The lure of the Chinese consumer has tantalised global business since the beginning of openness and reform in the late 1970s. “If I could just sell one of my products to every person in China…” the thinking went, or even just several hundred million of them, then business would boom and the company would be a success.
That mode of thought has now matured but the prospect of selling, not only to more consumers in China, but now also those in India, continues to excite companies worldwide. On one hand, the offerings now include services and higher-value products. On the other, heavy regulation in many sectors of both markets prevents many companies from realising their Asian dreams.
In The $10 Trillion Prize, Michael J. Silverstein, Abeek Singhi, Carol Liao and David Michael of The Boston Consulting Group examine the realities of doing business in countries, the barriers and risks, and the prize that awaits those who get it right. At minimum, it will bolster a start-up’s business plan.
The companies that succeed in China and India’s consumer markets will be the ones that succeed at home as well. That’s the viewpoint of Michael J. Silverstein and his team from The Boston Consulting Group in their dive deep into China and India, The $10 Trillion Prize. Introducing businesspeople from outside those countries to the consumers who are shaping the future of the global economy, the authors analyse what it takes to succeed in those countries, and why success there will also lead to success in Western markets.
Much has been written about China and India but not much attention has been paid to the people who are driving the economic boom: Chinese and Indian consumers. For the book, the authors conducted proprietary research and extensive field interviews by The Boston Consulting Group, providing new insight into the hopes, fears and ambitions of the rapidly growing Chinese and Indian middle and upper class. It introduces individual consumers and entrepreneurs, discusses the major trends that are shaping the consumer economy in China and India and provides lessons for business leaders who need to succeed in China, India and in their domestic markets.
Despite significant problems and hurdles, Chinese and Indians are ambitious and ready to power the consumer economy. The authors developed their model, and the figure from which the book’s title is derived, using the following:
- Consumer spending in China and India will triple by the end of the decade. By 2020, Chinese consumers will spend USD 6.2 trillion annually on consumer goods and services; Indian consumers will spend USD 3.6 trillion. The two figures combined add up to the USD 10 trillion prize: The total amount of consumer spending in China and India that businesses can capture by the end of the decade.
- If Chinese and Indian consumers dip into savings and take advantage of credit, the prize could be even bigger—as high as USD 13 billion annually by 2020.
- The newly affluent are driving the upsurge. In both China and India, runaway growth in the middle and upper classes will fuel the consumer boom.
- Chinese born in 2009 will consume 38 times more than those born in 1960. Indians born in 2009 will consume 13 times more than those born in 1960.
- A combination of population and productivity growth will fuel the massive upsurge in consumer spending.
- By 2020, there will be nearly one billion middle-class consumers in China and India—320 million households.
- From 2010 to 2020, annual per capita incomes will increase on average from USD 4,400 to USD 12,300 in China and from USD 1,500 to USD 4,400 in India.
Four Key Concepts
According to The $10 Trillion Prize, businesses that successfully seize the China-India opportunity are those that master four key concepts. These concepts reveal the drivers of the Chinese and Indian consumer economies, and point the way to the global success that, the authors say, is the natural result of mastering China and India:
‘Paisa vasool’ or ‘money’s worth’: Paisa vasool is a Hindi phrase that means, literally, ‘money’s worth’. Loosely translated, it means ‘more for less’ (it describes the priorities of Chinese consumers as well).
Many consumers in China and India—even the most affluent—remember poverty and hardship. They’re also used to bargaining in the marketplace. Even the wealthiest don’t want to part with their money lightly. They want the best value from any purchase no matter what the price. Companies will succeed by setting the right price point (or multiple price points for different kinds of consumers), creating small packages that can be sold for pocket change, and making sure that they can communicate and demonstrate features and benefits in a convincing, compelling way.
The Boomerang Effect: Booming growth in Asia will strain worldwide prices for commodities ranging from food and fertiliser to copper, cotton, steel, cement, electricity, oil and gas. This will result in higher global prices for a host of products and services, from manufactured goods to food and heating oil.
Western customers, already struggling with the lingering after effects of the financial crisis, are likely to face even more price pressure. They’ll adopt their own form of paisa vasool. ‘Money’s worth’ will be a mantra not only in China and India but in Europe and the US as well. The companies that master paisa vasool in China and India will succeed if they apply the same concept to their domestic pricing and product features.
The Accelerator Mindset: This describes the way top executives in China and India work—they are relentlessness in pursuit of success. Strategy to them means a big-picture vision; they are not beholden to common business processes or logic. They don’t aim for perfection or fear failure, they start with a clean slate and refocus as needed, learning from experience and changing direction quickly. They are committed to a ‘10 by 10’ strategy—tenfold growth in 10 years—and their ambitions make them formidable competitors.
The Triple Crown: This awaits business leaders who realise that success in China and India means success at home as well. The companies that succeed in the next wave of global competition will be those that won in India and China then used the lessons to dominate their home markets.
Silverstein et al also suggest that companies seeking success in these countries will also have to create emotional satisfaction for consumers in six areas:
- Help Chinese and Indian consumers fulfill their dreams—provide a moment of gratification and elevation.
- Help brand them as ‘in the know’—discerning, informed and visibly affluent.
- Help them live big on less. Understand they ‘work hard, spend hard’—every renminbi, every rupee is precious and causes them angst as it leaves their pocket.
- Understand that painful memories still haunt Chinese and Indian consumers. Every consumer has either firsthand or family memories of deprivation and personal risk. Companies must respect this history and provide them with an optimistic view of the future.
- Earn their loyalty and reverence by aiding in the advancement and health of their children.
- Listen hard. The new consumer wants to engage in a dialogue and is looking for your respect and appreciation.
Local Companies are Foreign Competitors
The book introduces readers to homegrown Chinese and Indian companies that are growing fast in their home markets and are prepared to succeed.
The Godrej Group of India exemplifies the ‘10 by 10 vision’. The company pioneered a new market and created a landmark success by developing the Chotukool refrigerator, a tiny, inexpensive unit with no compressor that introduced the benefits of refrigeration to India’s poor, in villages where homes are too small and the power grid is too unreliable to support conventional home appliances.
Huawei Technologies, the world’s largest telecom equipment manufacturer, was built from scratch in China on Maoist principles; it is now challenging established players in Russia and Western Europe, and hopes to expand to the US as well.
Empowering Local Managers Indicates Success
The authors tell the stories of global businesses that made their mark in China and India by paying close attention to local market needs and giving authority to local managers and their teams.
Yum! Brands turned its KFC restaurants into a wildly popular family destination in China by changing the menu and adding staff to host events such as children’s birthday parties. Also, Kraft turned its hallmark Oreo brand into a runaway success by reformulating it to meet Chinese tastes (the less sweetened Green Tea Oreo is a favourite).
The $10 Trillion Prize, through survey data, concrete examples and on-the-ground reporting, shows business leaders what they’re up against in these two massive markets, but also reveals that mastery over the China and India consumer marketplace can lead to dominance in every global market.
The $10 Trillion Prize: Captivating the Newly Affluent in China and India is available from Amazon.com and local booksellers.