September 30, 2014

China and India Are The $10 Trillion Prize

Of all the plans General Motors had to rebuild itself—management invested millions into Oldsmobile and Pontiac before shuttering the two divisions—the most surprising success emerged from the rebirth of Buick. Buick survived due to an inadvertent sales growth in China. GM further invested in the division by sharing new, smaller models with Opel (An irony: Opel once shared models with another now-shuttered division, Saturn). This example shows how businesses can benefit when customers discover their products rather than forcing the market to notice.

To understand the aspirations of the growing Chinese and Indian middle class, be sure to consider the book 10 Trillion Dollar Prize: Captivating the Newly Affluent in China and India.” It was written collaboratively by Michael J. Silverstein,  Abheek Singhi, Carol Liao, David Michael, and Simon Targett, leading members of the Boston Consulting Group (BCG). The publishers’ copy impressed me with the level of detail applied to its mission to understand the increasingly influential middle class consumer market and the development of its leading industries. It’s a thorough book, though its focus is meant for corporate firms rather than smaller businesses that are expanding globally.

How Chinese and Indian Household Budgets Are Transforming The Globe

Besides having names that are 5 letters long, India and China share economies which “in the next ten years…will have a substantial middle class for the first time in their history.” In fact, the book’s title references the estimated triple economic growth by 2020. The authors clearly highlight the drivers for that history:

“These middle-class consumers will account for nearly half of consumer spending in the two countries by 2020. It is their new-found productivity and earning power that is underpinning the dramatic growth in consumer spending and providing people … with their extraordinary ambition, drive, and optimism.”

Relying on their consultation experiences dating to 1980 for China and 1996 for India, the authors outline how Eastern economic growth factors into what happens in the West. The authors advise that businesses be more aware of which markets display increasingly intense price competition, and note how the occurrence affects a company’s strategy.

“….it will become evident how the growth in demand from Chinese and Indian consumers translates into higher prices on all kinds of goods and greater demand for commodities—and the resulting supply squeeze on energy, water, and food. These supply shortages will ultimately trickle down….Such whipsaw inflation… will present companies in the West with new challenges—not only in China and India but also in their own backyard……In the United States, the lowest 40 percent of households earn $40,000 or less and, on average, spend roughly $3,000 per year on food….If, let’s say, they faced a 10 percent increase in food costs (and that is a conservative estimate, given the possibility of a 50 percent increase in average corn prices over the next ten years), they would have to allocate an additional $300 per year…the boomerang effect to food: anywhere from half a week’s to a full week’s pay. Suddenly, all kinds of companies will have to face consumers who, no longer able to afford their products, will start to scrimp, save, and bargain hunt.“

This sounds a bit intimidating, but the authors are mainly reflecting upon the global economy:

“In the wake of the global economic downturn, consumers in other emerging markets—as well as in the United States and Europe—are also bargain hunting, which means that companies must provide a unique value proposition: products that square the circle by being affordable and high-quality.”

Entrepreneurs Increasingly Adept at Leveraging Their Markets

That squaring is buoyed by the enthusiastic attitude of India and China’s business leaders. Prize presents leaders who confidently address risk while applying marketplace and economic awareness in their businesses, whether it is the Family Li Imperial Cuisine, that competes with other developing restaurants in Shanghai, or in corporations lead by executives who had brought their formal US education back home. Caring how the business impacts community is at the heart of these considerations. Anand Mahindra, grandson of the successful Indian tractor and truck manufacturer’s founder, noted in his Rise initiative how market share and enhancing quality of life should be linked:

“We are not simply focused on quantitative objectives such as market share. It is about giving back, improving life. In the agriculture group, for instance, it is about creating a second green revolution. We will rise by enabling other people to rise.”

Quotes like this teach the reader how these suggestions come alive in practice, such as the advantages of packaging entry-level products for Paisa Vasool—the highest Indian praise for quality and value.

Small Business Trends readers should also pay attention to the comments on the consumer classes, particular those who aspire beyond entry-level. The noted observations compliment those of Shashi Bellamkonda about his experiences in India. (Read his post Selling to The Bottom of The Pyramid.)

Who will benefit from reading “10 Trillion Dollar Prize”:

  • Entrepreneurs who are interested in developing a deeper understanding of the differences among Indian and Chinese consumers.
  • Large businesses established in Western markets that want to connect to Indian and Chinese consumers more effectively.
  • Economic enthusiasts seeking a primer on India and China.

I did wish that more resources tailored to small business were mentioned. The information provided is great.  The text is written with executive level suggestions and corporate resources in mind—one BCG playbook suggestion is to meet customers up close and personal to understand behavior and choices.  A small business could use the suggestions as guidelines for selecting successful larger firms that have expanded into these markets. But even a large firm may want to learn about other organizations beyond the authors’ own BCG firm to help apply this advice.

All in all, “10 Trillion Dollar Prize” is an excellent starting point for understanding how China and India are powering the global economy.

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Pierre DeBois - Associate Book Editor


Pierre DeBois Pierre Debois is Associate Book Editor for Small Business Trends. He is the Founder of Zimana, a consultancy providing strategic analysis to small and medium sized businesses that rely on web analytics data. A Gary, Indiana native, Pierre is currently based in Brooklyn. He blogs about marketing, finance, social media, and analytics at Zimana blog.

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