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Capturing the World’s Emerging Middle Class

By srinijapenumarthi Jan 18, 2014 537 Words
Capturing the world’s
emerging middle class
David Court and Laxman Narasimhan
Multinational companies need new “scale at speed” approaches to penetrate the developing world’s increasingly prosperous consumer markets.

The rapidly growing ranks
of middle-class consumers span a
dozen emerging nations, not just
the fast-growing BRIC countries,1 and
include almost two billion people,
spending a total of $6.9 trillion annually. Our research suggests that this figure will rise to $20 trillion during
the next decade—about twice
the current consumption in the
United States.

David Court is a
director in McKinsey’s
Dallas office, and
Laxman Narasimhan is
a director in the Delhi
office.

These new spenders offer an opportunity for early winners to gain lasting advantages, just as companies in Europe and the United States did
at similar points in their development.
In 17 product categories in the

United States, for example, we found
that the market leader in 1925
remained the number-one or numbertwo player for the rest of the century. These companies include Kraft Foods (Nabisco), which led in
biscuits; Del Monte Foods, in canned
fruit; and Wrigley, in chewing gum.
Despite having strong global
brands, multinational companies
face challenging competition in
emerging markets, as these
economies already boast aggressive
local players that have captured
a significant portion of spending.
Chinese beverage maker Hangzhou
Wahaha, for example, has built

2

a $5.2 billion business against global
competitors such as Coca-Cola
and PepsiCo by targeting rural areas,
filling product gaps that meet
local needs, keeping costs low, and
appealing to patriotism.
Further complicating matters is the
fact that the multinationals’ business
models are based on practices
established in the markets of the developed world, where the game is won slowly by finding cost savings
and making product improvements that capture single percentage points of market share over time. Among emerging markets, perhaps only China can provide enough short-term growth to justify
that strategy. Meeting the needs
of most consumers in emerging markets requires a different course, which often elicits anguished cries
in the corridors of the multinationals: “You want me to change

my business model and go across
the world for $50 million in revenue?” It’s an understandable lament for executives who not only fear
ending up with little to show for their
efforts but also are wary of the
battles already under way among
emerging-market champions.
While there are multiple approaches
to capturing emerging-market
consumers, the two critical factors
are speed and scale. Our experience suggests that one way multinationals can quickly gain the scale they need is to identify clusters
of similar consumers across multiple markets. That approach allows these companies to build revenue
and profit streams that are collectively material and justify significant, ongoing capital investments to fuel growth. Another tack is
to work at a more local level, gaining
scale in specific regions and

Q3 2010
Emerging middle
Exhibit 1 of 2
Glance: The emerging middle class in developing countries comprises nearly two billion people, who spend a total of $6.9 trillion annually.
In developing countries, the emerging
Exhibit title: The emerging middle class

class—nearly two billion strong—spends a total
of $6.9 trillion annually.
Income
segments

Distribution of consumption and population
% of total population,
100% = 5.5 billion

% of total consumption,
100% = $9.7 trillion

Global
Upper middle
Middle

Annual household
income1

2.0
0.1
1.8

>$113,000
15.0

$56,500–$113,000
32.0

13.0

Lower middle
Deprived

$22,500–$56,499

23.0
23.6

$13,500–$22,499
28.0

61.5

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