The $10 Trillion Prize. David Michael
American and European consumers are vastly richer than Chinese and Indian consumers—and this is not going to change anytime soon. If Americans and Europeans adopt the accelerator mind-set, opportunity and growth will rebound. We believe that the consumer revolution is a winner for all, a force for good that can benefit everyone. The new interactions between East and West are energizing, enlightening, and empowering—and ensure that companies and their leaders look far beyond the horizon to a world of infinite possibilities.
We hope you use this book to see the market opportunity in China and India through the eyes of consumers moving from D income to C income, from C income to B income, and from B income to A income. We offer a checklist of requirements for success along with our assessment of risks and how to mitigate them.
The Structure of the Book
The $10 Trillion Prize is arranged in three parts, which are preceded by an introduction (chapter 1).
In chapter 1, we tell the story of the dramatic growth in consumption and quantify the size of the commercial opportunity: the $10 trillion in annual spending that the consumer markets of China and India will generate by the year 2020. We explain how consumers’ rising income—which takes them, in many cases, from subsistence to middle class—seems like the wheel of fortune: they truly feel as though they have won the jackpot.
We draw on BCG’s proprietary studies of Chinese and Indian consumer attitudes and take a panoramic view of the new generation of spenders, exploring the underlying passions and preferences that influence their buying behavior. These consumers have high aspirations, are optimistic about the future, and are eager to enjoy their first taste of affluence.
In part I, “The Rise of the New Consumer in China and India,” we identify the fortunes to be made at the top, middle, and bottom of the income pyramid. We contend that to really succeed in China and India, you must know everything there is to know about the new consumers, which means dissecting the markets into segments based on wealth, education, attitude, geography, age, and gender. The analysis is based on BCG’s proprietary market segmentations of the two countries.
In chapters 2, 3, and 4, we examine the rising middle class, the superrich elite, and the vast hordes of “left-behinds.” In chapter 5, we take the reader on a virtual tour around the countries, traveling to the cities and the rural districts. We describe two revolutions: one relating to infrastructure, the other to agriculture. In chapter 6, we examine the development of the female economy in the two countries.
Part II, “Preferences, Appetites, and Aspirations,” digs deeper, providing detailed portraits of the new consumers as they go about their daily lives—as well as the companies that serve them with the right products at the right price and with the perfect mix of ingredients, design, and packaging. Chapter 7, “Food and Drink,” focuses on the different tastes of the new consumers and profiles companies meeting the demand, including Kraft (Oreo cookies), Tingyi (noodles), Cofco (French wine), PepsiCo (Kurkure), and Pernod Ricard (green tea and Chivas Regal whiskey). We describe the key turning-point decisions made by these companies’ top executives to change the formulation, distribution channel, or marketing of their products to reach new consumers.
Chapter 8, “House and Home,” examines the rise of home ownership and the companies meeting the need for financing (HDFC), decoration (Asian Paints), and household appliances (LG Electronics). Chapter 9, “Luxury,” looks at the new consumers’ growing appetite for expensive goods and highlights companies such as LVMH and Gucci (leather goods, watches, and apparel) that are capturing market share. Chapter 10, “Digital Life,” investigates the lives of the digital generation, examining how consumers are using the Internet and mobile devices, and how companies such as Bharti Airtel, Taobao, and Nokia are prospering by meeting these consumers’ needs. Chapter 11, “Education,” focuses on the thirst for knowledge, with parents going above and beyond to pay for schooling that will give their children a head start in life, and students—including superachievers—who are prepared to dedicate their lives to fulfilling their parents’ dreams as well as their own.
Part III, “The Lessons for Business Leaders,” draws together the takeaways from the corporate stories in The $10 Trillion Prize. Chapter 12, “Paisa Vasool,” examines one of the most powerful strategies for success in China and India, as well as in the rest of the world. Chapter 13, “The Boomerang Effect,” looks at the global impact of the race for resources. With more money, consumers have started to spend as never before, and this has driven up the demand for food, water, copper, iron ore, cement—the building blocks of modern life. This increased demand is giving rise to the boomerang effect—price volatility, inflation, and the disruption of comfortable expectations in the West. Chapter 14, “Fast Forward,” introduces the accelerator mind-set and features profiles of business leaders and company founders whose approach to business and life explains their good fortune and provides a useful model to foreigners looking to replicate their success. Chapter 15, “The BCG Playbook,” reflects on the size of the commercial prize and features BCG’s guide to captivating the newly affluent consumer.
The $10 Trillion Prize concludes with an epilogue that sets out the opportunities for individuals in the West—the original consumer kings.
The Contest for the $10 Trillion Prize Has Begun
China and India are very different in many ways. So why put them together in a book? The answer is simple: the increasing size of their populations, the growing power of their economies, and—most important of all—the emerging mass of ambitious, educated, middle-class consumers who want more now. The two countries combine to represent the number one and number two consumer opportunities of today. Both countries have enormous upside. The increase in annual consumption by 2020 will be $4.2 trillion in China and $2.6 trillion in India. Anyone with global aspirations will need to compete successfully in both China and India.
There are some who fear China’s and India’s growth, viewing it as a harbinger of doom for companies in developed economies. But we do not see it this way. We think it heralds a bright new future with abundant opportunities for those willing to seize the moment.
In the classic film On the Waterfront, Marlon Brando plays the role of Terry Malloy, a former heavyweight boxer who once had a shot at winning a big title but blew his chance. Far from being a champion, he works as a day laborer on the docks of New Jersey. “I could have had class,” he says regretfully. “I could have been a contender.” Today’s leaders need not have any such regrets—as long as they act fast.
There is no time to lose. The contest has begun.
ONE
Consumption in China and India
The Dawn of a Golden Age
What and why the new consumers buy, how they think and shop, how their needs and tastes are changing
WE KNOCKED ON THE DOOR. There was no sign, just a street number. “Is this the Li family restaurant?” we asked, after a tortuous walk through the alleyways of Beijing’s Xicheng District. The older woman who had come to the door nodded and then called for her grandson, who hurried to the entrance and, speaking English, invited us inside the plain cinder block building.
We were shown to one of three Formica tables and sat down on rickety folding chairs. A fan whirred in the background. We could see the chef and his assistants toiling in the kitchen, seemingly oblivious to the bright flames leaping over the pots on the open cooktop. Tantalizing aromas drifted through the room as we were handed the Chinese-language menu with pictures of a few of the delights soon to be coming our way.
Across from us, four garrulous Texans were feasting on the restaurant’s most expensive option—a set of dishes that the menu dubbed “the grand banquet.” At the other table, five Chinese men wearing white shirts and plain blue suits were delighting in the menu’s midpriced option, nudging each other and smiling when they found a dish particularly good.
We too selected the midpriced option, and soon the dishes started to arrive: an exotic mushroom soup, a small plate of prawns with snow peas, hand-carved carrots, and jasmine rice. After that, shark fin soup, then abalone