Dyson’s recent announcement to relocate its UK headquarters to Singapore in a bid to be closer to their fastest-growing markets could well be a bold and savvy move. We spend a lot of time in the region, so we’re well aware that Asia, with its growing middle class hungry for consumption, is indeed set to lead the new global economy. So, we have big questions ahead. Why is this the case? What does this mean for western consumer businesses like Dyson? And what role will talent play?
Currently underpinned by a system where goods are made in the East and sold in the West, the world is evolving. The result is less global trade but vastly increased regional trade.
In the years to come, bolstered by the Belt and Road initiative, an East-East corridor will form where goods will continue to be made in the East, but an increasingly large portion will also be sold to an influential Asian middle class. The rise of this Asian consumer will be a dominant economic theme for the next several decades.
Down from 64% in 2010, North America and Europe combined will total 30% of the world’s middle-class consumption by 2030. Asia, on the other hand, will account for nearly 60%. More than two-thirds of which will come from India and China.
Asian shoppers already play a critical role in the world economy. Wealthy consumers in China and India account for a combined 17% of consumption by the global middle class.
Asia is so critical to global markets that some western businesses have started to prioritise these operations. With a new shop opening every 15 hours, Starbucks for example believes China is so key to the company’s future that it now provides special offerings to the Chinese ahead of New Yorkers. However, a looming trade war with the United States and evolving consumer tastes mean it is becoming harder to predict what Asia’s middle class will demand next.
Asia’s economic explosion over the past three decades, predominantly caused by increased productivity and improved manufacturing capabilities, is an important driver behind the rise of its middle class population.
Through meticulous planning and government-authorised incentives, China in particular has created an entirely new pillar of consumption to support the global economy.
Daniel Zhang, CEO of Chinese ecommerce giant Alibaba Group recently highlighted that “China’s huge consumption power makes its economy a self-sufficient market that can serve as a key driver of global growth.”
Trade between China and the countries targeted by its ambitious development campaign – the Belt and Road Initiative – is predicted to grow by $117bn this year.
For China, this will mean $56bn in additional exports, while it will import an extra $61bn of goods from the 80 countries named in the Chinese Government’s initiative. At a time when fears are mounting about a slowdown across the world economy, Belt and Road will add 0.3% to global trade and 0.1% to global growth. Coupled with the greatest global concentration of millennials, Asia is well positioned for economic supremacy.
Including a staggering 385 million in India, about 58% of global millennials live in Asia. Chinese people born between the early 1980s and the late 1990s total more than 360 million strong and have a much different global outlook and consumption profile than older generations.
In some cases, western companies have expanded into China and failed to adapt their strategies to connect with Asia consumers, overlooking cultural nuances and attitudes that could help their products succeed. A recent apology from Dolce & Gabbana highlights the danger of western businesses not localising appropriately.
Despite warnings from some European and American fashion houses that sales in their most important market are flagging, the region’s love of western brands remains alive. Dyson saw profits jump by a third in 2018, posting just over a billion pounds last year. By some estimates as much as 70% was powered by Asian growth.
After investing in digital media to attract the fluctuating East Asia audiences, the multinational cosmetics manufacturer Estée Lauder broke its global sale records primarily through strong growth in Asia last year. In the luxury sector, Swiss watch company Chopard shared its fine craftsmanship with Asian consumers after launching its flagship store with JD.com on Chinese Valentine’s Day in 2017 – part of its well-conceived strategy to stun the oriental market.
Competitive and diverse markets in Asia are forcing companies across all consumer-facing sectors to get creative and, to ensure this success, they need to address the local talent agenda. Asian leadership can enhance growth prospects by providing a unique insights into the region’s markets, cultures and dynamics. With Asia being such a diverse market, the companies that are taking a second look at their leadership pipeline are the companies that will prevail.
My upcoming trip to Singapore included, we’ll be spending a lot of time engrossed in the Asian market talking to leaders of different industries and discovering how they plan to capitalise on the economic transformation ahead of us.
In the coming months we’ll be writing a series of columns exploring Asia’s talent agenda as well as how consumer-facing sectors including CPG, retail, leisure, digital and tech, and fashion, luxury and beauty are changing to meet the demands of the Asian consumer.
If you have any observations, I would be delighted to hear from you. Feel free contact me via email Huw@thembsgroup.co.uk.