Asia’s Middle Class Rising (P1)

Asia’s Middle Class Rising (P1)

The writing is on the wall for Filipino Entrepreneurs to catch the spending deluge coming from Chinese, Indian and other newly-prosperous Asian middle-class markets.

The global middle class is experiencing unprecedented growth, from 43% of the global population in 2000, to 50% in 2006. Of this population, Asian countries’ middle class comprises 60%. China’s middle class population swelled from 15% (1990) to 62% (2005), an estimated manpower of 815 million. India, Asia’s third-largest economy is estimated to have a 50 million middle class population seen to grow tenfold by 2025.

Definitions of “middle class” differ widely. The developing world’s middle class earns about $2-$13 daily – a stark contrast compared to America’s “middle class”, earning $91-$151 daily.

Net(ting) Middle Class Spending

Whatever the definition, the Asian middle class has surged 300%, from 887 million in 1980 to 3.9 billion in 2006. In the Philippines, those earning $2-$13 daily comprised 20% of the population, which according to the NSCB, rose to 25% in 2005. And middle class population increases generally indicate economic prosperity. Indian Oxus Research and Investments estimates a half point GDP growth increase for every 10% increase in middle class population – understandable, since this sector's size, combined with modest spending capacity, drives consumer spending, nourishing businesses.

And Asian economies, less ravaged by the Global Financial Crisis (owing to our being “too stupid” to involve ourselves with derivatives, as per contrarian Marc Faber?), have a growing middle class with relatively-intact consumer confidence – spending and borrowing; they are certainly healthier than Crisis-ravaged Western economies, continually falling (the US consumer confidence index dropped from January’s 37.4 to 25 in February – the lowest ever recorded) despite bailouts and a new President promising “Change.”

Chinese spend an estimated $1.5 trillion (38%) of their GDP, annually, and could grow 20% annually, per the Bank of China. It is a sharp contrast to the US' falling consumption, estimated to drop by 10% - $1 trillion – this year due to the Financial Crisis. Congruently, India’s consumer spending is set to grow “around seven percent” (per Kamal Nath, Indian Trade Minister) in 2009. In 2007, that level was estimated at $8.2 trillion, much higher than the US' $7.8 trillion (purchasing power parity).

Spending patterns are changing: Indian grocery expenditures dropped from 46.2% of total income share in 1999 to 42.1% in 2002; savings and investments went from 12.1% to 5.2% - implying spending on other things. Sure enough, travel grew from 10.8% to 15.6%, entertainment from 2.9% to 5.8% and clothing and furnishing from 7.8% to 10.5%.

This new, lucrative market promises massive revenue potentials Filipino Entrepreneurs must exploit, by developing products and services directed at this immense consumer base intent on spending beyond bare necessities.

Cookies and Cowhides

The middle class cannot afford hype, but they will always pay for quality – a key reflection Filipino Entrepreneurs can exploit, especially as brand is the only difference between a P50,000 Louis Vuitton bag and a P2,500 Bench bag. Everything else is cowskin and workmanship. It’s the reason LG’s “Cookie” cellphone, which looks, feels and functions exactly like Apple’s P35,000 iPhone, costs 1/3 the price. Open it and you'll probably find the same components, invariably all from China.

Therefore: build it, and they will come. The idea is to court middle-class spending – with products offering the same quality, without the price. Do this well enough and even the upper class might turn their haughty noses your way.

Filipino Entrepreneurs can develop middle-class aimed products – from Investment, Credit, and Real Estate, as much as Food and Bags. All it takes is a little creativity that buoys the bottom line with small margins from huge volumes, rather than massive profit from limited sources. Tubong Intsik (no offense), so to speak.

Real estate corporations could sell low-cost condominiums near luxury spots, say in Caticlan, with Boracay a boat-ride away. Aimed at local and foreign Asian visitors, it would address their desire to spend and travel, spurring local tourism. PGMA herself indicated this as “one of the sectors we have to strengthen as our response to the Global Meltdown…[providing] jobs and vast opportunities to our people.” With low-cost alternatives, the patronage base for Philippine tourism broadens, achieving the sector’s potentials the President highlighted.

Banks could offer loans with adjusted, if more stringent, requirements improving on the spirit behind subprime lending. It's still about capacity to pay, but loans based on incontrovertible proof of borrowers’ income present a compromise between broadening the lending base, and loan eligibility.

Filipino entrepreneurs offering tiangge-style areas with lower rentals allow for lower barriers of entry for middle-class entrepreneurs, and flexibility for their bottom line, generally increasing chances of success.

The next article will explore the Public Sector’s role in capitalizing on the middle class.