[lg policy] Australia: The boom to our north will create a new world of mass consumers and Australia must find a way to know them.

Sat Oct 1 16:11:47 UTC 2011

Asia soars as its middle class rises
Matt Wade
October 1, 2011

The boom to our north will create a new world of mass consumers and
Australia must find a way to know them.

They live in provinces most of us can't name and speak languages few
of us understand. And yet Asia's mushrooming middle class holds the
key to Australia's future. Their appetite for everything from
apartments to white goods is stoking demand for Australia's raw
materials and re-shaping our economy, and society in the process.  The
Prime Minister, Julia Gillard, was optimistic about Asian consumers
this week when she announced the preparation of a white paper to guide
Australia in what's now officially called the Asian Century.

"The new Asian middle class will give Australia an opportunity to make
our whole economy strong," she said. But Australia has a lot to learn
about the burgeoning cohort of spenders to our north. "We haven't
really appreciated how dramatically the middle classes in Asia have
grown," says Professor Alan Dupont, director of Sydney University's
Centre for International Security Studies.

Australians are used to a world dominated by the tastes of American
consumers but the global economic gravity is shifting rapidly towards
Asia. The region's already sizeable middle class could swell by 1.2
billion people by the end of this decade, giving Asia more
middle-class consumers than the rest of the world combined. In the
next 20 years the world may shift from mostly poor to mostly middle
class, with two-thirds of the world's middle-class consumers living in
the Asia-Pacific region.

The Asian Development Bank estimates Asia's middle class is already
spending an impressive $US3 trillion a year. And the region's spending
is forecast to balloon to $32 trillion by 2030 - about 43 per cent of
worldwide consumption.

China's consumers already exhibit world-beating tendencies. They spend
almost 10 hours a week shopping compared with 3.6 hours for the
typical American, a 2007 survey showed. More than 40 per cent of the
6000 Chinese respondents to the survey said shopping was their
favourite leisure activity.

China is now the world's biggest market for automobiles and second for
luxury goods. Annual car sales have surged from 2 million in 2000 to
more than 12 million. In India, the number of mobile phone
subscriptions went from 10 million to more than 850 million in a
decade and the country is on track to overtake China as the world's
biggest mobile phone market.

But Robin Jeffrey, a visiting research professor at the National
University of Singapore's Institute of South Asian Studies, says
Asia's middle classes might not behave the way their Western
counterparts did.

"For me, the teasing questions are about the extent to which middle
classes in Asian countries will follow similar paths to, say, the
English and American middle classes that grew in the 19th and 20th
centuries," he said. "To what extent are the varied cultures of a
China or an India so different that all bets are off?"

Asian consumers are already showing some unexpected preferences. Cheng
Li, a China expert from Washington's Brookings Institution, says the
two fastest-growing areas of consumption in China last year were a
"surprise". The first was religious tourism and the second pet-care
products. Asia's new consumers are changing the way companies make and
market products.

Michael Wesley, the executive director of the Lowy Institute for
International Policy, says Asia's consumer class wants the same things
that Australia's middle class wants like white goods, cars and
holidays, but in a budget form.  An industrial economy that has
cottoned on to this is South Korea.  "The Japanese are still producing
top end manufactured and electronic items and yet the markets for them
have collapsed in North America and Europe. The Koreans are cleaning
up by selling 'just good enough' consumer items into developing Asia."

There's been a spate of "frugal innovation" in response to
price-sensitive Asian markets over the past decade. An exemplar is the
Nano, an ultra-small car developed by India's Tata Motors and
retailing for around $US2500. Another is a battery operated
refrigerator aimed at households with little or no electricity that
costs around $70. The explosion of mobile phone use in India has also
triggered innovation.

"The mass market wanted certain features: long battery life, a torch,
durability and twin SIM cards so that people could switch from one
plan to another quickly on the same phone to save money," says
Jeffrey, who has studied the Indian mobile market.

"Companies - Chinese ones working through Indian agents - that got in
first with such features did well."

