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10 GLOBAL MACRO TRENDS

FOR THE NEXT FIVE YEARS


Euromonitor International
October 2012

10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

LIST OF CONTENTS AND TABLES


Executive Summary ..................................................................................................................... 1
1. An Uncertain Future.............................................................................................................. 1
2. the Emerging Middle Classes ............................................................................................... 1
3. the Disaffected Youth ........................................................................................................... 2
4. the Rich/poor Divide ............................................................................................................. 3
5. the Climate Challenge .......................................................................................................... 4
6. An Ageing World ................................................................................................................... 5
7. the Urban Transition ............................................................................................................. 6
8. People on the Move .............................................................................................................. 7
9. A More Connected World ..................................................................................................... 8
10. China Goes Global ........................................................................................................... 10
Summary 1

Impact of macro trends on consumer markets over the next five years ..... 10

Introduction................................................................................................................................. 13
Trend 1: An Uncertain Future ..................................................................................................... 13
Trend Outline .......................................................................................................................... 13
Summary 2
Chart 1

Factors Contributing to Uncertainty in 2012 ............................................... 14


Real GDP Growth Forecasts 2011-2016 .................................................... 15

Implications ............................................................................................................................. 16
Chart 2

Global: In the next 12 months do you intend to change any of the


following habits? ....................................................................................... 17

Outlook ................................................................................................................................... 17
Chart 3

Forecast Per Capita Consumer Expenditure Growth by Country 20112016 ........................................................................................................... 18

Trend 2: the Emerging Middle Classes ...................................................................................... 18


Trend Outline .......................................................................................................................... 18
Table 1

Per Capita Disposable Income by Country 2006/2011/2016 ...................... 19

Implications ............................................................................................................................. 20
Table 2

Expenditure on Food and Non-alcoholic Drinks as % Total


Expenditure in Developing/Emerging Markets 2006/2011/2016 ................ 21

Outlook ................................................................................................................................... 22
Chart 4

Forecast Number of Households With Annual Disposable Income


Over US$100,000, 2011/2016 ................................................................... 23

Trend 3: the Disaffected Youth ................................................................................................... 23


Trend Outline .......................................................................................................................... 23
Table 3

Youth Unemployment Rate By Country 2006-2011 ................................... 25

Implications ............................................................................................................................. 26
Chart 5

Global Attitudes by Age Segment 2011..................................................... 27

Outlook ................................................................................................................................... 28
Trend 4: the Rich/poor Divide ..................................................................................................... 28
Trend Outline .......................................................................................................................... 28
Summary 3
Table 4

Reasons for Economic Inequality ............................................................... 29


Gini Coefficient by Country 2006/2011/2016 .............................................. 30

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Implications ............................................................................................................................. 31
Chart 6

HNWI Population by Country 2010-2011 ................................................... 32

Outlook ................................................................................................................................... 34
Trend 5: the Climate Challenge .................................................................................................. 35
Trend Outline .......................................................................................................................... 35
Summary 4

Regional impacts of global change ............................................................ 36

Implications ............................................................................................................................. 36
Chart 7

Commodity Food and Beverage Price Index .............................................. 38

Outlook ................................................................................................................................... 39
Chart 8
Summary 5

Global Attitudes to Taking Responsibility for Climate Change 2011 .......... 39


Global Climate Change: Future Trends ...................................................... 40

Trend 6: An Ageing World .......................................................................................................... 42


Trend Outline .......................................................................................................................... 42
Chart 9

Population of 65+ by region 2011/2016 ...................................................... 43

Implications ............................................................................................................................. 43
Chart 10
Chart 11

Global Attitudes Towards Saving 2011 ...................................................... 44


Forecast Old-Age Dependency Ratio by Country in 2016 .......................... 45

Outlook ................................................................................................................................... 47
Chart 12

Mean Age of Population by Country 2011/2016 ......................................... 48

Trend 7: the Urban Transition..................................................................................................... 48


Trend Outline .......................................................................................................................... 48
Table 5

% Urban Populations 2006/2011/2016 ....................................................... 49

Implications ............................................................................................................................. 50
Outlook ................................................................................................................................... 52
Chart 13

Worlds Largest Cities in 2016 .................................................................... 53

Trend 8: People on the Move ..................................................................................................... 54


Trend Outline .......................................................................................................................... 54
Chart 14
Chart 15
Chart 16

Number of Foreign Citizens 2011/2016 ...................................................... 55


Leading Recipients of Migrant Remittances 2011 ...................................... 56
Number of Foreign Students in Leading Host Countries2011 .................... 57

Implications ............................................................................................................................. 57
Outlook ................................................................................................................................... 59
Chart 17

Forecast Net Migration by Country 2006/2011/2016 .................................. 59

Trend 9: A More Connected World ............................................................................................. 60


Trend Outline .......................................................................................................................... 60
Table 6
Table 7

Number of internet Users by Country 2006/2011/2016 .............................. 61


Number of Mobile Phone Subscriptions by Country 2006/2011/2016 ........ 63

Implications ............................................................................................................................. 63
Chart 18
Chart 19

Global Use of Internet by Activity 2011 ...................................................... 66


Global Frequency of Mobile Phone Usage by Activity 2011 ....................... 67

Outlook ................................................................................................................................... 67
Chart 20

Forecast Growth in Number of Internet Users by Country 2011-2016 ....... 68

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Trend 10: China Goes Global ..................................................................................................... 69


Trend Outline .......................................................................................................................... 69
Table 8
Chart 21
Chart 22

FDI Outflows Top 10 Countries 2006/2011 ............................................. 71


Exports from China 2006-2011 .................................................................. 71
Global Shares of Selected Chinese Consumer Goods Companies
2006/2011 .................................................................................................. 74

Implications ............................................................................................................................. 75
Outlook ................................................................................................................................... 76
Summary 6

Top 20 Chinese Consumer Goods Brands 2011 ........................................ 77

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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

10 GLOBAL MACRO TRENDS FOR


THE NEXT FIVE YEARS
EXECUTIVE SUMMARY
1. An Uncertain Future
Both political and economic uncertainty are at their highest level for years, and the situation is
expected to continue over the forecast period as the recession continues and no real solution
is in sight for the euro crisis.
The latest Eurozone country to come under the spotlight is Spain, which is under pressure to
accept a full-scale sovereign bail out; while Greece struggles to meet its bail-out conditions.
Severe austerity measures resulting from the crisis, including spending cuts and tax
increases, have caused social unrest and prompted a number of demonstrations and
disturbances in Europe.
Uncertainty in the US has also escalated since the start of the recession and reached a peak
in 2011 at the height of the debt ceiling crisis. Current uncertainty centres on the upcoming
fiscal cliff that may tip the country back into recession.
Political uncertainty was rife in 2012 in the run-up to several elections. For example, France
gained a new left-wing president in May, while the US saw the start of a new presidential
campaign and China began the transfer of political power from one president to another.
The Middle East continued to suffer from the fall-out of the Arab Spring. This had a negative
impact on business operations in the region, with FDI inflows declining in real terms by almost
19% in 2010 and 16% in 2011.
Social unrest has been commonplace throughout the world. Many ensuing protests were
considered to be inspired by the Arab Spring. In October 2011, the Occupy and Indignants
movements led to protests in 950 cities in 82 countries.
Euromonitor International expects global real GDP growth to slow slightly to 3.4% in 2012,
before rising gradually to reach 4.6% in 2016. However, recovery will be uneven, with most of
this growth coming from emerging markets.
A key consequence of economic uncertainty has been higher unemployment, as businesses
are unable or unwilling to risk employing staff. This affects income and damages consumer
confidence, thus impacting per capita consumer expenditure levels.
Big ticket and luxury items suffer most in times of uncertainty, as consumers stick to
essentials and affordable treats until their situations are more secure. Brands and services
that can offer the right mix of quality and value will be the most successful over the forecast
period.

2. the Emerging Middle Classes


The expansion of the middle classes in developing markets has been one of the key
outcomes of economic growth, as huge swathes of these populations move out of poverty and
form an increasingly demanding and sophisticated consumer base.
World economic power will continue to shift to developing markets over the forecast period.
According to the IMF, emerging and developing countries will have overtaken advanced
economies in their share of world GDP in PPP (purchasing power parity) terms by 2014.

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Analysts have estimated that in developing countries, the emerging middle class consumer
base, consisting of almost two billion people, spends a total of US$6.9 trillion annually.
Per capita disposable income is forecast to rise by a further 64% in China over the 2011-2016
period. Other developing markets that are set to see per capita income growth of more than
30% include Venezuela, Turkey, Thailand, Russia, Indonesia and Malaysia.
Middle class consumers are a major contributor to economic development through spending
and future human capital. Government revenues will benefit from the wave of consumers
moving from the informal to the formal economy and thus contributing to taxation.
A key feature of middle class consumers is their ability to spend on non-essential items, such
as communications, healthcare, education, travel and leisure. These items will increasingly
gain importance in the household budgets of emerging market consumers.
Rapid economic growth is usually accompanied by the expansion of cities. Thus, more middle
class consumers will be urban in future, which will shape their spending patterns.
The new middle class consumer base in developing markets holds exciting opportunities for
multinationals faced with stagnant demand at home. However, these companies also face
challenges such as the growing strength of local brands.
International players must be prepared to adapt their business models to suit the specific
demands and preferences of emerging market consumers, for example by partnering with
local companies, offering value and emphasising service.
Developing market consumers will become increasingly important to marketers, given their
sheer numbers and the rate at which incomes are growing. The number of households in
these markets with an annual disposable income of over US$100,000 is forecast to soar over
the next five years.

3. the Disaffected Youth


One of the key outcomes of the recession for advanced economies is the lack of decent
prospects for young people, who face high unemployment, tuition fees, rising living costs, a
lack of affordable housing and the burden of supporting ageing populations in the future.
Young people the world over have rebelled against what they see as an increasingly hopeless
situation by joining the Occupy and Indignants movements, staging demonstrations or
supporting extreme political parties.
Those aged 15-24 were among the hardest hit by unemployment following the global financial
crisis, leaving a large number of overqualified young workers living at home, on state benefits
or making do with menial jobs.
Youth unemployment has reached phenomenally high levels in Spain, Greece and South
Africa, where the percentage of those aged 15-24 who are jobless reached 45%, 45% and
43%, respectively, in 2011. In the case of Spain, this compared with a rate of just 18% in
2006.
In Germany, youth unemployment has been kept down largely due to its mini job system,
whereby workers can earn up to 400 per month and be exempted from tax and social
insurance payments, but forgo core benefits of regular employment.
Higher college tuition fees are leaving young people saddled with big loans to pay off for the
rest of their lives. In 2011, the overall level of student debt in the US rose to more than US$1
trillion, exceeding the level of credit card debt for the first time.
One of the key outcomes of this situation is that the young generation are delaying the steps
that traditionally represent movement into adult life. More young people are now living in the
parental home for longer, and marrying and starting a family later.

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Sectors in which young people are key consumers, such as entertainment, electronics and
clothing, have suffered as a result of the decline in youth spending power. Nevertheless,
young people enjoy shopping, love brands and are resourceful when it comes to bargain
hunting.
Furthermore, the fact that many young people are living at home and delaying marriage
implies that they have significantly more discretionary income than would have been the case
had they been paying rent or a mortgage, or had a family to support.
A growing number of young people are returning to study or continue to pursue higher
education as a consequence of job loss or difficulty finding employment. This has offered
more opportunities for businesses in higher education and in education-related products.
Given the importance of technology to the net generation, a core focus of electronics
companies has been to create more affordable products for the youth market, as well as apps
adapted to their needs.
Continuing austerity measures are likely to aggravate the already high youth unemployment
rate and further limit young peoples prospects. This could hamper innovation and
entrepreneurial spirit, or result in a brain drain if emigration rates rise.

4. the Rich/poor Divide


Economic inequality has been in evidence for a number of years, but has only recently
become a focus of social unrest and media interest. The Occupy Wall Street movement
claimed that it was defending 99% of the US population against the richest 1% who own a
third of wealth.
The reasons for the growing gap between rich and poor within societies are manifold and
often inter-related. These include changes in employment patterns, disproportionate wage
increases, technological progress, urbanisation, government policies and demographic
factors.
Following the financial crisis of 2007, it was the richest who rebounded fastest, while the
ensuing wave of public spending cuts and wage stagnation hit the poor and middle income
earners the hardest.
Despite economic growth and rising disposable incomes in emerging markets, these are
among the countries with the highest income inequality. South Africa had the highest Gini
coefficient of 0.64 in 2011, followed by Brazil and China, both with coefficients of 0.52.
Brazils income inequality is typical of Latin America, where large swathes of the population
live in rural poverty or urban slums. However, the situation in Brazil is improving due to the
governments ongoing anti-poverty initiatives, as well as a rising employment rate.
A key cause of income inequality in China is the fact that the 206 million or so poor migrants
in cities lack urban hukou (households registration papers). This denies them access to
public education, public housing and social security programmes, thus blocking upward
mobility.
In India, too, only a small minority of households largely those in urban areas are
benefiting from economic progress, either through good education or family connections,
while most rural households are restricted to menial jobs or labour-intensive farming.
The US has the highest level of inequality among the major developed markets, as company
shareholders and executives have been reaping the benefits of corporate earnings, while
unemployment and depressed wages keep many mired in poverty.
Income inequality is less pronounced in Europe, due to generous welfare systems. However,
austerity measures are beginning to take their toll on the poorest members of society.

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A consequence of income inequality has been an increase in the number of high net worth
individuals (HNWIs), worth US$1 million or more, who are fuelling demand for products such
as luxury goods, holidays and private education.
For marketers, the high and in some cases growing income gap between rich and poor
will create a greater polarisation of demand favouring both premium and budget brands, to the
detriment of mid-market brands.
The higher purchasing power of the richest consumers will ensure that the luxury goods and
services market will see further growth over the forecast period, although even wealthy
consumers are becoming more cautious in the face of economic uncertainty.
In countries where much of the wealth is held by Baby Boomers reaching their retirement
years, there is a growing market for high-end products and services that appeal to the more
mature consumer, such as financial services, health-related products and travel.
The challenge to marketers targeting low-income consumers is to provide products that are
convenient but affordable, including entry-level electronics and white goods, healthcare
products, communication packages, fast food and other basic household goods.
In the retail category, consumer caution and the rising numbers of low-income consumers
have benefited budget clothing chains offering fast fashion, as well as grocery discounters,
dollar stores and daily deal websites.
While the current focus among policy makers seems to have shifted towards addressing the
gap between the haves and the have-nots, governments have very few resources left to
invest in aiding the plight of the poor, and the situation is not likely to improve over the
forecast period.

5. the Climate Challenge


Increasingly erratic weather patterns and rising sea levels will be one of the largest threats to
populations over the next five years and beyond. Most notably, droughts and floods will
continue to cause havoc with food crops, affecting food prices in the years to come.
In the US, the first six months of 2012 were the hottest on record since 1895. The drought in
August covered around 60% of the US the largest area since the epic droughts of the 1930s
and 1950s causing devastation to crops.
Competition for water will also intensify between human use, food production and energy, as
the entire water cycle is affected by climate change. The hydrological cycle is being speeded
up by global warming, and increased evaporation will make drought conditions more
prevalent.
At the same time, flooding is becoming more frequent and damaging due to more intense
rainfall events. Floods contaminate water resources, destroy water supply systems in affected
areas and can bring disease.
In developed markets, a rise in food prices is an inconvenience to consumers, who are often
forced to cut down on discretionary spend within the family budget. However, for poor families
in countries that rely on imports, escalating food costs can be a matter of life or death.
As a result of adverse weather events, global food production was lower than normal in 2012.
This is expected to lead to food shortages, inflation and possibly even riots in the countries
most affected by falling imports.
US Department of Agriculture forecasts, announced in August 2012, suggest that consumers
may have to pay 3-4% more for groceries in 2013. Beef prices are expected to see the largest
jump, at 4-5%.

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Scientists are convinced that global temperatures will continue to rise for decades to come, as
human activities continue to create large quantities of greenhouse gases. This will continue to
contribute to erratic weather conditions and adverse events, such as forest fires, in the future.
The effects of this may be mitigated as more measures are put in place to reduce greenhouse
gases, such as the creation of carbon/methane sinks and cloud seeding.
Consumers will become increasingly aware of green issues and will adopt a more
environmentally-friendly approach to their living and purchasing habits, for example by buying
recycled products, energy saving devices or hybrid cars, and reducing meat consumption.

6. An Ageing World
Populations are ageing due to a combination of low birth rates and longer life expectancies in
developed markets especially in Western Europe, North America and Japan. The proportion
of people aged 65+ in Western Europe reached 16.5% in 2011.
Many advanced countries are experiencing fertility rates of less than the replacement level of
2.1, which is the rate needed for populations to replace themselves naturally. In China, the
effects of the one-child policy will cause the population to age rapidly in the future.
At the same time, people are living longer as a result of healthier lifestyles and continuous
medical advances, such as better detection and treatment of many forms of cancer and heart
disease, improved nutrition and better access to services.
In 2011, there was a total of 112.5 million people aged 80 and over, and this is forecast by
Euromonitor International to increase by 26% by 2016. In Japan, the number of people aged
100 or older hit 47,756 in 2012.
The populations of Middle East and Africa, Latin America and parts of Asia Pacific are much
younger than those in the West, but are ageing gradually. The mean age in both India and
South Africa was 28 in 2011, compared with 44 in Japan and 43 in Germany and Italy.
The US has so far managed to postpone dealing with an ageing population through high
immigration rates and a steady birth rate. However, the mean age in the US is expected to
rise from under 37 in 2006 to over 38 by 2016.
Ageing populations will impact future economic growth prospects, due to reduced labour
forces and lower savings and investment rates. The global old-age dependency ratio (the
number of people aged 65+ per people aged 15-64) is forecast to rise from 12.2 in 2011 to
13.8 by 2016.
As a larger number of people retire each year, they start relying on income from savings, help
from family, and pension benefits. South Koreas savings rate fell from 13.5% of disposable
income in 2000 to 7.2% in 2011, as pensioners began to draw on their savings.
Age-related public expenditure is projected to increase strongly, causing the Council of the
EU to call for action to reduce government debt, increase employment rates and productivity,
raise retirement ages and reform pension, healthcare and long-term care systems.
In emerging markets, too, many countries have healthcare and pension systems that are
inadequate and unsustainable. According to the IMF, in 2012, only 26% of the elderly in Asia
received public pensions.
In the future, seniors will be forced to take more financial responsibility for their own care as
states will no longer be able to support their growing numbers. This may lead to a decline in
disposable incomes among the elderly, affecting their spending levels.
Ageing populations are leading to growing demand for high quality care homes. In the US and
Australia, demand for active-adult developments has soared in recent years, as seniors use
their home equity to purchase a place where they can enjoy a holiday resort-like lifestyle.

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In the face of Japans rapidly ageing population, robots have been developed to fill the gap
caused by the shortage of younger workers. These are designed either to assist the elderly
with physical functions, such as bathing or lifting things, or to monitor health and wellbeing.
As age boundaries shift and consumers stay young for longer, ageing populations provide a
growing market for consumer health products, health foods, beauty products, leisure services,
tourism and other age-related products and services.
Marketers must adapt their strategies to cater to the needs and aspirations of the growing
market of ageing consumers. Baby Boomers in the US are said to control 70% of the total net
worth of American households and own 80% of all money in savings and loan associations.
In the future, technological advancements will to some extent help to counteract the declining
workforce caused by lower birth rates and the ageing population. However, workplaces and
practices will need to become more age-friendly to encourage older people to work for longer.

7. the Urban Transition


Although urbanisation is another long-term trend, its pace has speeded up noticeably in
recent years and city growth has reached unprecedented levels in emerging markets such as
China, Indonesia, India and Turkey.
The exodus from countryside to cities is largely driven by a desire for economic
empowerment. As agriculture has become less labour intensive, workers are driven to cities in
search of jobs. This creates demand for more services, thus drawing even more people for
work purposes.
Immigration has also contributed to the growth of the worlds major cities, since most
newcomers head for large towns in search of work and to join existing ethnic communities.
Therefore, cities are becoming increasingly multicultural.
The global urban population exceeded the rural population for the first time in 2008 and
gained a share of 52% by 2011. By 2016, it is predicted that as much as 55% of the global
population will be made up of city dwellers.
China and Indonesia are considered to have the most potential for urbanisation over the
forecast period. Chinas urban population is expected to reach a majority for the first time in
2012 and may represent 55% of the total population by 2016.
The global shift towards urban living is shaping consumer markets and demand. In emerging
markets, urbanisation will result in growing demand for infrastructure and services, creating
exciting opportunities for businesses and investors.
Urban consumers have higher purchasing power than rural consumers, as economic activity
is concentrated in cities and urban areas. This has led to a burgeoning middle class in
emerging markets, who are fuelling demand for convenience products and discretionary
items.
Rapid urbanisation can also create challenges, such as unemployment, urban poverty, overcrowding, pollution, health deterioration, social unrest and crime. In developing markets, this
will put more pressures on resources such as food, energy, land and the environment.
City growth can also drive house prices up. Due to rapidly rising demand and speculation in
China, house prices in major cities are among the highest in the region, putting them out of
reach for the majority of ordinary people.
In some poor countries, slums have increased as cities are not able to handle the growing
influx of migrants from rural areas. According to a 2010 report from UN-Habitat, the number of
slum-dwellers worldwide is predicted to increase to 889 million by 2020.

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The McKinsey Global Institute (MGI) found that the 600 cities making the largest contribution
to global GDP will generate nearly 65% of world economic growth by 2025. By this time, 136
new cities will have entered the top 600, all of these from the developing world (mainly China).
According to Euromonitor Internationals database, Istanbul was the worlds second largest
city by 2011, and is expected to remain one of the fastest growing cities over the forecast
period, with its population set to soar by 23% to 16 million.
In India, smaller cities such as Chennai and Pune are experiencing the highest demographic
and economic growth rates. Specialisation enables them to concentrate resources, to attract
the most talented people and therefore to evolve.
Although the mature cities of North America, Japan and Western Europe will remain
economic powerhouses in terms of their overall spending power, they will face challenges
such as maintaining ageing infrastructure and incorporating the new digital infrastructure.
New urban dwellers cash-rich, time-poor and open to new experiences will sustain
demand for products linked to urban life, such as fast food, convenience stores, personal
goods, clothing, footwear and portable consumer electronics.

