Innovating for the Rising Global Middle Class
Posted on Mon, Nov 28, 2011
In its ‘Innovating for the Next Three Billion’ report, Ernst & Young examines the emergence of the global middle class and explores the innovation capabilities that companies must build in order to seize a new market (of unprecedented size).
Between 2011 and 2030, the number of people in the global middle class will grow from 1.8 billion to nearly 5 billion. Most of this growth will come from Asian and other rapid-growth markets. Between 2009 and 2030, demand from the global middle class could grow from US$21 trillion to US$56 trillion. With stagnant growth in established markets, global companies are taking a hard look at this explosion of new purchasing power.
“The emerging middle class is the number one driver of innovation among multinationals in rapid-growth markets. To succeed, companies will need to think about how to fulfill unmet needs and create entirely new business models as well as product innovations,” says Andrea Vogel, EMEIA Strategic Growth Markets Area Leader at Ernst & Young.
Despite having global resources and capabilities, many multinationals have been slow to capitalize on the emerging middle class. According to the report, while rapid-growth markets account for 80% of the global population and 50% of global GDP at purchasing power parity, the average S&P 500 company earns just 10% of its revenues from these economies. Often, the issue is a misalignment between product and service offerings of established markets and the spending power and practices of customers in fast-growing markets.
To meet the needs of the ‘next three billion’, companies will need to understand regional customers’ needs and develop new products/services to meet those specific needs. Key to achieving this, says Ernst & Young: strong R&D capabilities, innovative business models, deep customer insight, and a culture and a mindset that support innovation. At a global level, this means setting up global innovation networks that link R&D centers across both developed and rapid-growth markets to share relevant knowledge, expertise and intellectual property – across languages, time zones, product lines and teams. It also means using analytics and technology to gather information about specific markets and turn this into actionable insight and understand the interdependencies among different regions and how decisions made in one region will affect another.
The report identifies the following as the most important enablers of innovation in rapid-growth markets:
Likewise, the report lists the following barriers to developing new products to meet the needs of lower-income customers in rapid-growth markets:
Although the ‘next three billion’ is just beginning to emerge, innovation leaders are acting now to create attractive, competitively differentiated products and services to draw new customers and build market share and scale.
How is your organization readying itself to take advantage of this unprecedented opportunity?