Asia has experienced a significant transformation over the past decade and it is currently the world’s consumption growth engine. Asia is going to see over $10 trillion in consumption growth opportunities over the next decade and if you miss Asia you could miss half of the global picture. The region has developed and deepened its capabilities and infrastructure rapidly, accounting for a large share of global growth. Asia in the next 10 years and beyond going to experience rising diversity in consumer markets in this already diverse region.
Understanding Asia’s Consumption Path
Asia’s consumption paths are being blazed by three key changes by the Asian consumer. As income rises across Asia, movement within the consuming class is likely to be a larger driver of consumption growth than move into it, as more consumers will reach the highest tiers of the income pyramid. Second cities in Asia will continue to be the driving factor in consumption growth although promising sources of growth are increasingly diverse cohorts within cities. Third, new consumption curves are emerging in some specific product categories as the relationship between income and consumption breaks down in some instances. Income-driven curves may flatten or shift as new technologies and business innovation enable more people to afford goods and services even on a lower income.
Diverse Consumer Class
In the coming decade, Asian consumers are expected to account for half of global consumption, a $10 trillion opportunity globally. The breathtaking fact is that one of every two upper-middle income and above households is expected to be in Asia whilst one of every two consumer transactions is likely to occur in the region.
A growing number of people are projected to join the consuming class who spent more than $11 a day in 2011 purchasing power parity terms. At the start of the century, only 15% of Asia’s population was part of the consuming class, the remaining people were still insufficient to justify discretionary spending. However, in the upcoming decade, three billion people, or 70% of Asia’s total population may become part of the consuming class.
In the future, the income pyramid will shift upward with changing consumer patterns, and consuming classes are expected to attain higher income levels than before. The past two decades saw 80% of Asia’s consumption growth came from lower-income tiers of the consuming class but in time there is a possibility that 80% of that growth could come from higher-income consumers.
In the past companies focused on the granularity of growth in Asia mostly focused on which cities would experience the most rapid growth. In the coming decade, cities are likely to be the main source of the region’s consumption growth and are expected to account for more than 85%. Rising incomes are one important aspect of consumption growth As social, demographic, and technological transformations clash, other consumer shifts stand out across Asia that could offer new angles on growth.
Smaller households: The average size of households in Asian countries has declined over the past 20 years. One-third of households in advanced Asian economies and more than 15 percent in China are already single persons and a robust “singles economy” is emerging.
Aging: The population age over 60 is defined as seniors and is expected to grow by around 40% over the next decade, and the consumption by the seniors may grow twice as fast as that of the rest of the population in many countries in Asia. Seniors are increasingly consuming online and 95%of seniors in Australia, Japan, and South Korea are expected to be online by 2030.
Rise of Digital Natives: People born between 1980 and 2012 are expected to account for almost 50% of Asia’s consumption by 2030. This generation tends to use Western social media platforms but follows local social media influencers and uses Asian e-commerce platforms.
Women’s Economic Empowerment: The increased participation in the women’s labor force is being made possible by five types of economic empowerment, increased participation in the labor force, rising income opportunities, increased financial and digital transformation including changing family structure, and a larger role in purchasing decisions could boost Asia’s consumption growth. Women’s empowerment could add 30% to Asia’s consumption growth or $3 trillion in the period of 2030.
New Channel Mix: Digitization is changing the conventional view of Asia where fragmented traditional trade is being replaced by modern store-based trade. Several retail markets are jumping straight from traditional business to e-commerce, which is expected to reach 30% of retail sales in China and 20% in emerging Asian economics by 2025. Technology is disrupting traditional market approaches by addressing inefficiencies.
Asian Brand Gain Share: Between 65% and 95% of the region’s consumer spending in categories including the automotive industry, electronics, and consumer packaged goods are from Asian brands. Regional players’ share has been low compared to local and non-Asian brands in most categories over the past five years.
New Notions of Ownership: Economic pressures, shifting consumer attitudes, and technology have prompted plenty of Asian consumers to think over alternatives to traditional ownership. Subscription economies are gaining traction and sharing and rental services are on the rise. The secondhand marketplace has taken off and ownership is shifting towards digital, rather than physical. Over the past five years revenue from many digital goods has grown between 25% and 55%, according to McKinsey’s Global Media Report 2020.
The Big Convergence: Many consumer needs are being aggregated and served by digital ecosystems with diverse degrees of integration. Super apps are the most integrated into the digital ecosystem offering a one-stop digital shop for multiple services.
Segment of One: Asia’s explosive growth in data creation attributes to propel the spread of personalization. Asian consumers appear relatively willing to share their data and the creation, capture, and replication of data is expected to triple by IDC between 2020 and 2025.
Eco Responsibility: Amid rising concern about sustainability eco-friendly consumption is on the rise in Asia. Asian’s mostly from China, India, and emerging economies are making changes to their products and services because they are concerned about climate change.
Consumption Curve Over Next Decade
New offerings, business models, and technology enable innovation are diversifying the Asian consumer landscape and companies are responding. The conventional relationship between income and consumption patterns is broken down into several categories. As a consequence, categories for which penetration was previously well predicted are now subject to new forces that companies and investors could advantageously factor into their thinking.
There are new specific consumption curves alongside income drives S-curves. For instance “access curves’ emerging in mobility, gaming, and banking are unlocking demands by enabling low earning consumers to secure services that they could not previously access or were priced out. Even in categories where a strong relationship with income continues, there may be a shift in the S-curves as a result of cost innovation.
Companies Should Be More Agile
Each company makes its own roadmap for growth but this can all too easily become outdated without a concerted effort to understand and track dynamic markets. Companies need to rethink how the demand for their products and services is likely to evolve. They need to look carefully at which of the ten growth angles are relevant to their businesses.
In the automotive industry, players need to capitalize on the big convergence by investing in connectivity services, infotainment, and interfaces with the local ecosystem and apps. They need to consider innovating and unlocking new demand in their respective business models or product development. In financial institutions and services, new financial inclusion access curves could open up new opportunities to meet previously underserved demands.
Companies need to adopt a more agile operating model with a refreshed growth map including bolder resource reallocation; expand the speed of innovation in order to get market more quickly; empower local decision-makers, given that centralized decision making is not likely to be sufficient to capture the nuances of local markets while ensuring that the company board is digitally savvy.
Companies need to be both agile and take an open networked approach. In increasingly diverse and dynamic markets, it may be hard for a company to be all things to all consumers, and for many a promising way forward may be in partnership and ecosystems. Companies need to decide to lead their own ecosystem or engage in the existing system depending on which role they could fulfill most effectively. They need to be able to navigate new digital technologies and handle large amounts of data and often the most effective way to do this is within partnerships. If they overcome these challenges there is an opportunity for further growth.
-Written By Maksudur Rahman