8. People on the Move


As the world becomes smaller, while travel gets cheaper and restrictions more relaxed, more
people are choosing to live, study or work abroad. This may be due to economic necessity,
tax reasons, to move to a better climate or simply to gain new experiences.
Traditionally, the most common source countries for economic migrants have been lowincome countries, such as India and Mexico. Unskilled workers from these countries move
abroad in search of jobs and money, which they often send home as remittance to their
families.
In 2011, the US was home to by far the largest number of foreign citizens, at 21.6 million.
Furthermore, a landmark was reached in 2012 when it was reported that for the first time in
US history, more than half of all babies born in the country were members of minority groups.
Germany had the largest number of foreign citizens in Europe in 2011, at 7.2 million.
However, due to Germanys tough immigration policy, this number is not expected to change,
while the number of foreigners in Italy is forecast to leap by 31% between 2011 and 2016, to
reach 6.0 million.
South Korea is expected to see the most rapid growth in the number of foreign citizens over
the 2011-2016 period, of 43%. South Korea was once a migrant source country, but its rapid
economic growth has meant that now it is an important destination for migrants from other
parts of Asia.
Migration to Scandinavian countries is also growing strongly, especially to Norway, where the
number of foreign citizens is set to grow by 36% over the 2011-2016 period. Currently, the
largest immigrant groups in Norway are Polish, Swedish, Pakistani, Somali and Iraqi.
For economic migrants, the main reason for travelling abroad for work is to be able to send
money home to their families. According to World Bank estimates, remittance flows to
developing countries reached US$372 billion in 2011, an increase of 12% over 2010.
Demand for foreign workers has remained strong in many destination countries, as they tend
to accept lower wages and are less of a burden on the state. The largest remittance-sending
countries in 2011 were the US, Saudi Arabia, Russia, Switzerland and Spain.
India and China received the largest amount of remittances in absolute terms, with workers
from these countries sending home some US$64 billion and US$62 billion, respectively, in
2011.

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Faced with high university fees at home, an increasing number of young people are choosing
to study or work abroad. According to Unescos Institute for Statistics, the number of
international students grew by 12% in 2009 to reach a record 3.4 million.
China is fuelling this trend, due to a shortage of places on high-quality degree courses at
home and the pressure to have an overseas qualification when job seeking. There are now
more than 440,000 Chinese students abroad, with their number in the US rising by almost
30% in 2009.
Continued migration has a significant impact on economies, marketers and consumers alike.
From an economic perspective, immigration will be especially beneficial in countries with
ageing populations, which will soon face a dearth of young workers.
At the same time, however, migrants face uncertainties in some of the key destination
countries, due to persistent unemployment, volatile exchange rates, the euro crisis in the EU
and more stringent attitudes towards immigration.
Furthermore, immigration can be a cause of social unrest in countries suffering from high
unemployment, as immigrants can be seen as stealing jobs that would otherwise be given to
native workers.
In cases where the rich are moving from other countries to take advantage of more favourable
tax conditions, this can stimulate demand for property and luxury brands where local demand
is stagnant.
For countries that receive remittances from abroad, migrants provide a steady source of
foreign currency at a time when foreign aid has been flat and foreign direct investment has
declined sharply.
Greater ethnic diversity offers marketers a wealth of opportunities and the chance to segment
their offer by launching products and services suited to specific ethnic or religious groups, or
products that appeal to the ever more adventurous tastes of native consumers.
According to Euromonitor International forecasts, the US will continue to experienced the
largest influx of international migrants by 2016, with net migration of 908,300. Other countries
that will see net migration of more than 200,000 are Australia, Italy, Canada and the UK.
At the opposite end of the scale, Mexico, India and Indonesia will continue to count the
highest number of emigrants in 2016, with net migration amounting to -562,100, -283,700 and
-170,100, respectively.
Due to its ongoing economic crisis, Spain is the only developed country that will experience a
higher number of emigrants than immigrants over the forecast period, with a predicted net
migration of -43,800 by 2016.

9. A More Connected World


The last five years have witnessed an extraordinary expansion of the global internet user
base, which is expected to continue, albeit at a slightly slower pace, over the forecast period.
Much of the global rise of the internet in recent years is attributable to the phenomenal growth
in China and India. The user base in these countries more than trebled in the five years to
2011, reaching 513.6 million and 121.9 million, respectively.
In developing markets, higher rates of PC, tablet and mobile phone ownership, driven by
rising disposable incomes, falling equipment costs, operator bundling strategies and
government subsidies, have brought internet technology within reach of more citizens.
Surging broadband adoption is another key driver of growing internet access across the
developing world. This has been made possible by investments in infrastructure, with
operators often leapfrogging outdated technology and implementing latest-generation telecom
architecture.

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For the large pool of consumers who cannot yet get on-line at home, internet cafs are
popular, with trade sources reporting in 2011 that about a third of Chinas internet population
access the internet from such venues.
In India, internet kiosks, which were set up by the government and development organisations
in rural areas, have helped to boost rural internet usage and narrow the digital gap between
rural and urban Indians.
Other emerging markets that experienced triple-digit growth in their internet user base over
the 2006-2011 period are Russia, Indonesia, Turkey, Argentina, Venezuela and South Africa.
However, Russias infrastructure is outdated, with over 41 million still using dial-up.
The internet is increasingly being accessed via smartphones and tablets, as consumers seek
convenience and mobility. Almost one third of global on-line consumers now have internet
access on their mobile phones.
One of the key impacts of growing internet use is that it is making the world smaller and more
homogeneous. The cultural references of the new net generation are converging as they
communicate on a global level, listen to the same music and download the same videos.
A negative aspect to internet growth is that cybercrime has become one of the fastest growing
criminal activities in the world. This covers a multitude of illegal activities, such as financial
scams, computer hacking, child pornography, virus attacks and promoting racial hatred.
The growing internet base has led to a boom in e-commerce. Online marketplaces, such as
Amazon, eBay and Taobao, combined with the development of more secure payment
methods, like PayPal, enable people to buy and sell high volumes of goods all over the world.
A higher dependency on the internet for everyday tasks has led to a movement away from
high street banks towards on-line banking. In China, e-banking grew by 32% in 2011, with online payment up by a similar amount.
Social media sites, such as Facebook and Twitter, are fundamentally changing the way
people interact with one another. A successful social media strategy will be a top priority for
companies around the globe as advertising becomes more interactive and consumer-driven.
Companies will increasingly use social media to market to the consumer. Most free streaming
music sites earn revenue from advertisements that are interspersed into playlists, while other
companies sponsor on-line games, offering real-world incentives to players.
Successful viral marketing campaigns that have been a hit on video-sharing websites such as
YouTube have been instrumental in creating a buzz around brands both small and large
across the world, and this trend is set to continue.
The Chinese market will be more difficult for foreign brands to penetrate, as the government
has blocked many top international sites, including Twitter, Facebook and YouTube. However,
Chinas micro-blogging site Sina Weibo had 29 million active daily users in 2011.
Consumers increasingly access shopping websites via their mobile phones, and companies
are meeting the needs of these consumers by facilitating instant purchasing, offering
downloadable coupons, highlighting promotions or special offers and displaying customer
reviews.
The internet will continue to play an ever more important role within all aspects of life in the
future, from communication, politics and social interaction to retailing and leisure activities.
The future will see higher growth in the adoption of cloud computing technology, which is
seen as a more cost-effective and eco-friendly way of doing business, in that it offers
companies or individuals storage and virtual servers that can be accessed on demand.

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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

10. China Goes Global


Since the government launched its reform and opening-up strategy in 1978, China has
significantly increased its share of world trade, global markets for selected goods and capital
flows, and this trend is expected to continue over the next five years.
Chinas overseas investments were previously concentrated on developing countries and a
handful of resource-rich developed economies, such as Australia and Canada, but since 2008
the focus of Chinese investors has begun to shift to North America and Europe.
Most FDI from China is still largely from state-owned companies investing in energy and
resources companies in regions such as Latin America, Asia and Africa. However,
investments in developed economies are an ever more attractive part of Chinas overseas
strategy.
In the five years to 2011, FDI outflows from China soared by 208% to US$65.1 billion, placing
it within the top 10 countries in the world, behind Russia and ahead of Germany. China is
expected to rise rapidly up the rankings as it continues to pour money into foreign markets.
In addition to overseas investments, Chinese exports also continue to boom. China overtook
the US in 2007 to become the largest exporter in the world. By 2011, Chinese exports were
worth US$1.9 trillion, having almost doubled since 2006.
Chinas image as a manufacturing base for cheap and low quality toys, clothing and
electronics is changing, as Chinese companies place a higher emphasis on quality branded
goods to compete more effectively with international players both at home and abroad.
Several Chinese brands have entered the global arena and are looking to challenge the
positions of established international brands in the same way that South Korean brands such
as Samsung and Hyundai did in the past.
White goods and consumer electronics are areas that hold strong promise for Chinese
brands. Some of the largest success stories of recent years include appliance companies
Haier and Midea, electronics giant Lenovo and mobile phone manufacturers ZTE and Huawei.
Within textiles, China is beginning to make a name for itself in innovative design. For
example, sportswear brand Li Ning is taking on Nike via its e-commerce business in the US,
with its new slogan, Straight Out of New China.
Bosideng and Eve Enterprise both have their sights on London, with the former having
opened a flagship three storey menswear store on Oxford Street in time for the 2012
Olympics, and partnered with local designers to produce its upmarket collections.
Chinas growth in FDI outflows and exports and the launch of its new global brands will have
significant consequences on economies and consumer spending choices around the world,
and pose formidable competition for established Western brands.
Experts expect Chinese companies investments overseas to see explosive growth in the next
decade, especially with Chinas Go Global strategy being part of the official 12th Five-year
Plan (2011-2015) announced by the government in March 2011.
Developed countries have can expect to receive a substantial share of the US$1 to US$2
trillion in FDI that China will make around the world over the coming decade.
Fuelled by improving technologies, a higher quality workforce, better marketing expertise and
booming domestic consumption, Chinese brands are set to become more dominant in the
future especially in categories such as consumer electronics, IT, mobile phones and
fashion.
Summary 1
Trend

Impact of macro trends on consumer markets over the next five years
Impact on consumer markets

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An uncertain future

Passport

Consumers will remain cautious about


spending especially on big ticket items.
Shoppers will seek out the best possible value
for money by switching to cheaper brands and
discount retailers, shopping around for the
best deals and coupon clipping.

The emerging middle classes

More sophisticated developing market


consumers will have greater disposable
income to spend on discretionary items, such
as value-added packaged foods, beauty
products, electronics/white goods, fashion,
travel and education.

The disaffected youth

Youth-targeted sectors such as entertainment,


electronics and clothing/footwear will suffer as
a result of the decline in young peoples
spending power.
Educational products and services will benefit
from the rising number of young people
choosing to go into higher education in the
face of poor job prospects.

The rich/poor divide

The future will see greater bi-polarisation of


demand towards premium and budget brands.
A growing number of high net worth
individuals (HNWIs) will fuel demand for luxury
items such as premium spirits, premium
cosmetics, designer clothing, high-end
vehicles, holidays and leisure experiences,
and private education.
Low-income consumers will sustain demand
for affordable, entry-level electronics and white
goods, fast fashion, hard discounters and
private label products, budget fast food chains
and no-frills travel services.

The climate challenge

Food and ethanol shortages caused by


droughts and flooding will lead to higher food
and oil prices, with the poor worst hit.
Consumers may reduce meat consumption,
benefiting manufacturers of cheaper and more
environmentally-friendly meat substitute
products.
Demand for greener, more ecological products
and services will grow, providing prices are
affordable.

An ageing world

Many boomers still have sizeable assets and


high disposable incomes, thus providing an
attractive consumer group for marketers in a
variety of sectors.
However, overall spending power will be
reduced and savings eroded in the long term
as the age-dependency ratio rises.
Longer lives and changing attitudes towards
ageing will provide opportunities for a range of
consumer health products, skin care products

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and services, leisure and tourism.


Demand will grow for healthcare services,
senior living and robot carers.
The urban transition

City growth in developing markets will drive


demand for infrastructure and other services,
including housing, food, transport, energy,
healthcare and education.
A growing number of sophisticated urban
consumers will fuel sales of packaged foods
and other convenience goods, fashion,
foodservice, electronics and leisure services.

People on the move

Remittances sent to migrants countries of


origin will boost spending power and hence
demand for consumer goods and services in
those markets.
Growing multiculturalism within host countries
will provide new opportunities in sectors such
as packaged food, foodservice and health and
beauty.
Budget airline services will benefit from
increased migrant flows between countries.
An increase in foreign students especially
from China - will provide opportunities for
educational services.

A more connected world

An explosion of internet users will drive


demand for PCs and handheld internetenabled devices such as tablets and
smartphones.
Further globalisation of demand will occur as
consumers share cultural references and
gaming activities across the world via social
networks.
Internet shopping, e-travel and e-banking will
grow rapidly, impacting on physical retailers.
Marketers will increasingly incorporate social
media into their strategies as advertising
becomes more interactive and consumerdriven.

China goes global

Consumers across the world can expect to


see an influx of more stylish, higher quality,
affordable Chinese brands, especially in the
areas of electronics and white goods, fashion
and beauty.
Established brands will face increasing
competition for their products, both in China
and elsewhere.

Source:

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INTRODUCTION
The 10 key macro trends identified for the next half decade are very much inter-related, while
most are linked to the gradual shift in power from the worlds major developed markets towards
emerging and developing economies especially China.
Whereas mature markets such as the US, Japan and much of Europe are faced with
economic uncertainty, high unemployment and ageing populations, many developing markets
are poised for economic growth, stemming from rising disposable incomes, relatively young
populations and increasing globalisation and urbanisation.
On the one hand, this emerging market growth will have the positive effect of stimulating the
global economy and creating growing demand for a wide range of consumer goods and
services. However, at the same time it will exacerbate problems such as overcrowding in cities,
environmental pollution and the growing gap between rich and poor. All these issues both
good and bad will shape future demand and provide numerous opportunities and threats for
marketers going forward.

TREND 1: AN UNCERTAIN FUTURE


Trend Outline
The Eurozone crisis drags on
The only certainty about the current economy is that it is uncertain. Indeed, instability both
economic and political is at its highest level for years and the situation is expected to continue
over the forecast period. Given the significant effects of this on consumer demand, economic
uncertainty is considered one of the key macro trends for the foreseeable future.
One of the main causes of current instability is the now three year old debt crisis in Europe.
This has so far centred largely on the downfall of the so-called PIIGS (Portugal, Ireland, Italy,
Greece, and Spain), which face substantial levels of public debt, combined with large budget
deficits.
The EU introduced a bailout facility (European Financial Stabilisation Mechanism) that
provided immediate relief to Greece, Ireland and Portugal between late-2010 and mid-2011.
Greece required a second round of funding, and a deal was finally reached in February 2012
that allowed Greece a 53.5% debt write-off from private debt-holders. However, the future of
Greece hangs in the balance as its people are struggling to cope with the harsh austerity
measures imposed on them. These are expected to deepen if Greece is to qualify for the next
31.5 billion tranche of its 130 billion bailout.
Spain was the latest country to come under the spotlight at the time of writing. Having already
accepted a loan of up to 100 billion from the European Financial Stability Facility and the
European Stability Mechanism in July 2012, with the purpose of shoring up its banking category,
Spain was under pressure in early October to seek a full-scale rescue programme that would
trigger the European Central Bank to buy its bonds. The government is keen to avoid a
sovereign bailout, which would force unpopular demands to cut spending and raise taxes, and
would involve close supervision of the countries finances.
The USs looming fiscal cliff
Uncertainty is also dogging the US economy. An Economic Policy Uncertainty Index
developed by economists Steven J Davis, Scott Baker and Nicholas Bloom, shows how
ambiguity has jumped much higher since the start of the recession, reaching a peak in summer
2011 at the height of the US debt ceiling crisis. There are now fears that the country is heading
for an even more alarming level of uncertainty due to the prospect of the fiscal cliff in 2013.

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This refers to the large reduction in the budget deficit and corresponding economic slowdown
that will occur if certain laws are allowed to expire automatically or come into effect. More
specifically, tax hikes would result from the expiry of the Tax Relief, Unemployment Insurance
Reauthorisation and Job Creation Act of 2010, while spending reductions would occur under the
Budget Control Act of 2011.
Under current law, which mandates the tax increases and spending cuts, total federal
revenues would increase by 11% and total federal spending would fall by almost 2% in 2013.
While this would halve the deficit for 2013, at the same time it could lead to a double-dip
recession in the first half of the year. This has led to calls to extend some of the tax cuts and
replace the across-the-board reductions with more targeted cutbacks. Proposals to avoid the
fiscal cliff involve extending certain parts of the 2010 Tax Relief Act or changing the 2011
Budget Control Act or both, thus making the deficit larger by reducing taxes and increasing
spending.
Political uncertainty also takes its toll
As the Middle East continued to deal with the fall-out of the Arab Spring, 2012 was also a big
year for elections. The US presidential campaign rumbled on throughout the year, while left wing
Franois Hollande defeated Nicolas Sarkozy in the French presidential elections, with his slogan
austerity is not inevitable. China, though technically not staging an election, began the
sensitive transfer of political power from one president (Hu Jintao) to his presumed successor,
Xi Jinping. These events have caused a high level of political uncertainty, which in turn impacted
investment and economic growth.
The Arab Spring involved a wave of demonstrations and protests throughout the Arab world
and beyond from December 2010, fuelled by issues such as dictatorship, human rights
violations, government corruption, economic decline, unemployment, youth dissatisfaction and
poverty. These sparked violent responses from authorities, pro-government militias and counterdemonstrators, which eventually led to rulers being forced from power in Tunisia, Egypt, Libya
and Yemen. Civil uprisings began in Bahrain and Syria, while major protests occurred in Algeria,
Iraq, Jordan, Kuwait, Morocco and Sudan.
Despite robust double-digit economic growth in the oil-exporting economies of the Middle
East, the Arab spring had a negative impact on business operations, which in turn led to a high
unemployment rate. FDI inflows to the region declined by 18.7% in 2010 and 15.8% in 2011 in
real terms.
Many ensuing protests around the world were considered to be inspired by the Arab Spring.
In October 2011, the Occupy and Indignants movements led to protests in 950 cities in 82
countries.
Summary 2
Factors Contributing to Uncertainty in 2012
Economic stagnation in developed markets, and the prospect of double-dip recession in some.
Eurozone debt crisis and a lack of political consensus on how to resolve the crisis, raising
concerns over future of the euro.
Looming of the fiscal cliff in the US, which could lead to a combination of federal tax hikes and
spending cuts.
Persistent unemployment in developed markets
The fall-out of the Arab Spring (markets in Middle East hit by political turmoil and reduced levels
of FDI)
Prospect of rising living costs, due to higher food and fuel prices
Ageing populations

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Source:

Euromonitor International

Developed markets face economic stagnation


Globally, Euromonitor International expects real GDP growth to slow slightly to 3.4% for 2012,
before rising gradually to reach 4.6% in 2016. However, recovery will be uneven. Economic
growth in developed markets will struggle to get off the ground because of the ongoing issues of
high unemployment, austerity measures and poor domestic demand. In addition to this, many
economies in Western Europe are already experiencing or are about to tip into double dip
recessions, while the US struggles to gain sustainable growth momentum. Euromonitor
International expects GDP growth in developed countries to amount to 1.3% in 2012, rising to
just 2.7% by 2016.
The US could see meagre real growth of 2.0% in 2012, as prospects are dampened by global
uncertainty, debt crises in Europe and a weak domestic recovery. 2013 is expected to look
somewhat brighter, with real GDP growth of 2.5% forecast, but this may be threatened by the
wave of tax hikes and spending cuts scheduled to come into effect at the end of the year
following the expiry of current tax cuts and jobless benefits. Japan is forecast to see real GDP
growth of 2.2% in 2012, which is an improvement on 2011, when real GDP fell by 0.8% in the
aftermath of the triple earthquake, tsunami and nuclear disaster.
The Eurozone could suffer a marginal contraction in 2012, with a real GDP decline of 0.4%
expected. Efforts to curb the debt crises, such as stringent austerity measures, have damaged
investor confidence. Five of the 17 members of the single currency had asked for financial
assistance as of July 2012: Spain, Greece, Ireland, Portugal and Cyprus. Spains economy fell
back into recession in the last quarter of 2011, less than two years after emerging from the
previous crisis.
Western Europes largest economy, Germany, is projected to see a growth rate of just 0.8% in
2012, after the respectable growth of 3.0% seen in 2011. Growth is faltering thanks to the
countrys exposure to the debt crisis, as well as poor demand from its major export partners in
the rest of Europe and the US. Hopes for 2013 real GDP growth of 1.5% are pinned on
domestic demand-led recovery, low unemployment and back-ended fiscal consolidation
showing results.
In April 2012, the ONS reported that the UKs GDP fell by 0.2% in the first quarter of 2012,
following a contraction of 0.3% at the end of 2011. This marked the UKs first double-dip
recession since the 1970s.
Prospects for developing economies are much better, with real GDP forecast to grow by 5.5%
in 2012. Chinas GDP growth is expected to exceed 8% per annum over the forecast period.
Brazil, the largest economy in Latin America, is currently suffering a slowdown which hit its
automotive industry hard in the first half of 2012. The economy is expected to grow by a real
2.3% in 2012, but it is likely that infrastructure investment in 2013 will boost growth to 4.2%.
Chart 1

Real GDP Growth Forecasts 2011-2016

% growth

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Source:
Note:

Euromonitor International
2011 is actual

Implications
Unemployment remains high as businesses unwilling to hire
A key consequence of economic uncertainty has been higher unemployment, as businesses
are unable or unwilling to plan ahead. This has affected income and damaged consumer
confidence, having a negative effect on per capita consumer expenditure levels.
While some regions have seen an improvement in their employment rates since 2010, jobless
figures remain in double digits in many countries globally especially in the Eurozone, which
had an unemployment rate of 10.2% of the economically active population in 2011. Eurozone
unemployment rates were the most severe in Spain (21.6%) and Greece (17.7%). In Spain,
these were due to the property crash and job cuts in the public sector as part of the austerity
measures implemented to reduce the countries high public debt-to-GDP ratios of 68.5% and
163%, respectively, in 2011.
High unemployment rates usually translate into lower per capita annual income levels and
spending power. For example, in the UK in 2011, average annual per capita disposable income
fell to US$24,505, from the pre-crisis level of US$27,829 in 2007, as its unemployment rate rose
from 5.3% in 2007 to 8.0% in 2011.
Consumers remain cautious
In the current period of economic uncertainty, consumers are wary of spending especially
on credit and this will continue over the forecast period. Euromonitor Internationals annual
survey across eight markets revealed the extent of this cautiousness in 2011. It showed that of
the eight listed shopping habits, those deemed most likely to increase over the next 12 months
were saving money (38%) and visits to discount stores (27%), while those most likely to
decrease were use of credit cards to manage shortfalls (44%) and use of credit cards for
luxuries (48%). For the majority of respondents, visits to discount stores, purchase of private
label products, spending and new technology, spending on clothing/footwear were expected
to stay the same over the next 12 months.
Big ticket and luxury items tend to suffer most in times of uncertainty, as consumers stick to
essentials and affordable treats until their situations are more secure. Brands and services that
can offer the right mix of quality and value will be the most successful over the forecast period.
In the area of retail, discounters and discount websites will also continue to benefit from
consumers thriftier behaviour. Grocery discounters are able to offer a range of items at budget

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prices by stocking only a limited range of goods, with a heavy focus on private label. Brands
such as Aldi and Lidl stock fewer than 1,000 product lines, largely in packaged groceries.
According to Euromonitor Internationals retail database, global sales through discounters are
forecast to grow by a further 13% in constant value terms over 2011-2016, to reach a value of
US$343 billion at constant 2011 prices. Despite Chinas economy remaining strong, growth in
this market is expected to reach 53% over the same period.
Global: In the next 12 months do you intend to change any of the following
habits?

