Wholesome Marketing Ideas, Bite Size

Wholesome marketing ideas, bite size

Sunday, May 1, 2011

Slumdogs and Millionaires: Consumers in China and India

Many companies expect half or more of their global growth over the next decade to come from the markets in China and India. The two countries have eye-popping numbers of consumers, many of whom have increasing amounts of disposable income. But, in what may turn out to be the defining global social experiment of the 21st century, the two nations have chosen very different paths to growth, rooted in their different political models.


Sen's argument is that the focus on similar GNP growth numbers in the two countries obscures vast and important differences in other indicators of the quality of life.

This argument is important for companies looking to target consumers in these markets. 

Chinese consumers are materially much better off, have greater access to health care, education, and live longer. On many of the same measures, Indians are worse off than even their Bangladeshi counterparts.

Where Poverty Lives
Human Poverty Map*      Source: Worldmapper.org

But in India, an illusion of prosperity is held up by a minority of well-off, well-educated, English-speaking urban folk who, for the most part, live in a bubble that is better connected to the global economy than to the local one. Inside this bubble, Indian consumers are very similar to consumers that multinational companies are accustomed to serving elsewhere.

In absolute numbers, this affluent minority is large (as large as the population of Canada, or perhaps even that of France, depending on your definition of affluence). But the number of those who live in poverty is much larger (larger than the population of the continent of Africa). As the map above shows, India is home to more of the world's poor than any other country.

The political and social consequences of islands of prosperity amid widespread poverty are significant, especially as consumption conspicuously takes off inside the affluent Indian bubble. If the fruits of growth remain as poorly shared as Sen points out, the risks of social fracture are at least as great as that of unrest in China. The bubble could pop.



The more widely dispersed the benefits of the economic boom, the longer growth rates can be sustained.

With an eye on the long term, firms need to keep in mind that a bet on either China or India is also a bet on the sustainability of either country's political, social, and economic model.



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See also: Dawar, Niraj and Amitava Chattopadhyay (2002), “Rethinking Marketing Programs for Emerging Markets,” Long Range Planning, Vol. 35(5), October, 457-474.

 * Territory size shows the proportion of the world population living in poverty living there (calculated by multiplying population by one of two poverty indices). The human poverty index uses indicators that capture non-financial elements of poverty, such as life expectancy, adult literacy, water quality, and children that are underweight. The 30 territories of the Organisation for Economic Cooperation and Development use a different index which includes income and long-term unemployment; and not water quality or underweight children. This implies that the poor in richer territories are materially better off. 
- Source: Worldmapper.org

3 comments:

Anonymous said...

I agree with your perspective and Sen's comments about the widening gap between the rich and poor in India and their emmersion in the Global economy outside their borders rather than internally. However, with the growing middle class in India I do believe that the balance of power will shift. Both India and China are faced with the plague of corruption that is preventing foreign investments and the capital needed to help India and China become the world's leaders. Once the government is committed to putting money back into the pockets of the people through investing in infrastructure and social services, both countries can thrive. However, historically this has never been the case. I am skeptical that this will change unless the people in power change, or the growing middle class revolt.
Aleem Visram

Anonymous said...

Niraj,

Agree with your assessment. As I'm back in Russia, I see Russia following the Indian model of unequal wealth distribution, even more so as oil and other resources produce a magnifying effect here, all other things (corruption, bureaucracy, good but not fully realized human capital, etc.) being equal...

Cheers
Sergei Dombrovski

Natasha said...

This was an interesting post to come across and one that particularly struck me for two reasons:
1) Many of my close family members have jumped on this opportunity of increased consumer wealth by moving their operations to India in order to grow in industries like real estate.
2) This summer I will get the opportunity to work in a private equity firm that specifically looks to invest in firms in these emerging markets, with a high focus in China and India.

With my interaction in these two examples I can surely conclude that companies are experiencing exponential returns on their investments because they are blinded by the statistics of the increased consumption and growth of the upper class. In reality, it is difficult not to take advantage of this growth prospect now despite the risk of the bubble bursting because if they don't a competitor will. One can call it a blinded strategy.