The Rise of the Mass Affluent

Posted by on May 24, 2012 in News | One Comment

‘Service 2020’ is a report by the Economist Intelligence Unit, commissioned and sponsored by the BDO. The report outlines the eight customer service “megatrends” for the next decade. The seventh and most recently released trend is

The rise of the mass affluent and other customer segments will force companies to find new product or service niches.”

By 2030, the World Bank estimates there will be 1.2 billion middle class consumers globally. The growing segment represents significant opportunities and challenges for all sectors of the Australian economy. In particular, demand for services like education, tourism and technical expertise, and goods like high-quality agricultural produce, will increase as the preferences of new middle class consumers change.

Historically, firms serviced very small geographic catchments. The mass market really emerged as technological innovation facilitated mass distribution and mass marketing channels. Through the process of globalisation, growing demand in the developed countries was met through leveraging the comparative advantages of terms production in developing countries with global supply chains running largely from east to west.

But this is set to change. With the Word Bank predicting a shift in the economic centre of gravity toward Asia, it’s estimated that by 2030, 93% of the global middle class will be from developing countries.

Figure 1. Estimated size of the ‘Global Middle Class’

Source: ‘Service 2020’ Economist Intelligence Unit (2011)

Supply chains are already running in both directions and over time the traditional linear supply chain will give way to complex webs and hubs.

Economic development is marked by the advent of some comparative advantage (whether it be natural or technological) that allows a country to export its surplus production. The income from this surplus, funds an increase in imports which translates to an increased standard of living for the population. The rise of mass affluent customer segment requires a growth model that will allow the developing countries rapid growth despite slow growth in consumption in the developed countries which have traditionally been the source of demand for their exports. Developing countries will need to reorient toward servicing their own domestic demand.

Similarly, Australia needs to restructure and reorient its economy toward Asia, going beyond the current role as a major exporter of commodities, in order to sustain growth. To date, not enough planning has been done on how to service the growing middle class particularly in the context of increasingly constrained resources. We need a much stronger national policy focus on fostering the investment, innovation and human capital, which will be critical to making the structural change to knowledge-based, diversified and service-oriented economy. In particular, the focus needs be on those industries in which Australia has an existing comparative advantage in terms of productivity and quality such as gas, iron ore, high quality agriculture and food products, education and research.

1 Comment

  1. The Sharing Economy
    May 31, 2012

    [...] ownership has been strongly tied to our idea of progress and the rise of the middle class in many developing economies over the next two decades will correspond to a big push towards [...]