Chart 2

% respondents

Source:
Note:

Euromonitor Internationals Annual Survey 2011


Covers eight countries:
Brazil, China, France, Germany, India, Japan, UK, US

Outlook
No change in sight
The uncertainty that has occurred in the wake of the financial crisis will continue over the
forecast period, with negative and long-lasting effects on the economy, hindering economic
recovery.
The Eurozone will continue to be a major cause for concern. While some progress has been
made by governments and regulators in recapitalising the regions banks, investors will remain
cautious until greater budget discipline, economic growth and fiscal union has been achieved.
The situation could take years to resolve, and could involve further debt write-downs for the likes
of Greece, Spain and Portugal, as well as a drop in wages in real terms to increase the
competitiveness of certain Eurozone states. A breakup of the single currency could lead to a
widespread credit crunch and severe European recession. While the collapse of the Eurozone
seems unlikely, it is not entirely inconceivable, and the threat will continue to cause instability for
the years to come.
Spending will be uneven
As can be seen from the chart below, there are vast differences in the expectations for
consumer spending growth between emerging and developing markets. While per capita
expenditure in fast growing markets such as China, India, Indonesia and Brazil is forecast by
Euromonitor International to surge by more than 20% in real terms over the 2011-2016 period,
the major economies will see no more than single-digit growth. Moreover, per capita consumer

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expenditure will remain stagnant or decline in markets such as Spain, Belgium, Greece and
Italy. The poor prospects for developed markets will stem from low economic growth, high
unemployment, the continuation of austerity measures and the possibility of rising inflation as a
result of food shortages and higher oil prices.
Chart 3

Forecast Per Capita Consumer Expenditure Growth by Country 2011-2016

% growth in US$, at constant 2011 prices

Source:

Euromonitor International

TREND 2: THE EMERGING MIDDLE CLASSES


Trend Outline
A shift in global economic power
World economic power is shifting, as a combination of increasing real incomes, plentiful credit
and growing populations have made emerging and developing economies the main drivers of
growth since the start of the global recession in 2008. According to the IMF, emerging and
developing countries will have overtaken advanced economies in their share of world GDP in
PPP (purchasing power parity) terms by 2014.
This is leading to a vast and expanding middle class consumer base in developing countries,
as huge swathes of the population move out of poverty to become increasingly demanding and
sophisticated shoppers. At the same time, the middle class consumer base in developed

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markets is shrinking as a result of falling incomes and unemployment. Analysts have estimated
that the emerging middle classes amount to almost two billion consumers, who spend a total of
US$6.9 trillion annually.
Disposable incomes rise fastest in emerging and developing markets
There is no specific definition of the middle class, as income levels vary between countries
depending on their economic development. Moreover, the idea of what constitutes the middle
class is very different in emerging and advanced economies. There have been numerous
attempts to define a global middle class, including households with between 75% and 125% of
median income; or households with more than 30% discretionary income.
What is clear is that average disposable incomes are rising rapidly in many emerging and
developing markets. According to Euromonitor Internationals database, per capita disposable
income (in US dollar terms) grew by a phenomenal 152% in China and 120% in Brazil between
2006 and 2011, and is forecast to rise by a further 64% in China between 2011 and 2016,
although growth in Brazil could slow to 17% over the same period. By comparison, growth in
most developed markets (with the notable exception of the US) will be sluggish or negative over
the forecast period.
Brazils growing middle class
Brazil stands out as a market with a particularly strong and growing base of middle class
consumers. The country has experienced a relatively long period of prosperity as a result of
sound macroeconomic policies since 2000. This has given opportunities to many low income
Brazilians for stable jobs and greater remuneration than in past decades. Moreover, the
governments Bolsa Famlia (Family Grant) direct income grant programme has produced
real growth in incomes and spending among lower income groups in recent years. In 2012, the
scheme was expanded; with families living in extreme poverty with children under six years
offered US$35 a month for each family member. The programme should benefit up to 18 million
people and help to boost consumer spending, although these families are still far from joining
the ranks of the middle class.
More Brazilians are being hired in the formal economy, which has allowed them access to
certain working benefits such as money for food, transportation and healthcare. It was recently
estimated that for the first time in the history of the country, 50% of the population belongs to the
middle class, equal to some 95 million people.
Turkey gets richer
Other emerging or developing countries that are set to see per capita income growth of more
than 30% over the forecast period include Venezuela, Turkey, Thailand, Russia, Indonesia and
Malaysia.
Among Western European markets, Turkey stands out as the lone developing market, with a
young population, rising disposable incomes and rapid urbanisation. As agriculture is the main
occupation available to Turks in rural areas, the majority of those moving to cities are young
adults moving away from family homes in search of better opportunities. These migrants often
find significantly higher salaries in metropolitan areas, resulting in growing disposable income
levels and the emergence of a robust middle class.
Indonesia the worlds fourth most populous nation is also experiencing a rapid expansion
in the middle class, which has helped to transform the countrys consumer market. In 2006,
there were 6.6 million households with an annual disposable income of over US$10,000, but by
2011 this number had risen to 13.7 million households.
Table 1

Per Capita Disposable Income by Country 2006/2011/2016

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US$ per capita

Emerging and developing


markets
China
Venezuela
Turkey
Thailand
Russia
Indonesia
Malaysia
Argentina
India
Brazil
South Africa
Mexico
Poland
Developed markets
Taiwan
South Korea
USA
Sweden
Japan
Australia
United Kingdom
Canada
Austria
Norway
Denmark
Germany
France
Belgium
Netherlands
Spain
Switzerland
Italy
Greece
World
Source:

2006

2011

2016

% growth
2006/11

% growth
2011/16

1,214
3,092
5,394
1,954
3,807
1,067
2,884
3,284
682
3,674
3,243
6,362
5,853

3,061
5,694
7,463
3,181
7,533
2,081
5,232
6,235
1,249
8,075
4,644
7,131
8,437

5,032
8,805
10,876
4,619
10,882
2,958
6,892
7,386
1,473
9,484
5,440
8,110
9,574

152.2
84.1
38.4
62.8
97.9
95.0
81.4
89.9
83.1
119.8
43.2
12.1
44.2

64.4
54.6
45.7
45.2
44.5
42.1
31.7
18.5
18.0
17.4
17.1
13.7
13.5

11,371
11,525
30,610
20,375
21,183
22,747
24,894
22,444
22,528
29,532
23,200
23,619
23,689
22,465
20,272
17,941
33,568
21,320
16,906
4,720

13,651
12,453
34,534
28,214
30,294
41,858
24,413
29,867
28,635
43,549
28,708
29,270
29,204
28,451
23,671
21,431
50,941
24,153
21,196
6,327

18,087
15,994
41,742
32,486
34,418
46,889
27,246
32,844
30,270
44,464
28,951
29,517
29,194
28,195
23,298
21,079
48,847
22,874
19,496
7,498

20.0
8.0
12.8
38.5
43.0
84.0
-1.9
33.1
27.1
47.5
23.7
23.9
23.3
26.6
16.8
19.4
51.8
13.3
25.4
34.0

32.5
28.4
20.9
15.1
13.6
12.0
11.6
10.0
5.7
2.1
0.8
0.8
0.0
-0.9
-1.6
-1.6
-4.1
-5.3
-8.0
18.5

Euromonitor International

Implications
Spending on discretionary items set to rise
Middle class consumers are important in any market, as they can be a major contributor to
economic development through spending and future human capital. Government revenues in
developing countries will benefit from a new class of consumers who have moved from the
informal to the formal economy and contribute to taxation.
The essence of a middle class consumer is sufficient income for discretionary spending on
non-essential items, such as communications, healthcare, education and leisure. Thus, these
items will gain importance in the household budgets of emerging market consumers.
Euromonitor Internationals database shows that food and non-alcoholic drinks declined as a
proportion of total expenditure in almost all the developing and emerging markets over the 2006-

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2011 period, and is expected to decrease further over the forecast period as discretionary
incomes increase. The development is most marked in India, where the share of food and drink
within the household budget is expected to fall to 21% by 2016, compared with 33% in 2006.
Table 2

Expenditure on Food and Non-alcoholic Drinks as % Total Expenditure in


Developing/Emerging Markets 2006/2011/2016

Brazil
China
Venezuela
South Africa
Malaysia
Poland
Argentina
India
Mexico
Indonesia
Russia
Thailand
Philippines
Source:

2006

2011

2016

16.2
23.3
23.8
21.2
21.8
20.9
22.9
32.5
22.7
34.1
28.8
27.7
37.6

15.9
21.3
19.8
19.4
19.8
20.1
21.2
26.3
22.8
31.9
31.2
31.6
36.1

15.8
16.3
16.8
18.1
18.3
19.6
20.7
20.9
22.3
29.5
31.3
31.7
35.2

Euromonitor International

Opening up new markets


While the middle classes in developed markets were made vulnerable by the recession, as
credit markets tightened and consumer confidence was knocked by lower house price wealth
and rising unemployment, in emerging countries some of those entering the middle class have
the ability to spend on non-essentials for the first time, creating significant opportunities for
consumer goods companies.
The largest potential lies in countries experiencing rapid economic growth from a low income
base, together with swift population growth. Asia Pacific will see the fastest growth in the middle
classes in the near term. Since rapid economic growth is usually accompanied by urbanisation,
more middle class consumers will be urban, which will shape their spending patterns.
The expansion of the middle classes will provide a considerable boost to many consumer
categories that have traditionally been dominated by advanced economies, including
appliances, tourism, packaged foods and cosmetics. Many people in emerging markets do not
yet possess a microwave, a decent refrigerator or a functioning cooker. Hypermarkets and
supermarkets will see more people from this group using their stores instead of buying food in
smaller quantities. They will tend to buy more food in a single purchase. As many of these
people have not had money to afford products in the past, they are now purchasing goods they
always wanted, such as clothing, footwear and accessories like jewellery and watches.
Internet access amongst the new middle class is rapidly rising, impacting heavily on
consumer habits. People are now getting their information from on-line sources such as
newspapers and social networks, and are experimenting with e-commerce.
The challenge for marketers
Multinational consumer goods companies looking to cash in on the rising incomes of
emerging market shoppers face a big challenge. Most developing markets already have strong
local players in place, which hold significant market share. For example, in China, drinks
company Hangzhou Wahaha competes effectively with global players such as Coca-Cola and

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PepsiCo by targeting rural areas, meeting specific local demands, keeping costs low and
appealing to patriotism.
Furthermore, companies need to be prepared to change their business models for developing
markets, often by making their products more affordable and accessible. For example, in order
to reduce its beer prices to a level that was affordable to African consumers, beer manufacturer
SABMiller sourced cheaper local ingredients (such as cassava and sugar rather than barley and
maize) and used local distributors to ensure the availability of its products. This enabled it to
gain significant market share across the region.
Research shows that new consumers in emerging markets are brand-aware and want access
to a range of products at different price points, including those they aspire to but cannot yet
afford. However, their tastes are often localised, and their purchasing power is not as great as
that of the middle classes in developed markets. Many are able to afford products and services
that are widely available or mass-market in the developed world, but for others, even these
items are premium.
According to research by the China Market Research Group, rather than favouring mid-scale
brands, the Chinese middle classes tend to save up for luxury brands and otherwise seek value.
In big cities, where housing is typically the major expense, saving is still common due to the lack
of a social safety net, with most people saving at least 20% of their incomes. Relatively few
Chinese middle class consumers use credit cards or own cars, but most can afford to eat out
twice a week.
Furthermore, consumer electronics manufacturer LG has found that people in many
developing markets are more willing to pay for better service than are their counterparts in the
developed world. The company launched a premium offering that not only gives consumers a
full-time contact person who acts as a go-between with LG and monitors the health of products
but also guarantees maintenance visits within six hours (compared with the normal 24-hour
commitment).
Companies need to focus on building up scale within a small space of time, which they can
sometimes achieve by partnering with local companies to help with product development,
distribution and market positioning, or by using local celebrities to endorse their brands.

Outlook
Developing and emerging market economies have been the main drivers of global economic
growth over the last decade and this growth is set to continue, albeit at a slightly slower pace
than before. Although it will still be some time before per capita incomes in developing countries
catch up with those in advanced markets, middle class consumers in these markets will become
increasingly important over the forecast period, given their sheer size and the rate at which their
real incomes are growing.
By 2016, the number of households in emerging markets with an average annual disposable
income of over US$100,000 in current terms is forecast soar in all emerging and developing
countries. China, Russia and Turkey will witness particularly dynamic growth, of 178% 191%
and 171%, respectively, to reach 10.5 million, 2.8 million and 1.5 million.
Population growth coupled with continued strong economic growth will fuel discretionary
spending, as households look to spend on more than just the basic essentials. Many who are
new to this class as yet lack many material possessions, due to their past inability to afford
products for their home and family. With the aid of credit, this group will buy products that they
did not previously have access to and upgrade those they already have. Therefore, they will
drive demand for home technology products such as televisions, DVDs, cable TV, computers
and access to the internet.
Crucially, Chinas burgeoning middle-class could provide future opportunities in so-called
affordable luxury goods consumption. Middle-income wages are on the rise in this market,

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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

while exposure to retail sophistication is growing in middle-class neighbourhoods. Despite their


cautiousness, upwardly mobile young adults have a level of material ambition that was virtually
unimaginable among their parents generation.
Chart 4

Forecast Number of Households With Annual Disposable Income Over


US$100,000, 2011/2016

000

Source:

Euromonitor International

TREND 3: THE DISAFFECTED YOUTH


Trend Outline
A lost generation?
One of the key outcomes of the recession for advanced economies is the lack of decent
prospects for young people, who are faced with high unemployment, rising living costs, a lack of
affordable housing and the burden of supporting ageing populations in the future.
Those aged 15-24 were among the hardest hit by unemployment following the global financial
crisis, as employers tended to look for experienced workers rather than taking a chance on
young inexperienced jobseekers.
Higher tuition fees introduced as part of government austerity measures are leaving young
people saddled with big loans to pay off for the rest of their lives, while high property prices
mean that many are unable to get on the housing ladder. In 2011, the overall level of student
debt in the US rose to more than US$1 trillion, exceeding the level of credit card debt for the first
time, according to data from the Federal Reserve Bank of New York. Furthermore, a large
number of highly educated 20-somethings are making do with unskilled jobs and facing
uncertain prospects.

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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

These factors have led some to refer to todays youth as the lost generation, or generation
limbo. Other nicknames have been applied to specific groups of disaffected youths around the
world, such as:
The UKs NEETs (not in education, employment, or training);
Japans herbivores young men raised as the economic bubble burst, who reject the
traditional salarymen ideal;
Spains mileuristas (those who earn no more than 1,000 a month);
The USs boomerang children, who move back home after college because they cannot find
work;
Chinas ant tribe- recent college graduates who crowd together in cheap apartments on the
outskirts of cities because they cannot find well-paid work.
Voicing discontent
Young people the world over have rebelled against what they see as an increasingly hopeless
situation by joining movements such as Occupy and Indignants, staging demonstrations,
taking part in riots or supporting extreme political parties.
In the UK, British students protested against proposed tuition increases by attacking the
Conservative Partys headquarters in London and a limousine carrying Prince Charles and the
Duchess of Cornwall. High rates of youth unemployment are also thought by many to have been
a contributory factor to the rioting and looting that occurred in some urban areas of the UK
during August 2011.
In Greece, disaffected youths have turned to the ultra-left Syriza party and some even to the
ultra-right New Dawn party to voice their discontent. In the US, the Occupy Wall Street (OWS)
protesters had a broad set of grievances that included income inequality and what they
perceived as corporate greed and recklessness, while many had more specific concerns, such
as soaring tuition costs and a lack of job opportunities upon graduation.
The extent of youth unemployment
The economic downturn, combined with complex labour laws in some countries, is
contributing to higher unemployment among the young, as employers see them as a risk
compared to more experienced staff. Furthermore, many Western European companies tend to
outsource lower skilled jobs to lower cost emerging markets. Young people in emerging markets
are also affected by unemployment, despite high rates of economic growth. This is often due to
the fact that emerging markets tend to have much more youthful populations than developed
economies, leading to an oversupply of labour.
Youth unemployment has reached phenomenally high levels in Spain, Greece and South
Africa, where the percentage of those aged 15-24 who are out of work reached 45%, 45% and
43%, respectively, in 2011. In the case of Spain, this compared with a rate of just 18% in 2006.
Spains youth was the first to suffer following the collapse of the property bubble. During the
height of the construction boom, in 2007, it was estimated that more than a third of Spaniards
between the ages of 18 and 24 had dropped out of high school to earn good money working on
building sites, which was more than double the EUs average. Many of these young men are
now unqualified and jobless. According to the Spanish union Comisiones Obreras, 1.73 million
people under 30 are unemployed, and of the 2.4 million under 30 who have jobs, half of them
are working only on short-term contracts. A further 200,000 are believed to be on unpaid
internships that offer little proper training.
Overqualified but inexperienced
There is also a large supply of overqualified young workers in Spain who are unsuited to the
countrys current labour market, as many have gone on to further education in the face of high

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unemployment. Many young people are seeking jobs abroad to escape the gloom at home,
causing a so-called brain drain. Official figures show a net flight of almost 89,000 people in the
12 months to May 2012, with Argentina, Brazil and Germany among the most popular
destinations.
In France and the UK, 23% and 22% of economically active young people aged 15-24 were
jobless in 2011. According to a 2011 UK survey of over 1,000 companies, conducted by the
Chartered Institute of Personnel and Development, a quarter of respondents indicated that they
intended to hire foreign workers in the third quarter of 2011, while just 12% wanted to hire
school leavers. At the same time, the introduction of higher university fees in the UK will mean
that fewer young people are likely to enter tertiary education, thus exacerbating the situation.
France has suffered from high structural youth unemployment for the last 25 years, and it is
traditionally very difficult for young people to progress beyond a series of short-term placements
or temporary work to obtain permanent jobs. The previous president, Nicholas Sarkozy, put
various measures in place to address the problem, such as exempting companies that recruited
young apprentices from their social security charges, and offering subsidies to small enterprises.
The French government also introduced a large number of contrats de professionnalisation
(contrats pro), which combine work experience with formal training.
Are mini-jobs the solution?
Only in a few markets, such as Germany and Japan, has youth unemployment remained in
single-digit figures (8.7% and 8.1%, respectively). Key factors behind this in Germany are the
mini job system and the widespread availability of apprenticeship schemes for young people.
However, mini jobs offer very little money or security. They pay up to 400 per month and
workers are exempted from tax and social insurance payments, but this means they also forgo
core benefits of regular employment, such as building up pension claims.
Table 3

Youth Unemployment Rate By Country 2006-2011

% of economically active population aged 15-24


2006

2007

2008

2009

2010

2011

Spain
Greece
South Africa
Italy
Poland
France
Sweden
UK
Indonesia
Belgium
Venezuela
Argentina
India
USA
Russia
Denmark
Canada
Taiwan
Brazil
Australia
Mexico
Malaysia
South Korea
Germany

18.2
23.0
48.2
20.3
21.7
19.9
15.5
14.3
25.4
18.9
16.5
21.4
25.8
10.5
14.6
8.0
11.2
10.6
19.0
9.5
7.6
10.9
8.8
12.0

24.6
22.1
45.8
21.2
17.3
19.4
20.2
15.0
23.3
18.0
15.0
20.4
24.5
12.8
14.1
7.6
11.6
11.8
17.0
8.8
8.3
10.9
9.3
10.6

