Despite an economic slowdown, there will be hundreds of millions of consumers who will be looking to spend money in 2008, wanting something faster, cooler and smaller (or bigger) than their fellow consumers.
For businesses, the key question is where will the majority of these consumers be based?
Well, if we believe the doomsayer economists analysing the US and European economies, it is unlikely that there will be a consumer boom in the West over the next twelve months. However, this does not necessarily mean that there will be any slowdown in consumer growth elsewhere, and with the expansion of the middle classes in the so called BRIC countries, namely Brazil Russia, India and China, there is certainly scope for businesses to trade successfully in a number of emerging markets.
As these countries get richer, they will follow the pattern of the developed world, with the majority of the wealth being concentrated in a small number of high net worth individuals i.e. those with net assets of more than £500,000. Indeed, research suggests that this group is growing annually by 8 per cent and 16 per cent in China and Russia respectively.
More importantly, analysts suggest that the growing emergence of a middle class, especially in China, could result in a mini-boom for consumer-related products and services. Indeed, rather than focusing on major cities such as Shanghai or Beijing, it has been predicted that the growth will come in the so-called “second and third tier cities”, many of which are far bigger than most of the major cities in the UK.
An estimated 300 million Chinese are set to move into these cities over the next decade. As such, there will be over 700 million Chinese who will be part of the ‘consumer class’ within fifteen years time, as compared to less than 100 million today.
Similarly, there is going to be a massive growth in the middle class within India, with the urban population growing from 318 million in 2006 to 523 million in 2025. Of these, nine out of ten will belong to households with a comfortable standard of living and relatively high levels of disposable income.
The Economist recently reported that sales of new cars, computers and consumer electronics in Brazil and Mexico were at record levels, with much of the extra demand coming from the growing number of middle class consumers.
This should not be too surprising, as the number of households with annual disposable incomes of over $10,000 rose by 31.6per cent in the five year period 2002-2006 and the number of 20-49 year olds is estimated to increase by 7 million over the next eight years. This makes Brazil one of the most attractive consumer markets globally.
However, perhaps the greatest untapped market is the one closest to us geographically, namely Russia.
Currently, around 20 per cent of the population (or 30 million Russians) can be categorised as middle class. However, the potential growth is higher than in the other BRIC countries due to a number of factors. For example, consumers in Russia have relatively high disposable incomes because both personal income tax and the cost of housing/ utilities are low. As a result, something like eighty per cent of the incomes of Russian consumers is spent on goods and services.
Whilst the country suffered economic decline in the 1990s, the last eight years have witnessed continuous growth in the economy.
With Russia’s oil and gas exports, salaries have grown at a rate of ten per cent per annum, with much of this being spent on consumer goods. For example, £17 billion was spent by Russians last year on buying cars and the number of Russians owning mobile phones has jumped from 3 million to 80 million in less than six years.
Therefore, there are certainly plenty of opportunities for indigenous companies within these BRIC countries, although the important questions are how many of our firms are considering entering the markets and how many are ‘export ready’ to do so?
There certainly needs to be a greater effort in ensuring that many of the excellent small and medium sized businesses we have are geared up towards internationalisation of their business activities.
The growing consumer markets across Brazil, Russia, India and China represent an open goal to any business anywhere in the World willing to put the time and effort into establishing themselves within these fast expanding economies.
Let’s hope that Welsh firms will be amongst those who take the plunge and enter these markets in 2008.
For businesses, the key question is where will the majority of these consumers be based?
Well, if we believe the doomsayer economists analysing the US and European economies, it is unlikely that there will be a consumer boom in the West over the next twelve months. However, this does not necessarily mean that there will be any slowdown in consumer growth elsewhere, and with the expansion of the middle classes in the so called BRIC countries, namely Brazil Russia, India and China, there is certainly scope for businesses to trade successfully in a number of emerging markets.
As these countries get richer, they will follow the pattern of the developed world, with the majority of the wealth being concentrated in a small number of high net worth individuals i.e. those with net assets of more than £500,000. Indeed, research suggests that this group is growing annually by 8 per cent and 16 per cent in China and Russia respectively.
More importantly, analysts suggest that the growing emergence of a middle class, especially in China, could result in a mini-boom for consumer-related products and services. Indeed, rather than focusing on major cities such as Shanghai or Beijing, it has been predicted that the growth will come in the so-called “second and third tier cities”, many of which are far bigger than most of the major cities in the UK.
An estimated 300 million Chinese are set to move into these cities over the next decade. As such, there will be over 700 million Chinese who will be part of the ‘consumer class’ within fifteen years time, as compared to less than 100 million today.
Similarly, there is going to be a massive growth in the middle class within India, with the urban population growing from 318 million in 2006 to 523 million in 2025. Of these, nine out of ten will belong to households with a comfortable standard of living and relatively high levels of disposable income.
The Economist recently reported that sales of new cars, computers and consumer electronics in Brazil and Mexico were at record levels, with much of the extra demand coming from the growing number of middle class consumers.
This should not be too surprising, as the number of households with annual disposable incomes of over $10,000 rose by 31.6per cent in the five year period 2002-2006 and the number of 20-49 year olds is estimated to increase by 7 million over the next eight years. This makes Brazil one of the most attractive consumer markets globally.
However, perhaps the greatest untapped market is the one closest to us geographically, namely Russia.
Currently, around 20 per cent of the population (or 30 million Russians) can be categorised as middle class. However, the potential growth is higher than in the other BRIC countries due to a number of factors. For example, consumers in Russia have relatively high disposable incomes because both personal income tax and the cost of housing/ utilities are low. As a result, something like eighty per cent of the incomes of Russian consumers is spent on goods and services.
Whilst the country suffered economic decline in the 1990s, the last eight years have witnessed continuous growth in the economy.
With Russia’s oil and gas exports, salaries have grown at a rate of ten per cent per annum, with much of this being spent on consumer goods. For example, £17 billion was spent by Russians last year on buying cars and the number of Russians owning mobile phones has jumped from 3 million to 80 million in less than six years.
Therefore, there are certainly plenty of opportunities for indigenous companies within these BRIC countries, although the important questions are how many of our firms are considering entering the markets and how many are ‘export ready’ to do so?
There certainly needs to be a greater effort in ensuring that many of the excellent small and medium sized businesses we have are geared up towards internationalisation of their business activities.
The growing consumer markets across Brazil, Russia, India and China represent an open goal to any business anywhere in the World willing to put the time and effort into establishing themselves within these fast expanding economies.
Let’s hope that Welsh firms will be amongst those who take the plunge and enter these markets in 2008.