The Second Pillar Driving The New Global: Consumption
As the global economy has become more integrated and economic opportunities have expanded, consumption has increased at a swift pace. Some global brands have increased their revenues several fold over the last couple of decades, as they expanded to new markets that opened up. As large segments of the world population are yet to enter the middle income group, or the so called consuming class, this trend of linear expansion in global consumption appears to have a long way to go. Even after the explosive growth in recent decades, the average household consumption in the emerging countries is only a fraction of the developed world average, leaving much scope for further expansion.
One of the biggest changes from earlier periods is the homogenization of products and services across the globe. Earlier, products were specifically developed for each market as spending power and tastes of consumers were vastly different. The information revolution is now shaping global consumption trends, to the extent that the traditionally strong influence of local culture is easing, even in food and fashion. European fashion brands have become popular across the globe while American fast food chains are seeing robust revenue growth in China and other emerging markets. If a product or service is successful in a major market, it is now likely to be successful in other markets as well. Therefore, instead of being limited to countries or regions, companies can look at quickly rolling out products across the globe.
During the early years of globalization, it was widely believed that western products and brands would eventually dominate every market. While western brands have become more popular in recent decades, the story thus far has been far more complex. For instance, Asian automakers have steadily expanded their global market share. At the same time, European and American car makers have established a substantial foothold in China, which is now the world’s largest automobile market. Interestingly, western manufacturers, especially American companies, have done so using technology and products developed by their Asian subsidiaries and associates. These companies are now using the technology and designs of their successful global models to boost their offerings in their home markets.
While most studies on global consumption trends focus on durables and services, the story is not complete without more basic goods such as staples and energy. For instance, while packaged and processed foods are becoming more popular in the developing countries, consumers in the developed world are showing a growing affinity towards fresh produce and organic foods. Similarly, even as high energy and commodity prices have forced consumers across the globe to opt for more efficient lifestyles and products, the consumption and investment patterns in the large energy and commodity producing countries have seen a dramatic surge. While some of these trends are likely to be more enduring than others, there is no doubt that changing consumption patterns are an important determinant of economic growth.