37.9
25.8
45.3
25.5
20.7
23.8
25.1
19.1
24.1
21.9
17.2
22.8
22.2
17.6
18.5
11.2
15.2
14.5
17.2
11.5
11.5
11.6
9.8
11.3

41.6
33.0
44.8
27.9
23.8
23.5
25.2
19.6
22.4
22.4
19.5
20.6
21.7
18.4
17.2
13.8
14.8
13.1
14.2
11.5
11.5
10.8
9.8
9.9

45.1
45.0
43.0
27.3
24.3
23.4
22.6
22.1
20.8
20.1
19.5
19.3
18.1
16.1
15.3
14.2
13.7
12.7
12.7
11.4
11.3
10.2
8.8
8.7

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17.9
24.9
32.5
21.7
29.9
22.5
18.2
14.0
29.9
20.5
18.2
25.1
23.6
10.5
16.5
7.9
11.7
10.4
20.9
10.0
7.2
10.8
10.1
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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

Austria
Norway
Japan
Netherlands
Switzerland
Thailand
Source:
Note:

9.1
8.8
8.0
7.2
7.8
6.3

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8.7
7.4
7.7
6.5
7.1
5.5

8.1
7.2
7.3
5.8
7.2
5.9

10.0
8.8
9.1
7.1
8.9
6.6

Euromonitor International
China not available

Implications
Delaying adulthood
One of the key outcomes of the difficulties facing the young generation is that they are
delaying the steps that traditionally represent movement into adult life. More young people are
now living in the parental home for longer. Children living at home until well into their 30s is a
well established trend in southern Europe, but it is becoming increasingly commonplace in
countries such as the US and the UK. According to US Census Bureau data, 14.2% of young
adults were living with their parents during 2010, up from 11.8% in 2007. In the UK, 25% of men
aged between 25 and 29 years were living with their parents in 2009. According to a study
conducted by Ann Berrington, Julie Stone and Jane Falkingham of Southampton University
during 2009, recent graduates, particularly men, were increasingly returning to live with their
parents after graduating;
Youth remain enthusiastic shoppers
Sectors for which young people are key consumers, such as entertainment, electronics and
clothing and footwear, have suffered as a result of the decline in youth spending power.
However, marketers should not write off this important consumer base. The youth have a
greater propensity to spend than to save (although they are becoming more cautious, with
Euromonitor Internationals annual global survey showing that only 39% of 15-29 year-old
respondents across the eight markets would rather enjoy spending their money than saving it).
They typically still want the good life and have been brought up in a world where brands and
lifestyle matter. 39% of young respondents in the survey said they prefer branded goods to
cheaper alternatives, which was higher than the average of 35%.
Euromonitor Internationals annual study also found that globally, the youngest consumers
were the most individualistic and status-aware of all respondents: 41% said they like to stand
out in the crowd (compared with an average of just 29%), while 54% agree with the statement
nowadays we are free to shape our identities in whatever way we want. Almost half of this age
group think it is important that other people think they are doing well (compared with 36% on
average) and 59% believe it is important to be respected by their peers.
Many young people are still supported by their parents, while others are prepared to get into
debt in order to buy products that they believe will gain the respect of their peers. The fact that
many are living at home implies that they have significantly more discretionary income than
would otherwise be the case. Nevertheless, the survey showed that most young people worry
about being financially secure (69%, versus 75% for the population as a whole. They are also
under more pressure than ever; with 46% claiming they feel under constant pressure to get
things done (versus 40% for all respondents).
Opportunities for the education category
A growing number of young people are returning to study as a consequence of job loss or
difficulty finding employment. This has offered more opportunities for businesses in higher

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8.8
8.9
9.3
8.5
7.8
4.6

8.4
8.4
8.1
8.1
7.5
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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

education categories, such as masters or PhDs, or education-related products. Global


consumer expenditure on education recorded a robust increase in 2011, to reach US$996
billion, from US$623 billion in 2006. Spain saw an increase in consumer expenditure per capita
on education to US$280 in 2011 from US$236 in 2006, due to the highest job losses among the
young population in the region.
Some of those who have completed higher education but are unable to get a start in their
chosen careers are re-evaluating their values and looking elsewhere for satisfaction. They are
pursuing hobbies, such as music, sport, art or travel, or are attempting to make them into
careers, rather than following the conventional path of job security. The survey revealed that as
many as 43% of those aged 15-29 said they expected to live in another country during their
lifetime, compared with an average of just 31% for all respondents.
Given the importance of technology to the younger generation, a core focus of some
companies has been to create more affordable products for the youth market, as well as apps
adapted to their needs. A number of games and apps aimed at young consumers address youth
concerns like unemployment. For example, Fliplife is an on-line game in which users virtually
take up a profession in assorted companies and solve real business challenges. Dr Job is a
smartphone app from French bank BNP Paribas to help candidates with the recruitment
process.
Chart 5

Global Attitudes by Age Segment 2011

% respondents selecting strongly agree or agree

Source:
Note:

Euromonitor Internationals Annual Survey 2011


Covers eight countries:
Brazil, China, France, Germany, India, Japan, UK, US

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Outlook
Continuing austerity measures are likely to aggravate the already high youth unemployment
rate and limit youth prospects further, prompting fears regarding future social stability and
economic growth.
The International Labour Organization (ILO) warned in a report in June 2012 that youth
unemployment, which had hit almost 75 million, will remain persistently high until at least 2016.
The ILO called for governments in developed countries to invest more in youth opportunities, for
example by putting more emphasis on education and training, reforming labour market policies
and offering greater support for youth entrepreneurship. Measures may include the offer of tax
and other incentives to companies who hire young people, and of entrepreneurship programmes
that integrate skills training, mentoring and funding.
The large number of youths receiving state welfare benefits will continue to put a strain on
government funds in countries which are already heavily indebted. At the same time, the
reduced spending power of this key consumer group may hamper growth in many areas of
retailing and consumer goods and services that target the youth market.
Lack of employment opportunities could also lead to a higher level of youth emigration from
certain markets, such as Spain, resulting in a brain drain to countries with more opportunities for
young people, such as those of South America. Furthermore, innovation and entrepreneurial
spirit may be stifled by an ageing workforce as young people are kept out.

TREND 4: THE RICH/POOR DIVIDE


Trend Outline
Income inequality and social unrest
The growing gap between rich and poor has been in evidence for a number of years but has
only recently become a focus for social unrest. The reasons for economic inequality within
societies are manifold, and are often inter-related. These include changes in employment
patterns, disproportionate wage increases, technological progress, urbanisation, government
policies, demographic factors and others.
Since the start of the recession, the differences in income between the richest and poorest
members of society have become increasingly apparent. One factor that contributed to the
credit crunch was that low-income consumers were encouraged to aspire to more lavish
lifestyles by taking on more credit than they could afford to pay back. Following the crisis, it was
the richest that rebounded fastest, while the ensuing wave of public spending cuts, along with
stagnant wage growth, hit the poor and middle income earners the hardest. Furthermore, legal
changes have made it easier to fire temporary workers, thus driving up inequality.
The pros and cons of wealth generation
Some economists take the view that increasing wealth at the top brings up overall living
standards and reduces poverty over the long term, and that combating inequality would hinder
economic growth as people would no longer be motivated to work hard to get ahead. However,
the argument against disparity is that those at the lower end of the spectrum are more prone to
shorter life expectancies, higher disease rates, crime, infant mortality, obesity, teenage
pregnancies, emotional depression and other negative social issues.
Furthermore, it is argued that inequality perverts politics by awarding an unhealthy measure of
influence to the rich. The Occupy Wall Street movement claimed that it was defending 99% of
the US population against the richest 1%, which own as much as a third of the countrys wealth.

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Economic inequality can be strongly affected by a countrys political structure. Under rightwing governments, where fewer companies are in the hands of the state, price controls are less
common and minimum wages fall relative to average wages. Left-wing governments often have
strong ties with labour organisations, which help reduce inequality by negotiating standard pay
rates. In most countries, union power has declined in recent years, with performance-related
pay becoming more widespread. Hence, economic inequality has reflected productive
inequality.
China has reintroduced a degree of capitalism in recent years and now operates a socialist
market economy, within which privately owned companies are a major component of the
economic system but the government remains committed to economic planning, centralised
control and the one-party state.
Summary 3
Reasons for Economic Inequality
Changes in employment patterns (growth in demand for high-skilled at the expense of lowskilled labour)
Access to education
Technological progress
Globalisation and removing of trade barriers
Urbanisation
Cultural factors and discrimination
Level of government intervention (eg taxes, welfare policies)
Economic growth
Property prices
Sociological/demographic factors (eg more single parents, ageing populations)
Disproportionate wage increases for executives
Source:

Euromonitor International

The extent of income disparity


Analysis of Gini coefficients (presented as a value between 0 and 1, whereby the closer the
value is to 1, the more unequal is the distribution of household disposable income) reveals that
South Africa had the highest level of inequality in 2011, at 0.64. Income inequality in South
Africa is largely a legacy of apartheid, under which black citizens were excluded from the
benefits of economic development, while a small white minority controlled the countrys
resources. While the legal and institutional racial divide has been abolished and some income
inequality in South Africa has been alleviated, the country is still characterised by extremes in
terms of wealth distribution. The wealthiest segments of society are typically middle-aged and
living on the Western Cape, a luxury goods hotspot.
After South Africa, inequality was most evident in Brazil and China, each of which had Gini
coefficients of 0.52 in 2011. While Brazil showed some improvement over the 2006-2011 period,
with the Gini coefficient falling from 0.53, in China it continued to rise.
Brazils income inequality is typical of Latin America, where large swathes of the population
live in rural poverty or urban slums. The situation in Brazil is improving due to the governments
ongoing anti-poverty initiatives, as well as a rising employment rate. Brazil was one of the few
major economies worldwide that came out of the global downturn relatively unscathed, in large
part due to the dynamism and sheer size of its internal consumer market.

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Urbanisation causes growing divide in China


In recent decades, living standards have improved dramatically for the Chinese.
Nevertheless, China remains one of the least egalitarian countries in the world. In modern
China, career opportunities for the well-educated and urban-dwelling young are considerable,
but for the many people still living in rural areas, whose primary concentration is agriculture, this
economic transition is difficult, with little if any effective government support. In rural areas,
about 30 million people still live in poverty and 60 million live close to the national poverty line,
with an annual income of just RMB637 (US$79).
According to a report published by the Chinese Academy of Social Sciences in early 2011,
most workers Beijing earn less than RMB30,000 (US$4,610) per year. While the salaries of the
heads of state-owned companies have risen sharply, those in the lowest income group (largely
working in manufacturing, retail and food industries) take home an average of just RMB2,000
per month. By comparison, the annual income necessary for a family in Beijing to have an
apartment, a car, a child and travel at least once a year would be at least RMB150,000.
One of the main problems facing China is that the 206 million or so poor migrants in cities,
who lack urban hukou (household registration papers) have no access to public education,
public housing and social security programmes. This blocks any form of upward mobility for
these consumers, thus widening the rich-poor divide.
Indias rural-urban divide
In India, while economic expansion will boost income and expenditure levels for all and
contribute to a growing middle class, only a small minority of households, often located in the
countrys urban centres, will be able to take advantage of this progress, either through good
education or family connections. Meanwhile, a large proportion of households, particularly in
rural areas, will remain restricted to menial jobs or labour-intensive farming. This will cause
Indias Gini coefficient to rise from 0.40 in 2011 to 0.42 by 2016.
The US has the highest level of inequality among the major developed markets, and its Gini
coefficient is expected to increase marginally to 0.48 by 2016. Company shareholders and
executives, rather than blue-collar workers and mid-level employees, have been receiving the
benefits of corporate earnings, helping the richer strata of society consolidate and boost their
position, while continued immigration into the country (largely from Latin America) depresses
wages at the bottom of the income pile, keeping the poor mired in poverty.
Europe is more egalitarian
Income inequality is less pronounced in Europe, with the highest scoring country, Greece,
having a Gini coefficient of just 0.38 in 2011. Norway had the lowest score of 0.26, although this
is rising slightly year-on-year. Norway has a developed consumer market buoyed by oil wealth,
with commensurately high income levels. Its generous welfare system protects the poorest
citizens from economic shocks, helping underpin consumption among the lower socioeconomic
echelons.
Several Eastern European countries scored relatively low on income inequality, due to
principles of equality that were enforced during the Communist era. However, Russia is a
different story, with a Gini coefficient of 0.42. In the turbulent post-Soviet period, oligarchs
became rich quickly by buying up the countrys most lucrative assets. This spawned a superwealthy elite with an unconstrained enthusiasm for luxury, and while most of the country
remains poor, Moscow is said to be home to the highest concentration of billionaires of all cities
worldwide.
Table 4

Gini Coefficient by Country 2006/2011/2016

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Coefficient

2006

2011

2016

South Africa
China
Brazil
Malaysia
Mexico
US
Argentina
Thailand
Australia
Venezuela
Russia
India
Canada
Turkey
Indonesia
Greece
South Korea
Denmark
Poland
Italy
Japan
Netherlands
Germany
Taiwan
United Kingdom
Switzerland
Spain
Belgium
France
Sweden
Austria
Norway

0.64
0.50
0.53
0.49
0.50
0.47
0.45
0.46
0.41
0.40
0.42
0.38
0.38
0.40
0.33
0.37
0.35
0.37
0.35
0.36
0.35
0.33
0.34
0.34
0.34
0.31
0.31
0.31
0.29
0.30
0.28
0.24

0.64
0.52
0.52
0.51
0.48
0.47
0.46
0.45
0.43
0.42
0.42
0.40
0.39
0.38
0.38
0.38
0.37
0.37
0.36
0.36
0.35
0.35
0.34
0.34
0.34
0.33
0.32
0.32
0.30
0.30
0.29
0.26

0.64
0.52
0.51
0.52
0.48
0.48
0.47
0.45
0.43
0.43
0.42
0.42
0.40
0.37
0.39
0.38
0.39
0.37
0.37
0.37
0.36
0.35
0.35
0.34
0.34
0.33
0.32
0.32
0.30
0.30
0.29
0.28

Source:

Euromonitor International

Implications
The rise of the super rich
A consequence of income inequality has been the increase in the number of high net worth
individuals (HNWIs), ie those having investable assets of US$1 million or more, excluding
primary residence, collectibles, consumables and consumer durables. These are fuelling
demand for expensive discretionary items, such as premium spirits, premium cosmetics,
designer clothing, high-end vehicles, holidays and private education.
Economic and political uncertainty appears to have impacted even this group in 2011.
According to the latest World Wealth Report by Capgemini/Merrill Lynch, the global population
of HNWIs grew by just 1% in 2011, to 11.0 million, compared with growth of 8% in 2010.
Furthermore, global HNWI wealth declined by almost 2% to US$42.0 trillion, compared with
growth of almost 10% in 2010.
The Asia Pacific region became home to the greatest number of rich people for the first time
in 2011, at almost 3.4 million, following growth of almost 2%. The HNWI population in North
America was slightly lower at just under 3.4 million, although it remained the largest region for
HNWI wealth at US$11.4 trillion, compared to US$10.7 trillion in the Asia Pacific region.

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By country, the US continued to count the largest wealthy population, at almost 3.1 million,
but this number declined by 1%, while in Japan the number of HNWIs grew by 5% to 1.8 million
and in China the rise was even stronger, at 5%, to 562,000.
Germany had the highest number of HNWIs in Europe, at 951,000. However, without a
minimum wage, and with some 12 million in mini jobs or self-employed, real wages have
stagnated since the 1990s and income inequality is said to be growing faster in Germany than in
any other western European economy.
India was the worst hit in 2011, with the number of HNWIs down by 18% to 126,000. In their
2012 World Health Report, Capgemini and Merrill Lynch attributed this decline to a slump in
Indias equity-market capitalisation and currency, as investors were deterred by doubts over the
political process and the slow pace of domestic reforms. By contrast, Brazil saw an increase of
almost 7%, to 165,000.
Chart 6

HNWI Population by Country 2010-2011

000

Source:
Note:

Euromonitor International from 2012 World Wealth Report by Capgemini and Merrill Lynch
HNWI High Net Worth Individuals

Polarisation of demand
The high and in some cases growing income gap between rich and poor will offer
marketers opportunities to segment their offer. Indeed, there is likely to be a continuation of the
trend towards polarisation of demand towards both premium and budget brands, to the
detriment of mid-market brands.
The higher purchasing power of the richest consumers will ensure that the luxury goods
market will see further growth over the forecast period, while luxury travel will also continue to
perform well. Nevertheless, even wealthy consumers are more cautious than before the
recession, and are shying away from conspicuous consumption. Marketers will therefore need
to focus on providing high quality products and memorable experiences to this group, and make
consumers feel that they are obtaining maximum value for their money.

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In countries where much of the wealth is held by Baby Boomers reaching their retirement
years, such as the US and France, there is a growing market for high-end products and services
that appeal to the more mature consumer. Financial security and health protection typically top
these consumers list of priorities, providing opportunities for marketers of pensions and healthoriented to target this segment. Affluent Boomers also have the disposable income available for
high-end luxuries, such as exotic travel, plus the time following retirement to pursue new
hobbies.
Demand for luxury travel
A recent survey by independent travel agency group Virtuoso revealed that in the US and
Canada, wealthy travellers are increasingly searching for more authentic experiences and new
destinations that offer both high quality and unique attributes in order to justify their high prices.
Luxury travellers also use holidays to spend quality time with their loved ones. As a result,
requests for unconventional luxury travel are becoming more common among rich consumers,
such as family trips on African safaris, trips to Antarctica or Madagascar, hiking in unusual
destinations, such as Nepal, Bhutan, North Korea or the Middle East, and round-the-world trips.
This offers opportunities to independent operators to offer expert advice and tailor trip to
individual needs.
The poor seek value
For those at the other end of the income spectrum, essentials remain a priority, although there
is still strong demand from low-income consumers for more sophisticated items such as
televisions, cars and mobile phones. The challenge to marketers targeting low-income
consumers is therefore to provide products that are convenient but affordable, including entrylevel electronics and white goods, healthcare products, communication packages and other
basic household goods.
The importance of communications among all income groups offers opportunities for mobile
phone and internet providers to target low-income consumers in both developed and emerging
markets with special packages or pre-paid cards. The US government recently began
introducing subsidised phone services which do not require an annual contract to low-income
consumers. Successful applicants must be eligible for Medicaid or several other low-income
assistance programmes, have a family income significantly below the local poverty level or
receive food stamps. In 2011, the federal programme paid out US$1.6 billion to cover free
mobile phones and the monthly bills of 12.5 million wireless accounts. This has allowed US
carriers to switch their focus to the large and growing pool of poor and unemployed consumers.
In the UK, the Go ON UK (RaceOnline 2012) initiative partnered with internet provider
TalkTalk and Microsoft in 2012 to offer a special refurbished computer and broadband with
phone bundle to low income adults and families from just 49. The promotion is aimed at the 2.4
million UK adults who cannot afford to get internet services at home.
It was reported in August 2012 that the Indian Prime Minister, Manmohan Singh, planned to
provide mobile handsets with 200 minutes of free local calls to over 6 million families living
below the poverty line, in order to enable them to apply for jobs.
Discounters benefit
In the retail category, the rising number of low-income consumers has benefited outlets such
as budget clothing chains offering fast fashion, such as the UKs Primark and Japans Uniqlo,
as well as grocery discounters and dollar stores. Meanwhile, in the US, chains such as Dollar
General (with more than 9,500 stores in 2011), Dollar Tree and Family Dollar have thrived since
the start of the recession. Family Dollar announced in 2011 that it planned to add 300 new
stores during the year, giving it more than 7,000 in 44 states.

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An article in The Guardian in April 2011 described how the UKs high streets and shopping
centres are being over-run with pound shops, discount fashion chains and fast food outlets to
cater to the growing number of have-nots. Budget brands, such as Poundland, Peacocks, Card
Factory, discount household retailer Wilkinson and the Greggs sandwich chain, are becoming
ubiquitous and are among those showing the fastest growth in tenancies since 2008, according
to a report from retail consultants Trevor Wood Associates.
Japans 100-yen stores are also booming, with shoppers both local and from far afield
being attracted by their variety of goods all at one price, plus the 5 consumption tax. 100-yen
shops are found nationwide, but no official data on their actual number are available because
many are small mom-and-pop enterprises.
Coupons and daily deal websites increasingly attract those on low incomes, as well as the
more thrifty middle class consumers. These are offered by sites such as Big Lion (Russia), Daily
Deal (Germany), Groupon (US, UK and others), Chinese Taobao, and CatchOftheDay in
Australia, which create buzz by sending emails alerting subscribers in a city to a time-limited
local bargain.
Fast food increases budget offerings
Foodservice operators have responded to lower incomes among many consumers by
emphasising their value positioning within the major markets. For example, Japans Yoshinoya
Holdings, the countrys largest operator of beef-bowl restaurants, has expanded rapidly both at
home and abroad. By 2011, the company operated or franchised more than 1,600 restaurants in
Japan, China, Taiwan, Hong Kong, Singapore, Philippines and the US.
In 2011, KFC India announced the launch of its new Streetwise menu of low-priced items
designed to appeal to cash-strapped young people particularly the vast and growing student
market. Featuring items priced as low as US$0.55 (Rs25), the new menu represents a shift in
strategy for KFC, allowing the chain to compete at lower price points, an area long dominated by
McDonalds among the global fast food chains with a presence in India.
In Brazil, national chains have led the way in targeting lower income groups. For example, Rei
do Mate and MegaMatte, two leading caf chains, introduced a range of lower priced items
targeting workers on coffee breaks in 2011. In fast food, McDonalds launched its Small Prices
menu, where regular menu items (including standard sandwiches, carbonates and desserts) are
offered at reduced prices. Local chain Habibs, known for its low-priced esfiha (meat pies)
frequently runs promotions offering items for just US$0.35.

