Surging BRIC middle classes are eclipsing global poverty
By 2022, those living in poverty will be a minority for the first time, as the global middle class – particularly from BRIC (Brazil, Russia, India, China) nations – surges. Does new affluence signal shifting global power?
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Millions have long lived in Rio's poor suburbs, but only recently have they had enough money to attract a mall developer. From 2003 to 2008, 24 million people left poverty in Brazil, where the middle class now accounts for more than half of its roughly 191 million citizens. At home, they enjoy color TVs, refrigerators, washing machines, and vacuum cleaners. Half have a computer; more than a third have Internet access.Skip to next paragraph
Estimates of just how big China's middle class is range widely from a low of 157 million (which would be second only to the US) to more than 800 million. With such a large middle class driving consumption, China has seen an average 15 percent growth in retail sales in recent years and is already the world's largest market for cellphones and cars (in 2009 passenger car sales increased 53 percent). India's middle class is projected by the NCAER to grow by 67 percent in the next five years, to 267 million people, or nearly a quarter of its population.
What's driving this bulge? State policies such as Brazil's increased minimum wage and India's reduced tax rates have boosted incomes. Foreign investment is giving more people salaried jobs, and those in turn are driving demand for everything from mechanics to more fashionable clothes, says economist Homi Kharas of the Brookings Institution in Washington. And more are getting better education.
That presents opportunities both for local entrepreneurs and multinationals – and could change the products available to the West.
Last year, Levi's specifically targeted Asians with its launch of dENiZEN, a new line for the "global citizen" complete with pink T-shirts that say "Chase Your Dream." In a reversal of the usual currents of global markets, dENiZEN will come to the US this summer, where Target will carry a line adapted for Americans.
There are other pioneers on this East-West route, particularly in consumer electronics, auto parts, and construction equipment, says Elizabeth Stephenson of the global consulting firm McKinsey & Company. In 2007, Finland's Nokia introduced seven low-cost cellphones in India; at least three of them are now marketed in the US. Last year, General Electric developed a low-cost electrocardiograph machine for rural India, and within weeks 500 units were en route to Germany.
"As companies have begun to sell into emerging markets, they've had to innovate – both multinationals and local companies. They've learned to do things at a much better value-to-price ratio," says Ms. Stephenson, coauthor of a 2010 McKinsey report on emerging-market growth. "Now, what you're starting to see is a lot of that innovation flow back. These new low-cost innovations are beginning to disrupt Western markets. The emerging market story is really a global story."
Within a decade, Americans could start to see some of the inexpensive cars now being launched in China, such as GM's new Baojun 630, which began selling last month starting at $10,800. But due to higher US standards for emissions and safety, along with consumer desire for sound systems and other amenities, even such cars will cost much more in America.
"At this point, they're not ready to play here with the level of expectations in the US market," says David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "But they are getting there. As the internationals work there, they are introducing state-of-the-art technology."