Own the Future: 50 Ways to Win from The Boston Consulting Group

Chapter 20

Unlocking Growth in the Middle: A View from India and China

Zhenya Lindgardt, Christoph Nettesheim, and Ted Chan

Over the next decade or two, one of the fiercest business battles will be for the billions of people joining the middle class in emerging markets—a group that will make up 30 percent of the global population by 2020. Emerging markets are forecast to grow at an annual average rate of 5.5 percent over the next 10 years to 2020, compared with just 2.6 percent for developed economies. In these countries, the big money increasingly clusters in the middle, where average income is growing at 8 percent per year and will reach an estimated $4 trillion by 2015.

Yet many multinational companies are not prepared to tap into this new stream of revenue growth, even if they're already active in emerging markets. Simply put, their business models were not designed to reach the new middle. Many have simply imported their existing high-end products and services through standard distribution channels to target the most affluent tier of customers in the largest cities, such as Delhi, Shanghai, Rio de Janeiro, and Moscow. This strategy has proved successful in the past, but the top-tier segment is becoming saturated.

If multinational companies are to reach the expanding middle classes in countries such as India and China, they will need to design and package their offerings differently, rethink their entire cost structure, and adapt their distribution systems. Many companies are ...