Outlook
The need for reform
There is significant need for reform in rich countries, where unemployment is high and
prospects for low-skilled workers are poor or deteriorating. There will be growing public pressure
on governments to take action to tackle the problems of income disparity and social mobility, for
example by making education more accessible to all, raising taxes for the wealthy and
refocusing government spending on those who need it most.
President Obama is in favour of ending tax breaks for the wealthiest, which, he claims, cost
the US US$700 billion, and has proposed keeping the lower tax rates only for families making
less than US$250,000. Meanwhile, in France, the new Socialist government in July 2012
announced tax rises worth 7.2 billion, which will mainly target the wealthiest households and
largest corporations. They include lowering Frances wealth tax threshold, which had been
raised by Nicolas Sarkozy, and adding a one-off higher levy on those with net wealth of more
than 1.3 million. President Franois Hollande will go ahead with plans to introduce a 75% tax
on incomes above 1 million from 2013.

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The UKs deputy prime minister Nick Clegg, leader of the Liberal Democrat party, has also
called for a wealth tax, while business secretary Vince Cable demanded powers to curtail pay in
the private sector, and is in favour of replacing the 50% rate with a 1% annual mansion tax on
homes worth more than 2 million.
In 2012, the Chinese government released details of a new income distribution framework to
redress the growing gap between rich and poor, which has been planned for eight years. As part
of reform, government agencies will be urged to pass legislation to cut taxes and regulate
executive pay in high-profit monopoly industries and private companies. This should lead to a
larger middle-income group and an increase in taxes for high earners. However, Chinas hukou
system is in need of drastic reform if city living standards are to rise for all. In February 2012, the
central government made some improvements to the system by allowing migrants to apply for
hukou in smaller cities (ie those other than the largest 40). However, it is widely acknowledge
that this is not enough to improve the situation significantly.
Progress will be slow
While the current focus among policy makers seems to have shifted towards addressing the
gap between the haves and the have-nots, the truth of the matter is that with massive debt
burdens to tackle, governments have very few resources left to invest in aiding the plight of the
poor. Furthermore, income inequality will continue to be affected by factors beyond the control
of governments, such as an ageing population, with rising old-age dependency ratios set to put
ever increasing pressures on public health expenditure.
Therefore, the gap between the haves and the have-nots is set to increase slightly, or at
best stabilise, in most countries over the forecast period. In strongly growing economies,
disparities may widen as the benefits of rapid economic growth are not equally distributed, and
many people with low skills, in particular, will remain trapped in jobs in the informal and unregulated economy. Brazil and Mexico may be exceptions to this, as governments significant
efforts to help the poor, such as increasing payment levels in Brazils Bolsa Famlia programme,
will help gradually close the gap in these highly unequal societies.

TREND 5: THE CLIMATE CHALLENGE


Trend Outline
Increasingly erratic weather patterns and rising sea levels caused by global warming will be
one of the largest threats to the food market and other categories over the next five years and
beyond. Droughts and floods will continue to cause havoc with food crops, while melting ice will
affect the eco-system in Arctic waters. All these factors will impact food prices in the years to
come.
Studies have revealed evidence of global surface warming of around 0.65C (1.17F) over the
last 50 years. This has led to events such as the melting of sea ice, accelerated sea level rises,
changing seasons and longer, more intense heat waves. In the US, the first six months of 2012
were the hottest on record since 1895. The drought in August covered around 60% of the US
the largest area since the epic droughts of the 1930s and 1950s causing devastation to crops.
While climate changes can be caused by natural phenomena, such as volcanic eruptions and
variations in the suns output, others are known to be caused by man as a result of the changing
of the composition of the atmosphere. This has become increasingly apparent over the last 150
years, as human activities have released increasing quantities of greenhouse gases (largely
CO2) into the atmosphere.
The 2007 Fourth Assessment Report of the Intergovernmental Panel on Climate Change
(IPCC) states that its findings show that it is extremely likely (>95%) that human activities have

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exerted a substantial net warming influence on climate since 1750. The levelling off that
occurred from the 1940s to 1960s is attributed by scientists to sulphate aerosol cooling. Some of
the future impacts of global change, according to the IPCC, are shown in the summary below.
Summary 4
Region

Regional impacts of global change


Impact

North America

Decreased snow cover on the western


mountains; increased frequency, intensity and
duration of heat waves.

Latin America

Gradual replacement of tropical forest by


savannah in eastern Amazonia; risk of
biodiversity loss through species extinction in
many tropical areas; significant changes in
water availability for human consumption,
agriculture and energy generation.

Europe

Increased risk of inland flash floods; more


frequent coastal flooding and increased
erosion from storms and sea level rise; glacial
retreat in mountains; decreased snow cover
and winter tourism; extensive species losses;
reductions of crop productivity in southern
Europe.

Africa

By 2020, between 75 and 250 million people


could be exposed to increased water stress;
yields from rain-fed agriculture could be
reduced by up to 50% in some regions by
2020, leading to possible famine.

Asia

Freshwater availability may decrease in


Central, South, East and Southeast Asia by
the 2050s; coastal areas will be at risk due to
increased flooding; diseases associated with
floods and droughts will become more
prevalent.

Source:

Euromonitor International from IPCC

Implications
Food shortages and the battle for water
One of the most significant impacts of climate change is food shortages. Increased incidences
of droughts and flooding can devastate crops and push up prices of grain and soya. As maize is
used to feed livestock as well as humans, meat production and prices are also affected. This is
all the more alarming given that the global population continues to grow year-on-year.
Competition for water will intensify between human use, food production and other uses, such
as energy, as the entire water cycle is affected by climate change. The hydrological cycle is
being speeded up by global warming, and increased evaporation will make drought conditions
more prevalent. According to the forecasts of the UN Food and Agricultural Organization, by
2025, 1.8 billion people will be living in countries or regions with absolute water scarcity.
At the same time, however, flooding is becoming more frequent and damaging due to more
intense rainfall events in certain areas. Floods contaminate water resources, destroy water
supply systems and bring disease to affected areas.

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The poor will be worst hit


In developed markets, increases in food prices are an inconvenience to many consumers,
who may be forced to cut down on discretionary spend within the family budget. However, for
those on low incomes the impact may be more severe. For example, a record 46.7 million
Americans are already on food stamps, and it is these consumers who would be most hit by a
sharp increase in prices. For poor families in developing countries especially in those
countries that import the bulk of their food escalating food costs can be a matter of life or
death.
Food inflation can be one of the leading causes of social unrest. When grain prices reached a
high in 2008, bread riots took place across 30 developing countries. In 2010, a drought in
Russia forced the suspension of Russian grain exports that year, which was partly attributed to
the start of the Arab Spring in 2011.
Rising food prices can also place a huge strain on the budgets of governments that subsidise
food prices. In these circumstances, some governments impose export quotas, prohibitive
export taxes, or even outright bans on food exports. For example, China levied an export tax on
grains and India suspended wheat exports in 2007.
Export restrictions can affect domestic farmers, who are forced to sell their crops for lower
prices to the local market and may reduce investments in additional land, seeds, fertiliser or
irrigation. Such actions can affect local and international consumers. The International Food
Policy and Research Institute found that export restrictions by several countries during the 2008
food price crisis contributed to more than 60% of the rise in the global price of rice. The
embargo on exports of wheat in Russia contributed to a 121% increase in wheat prices in US
dollar terms in the eight months between June 2010 and February 2011.
The droughts of 2012
The effects of global warming on global food production were more evident than ever in 2012.
Record temperatures and drought during the summer months devastated corn and soy crops in
the Midwest region of the US, while wheat production from other major exporters, including
Russia, Ukraine and Kazakhstan, also declined due to weather-related disruptions.
Southern Europe, which typically supplies 16% of global corn exports, suffered similar
problems. According to a report in Bloomberg, temperatures in the band stretching from eastern
Italy to the Black Sea averaged some 5C higher than normal in July, which ruined corn crops
that were in the critical pollination phase. Australia has also suffered drought, while in India,
monsoon rains were about 15% behind pace in mid-August.
As a result of these adverse weather events, global food production was lower than normal in
2012. This was expected to lead to food shortages, inflation and possibly even riots in the
countries most affected by falling imports.
In the US, 2012 was the third consecutive year of declining crop yields. Having expected a
bumper crop following the poor yields of 2010 and 2011, farmers were shocked to find their
crops once again decimated by the worst drought in nearly half a century. The US Department
of Agriculture estimated in August 2012 that 40% of the US corn crop was in poor or very poor
condition as a result of the drought.
Importing countries suffer the most
The US droughts greatly impacted meat production, due to the rising cost of animal feed. This
prompted some livestock producers to slaughter their herds. The US government took action to
support the livestock industry by opening conservation land for grazing while providing
emergency low interest rate loans to farmers in the worst hit regions. However, although these
government provisions will support farmers in the medium term, the crop failures of 2012 are
likely to undermine the long-term solvency of many farmers in the USs Midwest.

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The US is the worlds largest producer of corn, exporting millions of tonnes each year to
countries like Japan, Egypt and China. Egypt imports around three quarters of its corn from the
US. In 2011, the US made up almost 34% of global soybean production and 37% of global corn
production. So far, the US government has maintained an open stance, with no protectionist
measures being enacted. Oxfam forecasts that the reduced supply of food will have a
devastating impact in developing countries that rely heavily on food imports, including parts of
Latin America, North Africa and the Middle East.
Currently, Yemen is one of the countries suffering the most catastrophic food crises. Almost
half the population in Yemen does not have enough to eat, while 300,000 children are facing life
threatening levels of malnutrition. These shortages are set spread to other countries and could
eventually lead to worse food riots than ever before.
Meat prices set to soar
The latest figures from the International Monetary Fund (IMF) confirm the extent of the food
price increases. The index rose by almost 9%, or 15 points, between May and August 2012, to
183.9. Although this is still below the spike of February 2011 (192.4), it is substantially higher
than the index of 128.0 recorded in August 2007.
Some experts are already declaring that the weather has been so dry for so long that
substantial damage has already been done to 2013s crops. US Department of Agriculture
forecasts, announced in August 2012, suggest that consumers may have to pay 3-4% more for
groceries in 2013. Beef prices were expected to see the largest jump at 4-5%, while dairy
product prices were forecast to increase by 3.5-4.5%; poultry and egg prices by 3-4%; and pork
prices by 2.5-3.5%.
Prices for fruit and vegetables, as well as processed foods, were not expected to be much
affected by the drought as they are typically irrigated manually, which may prompt some
consumers to increase their consumption of fruit and vegetables at the expense of meat. The
USDA projected an overall 2-3% price increase for all fruit and vegetables in 2013. Corn and
other ingredients typically make up just a fraction of the production costs of processed foods
compared with expenses such as transportation and marketing. Supermarkets may absorb
some of the cost increases themselves, but the majority of rises will be passed on to consumers
in the form of higher end prices.
Biofuel also affected
The high prices of crops are not only raising the prices of other foodstuffs, but are also having
an impact on the biofuel market. In the US, the government is rolling out ethanol blended
gasoline, which produces less emissions. According to legal mandates, around a third of the US
maize crop must be used for ethanol. Ethanol is also commonly derived from soybean crops, so
higher costs of both maize and soybeans increase the cost at the pump for consumers. Higher
fuel and food prices will increase consumer spending on essential goods and transport,
reducing disposable incomes.
Chart 7

Commodity Food and Beverage Price Index

2005=100

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Source:

Euromonitor International from International Monetary Fund (IMF)

Outlook
What can be done?
More measures will be put in place around the world to help mitigate the effects of global
warming and greenhouse gases. These will mainly involve carbon/methane sinks, which store
atmospheric carbon dioxide and methane in various locations, both natural and artificial. For
example, iron seeding involves dispersing flecks of iron across the oceans to stimulate plankton
growth as a biological carbon sink. Another method being investigated involves pumping carbon
dioxide into underground oil stores, in order to force oil out while trapping carbon dioxide
underground. In developed countries, forest restoration projects are underway, which will also
act as a carbon sink; while cloud seeding, ie forming clouds by starter molecules dispersed by
aircraft, may help to reflect sunlight and thereby reduce the effects of global warming.
Consumers will be more willing to take action
Water scarcity has encouraged consumers and companies to implement water saving
measures. This will create opportunities for businesses that focus on producing water saving
products and technologies. Businesses in the water and wastewater industry will have
opportunities to expand due to the rising demand for clean water, as well as the demand for
wastewater treatment and recycling.
Household appliance manufacturers are already focusing on water savings alongside energy
savings in their product designs. There has been research to find out agricultural technologies
which use less water. Desalination of seawater is set to become more widely used, as
technological developments are causing desalination prices to fall.
Consumers will become increasingly aware of green issues, and those with the means to do
so will adopt a more environmentally-friendly approach to their living and purchasing habits.
These may include recycling and water saving, installing solar panels, buying hybrid cars and
purchasing more organic or free range foods that do not rely on intensive farming methods.
When asked whether they agreed with the phrase we, as individuals, must take responsibility
for tackling climate change, as part of Euromonitor Internationals global survey across eight
markets, 62% of respondents replied in the affirmative. This was as high as 73% in India, but
just 53% in the US.
Chart 8

Global Attitudes to Taking Responsibility for Climate Change 2011

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% respondents selecting agree or strongly agree

Source:
Note:

Euromonitor International Annual Survey 2011


Consumer agreeing with the phrase We, as individuals, must take responsibility for tackling climate
change

Temperatures will continue to rise...


Despite these efforts, scientists are convinced that global temperatures will continue to rise for
decades to come, as human activities continue to create large quantities of greenhouse gases.
The IPCC, which includes more than 1,300 scientists from around the world, forecasts a
temperature rise of 1.3-5.6C over the next century.
Rising temperatures will continue to cause erratic weather conditions. Furthermore, in
September 2012 the UKs The Guardian reported findings from the European Space Agencys
observation satellite CryoSat-2 that the loss of sea ice was far more dramatic than its previous
forecasts had predicted, and that the summer Arctic could be an open sea within just a decade.
This would not only cause an escape of ground methane into the atmosphere, which could
accelerate global warming, but would have a severe effect on the marine ecosystem, affecting
north Atlantic fish stocks.
At the same time, German, US and Australian scientists reported in Nature Climate Change
that increasing greenhouse gas emissions and rising ocean acidity could kill off most of the
worlds coral reefs, which are the habitat and hunting territory for about a quarter of all marine
species. Researchers found that by 2030 around 70% of the reefs would suffer long-term
degradation.
Forest fires are also likely to become more frequent, affecting tourism and local economies. In
2012, Spain struggled with its worst forest fires in decades. A 2009 report from the US Global
Change Research Program found that both the frequency of large wildfires and the length of the
fire season had increased substantially in the US in recent decades. This has been linked to
higher spring temperatures, earlier melting of snow and hotter summers.
Summary 5
Events

Global Climate Change: Future Trends


Likelihood

Contraction of snow cover areas, increased


thaw in permafrost regions, decrease in sea
ice extent

Virtually certain (>99%)

Increased frequency of hot extremes, heat


waves and heavy precipitation

Very likely (>90%)

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Increase in tropical cyclone intensity

Likely (>66%)

Precipitation increases in high latitudes

Very likely

Precipitation decreases in subtropical land


regions

Very likely

Decreased water resources in many semi-arid


areas, including western US and
Mediterranean basin

High confidence (>80%)

Source:

National Aeronautics and Space Administration (NASA) from Summary for Policymakers, IPCC
Synthesis report, November 2007

...Along with food prices


In 2012, the UN and the World Bank both issued ominous warnings about food inflation in the
coming years. The effects of global warming will continue to affect global food prices, but other
factors will also come into play, such as rising demand for food from emerging markets. For
example, China, which until recently preferred to meet its own demand for grain from its own
production, has begun to buy up grain from abroad. If this continues, it could push up global
prices significantly in the future.
Rising global food prices will hamper developing countries efforts to reduce poverty.
According to an estimate by the World Bank, the rise in global food prices pushed approximately
44.0 million more people in developing countries into extreme poverty (defined by those living
on less than US$1.25 per day) over the period from June 2010 to January 2011.
Increased food prices will also reduce consumer disposable income in both developed and
emerging markets, with poor consumers being hit hardest as they spend most of their income
on essentials, including food. Indeed, with the worlds population increasing, doubts have been
raised over whether current levels of meat consumption can continue.
Meat to become a luxury
In a report published at the start of the annual World Water conference in Stockholm in
August 2012, leading water scientists warned that as the population grows, people may have to
switch to a predominantly vegetarian diet over the next 40 years in order to avoid catastrophic
shortages caused by the scarcity of water for current croplands. An animal-rich protein diet
consumes five to 10 times more water than a vegetarian diet, while one third of the worlds
arable land is used to grow crops to feed animals. Scientists calculated that in future, there will
only be enough water if the proportion of animal-based foods is limited to 5% of total calories
(down from around 20% currently).
This will provide manufacturers of meat alternatives with opportunities to offer protein in other
forms. Also under development is artificially produced meat, which would bridge the gap
between real meat and meat analogues. Some experts predict that in the long term, most meat
will be grown in the laboratory. Such processes would consume 35-60% less energy than
conventional meat, produce 80-95% less greenhouse gas emissions and require only 2% of the
land, according to an Oxford University study due to be published in the Environmental Science
& Technology journal.
Scientists have already grown fish fillets in a laboratory, and in the Netherlands a team is
working on the first test-tube hamburger, which will be grown from stem cells extracted from
cattle. The cells will multiply to produce muscle tissue which will then be minced. Scientists
believe that in a few years time they will be able to grow 50,000 tonnes of meat in two months,
from just 10 stem cells.

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TREND 6: AN AGEING WORLD


Trend Outline
Lower fertility, longer lives
The worlds ageing demographic is nothing new. However, this is still a relevant topic that will
continue to have important repercussions on economic growth and consumer spending habits
over the next five years.
Populations are ageing due to a combination of low birth rates and longer life expectancies in
developed markets especially in Western Europe, North America and Japan. Western Europe
had the highest proportion of people aged 65+ in 2011, at 16.5%, followed by Eastern Europe
and Australasia (each 13.7%) and North America (13.3%).
Falling fertility and birth rates reflect the trend in developed markets for more females to go
into higher education and enter employment, while marriage and childbirth are delayed. In
Japan, for example, the birth rate fell from 9.4 births per 1,000 people in 2000 to 8.3 births per
1,000 persons in 2011.
Growing urbanisation across the globe is also being accompanied by a shift to smaller
household sizes and families. Many advanced countries, in particular, are experiencing fertility
rates of less than the replacement level of 2.1, which is the rate needed for populations to
replace themselves naturally. In China, the one-child policy introduced in 1978, combined with a
strong preference for male heirs, has led to an ageing population exacerbated by a gender
imbalance.
At the same time, people are living longer as a result of healthier lifestyles and continuous
medical advances, such as better detection and treatment of many forms of cancer and heart
disease, improved nutrition and better access to services. People are surviving for longer with
multiple chronic illnesses, but seniors hope to avoid or mitigate some of these ailments by living
a healthy lifestyle, for example by not smoking and drinking less alcohol, exercising regularly
and eating healthily.
In 2011, there was a total of 112.5 million people aged 80 and over, and this is forecast by
Euromonitor International to increase by 26% to 141.6 million by 2016. In Japan, the number of
people aged 100 or older hit 47,756 in 2012, according to the health ministry, which represented
the 41st consecutive year of increase.
Regional differences
The ageing of the global population is a gradual process. The proportion of those aged 65
and above increased only slightly, from 7.7% in 2006 to 8.1% in 2011, and was expected to rise
to 9.1% by 2016. However, in some countries the process is occurring more rapidly. In Japan,
for example, the percentage of the population aged 65 and over increased by 2.5 percentage
points between 2006 and 2011, to 23.5%; while in South Korea the share rose by 1.9
percentage points over the same period, to 11.4%.
The populations of Middle East and Africa, Latin America and parts of Asia Pacific are much
younger, but are still ageing gradually. The mean age in both India and South Africa was just 28
years in 2011, compared with 44 in Japan and 43 in both Germany and Italy. The US has so far
managed to postpone dealing with an ageing population through high immigration rates and a
steady birth rate. However, the mean age in the US was expected to rise from just under 37 in
2006 to over 38 by 2016.
Eastern Europe is the only region of the world that has not experienced an ageing of its
population over the last five years, with the percentage of those aged 65 and over having shrunk
slightly from 14.3% to 13.7%. However, this is changing due to the demographic transition from
high mortality and fertility rates to high mortality rates and low fertility rates. Unhealthy lifestyles

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and poor healthcare are causing overall populations in the region to decline, particularly among
males.
Chart 9

Population of 65+ by region 2011/2016

People aged 65+ as % total population

Source:

Euromonitor International

Implications
Economic burden
A rapidly ageing population will have adverse effects on future economic growth prospects,
due to a proportional decrease in the labour force, as well as lower savings and investment
rates, resulting in declining productivity. In addition, the lack of a solid pension system and
healthcare facilities will increase the fiscal burden on economies.
According to Euromonitor Internationals database, the old-age global dependency ratio,
which measures the number of people aged 65 and older per 100 people aged 15-64, rose from
11.9 to 12.2 over the 2006-2011 period, and is expected to increase to 13.8 by 2016. By 2020,
Japans old-age dependency ratio will reach 49.2%, up from 36.6% in 2011 the highest in the
world
A 2012 report on active ageing, compiled by the Economic Policy Committee and the
European Commission, found that by 2060, the ratio of people of working age and those above
65 will decrease by half in the EU. Age-related public expenditure (excluding unemployment
benefits) is forecast to increase by 4.1 percentage points to around 29% of GDP, while public
pension spending should grow by 1.5 percentage points to almost 13% of GDP. It is projected
that public expenditure on healthcare and long-term care will increase by 2.7 percentage points
of GDP between 2010 and 2060. In light of this report, the Council of the EU called for actions to
reduce government debt rapidly, to increase employment rates and productivity, and to reform
pension, healthcare and long-term care systems.
As a larger number of people get older and retire each year, the elderly start relying on
income from savings, transfers from their children and pension benefits. This significantly
reduces savings and investment rates and can impede economic growth. For example, South
Koreas savings rate fell from 13.5% of disposable income in 2000 to 7.2% in 2011 as
pensioners began to draw on their savings.

