Companies must adapt in emerging markets

08 September 2010

BEIJING: Consumer spending growth in markets like China and India offers "immense business opportunities" for brands, but different models from those in the US and Western Europe may prove vital.

Euromonitor, the research firm, argued that while many developing nations are enjoying an uptick in demand, current expenditure patterns remain largely based on necessities.

Food and non-alcoholic beverages accounted for over 20% of expenditure in 21 out of 25 countries in 2009, measured against 9.8% in G7 counterparts such as Germany, the UK and US.

More positively, the total outlay among shoppers in emerging economies climbed by 66% in real terms between 2000 and 2009, reaching $7.5tn (€5.8bn; £4.9bn).

Spend is also set to improve by 6.9% in 2010 to $8.0bn, with China responsible for 23.2%, ahead of Brazil on 13.2%, India on 10.2% and Russia on 8.6%.

However, in per capita terms, the United Arab Emirates should be the most valuable nation on $22,728, and staple products taking just 8.7% of revenue.

Poland is in second place on this metric at present, albeit some way further back on $7,037, while Hungary claimed third on $6,565.

By contrast, the typical customer in India boasts an annual budget of $690, rising to $793 in Vietnam, $1,301 in the Philippines and $1,399 in China.

Looking ahead, Euromonitor suggested China, India and Indonesia would see individual outlay jump 80% in the coming decade, with Mexico and Turkey also experiencing encouraging trends.

"Although consumer spending in most of these economies is dominated by essential goods and services, there will be a gradual shift in spending patterns by 2020," it added.

The number of households possessing an annual disposable income of at least $10,000 in regions like Asia, Latin America and Africa is forecast to expand to 571m in 2020 from 269m in 2010.

By 2020, the amount of people aged 25-34 is also expected to rise to 692m, an increase of 86m on 2009, and this “tech-savvy” audience is likely to splash out on technology and luxury products.

Housing will take a 21% of share of outlay across emerging countries by 2020, the same as food and non-alcoholic drinks, with transport on 12%, alcoholic drinks on 9% and household goods and services on 6%.

Apparel and footwear is pegged to account for 5%, while communications, leisure and recreation, health goods and medical services, and education receive 4% apiece.

Personal care, jewellery, watches, finance and other “miscellaneous” goods and services were anticipated to post a combined share of 9%, Euromonitor said.

Regarding leisure and recreation, China will deliver a 127% leap in spending from now to 2020, and India, Indonesia, Kazakhstan, Vietnam, Russia and Ukraine are all in line to generate gains of more than 100%.

Concerning the net value of customers, the median Chinese adult will only be worth $168 to companies in the sector at this point, against a $1,125 high in the UAE.

Turning to communications, China and India are predicted to provide a 150% surge in sales in the next decade, as mobile phones drive the industry forward.

Despite these major shifts, by 2020 average per capita expenditure in these nations is due to stand at $6,313, compared with $20,000 in the US and the largest Western European markets.

Data sourced from Euromonitor; additional content by Warc staff