Companies
rub their hands with glee when they think of Asian consumers.
Dr Bala Shankar, an adjunct professor at
Singapore Management University, recently wrote: "Asia is home to nearly
four billion consumers, more than half the world. If the predictions that China
and India will overtake many of the Western nations in GDP terms come true, it
could be the largest bonanza for the marketers."
The key is the rising middle class.
While there is no standard definition or
measurement of the middle class in Asia, whether it is by income or
consumption, whatever it is, the figures show the middle class is growing, and
fast.
In its report, Imagining Asia 2020, DBS Bank
defines the middle income group as those individuals who spend more than US$10
a day.
By that measure alone, Asia today has a middle
class of 525 million people. They make up 28 per cent of the world's middle
class, said DBS.
This is projected to expand significantly to
an incredible 1.74 billion people over the next 10 years.
They will then make up half of the middle
class population in the world.
It's not just a China and India story but one
of Southeast Asia too.
"Over the next nine years, Malaysia and
Thailand will see a significant increase in the number of people who will spend
more than US$10 a day," DBS said.
The growth of the upper middle class in China
will surge from 80million in 2010 to 208 million by 2020.
As Asia's middle class grows, so will its
demand for goods and services.
'The rising middle class will be a significant
factor in reshaping national economies. They will be an influential and
profitable market segment thanks to their size and emerging buying power,'
noted DBS.
No wonder consumer giants like Procter &
Gamble and Unilever have set up headquarters in Singapore to be closer to the
Asian market.
They also have innovation centres to provide
products specifically for different Asian tastes and preferences.
An example Economic Development Board chairman
Leo Yip likes to cite is that the thickness of Asian hair is not the same as
that of European hair, so shampoos sold in Asia must be made with different
levels of conditioner.
According to DBS, global demand from the
middle class will expand from US$21 trillion to US$35 trillion by 2020.
Over 70 per cent of this growth in demand will
come from Asia.
How will this burgeoning middle class spend
its money?
Middle class families generally have fewer
children and spend more on health care, nutrition and education than the poor
do, according to DBS.
Asia's middle class will be similar,
influencing how their new money will be spent.
"Having fewer children would give middle
class parents greater ability to afford quality education for their
children," said the DBS report.
"More women would also be more likely to
rejoin the workforce. Additionally, families would have more opportunities for
savings and personal consumption."
Durable goods
For a start, there will be much more demand
for durable goods such as refrigerators, cars, television sets and mobile
phones.
Just take a look at these numbers for the
mobile phone market: China already has some 780 million mobile phone
subscribers. In India, there has been a significant growth of 66 per cent in
the number of mobile phone users from 2000 to 2010.
But these figures represent only about half of
the population in these countries, which means China and India still have
substantially untapped markets.
While the middle class is growing, the more
impressive expansion will come from the income groups of those earning between
US$4 and US$10 a day, especially in Indonesia, Viet Nam, India and China, said
DBS.
They will also demand goods and services but
at a cheaper price, which will in turn drive the search for innovative
solutions to achieve this.
Godrej, an Indian manufacturer, is one such
company, selling refrigerators for just US$70.
Other companies, such as Unilever, sell
10-cent shampoo and conditioners.
Education and health care
It is not just demand for goods that will
rise. The middle class will also be willing to spend more on important services
such as education and health care.
DBS said the middle class in Thailand spends
about 4 per cent of its income on these two services. This is more than double
what the lower-income group is willing and able to spend.
The Chinese spend the higher proportion of
their income on education and health care.
This will in turn drive demand for
infrastructure - more schools and hospitals.
Cars and property
China's car market is already the largest in the
world, overtaking the US' two years ago.
An incredible 18 million cars were sold in
China last year. DBS forecasts car ownership to grow further as incomes rise,
more roads are built and car makers aggressively roll out new designs for the
Chinese market.
By 2020, two out of every 10 Chinese will own
a car.
This means that total sales will surpass 30
million by 2020 at a growth rate of 5.3 per cent.
In Southeast Asia, car demand is expected to
grow at an even faster pace. DBS expects car ownership to grow from the current
9 per cent pace to about 10.5 per cent, and at a similar rate each year from
2010 to 2020.
Housing demand in Asia is forecast to grow
from a market value of US$694 billion last year, to US$1.1trillion by 2020,
said DBS.
It calculated that 16.5 million property deals
will be transacted in China, Indonesia, Hong Kong, Singapore, Thailand and
Malaysia.
The populations of these places combined make
up a quarter of the world's total population.
These figures will be music to the ears of
property developers, who will be able to offer a wider supply of properties
catering to different income groups.
"The pace and pattern of this growth will
vary according to market development and demographics in each country,"
said DBS.
In China, it will be driven by low ownership
levels, urbanisation and a high incidence of people in the home-owning age
range.
In countries such as Indonesia and Malaysia,
it will be sheer demand for housing, as people under 25 make up about 46 per
cent of the population and will soon progress to the home ownership age.
Energy and commodities
China today consumes four billion barrels of
oil a year of the 6.9 billion barrels consumed in Asia a year. This is second
only to the US' seven billion barrels each year.
By 2020, China is expected to raise its
consumption to 4.3 billion barrels a year.
By 2035, it will account for more than a fifth
of total global oil demand, up from 17 per cent today.
With energy-hungry China and India, coal
demand is also expected to remain high, and grow at an 8 per cent annual rate
until 2020, said DBS.
But don't expect Asia to become much greener.
Renewable energy is unlikely to be able to make up for much energy demand by
2020. Coal power plants are still estimated to account for more than 70 per
cent of power generation, said DBS.
Palm oil and rubber will also be in hot demand
in Asia.
"It will be home to 86.3 per cent of the
81.7 million tons of global palm oil supply, and 95 per cent of the 15.5
million tons of global natural rubber supply over the next eight years,"
said DBS.
Robin Chan
The Straits Times
Business & Investment Opportunities
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