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Financial security will be a priority


The tendency for money worries to grow with age was confirmed by Euromonitor
Internationals annual study of 2011. Only 26% of respondents aged 60+ agreed with the
statement I would rather enjoy spending my money than save it, compared with 39% of those
aged 15-29. At the same time, as many as 78% of those aged 60+ agreed with the statement
knowing I am financially secure is important to me, compared with just 69% of those aged 1529.
A long-term challenge will be reintroducing a savings culture among younger and middle-aged
people for whom current retirement prospects look bleak.
Chart 10

Global Attitudes Towards Saving 2011

% respondents selecting strongly agree or agree

Source:
Note:

Euromonitor Internationals Annual Survey 2011


Covers eight countries:
Brazil, China, France, Germany, India, Japan, UK, US

The pensions crisis


Demographic change will lead to spiralling pension and healthcare costs, increasing the fiscal
burden on governments. The IMF reported in April 2012 that developed countries may be
underestimating the impact of longer life expectancies on their public and private pension
calculations. It estimated that if individuals live three years longer than expected, the
incremental costs could approach 50% of 2010 GDP in developed markets and 25% in
emerging ones. In the US, this would represent a 9% increase in pension obligations.
In developed markets, most countries pension systems were not designed to accommodate
the current baby boomer generation entering retirement, not to mention future retirees with even
higher life expectancies. This has prompted several governments to raise the retirement age,
which in some cases has led to social unrest. For example, riots in France in 2010 were
triggered by the governments proposal of a two-year increase in the retirement age.
In July 2012, the UKs Office for National Statistic (ONS) revealed that the number of private
sector workers in pension schemes had fallen to an all-time low of 3.6 million in 2009, down
from 6.2 million in 1995 and 8.1 million in 1967. Employer and employee contribution rates have
also fallen significantly. The looming pensions gap, along with longer life expectancies and
falling annuity rates, means that UK workers face one of the worst outlooks for retirement in the
developed world, with the next generation set to enter retirement with a much lower standard of
living than the current generation. British workers are on target for an income of just 32% of their

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former salary when they reach retirement, compared with more than 90% in some other
developed countries.
In emerging markets, many countries have healthcare and pension systems that are
inadequate and unsustainable. According to the IMF in 2012, only 26.0% of the elderly in Asia
received public pensions. According to a World Bank report, most Latin American countries
have serious problems in meeting the basic objectives of their social security systems. For
example, Brazil maintains a purely pay-as-you-go public pension system that will be an
enormous burden on the economy over the coming years.
Privatisation of pensions was established in many countries in Latin America in the 1980s.
Amongst major economies, Chile and Mexico have fully privatised their public pension systems.
Bolivia, El Salvador, Venezuela and others are expected to initiate privatisation reforms in the
near term. This presents opportunities for complementary lines of business, such as insurance,
and short-term health and casualty policies.
Chart 11

Forecast Old-Age Dependency Ratio by Country in 2016

Population aged 65+ per 100 population aged 1564

Source:

Euromonitor International

Seniors to take more responsibility for their care


In the future, seniors will be forced to take more financial responsibility for their own care as
states will no longer be able to support their growing numbers. This may lead to a decline in
disposable incomes among the elderly, and will also have a knock on effect on their offspring,
who stand to lose potential inheritances.

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Furthermore, in many emerging markets, where care of the elderly has been the responsibility
of their families, this system is gradually eroding. The average number of occupants per
household in Asia Pacific fell to 3.9 in 2011, from 4.2 in 2000. There is therefore an urgent need
to strengthen old-age support in Asia.
A growing number of consumers in the West are attracted to the idea of shared living in their
old age, and so-called senior communes are beginning to spring up across Western Europe,
the US and Australia. Given the good retirement pensions many older Boomers can expect,
demand for stylish care homes that provide a home from home for those who choose to grow
old in sheltered accommodation will grow rapidly.
In the US and Australia, demand for active-adult developments has soared in recent years, as
people approach retirement age and use their home equity to purchase a place where they can
indulge in a holiday resort-like lifestyle. Developers are now building bigger homes and adding
amenities such as fitness centres and health spas to cater to buyers changing tastes. The
newest active-adult communities not only have the traditional 18-hole golf course and swimming
pools, they also have fitness centres, hiking and biking trails, tennis courts, special interest clubs
and volunteer opportunities.
The concept of retirement homes is even emerging in China, where it was once unheard of.
The upmarket Cherish Yearn home just outside Shanghai is one such example, boasting a
swimming pool, a substantial gym, a selection of classes and a tranquil setting, with the home
set round a series of ponds.
For those who wish to maintain their independence for as long as possible, franchise
operations that offer non-medical in-home senior care are also becoming popular. Home Instead
is an example of such an organisation, which offers a multitude of services for seniors who need
a little help to live independently, such as personal care, meal preparation and medication
reminders. The Home Instead franchise now has more than 850 outlets worldwide.
In the face of Japans rapidly ageing population, robots have been developed to fill the gap
caused by the shortage of younger workers. These are designed either to assist the elderly with
physical functions, such as bathing or lifting things, or to monitor health and wellbeing. For
people who live far from their parents, the Wakamaru is a robot programmed to be verbal and
friendly, with camera eyes, which can also remind a patient to take their medications on
schedule. Wakamaru and similar products can be remote-controlled by computer or telephone,
as well as allowing elderly people and their caregivers to communicate. Some versions have a
video monitor so that relatives can see one another while talking long distance.
Opportunities for marketers
One of the main outcomes of the ageing of populations is that the boundaries of old age are
changing. People are working and remaining active for longer, and what used to be termed old
age has become an extension of middle age. As well as opening up opportunities for marketers
of senior care and other healthcare services, ageing populations provide a growing market for
consumer health products, health foods, beauty products and cosmetic procedures, and leisure
services such as tourism. Indeed, todays elderly citizens are deemed to be the fittest, most
attractive and most mentally active in history.
According to a July 2010 article in babyboomer-magazine.com, Boomers in the US still have
more discretionary income than any other age group. They control 70% of the total net worth of
American households (US$7 trillion of wealth) and own 80% of all money in savings and loan
associations. The article states that Boomers spend proportionately more money than other age
groups, are not particularly brand loyal, watch more television and read more newspapers than
other age groups, and account for as much as 40% of total consumer demand.
The same is not true in every country: in Russia, for example, pensioners represent the
poorest age group, spending only on basic needs such as food, clothes and medicine. Russias

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retirement age is lower than in most European countries, and the average monthly allowance is
just US$237. As a result, pensioners spend a lot of time at home, stay in employment for as
long as possible, or engage in informal work to supplement their income, such as babysitting or
security services.
Focus on health
The growing number of over 65s are particularly vulnerable to a range of age-related
problems, including indigestion, arthritis, osteoporosis, dry skin, depression, poor prostate
health, reduced mental clarity, heart conditions, hearing impairment and eye problems. The
growing pool of seniors is therefore providing a ready market for OTC medicines and dietary
supplements that may help relieve symptoms. It is estimated that in the US, people over the age
of 65 years account for 30% of all prescription drugs and 40% of all OTC drugs.
As a result, policy makers have increased the availability of some drugs by switching them
from prescription-only to OTC status. For example, in 2009, the UK became the first country in
the world to switch a benign prostatic hyperplasia (BPH) treatment to OTC status, while the
erectile dysfunction drug Viagra was made available OTC through the pharmacy chain Alliance
Boots.
As elderly consumers recognise their predisposition to a variety of health problems, many
focus on maintaining an active lifestyle and a general sense of wellness. This is boosting the
market for functional foods and foods for age-related conditions such as diabetes. Moreover, the
Baby Boomer generation are determined to stay young for longer, and are prepared to spend
handsomely on maintaining or improving their appearance. The market for plastic surgery and
filler treatments is booming, while beauty manufacturers are increasingly launching skin care
products for older skin.
Adapting to an ageing consumer base
Marketers must adapt their strategies to cater to the needs and aspirations of this growing
market of ageing Boomers. Many consumers in this group care less for status and material
possessions and more for finding products that are easy to use and expanding their horizons
through such means as travel and continuing education.
For the more elderly, marketers are developing products and services that do not stereotype
them as before, offering them an element of style that has hitherto been absent and allowing
them freedoms they may previously not have had. These include more attractive and discreet
hearing aids and walking aids, motorised bicycles or specially designed cars to keep them
mobile (for example, Porsches Cayenne), elegant and stylish clothes and gadgets for the home,
and discreet incontinence products.

Outlook
The extent and speed of ageing will depend partly on future life expectancy, fertility rates and
migration. Life expectancy at birth is projected to increase in most countries, along with mean
ages.
Ageing will continue to strain government finances due to the increasing costs of pensions
and healthcare. To cater to the needs of older societies, both the public and private sectors
must change the way in which they deal with healthcare and pensions to make paying for them
more sustainable. Most economists agree that retirement ages need to be raised in the future in
order to reduce the pensions burden, and this is already happening. In August 2012, the lower
house of Japans parliament approved legislation that raises the countrys mandatory retirement
age from 60 to 65. If passed, the bill would take effect from 1 April 2013. The UK government is
to raise the state pension age to 67 by April 2028, in a move that it claims would save the UK

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almost 60 billion. Similarly, reforms passed in Poland in 2012 envisage that the retirement age
will reach 67 for men by 2020 and for women by 2040.
In the future, technological advancements and the ensuing improvements in productivity will
to some extent help to counteract the declining workforce caused by lower birth rates and the
ageing population. However, companies will need to adapt their workplaces and practices to
make them more age-friendly and encourage older people to work for longer.
Chart 12

Mean Age of Population by Country 2011/2016

Mean age

Source:
Note:

Euromonitor International
Mean age refers to: the arithmetic average of the age distribution

TREND 7: THE URBAN TRANSITION


Trend Outline

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City growth speeds up


Although urbanisation is another long-term trend, growth has speeded up noticeably in recent
years and has reached unprecedented levels in emerging markets such as China, Indonesia,
India and Turkey, with a significant impact on consumer lifestyles and demand.
The exodus from the countryside to cities is largely driven by a desire for economic
empowerment. As agriculture has become less labour intensive, workers are driven to factories,
which are often located near major towns. As towns and cities swell, this creates demand for
more schools, hospitals, leisure facilities and other infrastructure, thus drawing even more
people to them for work purposes.
Immigration has also contributed to the growth of the worlds major cities, since most
newcomers head for large towns in search of work, and to join existing ethnic communities.
Therefore, the ratio of foreign citizens tends to be much higher in cities than in rural areas.
Urban-dwellers in majority since in 2008
The global urban population exceeded the rural population for the first time in 2008, and
gained a share of 52.2% by 2011. By 2016, it is predicted that as much as 54.5% of the global
population will be made up of city dwellers.
Urbanisation has already reached a very high level in some countries. Those with the highest
ratio of urban to rural households include Belgium, Venezuela, Argentina and Australia, whose
urban dwellers make up more than 90% of the total population. In the case of Belgium, this is
because of its small land mass and the strategic importance of its capital, Brussels, within the
EU. By contrast, Australia has a huge land mass but much of the country is uninhabitable, so
most of its households are concentrated in the coastal cities. Although Argentina has only 41.1
million inhabitants, Buenos Aires (including its outskirts) is one of the worlds largest cities, with
more than 10 million inhabitants.
Other developing countries, such as India and Thailand, have very large surface areas but are
still not yet highly urbanised. Only 31.2% of Indias and 34.4% of Thailands population lived in
cities in 2011, despite India being home to some of the worlds fastest growing cities.
In Brazil, much of the rural-urban migration has been by poorer citizens looking for better
opportunities in fast growing cities such as So Paul and Rio de Janeiro. Southern, more
developed urban centres are continuing to grow because authorities are focusing on attracting
capital investment to these areas, appealing to companies to establish their offices and
manufacturing centres there.
Chinese and Indonesian cities to expand the fastest
China and Indonesia are considered by Euromonitor International to have the most potential
for urbanisation over the forecast period. The share of the city-dwelling population is expected to
jump by 4.7 percentage points in Indonesia between 2011 and 2016, to 59.4%; while Chinas
urban population is expected to reach a majority for the first time in 2012 and is forecast to
represent 55.2% of the total population by 2016.
Chinas rapid urbanisation process has been mainly driven by the influx of migrant workers
from rural areas, who seek employment in cities and towns. According to national statistics, the
average income of urban households was more than three times higher than that of rural
households in 2011. According to the United Nations, China is home to a quarter of the worlds
largest, cities such as Shanghai (16.0 million inhabitants in 2011) and Beijing (12.0 million). The
country has been facing the challenges of providing enough jobs, infrastructure and social
welfare for its fast-growing city dwellers.
Table 5

% Urban Populations 2006/2011/2016

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Passport

% total population

Belgium
Venezuela
Argentina
Australia
Denmark
France
Finland
Taiwan
Sweden
Brazil
Netherlands
South Korea
USA
Canada
Norway
United Kingdom
Mexico
Spain
Germany
Switzerland
Russia
Malaysia
Turkey
Italy
Austria
Japan
South Africa
Greece
Poland
Indonesia
China
Thailand
India
World
Source:

2006

2011

2016

97.3
92.7
91.6
88.4
86.1
82.4
83.9
82.8
84.2
83.4
80.8
81.8
81.1
80.2
77.8
79.2
76.6
77.0
73.5
73.4
72.9
67.7
67.8
67.8
66.7
66.1
59.8
60.6
61.3
49.3
43.0
32.6
29.3
49.5

97.6
94.3
92.6
89.4
87.4
85.9
85.4
85.0
84.9
84.6
83.3
83.2
82.6
80.7
79.9
79.8
78.1
77.7
74.0
73.8
73.1
71.8
70.1
68.7
67.9
67.1
62.2
61.7
61.2
54.7
49.9
34.4
31.2
52.2

97.6
95.3
93.3
90.2
88.5
88.4
86.6
87.1
85.4
85.6
85.3
84.7
84.0
81.4
81.5
80.7
79.6
78.5
74.8
74.4
73.5
75.4
72.3
69.8
69.1
68.3
64.6
63.3
61.6
59.4
55.2
36.7
33.4
54.5

Euromonitor International

Implications
Positives: rising incomes, growing demand
The global shift towards urban living is shaping consumer markets and demand, and the trend
is set to intensify in the coming years. In emerging markets in particular, growing urbanisation
will result in significant demand for infrastructure and services, creating opportunities for
businesses and investors in a wide range of sectors, such as housing, food, transport, energy,
healthcare and education. This will help spur domestic consumption and stimulate economic
growth in these markets. Euromonitor Internationals data show that in China, consumer
expenditure still accounted for just 39.7% of total GDP in 2011, compared with 58.9% in Japan
and 54.6% in Germany, so there is plenty of room for growth.
Urbanisation will also result in changes in lifestyles and consumer spending patterns. Urban
consumers tend to have higher purchasing power than rural consumers, as economic activity is
concentrated in cities and urban areas. Urban consumers look for products that are more

Euromonitor International

% point
change
2011/2016
0.1
1.0
0.7
0.7
1.1
2.5
1.2
2.1
0.5
1.0
1.9
1.6
1.3
0.7
1.6
0.9
1.4
0.8
0.8
0.7
0.4
3.6
2.2
1.1
1.3
1.2
2.4
1.6
0.4
4.7
5.2
2.3
2.2
2.3

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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

convenient for their busier lifestyles, such as packaged foods and time-saving appliances. They
spend more time dining out and socialising in bars, like to shop at malls and are interested in
fashion. They tend to consume more non-essential items, including luxury brands, as they
experience more prosperity. Urbanisation is usually accompanied by a move to smaller
household sizes, which will also impact future product demand.
A growing number of urban dwellers will also make consumer markets in emerging markets
such as China and India more accessible, since rural consumers are usually difficult to reach
due to the lack of adequate road networks. At the same time, remittances being sent by city
migrant workers to their families in rural areas will help increase disposable incomes and thus
the purchasing power of rural households in emerging markets.
Negatives: Pressure on resources, pollution and social unrest
Rapid urbanisation can also create challenges. If job creation does not keep up with urban
population growth, unemployment will become a problem, as will urban poverty. Over-crowding,
rising pollution and health problems, as well as potential crime, are other challenges. The
growth of cities in emerging markets will put more pressures on resources such as food, energy,
land and the environment. Traffic congestion, air pollution, housing and energy shortages are
daily problems facing cities in China and India. With Chinas CO2 emissions from fossil fuels
accounting for 27.1% of the worlds total in 2011, the country is already the world largest
polluter.
City growth can also drive house prices up. Due to exploding demand and speculation in
China, house prices in major cities are among the highest in the region, putting them out of
reach for the majority of the Chinese people. China planned to build 7 million housing units for
low-income households in urban areas in 2012, but this is far from enough to meet the demand
for housing of the urban poor.
The growth of cities can also contribute to inequality and social unrest. The US Census
survey of 2010 revealed that in 2009, the largest gaps between rich and poor were recorded in
large cities such as New York, Miami, Los Angeles, Boston and Atlanta, which are home to both
highly paid financial and high-tech jobs, and clusters of poorer immigrant and minority residents.
Midsized cities have experienced less wage inequality, and rural areas the least.
The situation is often more pronounced in emerging markets. In China, since most migrant
workers are not provided with hukou in their adopted cities/towns, they are still considered as
rural residents and thus have little or no access to the cities social services, such as welfare
provision, healthcare and education for their children. It is estimated that out of the 666 million
Chinese urban dwellers in 2010, only some 460 million had urban hukou status. This has
resulted in a polarisation among urban residents, creating a source of social unrest which can
affect Chinas business environment.
Environmentalists are concerned about the risks to people and the global environment as a
result of the explosive growth of cities in the coming years. In 2011, ScienceDaily reported on
the results of a US-based PLOS ONE study, which found using satellite data that between 1970
and 2000, the worlds urban footprint had grown by at least 22,400 square miles. The report
authors claimed that cities are developing in the most biologically diverse and vulnerable places,
such as forests, savannas and coastlines, putting people and infrastructure at risk from flooding,
tsunamis, hurricanes and other environmental disasters.
Different approaches to urbanisation
Analysts claim that the approach to urbanisation has been very different in China to that in
India and other developing markets. While half of urban land expansion in China is driven by a
rising middle class, the size of cities in India and Africa is driven primarily by population growth.
Furthermore, experts claim that China has embraced urbanisation and adapted far better to the

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phenomenon than India. While China has invested a great deal in its cities, adopting a mature
urban planning regime and installing powerful political figures as mayors, India has devolved
relatively little real power and accountability to its cities, and its urban planning system has failed
to address competing demands for space.
In Brazil too, poverty levels in cities have increased as the authorities have been slow to build
adequate infrastructure to deal with the increases in population. This has resulted directly in the
creation of favelas, or shanty towns. Although most of Brazils population is urbanised, only
62.6% of Brazilian urban households are served, at the same time, by a water supply network, a
sewerage network and direct waste collection.
Indonesias rapid urbanisation has led to many problems for that country too, such as water
pollution, blocked sewage canals, flooding and crime. The Indonesian government has taken
measures to control population flows to the cities, but these have been largely unsuccessful.
Indeed, the island of Java has virtually become one large city.
In some poor countries, slums have increased as cities are not able to handle the growing
influx of migrants from rural areas. According to a 2010 report by UN-Habitat, the number of
slum-dwellers worldwide stood at 827 million, and is predicted to increase to 889 million by
2020. While China and India have together reduced the number of people living in slums by 125
million in the last decade, increasing urbanisation has led to many more new slum-dwellers,
especially in Africa.

