Serving The Needs Of The Vulnerable Poor Majority

Business, China, Company Strategy, Economics, Indonesia, Thailand

Incomes-Jul15

By John Richardson

HERE is another way of looking at the important new Pew Research study, which I first wrote about last Friday:

  • Just 16% of the world’s population live on incomes that would take them safely above the poverty line in the US in 2011 – the latest year for which all the global data are available. Yes, just 16%.

And Pew further summarised the realities of life in developing countries when it wrote in the same study:

People who are middle income live on $10-20 a day, which translates to an annual income of $14,600 to $29,200 for a family of four. That range merely straddles the official poverty line in the United States—$23,021 for a family of four in 2011.

The trouble is that for most of us, this kind of data doesn’t feel as if it adds up. The reason is that most business travel only allows for a few hours of leisure time hanging around luxury shopping centres in say Shanghai, Jakarta or Bangkok.

A further problem has been that up until now the vast majority of media coverage has only focused on the most visible and obvious signs of emerging-market wealth. In an age when too much journalism is done via second-hand and unverified “research” on the Internet, rather than by actually talking to people and thinking through the issues, this is hardly surprising.

The CEOs of chemicals and other companies should know better, though, as they are paid well enough for us to expect them to think more broadly and more deeply about this critical issue. Sadly, as I again discussed last Friday, though, I worry that some chemicals company CEOs have been suckered into the myth about the true size of the middle classes in developing markets.

Where do we go from here? By focusing on what we wrote in our online book, Boom, Gloom & The New Normal, in 2012:

“Being “middle class” in China and India is radically different from the West. Income levels are a tenth of those in developed markets and will remain so for decades to come. This has major implications for the nature of consumption in China and India – the type of products that will need to be made if companies are to prosper.”

You thus must be able to produce chemicals and polymers cheap enough to manufacture of a refrigerator that, say, retails for just $50, or a Chinese smartphone that sells for less than half of the price of a Samsung Galaxy.

True, there will always be a super-rich middle class in developing markets that can afford luxury autos, designer clothes and high-end condos. And, sure, this super-rich middle will likely grow in size over the next ten years and more.

But commodity chemicals companies have to, of course, shift huge volumes of product, which means their maths will never add up if they focus solely on trying to serve this relatively very small group of super-rich people.

Chemicals companies must also be aware that because so many people live on just $2 to $10 a day (3.4 billion people, or 56% of the world’s population, according to the same Pew study), it would only take a mild economic downturn to push many of these people into extreme economic distress. Today, though, the risks of another major economic downturn are increasing.

Many of these very poor people also live in equatorial regions, and so are vulnerable to being pushed into even more extreme poverty by climate change.

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