Asia soars as its middle class rises


The boom to our north will create a new world of mass consumers and Australia must find a way to know them.

They live in provinces most of us can’t name and speak languages few of us understand. And yet Asia’s mushrooming middle class holds the key to Australia’s future. Their appetite for everything from apartments to white goods is stoking demand for Australia’s raw materials and re-shaping our economy, and society in the process.

The Prime Minister, Julia Gillard, was optimistic about Asian consumers this week when she announced the preparation of a white paper to guide Australia in what’s now officially called the Asian Century.

“The new Asian middle class will give Australia an opportunity to make our whole economy strong,” she said.

But Australia has a lot to learn about the burgeoning cohort of spenders to our north.

“We haven’t really appreciated how dramatically the middle classes in Asia have grown,” says Professor Alan Dupont, director of Sydney University’s Centre for International Security Studies.

Australians are used to a world dominated by the tastes of American consumers but the global economic gravity is shifting rapidly towards Asia. The region’s already sizeable middle class could swell by 1.2 billion people by the end of this decade, giving Asia more middle-class consumers than the rest of the world combined. In the next 20 years the world may shift from mostly poor to mostly middle class, with two-thirds of the world’s middle-class consumers living in the Asia-Pacific region.

The Asian Development Bank estimates Asia’s middle class is already spending an impressive $US3 trillion a year. And the region’s spending is forecast to balloon to $32 trillion by 2030 – about 43 per cent of worldwide consumption.

China’s consumers already exhibit world-beating tendencies. They spend almost 10 hours a week shopping compared with 3.6 hours for the typical American, a 2007 survey showed. More than 40 per cent of the 6000 Chinese respondents to the survey said shopping was their favourite leisure activity.

China is now the world’s biggest market for automobiles and second for luxury goods. Annual car sales have surged from 2 million in 2000 to more than 12 million. In India, the number of mobile phone subscriptions went from 10 million to more than 850 million in a decade and the country is on track to overtake China as the world’s biggest mobile phone market.

But Robin Jeffrey, a visiting research professor at the National University of Singapore’s Institute of South Asian Studies, says Asia’s middle classes might not behave the way their Western counterparts did.

“For me, the teasing questions are about the extent to which middle classes in Asian countries will follow similar paths to, say, the English and American middle classes that grew in the 19th and 20th centuries,” he said. “To what extent are the varied cultures of a China or an India so different that all bets are off?”

Asian consumers are already showing some unexpected preferences. Cheng Li, a China expert from Washington’s Brookings Institution, says the two fastest-growing areas of consumption in China last year were a “surprise”. The first was religious tourism and the second pet-care products.

Asia’s new consumers are changing the way companies make and market products.

Michael Wesley, the executive director of the Lowy Institute for International Policy, says Asia’s consumer class wants the same things that Australia’s middle class wants like white goods, cars and holidays, but in a budget form.

An industrial economy that has cottoned on to this is South Korea.

“The Japanese are still producing top end manufactured and electronic items and yet the markets for them have collapsed in North America and Europe. The Koreans are cleaning up by selling ‘just good enough’ consumer items into developing Asia.”

There’s been a spate of “frugal innovation” in response to price-sensitive Asian markets over the past decade. An exemplar is the Nano, an ultra-small car developed by India’s Tata Motors and retailing for around $US2500. Another is a battery operated refrigerator aimed at households with little or no electricity that costs around $70.

The explosion of mobile phone use in India has also triggered innovation.

“The mass market wanted certain features: long battery life, a torch, durability and twin SIM cards so that people could switch from one plan to another quickly on the same phone to save money,” says Jeffrey, who has studied the Indian mobile market.

“Companies – Chinese ones working through Indian agents – that got in first with such features did well.”

The collective spending power of Asia’s middle class consumers will be enormous. But individual households will not have wealth comparable to middle-class families in the West for many years.

Dr Wesley says firms must cater for the unique preferences and “wealth limitations” of Asia’s new spenders.

“If you look at where consumption growth is going to come from in the world economy it’s the Asian middle class and so companies that prosper in the decades ahead are the ones that are best able to cater for and inspire their tastes,” he said.

Attitudes are changing with growing wealth. In 1995 just 47 per cent of Indian respondents to the World Values Survey felt it was important that their job was interesting. But just six years later the figure had jumped to 74 per cent. The proportion who felt it important to show initiative at work also rose from 46 to 64 per cent in the period.

“These data suggest a changing work ethic,” writes Homi Kharas, an economist who wrote a report on the emerging middle class in developing countries for the OECD.

“Where interest and initiative are important, it is likely that labour productivity and job satisfaction will also be high.”

Many Asians already work extraordinarily hard. Chinese men employed by a multinational corporation put in 84 hours a week on average, research by the American think-tank the Centre for Work-Life Policy shows. That’s an average of 12 hours a day, seven days a week. Their female counterparts work 71 hours a week.

Despite their big populations, skilled labour in some sectors of Asia’s fast-growing economies is in very short supply. A ”battle for talent” has made it imperative for companies in China and India to recruit women, retain and, in many cases, promote them to senior roles. Women fill almost one in three senior management positions in China compared with just 9 per cent in Australia’s ASX 200 companies. Even in India, where discrimination against women is widespread, 11 per cent of chief executives of large companies are women compared with 3 per cent here.

Our high living standards are already heavily dependent on Asian countries. Just four of them – China, Japan, South Korea and India – took 54 per cent of Australia’s exports last year. The value of Australia’s merchandise exports to India alone outstripped those to the entire European Union in 2009-10.

Raw materials, especially iron ore and coal, now make up the bulk of our exports to Asia.

As the region’s middle class gets richer, demand will grow for Australian services like tourism, education and financial, business and professional services. Australia’s proximity means it is well placed to capitalise. But selling services on a large scale in Asia comes with significant cultural challenges for Australia.

Despite our existing trade links with the region, Australia is still not well prepared for the Asian Century, experts say.

“Take the mess over the Indian student issue,” says Jeffrey, referring to recent attacks on Indian students in Australia. “Very few people making decisions or having to conduct discussions about policy or fallout knew much about India or south Asia. And it showed in foot-in-mouth episodes and, of course, in the first place, in the flawed ‘foreign student’ policy that led to a large, rapid influx of not-well-off students into sometimes shonky courses.”

Jeffrey, who until recently worked at the Australian National University, says there needs to be more Australians in every walk of life with a better knowledge of people and places in Asia.

“A coherent language policy would help,” he says. “Teaching languages in Australia is difficult because of political compulsions, costs and the fact that seven or eight languages can make a case for being ‘important’ to Australians. But there are ways of ensuring substantial numbers of Australians become proficient in major Asian languages and, in doing so, engage regularly with friends and associates in Asian countries.”

Wesley says Australians’ lack of curiosity about most regional neighbours suggests we are “absolutely not” ready for the Asian Century.

Australia’s “schizophrenic” economic engagement with the world illustrates this point.

“We are heavily involved in trading with Asia. We are fine with that. But our investment patterns are still very US and UK-centric,” says Wesley.

“I think there’s a very big psychological and emotional difference between trading with someone – the transaction of giving something and receiving money for it – versus investment which has got a lot more trust built into it. Our behaviour shows we are psychologically uncomfortable with investing in Asia and I think that tells us a whole lot more about our psychological engagement with the region.”

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