Outlook
The shift from West to East will continue
The current speed and scale of urbanisation is unprecedented, and this trend is expected to
continue over the next five years, fuelled by the growth of cities in emerging markets.
Urbanisation in emerging markets is expected to contribute to much of the worlds economic
growth in the future. A recent report from the McKinsey Global Institute (MGI) found that the 600
cities making the largest contribution to global GDP (the City 600) currently generate 60% of
global GDP. Most of these (440) are in emerging economies. The City 600 are expected to
generate nearly 65% of world economic growth by 2025. By this time, 136 new cities are
expected to have entered the top 600, all of these from the developing world (mainly China).
MGI predicts that by 2025, the City 600 will be home to an estimated 310 million more people of
working age.
China to host more mega cities
China will boast the largest number of mega-cities by 2016. By that year, eight of the top 30
cities, in terms of population, will be in this country. However, countries with younger
populations, such as Turkey and India, will possibly benefit most from rapid urbanisation,
provided they can manage this growth effectively. Five of the worlds largest cities by 2016 will
be in India, but the government needs to invest more in its infrastructure and city management
in order to cope with this rapid growth. Mumbai will have a total forecast population of 12.9
million.
Turkey is another country in which urbanisation has gone hand in hand with economic growth
and the rise of the middle classes. Istanbul had already become the worlds second largest city
by 2011, and is expected to remain one of the fastest growing cities over the forecast period,
with its population set to expand by 23% to 16.0 million. Moreover, as in India, the population of
Turkey is young, with a mean age of 31 in 2011. With this growing population of young new city
dwellers will come demand for a host of products and services.
City growth in emerging markets will, however, focus as much on middle sized cities as megacities. In India, Bangalore, Chennai and Pune are experiencing the highest demographic and

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economic growth rates. Specialisation enables them to concentrate resources, to attract the
most talented people and therefore to evolve.
Although the mature cities of North America, Japan and Western Europe will remain
economic powerhouses in terms of their overall spending power, they will face challenges, such
as maintaining ageing infrastructure and incorporating the new digital infrastructure. Many old
cities grew around ports and so geography limits their potential for expansion.
Citysumers will form the bulk of new middle classes
New urban dwellers cash-rich, time-poor and open to new experiences will sustain
demand for products linked to urban life, such as fast food, convenience stores, personal goods,
clothing, footwear and portable consumer electronics. These consumers will form the backbone
of the new middle classes in emerging markets, and will also include many of the very wealthy,
who will fuel demand for luxury items and services.
However, governments will continue to face the challenge of providing the basic infrastructure
necessary to accommodate the growing number of city dwellers. This will add even greater
pressure to an already insufficient infrastructure in many urban areas. Furthermore, China and
India will continue to face severe water shortages problem due to rapid economic growth and
urbanisation. According to the World Bank, China may have a supply shortfall of 201 billion
cubic metres by 2030. Water shortages will hamper economic growth in these countries.
Worlds Largest Cities in 2016

Chart 13
000 inhabitants

Source:

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TREND 8: PEOPLE ON THE MOVE


Trend Outline
Economic migrants on the increase
As the world becomes smaller with globalisation, while travel gets cheaper and restrictions
more relaxed, more people are choosing to live, study or work abroad. This may be due to
economic necessity, the prospect of a warmer climate or a more advantageous tax system, or
simply a desire to gain experience of a new culture.
Traditionally, the most common source countries for economic migrants have been lowincome countries such as India or Mexico. Unskilled workers from these countries move abroad
in search of jobs and money, which they often send home as remittance to their families. When
a number of Eastern European countries became members of the EU in May 2004, there was
an exodus of migrants from these nations. The UK, Ireland and Sweden were the first to open
their labour markets and these became the most popular destinations for Polish emigrants.
According to Polands Statistical Central Office, about two million people left the country
between 2004 and 2010.
The US melting pot
In 2011, the US was home to by far the largest number of foreign citizens, at 21.6 million.
While this number is expected to rise only gradually over the next five years to reach 22.2
million by 2016, a landmark was reached in the US in 2012, when it was reported that for the
first time in history, more than half of all babies born in the country were members of minority
groups. According to the Census, Hispanics, Blacks, Asians and other minorities accounted for
50.4% of births and 49.7% of all children under five in 2011.
Another notable development is that Asians have surpassed Hispanics as the largest wave of
new immigrants to the US. There are currently a record 18.2 million people of Asian descent in
the US, according to a 2012 study by Pew Research Center. Some 430,000 Asians (equal to
36% of all new immigrants, legal and illegal) moved to the country in 2010, compared with
370,000 Hispanics (31%). The shift has also been attributed to a decline in Hispanic immigration
due to the economic downturn in the US, increased deportation and border enforcement, and
declining birth rates in Mexico.
Germany is also a popular destination for migrants. It had the largest number of foreign
citizens in Europe at 7.2 million in 2011. However, due to Germanys tough immigration policy,
the number of foreign citizens is expected to remain virtually static over the forecast period,
while the number of foreigners in Italy is forecast to leap by 31% to 6.0 million.
The largest share of Germanys immigrants are from Turkey (around 3.5 million in 2011),
followed by Poland. Polish people flooded into Germany following Polands 2004 accession to
the EU, and are now the best-educated minority, according to German Ministry for Interior
Affairs research in May 2010, with two thirds of Polish immigrants having secondary or higher
education.
Italy and South Korea become more attractive to migrants
Italy was once a country of mass emigration, and there are still sizeable Italian communities
throughout Latin America, the US, France, Canada and Australia. However, during the 1980s,
Italy began to attract rising flows of foreign immigrants. Since the 2004 and 2007 enlargements
of the EU, many immigrants came from Eastern Europe. More recently, however, Italy has been
the destination for North Africans (in particular, Morocco, Egypt and Tunisia) looking to escape

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their countries after the Arab Spring. The largest ethnic group at present is Romanians (more
than one million being registered as living in Italy), followed by Albanians and Moroccans, with
about 500,000 people each.
South Korea is expected to see the most rapid growth in the number of foreign citizens over
the 2011-2016 period, of 43%. South Korea was once a migrant source country, but its rapid
economic growth has meant that now it is an important destination for economic migrants from
other parts of Asia. After the 1988 Seoul Olympics, South Korea opened its borders to the
general public, which resulted in increased visitor numbers.
From the 1990s, South Koreas decreasing birth rate and growing cost of labour caused job
shortages, and many left rural areas for the cities. This left a chronic shortage of marriageable
women in rural area, so South Korea began importing brides for those left on farms. In 2005,
there were 31,180 marriages between South Korean men and non-Korean women, although the
number today is thought to be much lower. A large number of other migrant workers came from
China in search of work, many of these living in the industrial suburbs of Gyeonggi province.
Migration to Scandinavian countries is also growing strongly, especially to Norway, where the
number of foreign citizens is set to grow by 36% over the 2011-2016 period. Currently, the
largest immigrant groups in Norway are Polish, Swedish, Pakistani, Somali and Iraqi.
Chart 14

Number of Foreign Citizens 2011/2016

000

Source:

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Remittance flows
For economic migrants, the main reason for travelling abroad for work is to be able to send
money home to their families. According to World Bank estimates, remittance flows to
developing countries reached US$372 billion in 2011, an increase of 12% over 2010. Despite
the ongoing global recession, the growth rate of remittances was higher than in the previous
year in all regions except the Middle East and North Africa, where flows were hampered by the
Arab Spring.
The largest remittance-sending countries in 2011 were the US, Saudi Arabia, Russia,
Switzerland and Spain. Demand for foreign workers has remained strong in many destination
countries, as they tend to accept lower wages and are less of a burden on the state. Some
countries, such as Spain, have even offered financial incentives to encourage migrants to
return, despite having the among the highest unemployment rates in the world.
India and China received the largest amount of remittances in absolute terms, with workers
from these countries sending home some US$64 billion and US$62 billion, respectively, in 2011.
However, small and low-income countries such as Tajikistan, Lesotho, Nepal, Samoa and
Tonga tend to receive more remittances as a share of their GDP.
Chart 15

Leading Recipients of Migrant Remittances 2011

US$ billion

Source:

World Bank (estimates for 2011)

Foreign study
Faced with high university fees at home, or simply on the search for new experiences, an
increasing number of young people are choosing to study or work abroad. In the UK, for
example, the introduction of higher tuition fees at universities, of up to 9,000 per year, is
pushing students to apply to study abroad, including the US, Canada, Australia, China or Hong
Kong, South Africa and continental Europe.
According to a 2011 study by Unescos Institute for Statistics, the number of international
students around the world reached record numbers in 2009, at 3.4 million, representing an
annual increase of 12%. This was driven by a massive increase in demand from China, due to a
shortage of places on high quality degree courses at home and the pressure to have an

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overseas qualification when job seeking. According to the report, there are now more than
440,000 Chinese students abroad, and the number of Chinese students in the US rose by
almost 30% in 2009.
Many students never return to their home countries. Official statistics in China showed that
from the late 1970s to 2011, the number of Chinese studying abroad was more than 2 million,
but only 818,400 of these returned.
The US is the largest host nation for international students, welcoming a total of 704,000
students in 2011, up by 20% from the 2006 figure. While the cost of US universities is also very
high, foreign students are often offered high levels of means-tested financial support. Almost
half of the places in 2011 were taken by students from three countries: China, India and South
Korea.
The UK, Australia and France follow, with foreign students in Australia leaping by 39% over
the 2006-2011 period. However, the strongest growth over the 2006-2011 period albeit from
much smaller bases was seen in Russia, China, South Korea, Spain and Malaysia. These
countries are all opening up their colleges to international students.
Chart 16

Number of Foreign Students in Leading Host Countries2011

000 students

Source:

Euromonitor International

Implications
Filling the labour force gaps
Continued migration has a significant impact on economies, marketers and consumers. From
an economic perspective, immigration can contribute to a national or local economy by providing
workers to fill employment gaps where necessary. This will be especially beneficial in countries
with ageing populations, which will soon face a dearth of young workers. For example, in
Germany, whose population is one of the oldest in the world, the younger foreign-born resident
population, with higher fertility and birth rate levels, will counteract population ageing and raise
productivity.

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Germanys foreign population has become an essential labour force for its numerous car and
electronic manufacturing plants, filling both low- and high-skilled positions across a variety of
industries and propping up the labour markets. Similarly, in the US, the median age is just
27.6for Hispanics, whereas for whites who are not Hispanic the median age is 42.3.
Rich migrants fuelling demand for luxury goods
In cases where the rich are move from another country to take advantage of a host countrys
more favourable tax conditions, this can stimulate demand for property and luxury brands where
local demand is stagnant. For example, a 2011 study by China Merchants Bank and Bain & Co
found that almost 60% of Chinas HNWIs were either considering emigrating through gaining
investor status, which grants residence rights to those making large investments, or were
completing the emigration process. Rich Chinese are boosting the property market by buying up
US and Canadian real estate and moving their families abroad, although on the downside, this
can push property prices up for local residents.
In 2012, it was reported that wealthy French people were looking to move to London to
escape the 75% tax rate on income above 1 million that the new president Franois Hollande
pledged to introduce as part of his campaign. Property agent Knight Frank reported that
numbers of French web users searching on-line for its prime London properties in the past three
months had risen 19% compared with the same period of the previous year, while the equivalent
figure for Europe as a whole fell by 9%. They are likely to join the enclaves of French
expatriates established in areas such as Belgravia and South Kensington, close to the Lyce
Franais Charles de Gaulle.
For countries that receive remittances from abroad, migrants provide a steady source of
foreign currency at a time when foreign aid has been flat and foreign direct investment has
declined sharply. The World Bank expects remittance flows to developing countries to increase
by around 7-8% annually, to reach US$467 billion by 2014.
Creating diversity
The rising number of international students has cultural as well as economic benefits for the
host country. NAFSA: Association of International Educators estimated that during the 2010/11
academic year, international students and their dependents contributed approximately US$20.2
billion to the US economy, while domestic students benefited from learning about new cultures,
cuisines and languages from their peers.
Rising migration means that populations are becoming ever more diverse in terms of culture,
religion and ethnicity. From a marketing perspective, this offers companies a wealth of
commercial opportunities and the chance to segment their offer by launching products and
services suited to specific ethnic or religious groups, or products that appeal to the ever more
adventurous tastes of indigenous consumers. Budget airlines are one category that has
benefited from the influx of Polish migrants to Western Europe since 2004, since they provide
cheap transport for home visits.
Marketers in the US have long adapted their offer to suit the growing number of Hispanic
consumers. However, the Asian population within the US is now growing faster, while a study by
Pew Research Center revealed that Asians are the highest earning and best educated racial
group in the country. Among Asians 25 or older, 49% hold a college degree, compared with
28% of all people in that age range. The median annual household income among Asians is
US$66,000, compared with US$49,800 among the general population. This makes this
consumer group an ever more lucrative prospect for marketers.

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Lack of integration
At the same time, however, migrants face uncertainties in some of the key destination
countries, due to persistent unemployment, volatile exchange rates, the euro crisis in the EU
and more stringent attitudes towards immigration. Furthermore, immigration can be a cause of
social unrest in countries suffering from high unemployment, as immigrants can be seen as
stealing jobs that would otherwise be given to native workers.
In some countries, immigrants have not integrated well, which is a cause of political friction
and impedes the earning potential of this group of consumers. In Germany, for example,
government policy has hampered integration, leaving the Turkish community at an educational
and economic disadvantage. According to a May 2010 report by the German Ministry for Interior
Affairs, one in five Turkish immigrants were not fluent in German, while 7% of Turkish women
were illiterate.
For the poorest immigrants, conditions can be difficult as they are often housed in poor
conditions and lack access to local services. While South Korea has emerged as a land of
opportunity for many migrants from China and other Asian countries, a recent study showed that
migrants are more prone to diseases such as high blood pressure, obesity and many others
than native Koreans, as they find it difficult to adapt to the largely Western-style diet and more
stressful lifestyles.

Outlook
Migration will remain a key trend in the future, changing the cultural mix within societies and
creating new opportunities for marketers. Despite the economic growth of emerging markets,
many of their citizens, across all income groups, believe there are still better opportunities in
developed countries, while some just want new experiences and others seek ways to make their
acquired wealth go further.
A study by Gallup, published in April 2012, which questioned over 450,000 adults in 151
countries between 2009 and 2011, found that 13% of them would like to leave their country
permanently. The US proved to be the most popular destination for potential migrants
especially for respondents from China, Nigeria and India. The main reasons cited for this were
that they considered the US to be open to migrants, they wanted to join other family members or
they wanted to start a new business.
According to Euromonitor International forecasts, the US will continue to experience the
largest influx of international migrants by 2016, with net migration of 908,300. Other countries
that will see net migration of more than 200,000 are Australia, Italy, Canada and the UK.
At the opposite end of the scale (excluding China), Mexico, India and Indonesia will continue
to count the highest number of emigrants in 2016, with net migration amounting to -562,100, 283,700 and -170,100, respectively. Although China is excluded from the chart below, net
migration from this country is the highest in the world, at a massive -1.9 million in 2010,
according to a World Bank report published in 2012.Spain is the only developed country that will
experience a higher number of emigrants than immigrants, with predicted net migration of 43,800 by 2016.
Chart 17

Forecast Net Migration by Country 2006/2011/2016

000

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Source:

Euromonitor International

TREND 9: A MORE CONNECTED WORLD


Trend Outline
Internet use burgeons in developing markets
While the growth of the internet has been a long-term trend, the last five years have
witnessed an extraordinary expansion of the user base, which is expected to continue, albeit at
a slightly slower pace, over the forecast period. Surging broadband adoption is a key driver of
the rapid increase in internet access across the developing world. This has been made possible
by investment in infrastructure, with operators often leapfrogging outdated technology and
implementing latest-generation telecom architecture. By 2016, dial-up access may be all but
extinct in many countries.
Higher rates of PC, tablet and mobile phone ownership have helped spread internet access.
Growing demand for PCs has been driven by rising disposable incomes, falling equipment
costs, operator bundling strategies and government subsidies. As these factors have brought
internet technology within reach of more citizens, the number of users worldwide (with access to
the internet from home, work, mobile phones or via internet cafs) almost doubled between
2006 and 2011, to 2.9 billion.
China and India drive growth
Much of the global rise of the internet in recent years is attributable to the phenomenal growth
in China and India. The user base in these countries more than trebled in the five years to 2011,
reaching 513.6 million and 121.9 million, respectively.
The majority of Chinese cannot yet get on-line at home. Internet cafs are popular, with trade
sources reporting in 2011 that about a third of the countrys internet population goes on-line
from such venues. Nevertheless, broadband uptake has nearly trebled in China, with broadband

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internet subscriptions rocketing by 196% over 2006-2011. Of the countrys total number of
internet subscribers, 98.7% had broadband connections in 2011, a substantial rise from 65.8%
in 2006. The governments Broadband China project is intended to deliver high-speed
broadband connections to over 250 million households, both urban and rural, by 2015.
The take-up of internet services expanded quickly in India during the 2006-2011 period, as a
result of rising demand and more affordable prices of equipment and services. However, due to
the countrys relatively low income levels, the prices of computers remain out of reach for many
consumers, especially those in rural areas. The rapid increase in the number of web users has
been attributed to the growing popularity of mobile internet and connections in public places.
There were almost 7,900 cyber cafs across India in 2011; while a large number of internet
kiosks, which were set up by the government and development organisations in rural areas,
have helped to boost rural internet usage and narrow the digital gap between rural and urban
Indians. Broadband internet subscriptions accounted for 73.6% of all subscriptions in 2011, up
from 18.2% in 2006.
Other emerging markets that experienced triple-digit growth in their internet user base over
the 2006-2011 period included Russia, Indonesia, Turkey, Argentina, Venezuela and South
Africa. However, Russia is one of the few countries in which broadband connection is still not
highly developed. In 2011, there were still 41.4 million dial-up internet subscribers in Russia.
With more Russians transferring to broadband, the potential market for broadband ISPs is huge,
with dial-up providers likely to be increasingly squeezed out.
Obstacles persist in Latin America
Growth throughout Latin America has been slower. Obstacles for consumers include high
subscription prices, a lack of internet providers and limited access in rural areas. Businesses are
faced with still-widespread poverty and income inequality, inadequate fixed-line infrastructure,
and a deficiency in economies of scale. High-speed broadband internet subscription fees are
out of reach of most Latin Americans.
Growth in developed markets was also modest between 2011 and 2016, since a high level of
internet penetration has already been reached. In the US, which ranked second overall, the
number of internet users increased by just 18%, to 242.9 million users. In Japan, growth of 15%
brought the total number of users to 101.1 million.
Table 6

Number of internet Users by Country 2006/2011/2016

Million users

China
US
India
Brazil
Japan
Russia
Germany
Indonesia
France
UK
Mexico
South Korea
Turkey
Italy
Spain
Canada
Poland

Euromonitor International

2006

2011

2016

137,597
205,677
31,424
51,727
87,759
25,845
59,487
10,576
28,669
41,563
20,472
37,720
12,560
22,320
22,041
23,638
17,010

513,569
242,860
121,867
86,506
101,093
70,028
67,579
42,299
50,180
51,054
39,836
41,053
30,864
34,460
31,199
28,421
24,777

700,197
264,329
256,547
111,889
106,590
85,190
68,882
55,967
55,633
54,994
53,670
42,422
41,497
40,625
33,668
30,857
27,733

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10 GLOBAL MACRO TRENDS FOR THE NEXT FIVE YEARS

Argentina
Thailand
Australia
Malaysia
Taiwan
Netherlands
Venezuela
South Africa
Belgium
Sweden
Switzerland
Austria
Greece
Denmark
Norway
Source:

Passport

8,184
11,545
13,661
13,855
14,501
13,672
4,140
3,700
6,277
7,940
5,647
5,250
3,588
4,703
3,831

19,583
16,476
17,681
17,417
16,677
15,372
11,865
10,670
8,542
8,568
6,705
6,707
6,003
4,996
4,624

Euromonitor International

Access goes wireless


The internet is increasingly being accessed via smartphones and tablets, as consumers seek
convenience and mobility. Furthermore, many consumers in emerging markets, such as China
and India, cannot yet get on-line at home, and the growing smartphone market is tapping into
this demand. While nowhere near as widespread as current levels of broadband access, almost
one third of global on-line consumers have internet on their mobile phones. This was the second
most common type of internet access reported as part of Euromonitor Internationals global
consumer survey.
In March 2012, China became the first mobile phone market to exceed one billion
subscribers. This boosted mobile telecommunications revenues as a percentage of total
telecom revenues from 54.4% in 2006 to 74.8% in 2011. While 2G remains the dominant
technology on the market, Chinas 3G networks went on-line in 2009 after a long delay, and by
July 2012, the countrys 3G penetration rate was 16%. China is also trialling 4G, but industry
sources reported that licences will not be made available until 2014 or 2015.
Smartphones for all
The number of mobile phone subscriptions (including non internet-enabled phones) increased
in every country over the 2006-2011 period, and by a phenomenal 438% in India and 271% in
Indonesia.
Smartphones are already popular on the Chinese market, and in 2012 the country is projected
to overtake the US as the largest smartphone market in the world. Chinese internet firms such
as Alibaba and Baidu have come up with cheap handsets using their own mobile platforms, with
big-name players Lenovo, ZTE and Huawei also offering cheaper phones.
Indias wireless and mobile infrastructure has also experienced rapid growth, due to the
relatively low costs of providing mobile services in comparison to fixed-line services. The share
of mobile telecommunication revenues to total telecom revenues in India rose from 61% in 2006
to 75% in 2011, driven by a 4.5 times increase in the number of mobile phone subscriptions
during the period.
In an effort to boost rural mobile penetration and reduce the investment costs for mobile
operators, the Telecommunications Regulatory Authority of India (TRAI) has since 2005
supported a mobile infrastructure sharing policy. The initiative allows mobile operators to
cooperate with telecom tower companies in expanding their networks, thus making the roll-out
of mobile networks faster and easier. 3G services cover all of Indias major towns and cities, and
4G was launched in early 2012, providing a connection speed five times faster than 3G.

Euromonitor International

23,738
21,765
20,804
20,120
17,630
16,274
15,874
14,621
9,377
9,045
7,502
7,474
6,768
5,230
5,058

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Table 7

Passport

Number of Mobile Phone Subscriptions by Country 2006/2011/2016

Million users

China
India
USA
Brazil
Russia
Indonesia
Japan
Germany
Mexico
Italy
Thailand
UK
Turkey
France
South Africa
Argentina
Spain
South Korea
Poland
Malaysia
Venezuela
Taiwan
Canada
Australia
Netherlands
Austria
Belgium
Greece
Sweden
Switzerland
Denmark
Norway
Source:

2006

2011

2016

461.1
166.1
229.6
99.9
150.7
63.8
99.8
85.7
55.4
80.4
40.7
70.1
52.7
51.7
39.7
31.5
45.7
40.2
36.7
19.5
18.8
23.2
18.7
19.8
17.3
9.3
9.8
11.0
9.6
7.4
5.8
4.9

986.3
893.9
331.6
242.2
256.1
236.8
129.9
108.7
94.6
92.3
78.7
81.6
65.3
66.3
64.0
55.0
53.1
52.5
49.2
36.7
28.8
28.9
25.9
24.5
19.8
13.0
12.5
12.1
11.2
10.0
7.0
5.8

1,321.1
1,143.2
393.5
298.8
291.4
279.7
140.1
117.3
112.6
95.1
92.3
85.4
81.0
75.0
71.0
61.6
56.3
56.2
52.9
44.3
32.3
31.7
31.3
28.1
22.0
15.0
13.7
12.5
12.4
11.1
7.4
6.3

Euromonitor International

Implications
The world gets smaller
One of the key impacts of growing internet use is that it is making the world smaller, more
globalised and more homogeneous. The cultural references of the new net generation, who
communicate on a global level, listen to the same music, download the same videos, have
become similar the world over.
The internet also means that information now travels at lightning speed. Due to on-line
lobbying by NGOs and individuals, social and political issues such as animal welfare, greener
living, fair trade, gay rights, etc have gained public interest and are influencing consumers
attitudes and shopping habits the world over.
Micro-blogging sites in particular, such as Twitter, have been credited with fuelling mass
rebellion and riots in some countries and even across regions, as was the case with the Arab
Spring in 2011. In China, the government blocked Twitter in 2009, in response to disturbances
in the Xinjiang region, extending what has been dubbed the Great Firewall of China.

