One of the key themes regarding the growth of emerging markets is the emergence of a consumer oriented middle class. It is one of, if not the key driver of the regions.
Numerous studies published by investment banks, consulting firms and fund companies are telling us how billions of people in developing countries are entering the middle class and increasing their discretionary consumption; seeking out more and better food, clothing, appliances, cars, educations as well as insurance services.
It’s a key fundamental shift among economies across the globe and is happening at a fair click. In a report titled “Going for Gold in Emerging Markets” McKinsey & Co, the American worldwide management consulting firm concludes:
“By 2025, annual consumption in emerging markets will reach $30 trillion—the biggest growth opportunity in the history of capitalism.”
That is a bold statement. Not a “large opportunity” or “good opportunity” but the biggest growth opportunity in the history of capitalism. And while it may sound hyperbolic, based on my personal research, analysis, travels, experience and logic I think it’s true. Besides, even if it turns out to be only the 2nd or 3rd best opportunity in the history of capitalism, it might be worth a closer look.
Middle Class Consumption of Largest 10 Countries | PPP $Trillions
The Great Confluence
There are several powerful trends coming together in a great confluence with staggering results. Just as the massive population wave in emerging markets is joining the consumer class, the tools, methods and models of consumption are undergoing a once in a lifetime transformation as three other major trends take hold.
Trend 1 Smartphones Are Becoming Affordable and Ubiquitous
When did you first have a phone with a touch screen? For me the answer is 2009, just a few years ago. And yet, now, the idea of not having one, seems implausible. What would I do? Indeed, The Economist has recently labelled the smartphone “the defining technology of the age” adding a prediction that 80 percent of all adults “will have a supercomputer in their pocket” by 2020.
Smartphone Users Worldwide (2014-2020)
Fuelling the spread of this technology are new competitors that are driving down prices for entry level smartphones making them affordable for more people. Chinese smartphone maker Xiaomi – started less than 10 years ago is currently the fourth largest smartphone player in the world. In India, market leader MicroMax is selling smartphones for under 3,000 Rupees, or ~$40. And, it may still be the first innings of this game. Consider, for example that India has 1.25 billion people and only 1/3 of the population are smart phone users, according to eMarketer.
Trend 2 Mobile and WIFI Broadband Internet Access are Surging
When was the first time you were able to reliably watch a video on your phone? The answer for me is only in the past couple of years. It seems to me that if I am just getting these things, most of the people in the developing world must not have them quite yet. Indeed, the chart below indicates that this is true, and that the spread of mobile broadband is in the early stages but surging quickly.
| Country
|
Smartphone Users (MM)
|
Smartphone Penetration
|
Total Population
|
| United States
|
226
|
70%
|
326,474,000
|
| Germany
|
55
|
69%
|
80,636,00
|
| United Kingdom
|
44
|
69%
|
65,511,000
|
| Russia
|
78
|
55%
|
143,375,000
|
| China
|
717
|
52%
|
1,388,233,000
|
| Japan
|
63
|
50%
|
126,045,000
|
| Mexico
|
52
|
41%
|
130,223,000
|
| Brazil
|
79
|
38%
|
211,243,000
|
| India
|
300
|
22%
|
1,342,513,000
|
| Indonesia
|
54
|
21%
|
263,510,000
|
Trend 3 | The Globalisation of the Capital Formation Process
Across the developing world, local entrepreneurs are partnering with U.S. venture capital investors to pour their hearts, sweat and billions of dollars from institutional investors into ecommerce start-ups. In many cases – like Alibaba – these enterprises are enjoying tremendous success and creating significant value.
India, with its massive population and low penetration rates is the current hot spot for venture investors. But it’s happening everywhere from Vietnam to Colombia to Turkey. It’s even happening in Africa, which has been an investment backwater for my entire lifetime.
The Great Confluence is Just Getting Started
By now most of you have heard of Alibaba founder Jack Ma. But have you heard of Sachin and Binny Bansal? They are the founders of FlipKart – “the Alibaba of India”. They raised over $7 billion in funding rounds since the company’s founding in 2007. Wal-Mart recently announced that they will acquire a 75% stake in the company. We first highlighted this company in 2015 and told you that you would be hearing about it. How about Sim Shagaya and Konga.com? Ever heard of them? Don’t worry, you likely will.
