Asia Summit—Asia’s Growing Middle Class
By 2020, Asia will have 1.75 billion people in the consumer class, up from 500 million in 2015. ASEAN alone will have 400 million in its middle class, up from 190 million in 2015. In 1999, only 3 million people across Southeast Asia had internet access. Today, that number is up to 280 million. Asia’s growing middle class offers huge opportunities for businesses looking to tap this market segment to drive growth.
How should businesses position themselves to best capture the opportunities of Asia’s growing middle class? The diverse business backgrounds of the panelists made for a well-rounded discussion on the evolution of Asia’s middle class, the opportunities they provide, and the barriers and solutions to accessing this market segment.
Jaime Zóbel de Ayala, chairman and CEO of the Ayala Corporation, stressed that the growth potential is large. In the Philippines, growth has been driven by increasing incomes and low interest rates, boosting consumption on durables like housing, cars and non-durables like telecommunication services. For the Ayala Corporation, this has meant tailoring products and services to different price points to unlock more of the market, from diversifying real estate products to enrolling more of the country’s unbanked.
Jaime Zóbel de Ayala, chairman and CEO of Ayala Corp.
But to fully take advantage of these growth opportunities, Ayala stressed the importance of public and private sector collaboration to overcome the bottlenecks in the operating environment: improving infrastructure, attracting more foreign direct investment, and increasing education and healthcare spending for improved human capital.
Within the insurance industry, demographic and economic shifts in Asia are driving change, says Christopher Townsend, president of MetLife Asia. By 2030, half of the region’s population will be living in urban centers, constituting 85 percent of the wealth in the region. Growing incomes and optimism tend to boost discretionary spending, which in Asia focuses mainly on health, family, education, and retirement. Finally, the rapid adoption of digital technology is changing the traditional distribution channels of insurance products. For Asia, this insurance protection gap is massive — an estimated $60 trillion dollars. This protection gap, the amount an individual needs for health and retirement compared to their personal savings, cannot be filled by governments. Insurance has to plug these gaps.
But selling to this growing middle class isn’t so clear cut, as Sam Fischer, president of Diageo Greater China and Asia, points out. It’s a mistake to assume that with increasing wealth people will naturally migrate into certain global brands. This growing middle class has its own values and preferences in products. At the same time, businesses must contend with local players who have much better insights and understanding of their consumers. It is imperative to innovate for the needs of the local market and develop business models that allow them to keep pace with home-grown competitors.
From left: Sam Fischer, president of Diageo Greater China and Asia; Patrick Grove group CEO of Catcha Group; Chair of iflix
Product localization is the bedrock of Patrick Grove’s business model. As Group CEO of Catcha Group and Chair of iflix, Grove learned that a lot of time must be invested to localize the product, its price point, distribution, and go-to-market strategy. Simply copying and pasting Western business models doesn’t work. His online digital entertainment platform iflix, for example, was the global pioneer in offering offline viewing because of the region’s unreliable infrastructure and shoddy telecommunications network.
Understanding your customers provides important insights when creating meaningful and rich experiences and value-added services. MetLife, Townsend shared, conducted 5,000 interviews across the region and found that Asia’s customers wanted three things: simplicity in discerning value-for-money, transparency and a breakdown of where the dollars were going, and ease of access to products when they want to buy through the channels they want to buy.
While consumer-driven growth may have slowed in the recent years, the consensus from the panel was that regional demand will only continue to increase into the future. The fundamentals and prospects for Asia’s growing middle class remain very positive, constituting a growing market segment which more companies are looking to tap.