The smartphone or tablet you’re reading this blog on was, in all likelihood, assembled in an emerging market economy. The hot tea you’re sipping could very well have been grown in Sri Lanka or China. The shoes you’re wearing were probably manufactured in either Vietnam or Turkey. Observing people and lifestyles around us, it is impossible to ignore the pervasive role that emerging economies have played as producers in the global business environment. However, as momentum slows down in the developed markets, multinationals are looking at emerging economies as markets with high potential consumers who will power the next wave of growth.
The Millennial Impact
Emerging markets are fast growing economies undergoing rapid change with an expanding middle class. These are home to about 86% of the world’s millennials, with almost half of them of working age. China and India together account for over 400 million of this demographic. Emerging economies have been acting as global growth drivers and their share is expected to go up from 40% of the world GDP today to 55% by 2020. Millennials are driving more consumption and demanding better services owing to disruptive advancements in mobility and connectivity. Consumption habits and spending patterns for this demographic are redefining consumer journeys, thus necessitating more touch-points and greater availability. Today, consumer segments like entertainment, apparel & accessories, health & beauty as well as food services are particularly expected to bring profits to the market driven by millennials of such economies - these sectors are going to benefit more from the shift in demographics2
Experience & Product Innovations
These factors have led to channel proliferation & digitization driven by technology-enabled online consumption. Millennials in emerging markets are also looking for a personalized “anytime-anywhere” experience like their counterparts in developed economies. The key difference in consumer classes of the emerging economies is their exposure and awareness of global brands coupled with significant “brand recall and appeal factor”. Organizations in emerging economies are in turn trying to ride this newfound wave by launching fresh brands and categories, providing transparency in product information and personalizing experience across channels. Process model innovation in the e-commerce space complemented by friendly return policies and last-mile delivery options have made it easy for consumers to get a “touch and feel” and even a “try and buy” product experience. For e.g., the luxury goods industry in India has already started the use of AI-based chat-bot solutions to engage better with millennial shoppers and provide a personalized experience.
Digital Payments Revolution
Diverse consumption channels have also led to the advent of digital payment solutions in emerging markets. These markets are making focused efforts to introduce and promote retail e-payment devices with governments setting up systems to enable centralized fund transfer. Mobile payments, e-wallets and one-click payments have gained huge traction with consumers. They are revamping their systems to manage retail e-payments to bring in newer and innovative systems. Digital payment solutions have also been used by government bodies and agencies to credit aid and benefits to citizens directly. This has improved the effectiveness of public service programs and reduced leakages in public spending. The Bolsa Familia Programme (BFP), is one of the largest ongoing conditional cash programs through Citizen cards issued by the Brazilian government owned savings bank. In its first year alone, it benefitted about 11 million underprivileged families and its coverage was approximately 100% of impoverished Brazilians, which comprised about 25% of the nation’s population3. The payments market in China is booming as well with banks in China reporting 25.71 billion transactions in 2016, up almost 85% from 20151. This is expected to grow at 68% annually for the next two years. In 2013, the Indian government launched the Direct Benefit Transfer program which comprises 439 schemes to transfer subsidies to citizens through their bank accounts. Total transactions in the year 2018 were more than 282 Crore with a total value of about Rs.2,69,778 Crores4.
With the dramatic growth of digitization and internet penetration, it is imperative for consumer markets to shift from traditional to modern retail channels including e-commerce. Personalized experience, custom or tailor-made offerings, innovative payment methods etc. are crucial distinguishing factors preferred by millennials. Digital platforms (enabled by AI and machine learning) are fast re-engineering industry processes and impacting entire ecosystems. Consumers are now able to have more visibility into the entire value-chain and authenticate products and geographic origin. Smart payment systems now enable faster transactions and hence have a positive impact on overall consumption. The convergence of a cashless economy fuelled by millennials demanding high levels of experience and convenience would be where multinationals can tap into the new engines of growth.