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Rise of purchasing power in emerging markets Impact of this trend on the Travel Industry:  Impact of this trend on Economic Development: Risks that could end this trend: Links

 

 

Why is Economic Development important?

 

facts:  4 billion out of 6 billion people on the planet are poor.  50% of them (2 billion people) live on less than $1 a day.   Moving these people up the economic pyramid is not just a moral issue, but its also an economic one.  There is a massive potential market of consumers waiting to be tapped.  See our discussion on economic development for more....

 

 

Rise of purchasing power in emerging markets

 

 

Around the globe, in many emerging markets, we are seeing a phenomenon occurring where millions of poor people are suddenly emerging as consumers and moving up along the social chain.  This trend is leading to opportunities with consumers of low income on a scale as never seen before.   In countries such as Brazil, and in many emerging markets, there is the growth of the "third class" of consumers, which suddenly find themselves using credit and other mechanisms to join the global consumer market.  As this trend occurs the world over, there are massive opportunities for marketing "at the bottom of the pyramid".  

 

As technology and travel  becomes more affordable, we are seeing a booming auto market in Brazil, and the expectation that this emerging class of consumers will want more appliances, electronics, and international travel. 

 

This, in turn, gives a boost to the commodities market, and can explain why more construction materials, and industrial commodities are needed in India, China, and in many emerging markets.  

 

This is also the basis for the "decoupling" theory that holds that countries like Brazil (which are big commodities exporters) are not as effected by a US recession as they would be in the past, because a big part of those commodity requirements are now needed to feed this swelling of the purchasing-class.

 

Example:  Brazil

 

This trend has led many businesses to adapt their commercial strategies in order to meet the needs of newly empowered consumers. Retailers such as Casas Bahia or Insinuante in the north-east have expanded quickly by offering credit to poorer customers. Consumer goods companies are tailoring their sales offers to the less well off, mirroring the tactics of Indian companies that have pioneered sales to the bottom of the pyramid.

Nestlé, for example, sells powdered milk in affordable sachets rather than more expensive cans and employs working-class women to sell yoghurt and dairy products door-to-door, reaching consumers for whom a journey to the supermarket is prohibitively expensive.

 

 

Impact of this trend on the Travel Industry: 

 

The Travel Industry will be significantly changed by this trend.  According to the United Nations World Tourism Organization, the number of international tourists is expected to double from 2008 (800 million tourists) to 2020 (1.6 billion tourists).  Get that?  Double in the next 12 years.  Why?  The biggest reason is that there will be hundreds of millions of new entrants into the middle class as " Indian call centre employees, Russian engineers, Chinese middle managers and Brazilian salesmen" suddenly have enough money to travel.   source

 

 

 

Threats and Opportunities from this trend:

 

• “First, most tourism-related prices, such as hotel room rates in popular cities, will continue to escalate as demand outstrips supply.”
• “Second, rationing, and the resulting waiting lists, will become commonplace. Some groups, for example, are already calling for limits on traffic to ecologically sensitive destinations, such as the Incan ruins at Peru's Machu Picchu.”
• “Finally, jaw-dropping prices and decades-long waiting lists will prompt the creation and the expansion of destinations in both developed and developing economies. The Chinese, for example, are developing Hawaii-like Hainan island and Macao, a gaming paradise on China's southern coast.”
• “Companies and governments are also creating facsimiles of popular destinations.”
• “Just as sites and structures can be successfully replicated in new locations, so can institutions. If the swelling ranks of global travelers can't all come to you, you can go to them.”
• “As the scarcity of places grows, many companies will find opportunities to profit by meeting new levels of demand for authentic, and inauthentic, experiences.”
• “A billion or two additional international travelers represent both a massive potential headache and an opportunity for business.”
• "Real estate in both urban and suburban areas is one of many investments that may benefit from this explosion. As demand increases, tourism and hospitality businesses should also perform well, and there are many new businesses that could be created to cater to international tourists. An entrepreneur’s imagination is the only limit.

 

 

Impact of this trend on Economic Development:

 

One example is the regional Economic Development boom that is planned between 2008-2010 in the Brazilian NE state of Pernambuco.  As a result of rising incomes, available credit, the "Bolsa Familia" program, and of the strengthening currency (vs the weak dollar), suddenly Brazilian consumers are feeling wealthy as never before, and they are buying cars, and commercial goods like never before.   In response, you see massive developments in and around the port of Suape, such as the massive wheat mill from Bunge, or the auto distributors, oil refineries, ship building, steel mills, etc.  (see more in our coverage of Pernambuco). 

 

see more in our discusson:  Brazil: Economy

 

Risks that could end this trend:

 

1. inflation, if it gets out of control could cut into the purchasing power of this new class of consumers, and limit the growth of this segment.  We see risks here with the rising inflation worries 2008, rising food prices, and High Oil Prices
2. if the commodities bubble were to burst, could hurt countries such as Brazil or Peru, and such macroeconomic troubles could lead to budget problems, and cutbacks in social welfare programs.  watch out for this one!

 

 

Links

 

other trends from KookyPlan:

 

 

• Industry Analysis
• The next bubble to burst may be commodities in 2008
• Changes are happening in China
• Possible recession in 2008
• rising inflation worries 2008
• High Oil Prices
• Global Warming
• Sovereign Wealth Funds
• Weak US dollar
• Tech trends to watch
• Private equity takes many companies private
• credit crisis of 2007
• Asian countries fight to keep their currencies undervalued vs the dollar
• Globalization
• Rising importance of China
• Latin America becomes dependent on commodity exports to Asia
• opportunities with consumers of low income

 

 

External links:

• United Nations World Tourism Organizatio
• www.thetimes.co.za
• http://en.wikipedia.org/wiki/Bolsa_Fam%C3%ADlia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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