BEIJING: The battle to attract middle class shoppers is resulting in "local upstarts" and "global aspirants" challenging established multinational brands, especially in China.
A study by Booz & Co has estimated that 400m people in the US, Europe and Japan are currently middle class, plus between 300m and 500m people from emerging markets, depending on the financial criteria employed.
One category of firm hoping to engage this audience are "local upstarts", often moving away from low-cost goods to target affluent buyers, as demonstrated by Chinese automakers Chery and Geely, which owns Volvo.
A second group of companies are "global aspirants" that have a strong position domestically and want to expand abroad, as shown by Chinese appliance manufacturer Haier, not long ago an "upstart" but now boasting an international reach and growing reputation.
Haier has made washing machines big enough to contain the robes of Middle Eastern consumers, variants able to deal with the fluctuating power supply in India, and quiet machines helping Italians take advantage of reduced late-night energy prices.
Similarly, Hyundai, the Korean automaker and another "global aspirant", entered China in 2002 and has achieved considerable success, particularly after redesigning its Elantra model.
It competes against "multinational incumbents" like Volkswagen, which is increasingly tailoring its cars for Chinese needs, such as by installing a smaller engine in the Polo GTI to offer an entry-level vehicle.
Coca-Cola, the soft drinks giant, has also used cane sugar as a sweetener in some countries and corn syrup in others, reflecting specific tastes and preferences, but requiring a degree of flexibility across its supply chain.
The appliances sector shows how the trading climate is evolving, as firms like LG and Samsung, two "global aspirants" that are now incumbents, fight it out with local rivals, "upstarts" such as Haier, as well as GE, Whirlpool and Electrolux.
While products for middle class shoppers in developing nations are generally 20% to 40% cheaper the in more mature economies, Booz & Co suggested the volume sales are potentially two to three times higher.
Equally, simplifying goods can reduce costs and yield benefits in terms of reverse innovation, where items created for emerging markets end up holding much broader appeal, as experienced by GE.
"Many of today's local upstarts will be global aspirants tomorrow; today's global aspirants often become multinational incumbents," Booz & Co added. "The differences among them appear primarily in the way they choose to compete, and in the level of resources that they use to enter a market."
Data sourced from Booz & Co; additional content by Warc staff