Coca-Cola's newly appointed chief executive Muhtar
A look at the geographic distribution is striking. In 2000, developing countries were home to 56% of the global middle class, but by 2030 that figure is expected to reach 93%.
According to Wharton management professor Mauro Guillen, the world's middle class has, until recently, been located in "the triad" of Europe, North America and
Wharton marketing professor Jagmohan Raju predicts the shift in distribution of the global middle class will continue as developing countries adapt to remain competitive in the world economy. "Due to economic pressures, more and more companies in developed nations are seeking educated workforces in emerging markets to outsource manufacturing and service jobs," he says. "More economic pressures in the West mean more jobs in emerging markets and a bigger middle class that has higher buying power."
As a result, multinationals that have so far viewed developing nations largely as a cheap source of labor, are now poised to benefit again as many of the workers they paid to build their products are increasingly able to afford Western consumer goods. "Countries like
Bill Amelio, CEO of Lenovo, the Chinese firm that merged with IBM's personal computer business, notes that
The McKinsey Global Institute, the consulting firm's independent economic research arm, projects
Meanwhile,
Aspiring to New Brands
Clearly this broad expansion of a middle class with discretionary income to buy more than life's necessities presents a remarkable opportunity for multinational corporations. According to Wharton marketing professor John Zhang, the middle class in any country is at the forefront of consumption and leads important business trends. Marketers must pay close attention to this population to reap the benefits of an expanding global middle class.
At the same time, Zhang says, even though millions of individuals are now reaching middle-class status in their own countries, they still do not have the same levels of income as their counterparts in mature economies. To capture customers in these markets, companies must create new products that take into account price sensitivity.
For example, he says, Coca-Cola has a layered strategy for
According to Farrell, distribution is an important consideration for companies hoping to reach the emerging middle classes. Roads and airports are underdeveloped, particularly in
Amelio points to management structures that multinationals should embrace to conquer new consumer markets. As an American, he says, he realizes how difficult it is for a Western company to grasp the changes underway in developing consumer markets. He said a key metric for managers is whether growth is as fast -- or faster -- than market growth in emerging economies such as
"If you're not planning to have more business outside the
Farrell notes that many Western firms focus on services, but that this sector is not as developed among the rising middle classes as consumer goods. "When it comes to services, we're pretty [much in] the early days," she says. One obstacle to reaching new consumer markets with services is regulation in foreign countries. For example, she points to
'The Dynamic Character of Social Class'
While the growth of the global middle class is predicted to continue at a rapid pace, forces exist that could derail the process of global expansion for Western multinationals. One factor to consider is the differences in income distribution between countries and within nations, according to faculty.
"When you look globally, you see an emerging middle class in some geographies and a stagnant or declining middle class elsewhere," says Wharton management professor John Kimberly. "What is truly interesting is the dynamic character of social class, certainly not stable on a global basis and quite variable on a country-by- country or region-by-region basis." While statistically speaking, there is an emerging global middle class, "we need to look carefully at the various indicators on a more fine-grained basis in order not to miss the variability."
Meanwhile, according to Maurizio Bussolo, an economist with the World Bank's Development Prospects Group, it is not clear how well Western multinationals will fare in reaching the emerging middle class. "We have observed that if you look at the economic cycle in the last five to 10 years, you see that the
He predicts that future globalization will be built, at least in part, on new integration between South Asia and
Lately, the developing world's middle class has been blamed for rapid and unsettling increases in commodity prices, but faculty and analysts say the tightening will be corrected, in the long run, by forces of supply and demand. "In the case of consumer durables, such as automobiles and washing machines, supply can be expanded quickly. The same goes for non-durables, such as soft drinks," says Guillen. "The problem is with oil and foodstuffs. A major driver of price increases for these goods has been expanded demand from
Raju suggests that the emerging middle class is only part of the problem. "It is indeed possible that increased consumption in
Another potential blow to reaching the new ranks of the global middle class would be protectionist policies by countries with a middle class that feels threatened by growth abroad, including the
In an article that appeared last month in the International Herald Tribune, Amelio argued that growth is not a zero-sum game and that businesses are now on the brink of profiting from new markets in the current era, which he calls "Global 2.0." What you're going to hear about in the coming general election "is the economy, and it's becoming clear that some people might view protectionism to be the way to go," says Amelio. "I'm hopeful that cooler minds prevail. History is full of examples of how policies restricting trade hurt the home country."
'Global 2.0'
According to Wharton management professor Stephen Kobrin, regardless of who may be hurt temporarily, lifting millions of people up from poverty is a positive step. "Nobody should have to live on ... $1 a day." The degree to which workers in the
Kobrin, however, cautions against making assumptions that the world's new middle class will act exactly as prior generations of middle-class consumers have around the world. "This is important, because we tend to assume all middle-class people have certain values," says Kobrin. He points to the common assertion that people rising into the middle class will press for democracy. But that does not seem to be happening in
"The assumption has been that there's a link between capitalism and democracy, that as incomes rise and people become educated, they will increase pressure for democracy and freedom and civil liberties," notes Kobrin. "That may or may not be true."
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