as they try to figure out how to successfully tackle a range of social challenges. We see efforts involving cross-sector partnerships, business and product innovation, assistance to local suppliers and distributors, and industry-wide collaboration.
To find effective strategies for growth in the next wave of globalization, companies will need to engage with the social needs and complexities of emerging and frontier markets.
Any global business looking for an effective path for growth should bring social impact into the core of its strategy and operations.
THE BOTTOM LINE