How the Rise of the International Middle Class Will Drive Our Tech Growth
After WWII, with the return of millions of G.I.’s who gained access to government loans to buy houses, the concept of the middle class in the US began to expand. As they assimilated back into the US and, more importantly, became an meaningful part of the United States’ economic recovery by getting jobs, buying homes and having disposable income, it expanded our consuming culture and helped make the US the prosperous nation we are today.
What we experienced with the rise of the US middle class in the 1950s has started to take place in broader international markets today. China’s economy has gained strength as millions of agricultural workers have been brought into city hubs to work in factories. Their growing service industry and other jobs have taken them out of poverty and, by their standards, moved them into what they define as middle class. These farm workers who, for most of their lives, earned less than $10 a week, are now working in factories and other jobs making at least $100 a week. By our standards that may not seem much but, in China, this is a huge leap in wages. Also, prices of goods are much cheaper. The last time I was in Shanghai, I went to a local supermarket and splurged on a lot of snacks for my hotel room. I spent around $6 US dollars for what in the US would have been well over $50.
There is a very good book about the rising middle class in China that is a must read if you want to grasp the growth potential in this country. It is called “China’s Super Consumers” by Savio Chan and Michael Zakkour.
The book looks at one billion new consumers in China and, in particular, the buying habits of the rising middle class. The authors also explain how Apple has gone after this market and why they are poised for even more success in this country going forward.
I recently interviewed the authors of the book and they told me this new middle class has huge aspirations for their future. While many workers do send some of their paychecks back to the family still on the farm, their gains in wages has given them a consumable income and they see a brighter future for themselves. Some of these kids eventually go to college and get even better jobs with higher wages and they plan to move into the upper middle class eventually. These people buy all types of goods and even save for luxury brands. China is very status symbol driven and, if a person owns even one item of a luxury brand, their status in the eyes of their peers is raised.
The authors also explained that much of their follow up work with US companies is helping them understand the local culture and consumer climate as many tech companies here want to market their products to this rising middle class in China.
A few weeks later I spoke with former Apple CEO John Sculley about his book “Moonshot”. In the book, John says “Every moonshot begins with a noble cause; to invent new technology that can change the world, you have to find your noble cause, your mission.”
Other moonshots he describes are things like Netscape’s browser, the internet, Google, Facebook and social media which have changed the way people interact and communicate. All of these have had game changing impact on our world and he shares in the book other key trends that may lead to significant new moonshots in the future.
But there is one area of particular interest to me in the book in a chapter about the rise of the middle class around the world. As the book points out, John has been traveling the world for over 40 years and observing how people use and consume products and technologies. He also has dug deep into the economic trends in many countries and, like others, has seen the rise of a new kind of middle class because personal economic gains have moved from the lower end of the earnings spectrum into what would be defined as middle class in each of their countries.
In our conversation, he said he sees close to two billion people beginning to move up into newly defined middle class status and they will want to buy things that are as good as the upper end of the market but at much lower prices. They will also buy these products in ways we are not accustomed to today. He sees mobile payments being a main source of how they purchase and sees giving them a great customer experience a key for success in serving this new rising middle class. One of his companies, Obi Mobiles, is making smartphones to sell in India, the Middle East and parts of Africa and start as low as $79 and go as high as $199. Their goal is to create products of high quality yet at price points the new middle class can afford and adopt in large numbers.
He has deals in India and many African nations as well as some Middle East countries and sees a serious upswing in consumer middle class interest in great products but at lower costs.
I don’t think we can underestimate the rise of this middle class around the world and how it will impact these folks economically along with the various companies that create products for them. This opens the door to US companies in ways they never imagined. Although the internet has made it possible for people to make products and sell them internationally for some time, the idea of creating products for local markets and then selling them effectively creates great opportunities and challenges for US companies.
The big car, consumer packaged goods, and even PC companies have targeted these international markets for some time. But with the rise of this new international middle class, even they need to rethink their global sales strategy and make it more local. A good example of this is how any major smartphone maker is now being challenged by local smartphone vendors who are much better at localizing content and services. Just having a brand no longer works as consumer products must be much more localized. At the same time, for many US companies who see the US market saturated, they must look internationally for any new and serious growth.
For tech companies, the international middle class could be a green field for them. It comes with localized challenges and obstacles but if they can tailor their products to deliver quality goods at lower prices, their brands could help them gain significant ground with this rising middle class. Although there are still good sales opportunities in developed countries, any real growth going forward must tap into this new middle class if tech companies hope to grow in the future.