Successful companies are competing for the buying power of consumers with annual incomes of $1,000 to $4,000. Why?
It’s not news that the balance of economic power is shifting towards Asia. But it might surprise you to learn that some of the world’s most successful companies are scrambling to compete for the buying power of consumers with an annual per capita income of between US $1,000 and $4,000.
Why? Because these are people who are in the process of making the transition from a state of having no disposable income—when, for example, a can of condensed milk is considered luxurious enough to offer as a gift—to gradually being able to afford a comfortable life. They are moving towards a lifestyle—typically referred to as middle class—characterized by stable housing, healthcare, educational opportunities, the ability to afford entertainment and family vacations, etc. During this transition, they are creating a rapidly growing demand for many products and services: household goods (i.e., refrigerators), health care products and services, transportation, packaged food and drinks, mobile phones and online services.
This group of people are part of a global emerging middle class (GEM) and the numbers are huge, as is their combined buying power. By 2025, for the first time in history, more people will be middle class than poor and they will account for $30 trillion—nearly half—of global spending (source: McKinsey Global Institute). In 2009, 1.8 billion people comprised the global middle class (525 million were in Asia), and numbers are projected to rise to 3.2 billion by 2020 and 4.9 billion by 2030 [Source: OECD]. This growth will largely be in the developing world: by 2030, Asia will represent 66% of the global middle class population and 59% of middle class consumption.
On a humanitarian level, this is great news. As an investor, you should also pay attention. Many investors find themselves asking, along with the local media, if North America and Europe can sustain its growth. These statistics tell us that we do not have to worry about sustained western world growth. We need only look to the emergence of the middle class in China and India to see the future of consumer growth. The rising demand for a wide range of products and services in the developing world is happening at the same time as investors are worried about future growth—at home.
Historically, the middle class has supported democratic governing structures, capitalism and trade between countries. On a personal level, their values emphasize education, hard work and thrift. The chart below gives an example of how these values translate across cultures. As consumers, they have been an engine of economic growth as they demand an ever higher quality of life and more opportunities for themselves and their children.
To achieve a successful investment experience an investor need only recognize that capitalism works. Investors can win by accepting that capitalism provides a positive expected return on capital. As a provider of capital, you can expect to have a positive outcome.
It’s not a simple matter to predict which corporations are likely to meet the challenges involved in marketing their products and services to the global middle class, or which countries will be able to sustain the growth of this class. Therefore, in an increasingly complex and counter-intuitive global financial market, access to data-driven research and a scientific approach to investing are more and more crucial to investment success.
Daryn Form is a Senior Financial Advisor with Assante Capital Management Ltd. providing wealth management services to principals of family-owned and privately held companies. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada. The information mentioned in this article is for general information only. Please contact him to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Rates are not guaranteed and are subject to change at any time without notice.