The collective spending power of Asia's middle class consumers will be
enormous. But individual households will not have wealth comparable to
middle-class families in the West for many years.

Dr Wesley says firms must cater for the unique preferences and "wealth
limitations" of Asia's new spenders.

"If you look at where consumption growth is going to come from in the
world economy it's the Asian middle class and so companies that
prosper in the decades ahead are the ones that are best able to cater
for and inspire their tastes," he said.

Attitudes are changing with growing wealth. In 1995 just 47 per cent
of Indian respondents to the World Values Survey felt it was important
that their job was interesting. But just six years later the figure
had jumped to 74 per cent. The proportion who felt it important to
show initiative at work also rose from 46 to 64 per cent in the
period.

"These data suggest a changing work ethic," writes Homi Kharas, an
economist who wrote a report on the emerging middle class in
developing countries for the OECD.

"Where interest and initiative are important, it is likely that labour
productivity and job satisfaction will also be high."

Many Asians already work extraordinarily hard. Chinese men employed by
a multinational corporation put in 84 hours a week on average,
research by the American think-tank the Centre for Work-Life Policy
shows. That's an average of 12 hours a day, seven days a week. Their
female counterparts work 71 hours a week.

Despite their big populations, skilled labour in some sectors of
Asia's fast-growing economies is in very short supply. A ''battle for
talent'' has made it imperative for companies in China and India to
recruit women, retain and, in many cases, promote them to senior
roles. Women fill almost one in three senior management positions in
China compared with just 9 per cent in Australia's ASX 200 companies.
Even in India, where discrimination against women is widespread, 11
per cent of chief executives of large companies are women compared
with 3 per cent here.

Our high living standards are already heavily dependent on Asian
countries. Just four of them - China, Japan, South Korea and India -
took 54 per cent of Australia's exports last year. The value of
Australia's merchandise exports to India alone outstripped those to
the entire European Union in 2009-10.

Raw materials, especially iron ore and coal, now make up the bulk of
our exports to Asia.

As the region's middle class gets richer, demand will grow for
Australian services like tourism, education and financial, business
and professional services. Australia's proximity means it is well
placed to capitalise. But selling services on a large scale in Asia
comes with significant cultural challenges for Australia.

Despite our existing trade links with the region, Australia is still
not well prepared for the Asian Century, experts say.

"Take the mess over the Indian student issue," says Jeffrey, referring
to recent attacks on Indian students in Australia. "Very few people
making decisions or having to conduct discussions about policy or
fallout knew much about India or south Asia. And it showed in
foot-in-mouth episodes and, of course, in the first place, in the
flawed 'foreign student' policy that led to a large, rapid influx of
not-well-off students into sometimes shonky courses."

Jeffrey, who until recently worked at the Australian National
University, says there needs to be more Australians in every walk of
life with a better knowledge of people and places in Asia.

"A coherent language policy would help," he says. "Teaching languages
in Australia is difficult because of political compulsions, costs and
the fact that seven or eight languages can make a case for being
'important' to Australians. But there are ways of ensuring substantial
numbers of Australians become proficient in major Asian languages and,
in doing so, engage regularly with friends and associates in Asian
countries."

Wesley says Australians' lack of curiosity about most regional
neighbours suggests we are "absolutely not" ready for the Asian
Century.

Australia's "schizophrenic" economic engagement with the world
illustrates this point.

"We are heavily involved in trading with Asia. We are fine with that.
But our investment patterns are still very US and UK-centric," says
Wesley.

"I think there's a very big psychological and emotional difference
between trading with someone - the transaction of giving something and
receiving money for it - versus investment which has got a lot more
trust built into it. Our behaviour shows we are psychologically
uncomfortable with investing in Asia and I think that tells us a whole
lot more about our psychological engagement with the region."

Read more: http://www.smh.com.au/world/asia-soars-as-its-middle-class-rises-20110930-1l1ig.html#ixzz1ZXyoFvVN

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