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Online crime
Another negative aspect of internet growth is that cybercrime has become one of the fastest
growing criminal activities in the world. This covers a multitude of illegal activities, such as
financial scams, computer hacking (according to Indias Ministry of Communications and
Information Technology, about 100 government websites were hacked during the first three
months of 2012), child pornography, virus attacks, stalking by e-mail and creating websites that
promote racial hatred. Cybercrime is costing the world billions every year, and is likely to
escalate in the future.
Information overload
One of the main uses of the internet is to look for information. The results of Euromonitor
Internationals global on-line survey across eight countries revealed that internet users often go
on-line to answer a question, learn what is happening in the world, or self-diagnose an illness.
Drugs companies are taking advantage of this by using health sites to advertise their OTC
products, or offering advice directly. For example, in January 2012, Pfizer launched
NutritionPossible, a health and wellness self-assessment intended to support its vitamin and
dietary supplement brands, particularly Centrum. Similarly, the Health Mart network of
independent pharmacies in the US launched Vitamin Finder in February 2012, which
recommends Health Mart private label vitamins and dietary supplements after users submit
answers to health-related questions.
As well as visiting news sites, many consumers turn to content-driven communities like
Wikipedia to learn about any number of topics. This has had a negative impact on the
newspaper and reference book publishing industries, which have seen a decline in sales of their
print publications and are having to find new ways to generate revenues.
In addition to searching for news and facts, consumers frequently look to the internet when
making buying decisions. For many, referencing the information and opinions shared on-line by
other consumers has become second nature, for example on sites such as TripAdvisor.
Euromonitor Internationals global survey of on-line consumers revealed that at least once per
month, more than 40% of respondents read on-line product reviews or consult a price
comparison website to find the best deal. This can be highly beneficial to small businesses,
such as independent hotels and restaurants, which would previously have struggled to gain
publicity.
Global shopping
E-commerce is an area that has benefited enormously from the rapid rise in internet usage
and has helped made the world smaller. In China, for example, internet retailing rocketed by
1,681% in real terms between 2006 and 2011, to RMB160 billion (US$22.9 billion).
Online marketplaces, such as Amazon, eBay and the Chinese rival Taobao, combined with
the development of more secure payment methods, such as PayPal, enable people to buy and
sell high volumes of goods all over the world. High street and shopping mall retailers have
already suffered declining sales as a result of the move towards on-line shopping, and this is
likely to intensify further in the future.
Nevertheless, on-line shopping has yet to penetrate the daily, or even weekly, life of most
consumers. Euromonitor Internationals annual survey of on-line consumers showed that while
almost three quarters of respondents had purchased a physical item on-line (excluding
groceries) at least once before, only one quarter do so on a monthly basis and a mere 10% do
so weekly.
Another consequence of growing internet use is that it has led to a movement away from high
street banks towards on-line banking. According to Euromonitor Internationals global survey of
on-line consumers, well over half of respondents regularly use an internet banking service.

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An industry report on Chinese banking published in 2011 found that the number of personal
on-line banking clients in the country reached 272 million in 2010, while corporate on-line
banking clients totalled 5.7 million. Government statistics indicate that e-banking grew by 32% in
2011 compared to the previous year, with on-line payment up by a similar amount.
The growing importance of social media
Social media sites, such as Facebook and Twitter, are fundamentally changing the way
people interact with one another, and the way consumers interact with companies. A successful
social media strategy will become a top priority for companies around the globe as advertising
becomes more interactive and consumer-driven. Core markets can be reached through targeted
advertisements that appear on websites visited by the consumer. Facebook pages allow
consumers to like companies or products and add comments, photos or reviews. Corporate
Twitter accounts have become commonplace and many firms now hire full-time staff to manage
their social media presence and brand.
Social media will continue to grow beyond social networking sites and blogs. It has already
expanded to become an element of almost every type of internet activity, particularly on-line
videos, music and gaming. These activities now combine passive consumption of content with
global social interaction: consumers can listen to music or watch a video and also share their
playlist with friends or comment on the video. Many streaming music services, such as Spotify,
are directly integrated with social networking sites, allowing listeners to share their favourite
music and playlists with their network. Sites like YouTube or the Chinese equivalents Youku and
Tudou (which are soon to merge) allow viewers from all over the world to comment on videos
that they watch, or even upload new videos.
Online video games can also be played as applications within popular social networks, such
as FarmVille. These games are then linked to the players profile and those in their network are
updated on their progress within the game or can even download the application themselves to
play together.
Companies will increasingly use these types of social media to explore new ways of
marketing to the consumer. Most free streaming music sites earn revenue from advertisements
that are periodically interspersed into playlists. These advertisements are often targeted based
on the location of the consumer, or even the type of music that they select. Other companies
have become sponsors of on-line games, offering real-world incentives (such as a discount on a
drink) to players. Many have also expanded their social media presence by regularly uploading
informational and marketing videos to sites such as YouTube.
The success of viral marketing
Successful viral marketing campaigns that have been an instant hit on YouTube have been
instrumental in creating a buzz around brands both small and large across the world, and
this trend is set to continue. The most successful viral campaign of 2011 Volkswagens The
Force clip, which originally aired during the February 2011 US Super Bowl broadcast, ended up
clocking a massive 63 million views worldwide during 2011.
The Chinese market will be more difficult for foreign brands to penetrate, as the Great
Firewall of China has blocked many top international sites, including Twitter, Facebook and
YouTube. However, the country has its own, heavily censored, equivalents. In May 2012, the
Wall Street Journal reported that micro-blogging site Sina Weibo had 29 million active daily
users and 300 million registered users. The Chinese social networking site Renren had 154
million registered users, while rival Kaixin001 had 120 million registered users in May 2012,
according to trade sources. The top local alternative to YouTube is Youku, which announced in
March 2012 that it would acquire rival Tudou.

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Crowdsourcing
Crowdsourcing, or group collaboration, has also been made possible with the rise of the
internet, and more use will be made of this cost-effective way of gathering information and
opinions in the future. A notable example of crowdsourcing is Wikipedia, which allows users
from all over the world to write and edit entries for its on-line encyclopaedia. Crowdsourcing is
burgeoning in China, with local crowdsourcing site Zhubajie reportedly having four million
contributors in 2011.
Chart 18

Global Use of Internet by Activity 2011

% respondents answering 1-2 times per week, or almost every day

Source:
Note:

Euromonitor Internationals Annual Survey


Covers eight countries:
Brazil, China, France, Germany, India, Japan, UK, USQuestion was
Thinking about your on-line activities, on average how often do you do the following?

Wireless communication
Rapidly developing technology continues to change the way that consumers use mobile
internet access to interact with one another and the world around them. From comparing prices
on smartphones while in store in developed markets to interacting via social media while on the
go in emerging markets, mobile internet use is varied and growing. Indeed, some industry
analysts speculate that mobile internet may overtake broadband as the primary form of internet
access in emerging markets, particularly regions with weak physical infrastructure.
Owners now look to their smartphones for internet browsing, social media, e-mail, on-line
shopping and even to determine where they are and where they are going. Euromonitor

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Internationals Annual Survey of on-line consumers showed that over three quarters of
respondents who own a smartphone use it daily for at least one of the aforementioned activities.
An increasing number of on-line consumers are accessing shopping websites via their mobile
phones in preference to PCs. Products and companies are meeting the needs of consumers by
facilitating instant purchasing, offering downloadable coupons, highlighting promotions or
special offers, and displaying customer reviews. This has been facilitated with the invention of
QR (quick response) codes, apps for which can now be found on nearly all new smartphone
devices. QR codes allow for a much larger amount of data to be encoded than barcodes, and in
a smaller space. They can quickly and easily link to content on smartphones, with apps allowing
consumers to download coupons, link to a brands website for more product information, or
compare prices in store.
The Euromonitor International survey found that almost two thirds of respondents with mobile
internet access visit social networking sites weekly using their smartphones. Smartphone
owners in China and India are particularly frequent social networkers, with almost three quarters
visiting or updating social networking sites via their mobile phones weekly.
Chart 19

Global Frequency of Mobile Phone Usage by Activity 2011

% respondents answering 1-2 times per week, or almost every day:

Source:
Note:

Euromonitor Internationals Annual Survey


Covers eight countries:
Brazil, China, France, Germany, India, Japan, UK, USQuestion was On
average, how often do you use your mobile/mobile phone to do the following?

Outlook
Internet user base to expand further
There is still significant potential for on-line activities and internet access to expand across the
globe. The number of on-line consumers in emerging markets, already some of the heaviest
internet users, is poised for further growth as standards of living rise and people are more are
able to afford the technology needed to go on-line. Indeed, according to a report by the UN

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Broadband Commission, the number of internet users accessing the web in Chinese is set to
overtake English language users by 2015.
Global internet growth will be slower than in recent years, as saturation is approached in
mature markets. However, the internet will continue to play an increasingly important role within
all aspects of life, from communication, politics and social interaction to retailing and leisure
activities.
Mobile internet may outstrip broadband connections as the top form of internet access,
especially in emerging markets, where the infrastructure needed to provide landline cables may
be lacking. This will provide opportunities for manufacturers of web-enabled wireless handsets,
as well as companies providing internet access, m-commerce and other mobile-tailored web
services. The latter holds perhaps the greatest opportunities, with a huge range of apps being
launched.
Social media will continue to move beyond social networking sites and integrate into more online activities, such as games, music and news sites, providing companies with more
opportunities for targeted, even interactive, advertisements. Above all, as new generations of
consumers enter the market they will bring with them a lifestyle where easy, even continuous,
access to the internet is the standard.
Cloud computing will be the way forward
The future will see stronger growth in the adoption of cloud computing technology, which is
seen as a more cost-effective and eco-friendly way of doing business. Cloud technology offers
companies or individuals storage and virtual servers that can be accessed on demand. This
enables them to use web-based services, including everything from e-mail to word processing to
complex data analysis programmes. These are hosted by remote machines, thus reducing the
need for in-house software and hardware. All the user needs is the cloud computing systems
interface software, which can be as simple as a web browser.
The market is developing fast, with market research company Gartner forecasting that the
global cloud computing services market would grow by 19.6% in 2012, to US$109 billion.
Amazon is still the largest player globally, but is being challenged by Microsofts Azure and
Googles Google Cloud Storage. Microsoft also offers free cloud services for consumers,
including Hotmail and SkyDrive; while Google officially launched Google Drive in April 2012,
which offers 5GB of storage space for documents, videos, photos, PDFs and other files.
In 2011, Verizon acquired cloud services company Terremark, making it the market leader
among telecoms carriers who offer cloud services, including AT&T and Qwest. In China, ecommerce giant Alibaba Group (owner of Taobao) has operated a cloud computing service
aimed at vendors and e-commerce service providers on its on-line shopping arms since 2009.
The service is used by over 20,000 on-line sellers and e-commerce service providers. In
October 2012, Alibaba Cloud Computing formed an alliance with software and IT provider
ChinaSoft International in a major cloud computing initiative targeted at companies and
government agencies.
Chart 20

Forecast Growth in Number of Internet Users by Country 2011-2016

% growth

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TREND 10: CHINA GOES GLOBAL


Trend Outline
A greater role in world trade
China is gaining an ever growing presence throughout the world through its exports and
investments. Not only are Chinese companies rapidly buying up assets in both developing and
developed markets, they are beginning to forge a reputation for themselves as manufacturers
and exporters of high quality branded products in their own right, thus posing a competitive
threat to Western brands both domestically and abroad.
Since the government launched its reform and opening-up strategy in 1978, China has
significantly increased its share of world trade, global markets for selected goods and capital
flows, and this trend is expected to accelerate over the next five years. China will also continue
to import increasing quantities of raw materials and semi-finished products from around the
globe, thus fuelling much needed global economic growth.
Overseas investments soar
In the past, most Chinese companies were focused on gaining share within the competitive
domestic market or serving overseas markets through exports. With growing incomes and
strong demand, Chinas domestic market held such potential that FDI was only necessary in

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order to secure China the natural resources and building the infrastructure needed to boost
international trade.
China began investing abroad in earnest in the mid-1990s, with investments largely
concentrated on developing countries and a handful of resource-rich developed economies,
such as Australia and Canada. However, China is now looking to become globally competitive
by pursuing higher levels of the value chain that were previously the preserve of developed
markets, and investments in developed economies are becoming an ever more attractive part of
Chinas overseas strategy.
In the five years to 2011, FDI outflows from China soared by 208% to US$65.1 billion, placing
it within the top 10 countries in the world, behind Russia and ahead of Germany. Although this is
still well behind the three leading countries for FDI outflows the US, Japan and UK China is
expected to rise rapidly up the rankings as it continues to pour money into foreign markets.
According to private equity firm A Capital, Chinas overseas investment reached US$$21.4
billion in the first quarter of 2012, having more than doubled from the same period the previous
year.
By the end of 2011, Chinese companies had invested in 177 countries and districts globally.
Around 70% of the investment was in Asia, 89% was in developing countries and 11% in
developed countries. FDI from China is, however, still largely the result of state-owned
companies investing in energy and resources companies in developing economies, such as
those of Latin America, Asia and Africa and the construction of new plants and facilities in these
countries. With preferential access to financing from state-controlled banks, Chinese stateowned companies are more able than those in other countries to make deals amid unstable
market conditions. Major Chinese deals in the first half of 2012 included the acquisition by
Sinopec of a 30% stake in Petrogal Brasil, the Brazilian subsidiary of Portuguese oil company
Galp Energia, for US$5.2 billion.
Focus shifts to North America and Europe
Since 2008, the focus of Chinese investors has begun to shift to North America and Europe.
While China accounts for only a very small share of total FDI in the US, this is growing strongly,
and the country has investments across a wide range of US industries. In early 2012, for
example, Sinopec invested in five shale oil and gas fields owned by Devon Energy Corp, while
China National Offshore Oil Corp (CNOOC) agreed to buy Canadas Nexen Inc for US$15.1
billion. Furthermore, Chinas Dalian Wanda Group bought the cinema operator AMC
Entertainment Holdings.
Over the past two years, the US government has stepped up its efforts to attract foreign
investors to the US, while several states have started to increase their efforts to target Chinese
investors specifically, opening offices and hosting road shows in China.
Some Chinese companies are taking advantage of instability caused by the euro crisis by
acquiring assets in Europe. For example, in 2010 Chinese conglomerate Fosun Group bought a
10% stake in French resort operator Club Mditerrane, and is now partnering with Club Med to
open resorts in China. In early 2012, China Investment Corp bought an 8.7% stake in UK utility
Thames Water, which according to A Capital was worth a substantial US$779 million.
Consumer goods companies are also looking to expand globally in order to extend their reach
to new countries, and some are achieving this via acquisitions. Chinas state-owned Bright Food
is one such company. In 2011, the company bought a 75% stake in Australias Manassen Food,
while its dairy business purchased 51% of New Zealand dairy Synlait. In May 2012, Bright
Foods purchased a 60% stake in British breakfast cereal company Weetabix from private equity
firm Lion Capital, with the intention of bringing the Weetabix brand into Asia to take advantage
of trends towards Western eating habits. Weetabix is already exported to more than 80
countries and generates annual sales of more than 420 million. Bright Food had previously

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tried unsuccessfully to buy stakes in the UKs United Biscuits and French dairy company
Yoplait.
FDI Outflows Top 10 Countries 2006/2011

Table 8
US$ billion

1. US
2. Japan
3. UK
4. France
5. Hong Kong, China
6. Belgium
7. Switzerland
8. Russia
9. China
10. Germany
Source:

2006

2011

% growth

224.2
50.3
86.3
110.7
45.0
50.7
75.8
23.2
21.2
118.7

396.7
114.4
107.1
90.1
81.6
70.7
69.6
67.3
65.1
54.4

76.9
127.5
24.1
-18.5
81.4
39.5
-8.2
190.6
207.7
-54.2

Euromonitor International

Export growth
In addition to investing in overseas companies, Chinese exports also continue to boom.
According to Euromonitor Internationals database, China overtook the US in 2007 to become
the largest exporter in the world. By 2011, Chinese exports were worth US$1.9 trillion, having
almost doubled since 2006. This was well ahead of the US and Germany, ranked second and
third with export value of US$1.5 trillion each.
China is a very important exporter of clothing and footwear. Clothing and accessories
represented the countrys largest export category within manufactured goods, with an export
value of US$154 billion in 2011, having increased by 61% since 2006; while the value of
footwear exports virtually doubled over the 2006-2011 period, to US$43.2 billion.
China has also become a major exporter of electronics and information technology products,
and is now the largest supplier to the US of consumer electronics products such as DVD
players, notebook computers and mobile phones.
Chart 21

Exports from China 2006-2011

US$ billion

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The rise of the Chinese brand


For years, Chinese-made products suffered from negative associations, such as cheap
components, poor quality and lack of safety. This was exacerbated by a series of quality
scandals accompanied by significant media coverage, such as the infant milk contamination
scandal. However, this image is beginning to change as several high profile Chinese brands
have entered the global arena and are looking to challenge the positions of established
international brands in the same way that South Korean brands such as Samsung and Hyundai
have done.
Millward Brown Optimors BrandZ Top 100 Most Valuable Global Brands of 2012 revealed
that an unprecedented 13 companies within the rankings were from China. While analysts point
out that the majority of these brands business is currently conducted within China, this is
nevertheless an important landmark and suggests that China is well on its way to developing
brands that could in future rival those originating from the major developed markets.
Learning from past mistakes
One reason for previous failures by Chinese brands to penetrate international markets was a
lack of marketing expertise, but this is changing as mistakes have been learnt from the past. An
example of this is when the leading Chinese drinks company Jianlibao attempted to crack the
US market in 1994, but failed to adapt its name in order to forge a connection with consumers.
By contrast, Coca-Colas Chinese name, Kekou Kele, not only sounds similar to the original but
translates as Delicious Happiness, producing a positive association in consumers minds.
White goods and consumer electronics are areas that hold strong promise for Chinese
brands. Among the largest success stories of recent years are the appliance companies Haier
and Midea, and electronics giant Lenovo.
The worlds largest manufacturer of air conditioners, refrigerators and other appliances, with
sales of US$23.6 billion in 2011, Haier opened a US factory in 2000, marking its first step
towards expanding beyond China. Haier initially had little success in competing with the
domestic giants Maytag and Whirlpool, except in niche categories such as mini-fridges.
However, the company has renewed its efforts and it was reported in 2012 that Haier planned to
open an R&D centre in the US to focus on larger size appliances designed with American
families in mind. In its domestic market, Haier continues successfully to fend off competition
from foreign brands due to its reputation for excellent customer service and its high level of
innovation. In January 2012, for example, Haier showcased its Brain Wave TV, which allows
users to control the action on their TV sets using their minds.
GD Midea ranked second globally in retail volumes sales of consumer appliances in 2011,
behind Philips. GD Midea has ambitions to be a global player in air treatment. In 2010, the
company acquired a 32.5% interest in Miraco, an Egyptian air treatment producer, and also
agreed a joint venture with United Technologies subsidiary Carrier to enter the Indian market
and acquired its Latin American air treatment interests.
Lenovo becomes a household name
Lenovo, a company founded in 1984, has become the worlds second largest computer
manufacturer behind Hewlett-Packard, with operations in more than 60 countries and a roster of
brands, including ThinkPad, ThinkCentre, ThinkStation, ThinkServer, IdeaCentre, IdeaPad,
Lepad and Lephone. The companys growth was partly thanks to acquisitions such as IBMs
computer business in 2005 and German computer manufacturer Medion in 2011. However, the
company also owes its success to its innovation, marketing and competitive prices.

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In computers, Lenovo continues to lead sales of desktops, laptops and netbooks in China,
with volume shares of 32%, 28% and 27%, respectively, in 2011. Following the successful
launch of Apples iPad in China, Lenovos newly-launched tablet, Lepad, seized share rapidly in
2011, reaching 19% in tablets in 2011. At the same time, Lenovo drastically cut the price of
Lephone in a bid to become more competitive in the smartphones category.
When Lenovo began to lose share in the US market in 2009, due to competition from Apple
and low-cost Taiwanese rivals, such as Acer and Asustek, it relaunched its ThinkPad brand with
a cooler, younger image aimed at consumers rather than corporate IT managers, who had
traditionally bought them for their reliability. A campaign began in 2011 with print advertisements
and on-line videos featuring urban hipsters and thrill seekers doing things like booting up a
ThinkPad while skydiving. Lenovo also unveiled a three-year sponsorship deal with the National
Football League. As a result of these efforts, research company IDC reported that Lenovos unit
sales in the US grew by over 6% in the second quarter of 2012, compared with an 11% decline
for the US PC market as a whole. This gave Lenovo an unprecedented 8% share of the US
market. Analysts estimate that in 2012 Lenovo will overtake Hewlett-Packard as the worlds
largest PC producer.
Other Chinese electronics brands that are making a name for themselves internationally
include TCL, which opened an R&D centre in the USs Silicon Valley in 2011; and mobile phone
manufacturers ZTE and Huawei Technologies, which are making deals with American carriers
for their low-cost smartphones. Furthermore, BYD, a manufacturer of cars and solar panels,
began operating in the US in 2011.
Raising the stakes in fashion
China is the worlds major exporter of textiles but until recently was considered a source of
cheap clothing for Western retailers, rather than a home for innovative design. While ChineseAmerican designers, such as Vivienne Lam, Anna Sui, Vera Wang and Jason Wu, are all
popular among Western consumers, designers from China are as yet little known. This is about
to change as Chinas designers prepare to burst onto the scene.
The sportswear brand Li-Ning, known by many as Chinas Nike, was founded by the
celebrated Chinese gymnast of the same name. The brand boomed after the 2008 Beijing
Olympics, when Li Ning was airlifted into the opening ceremony to light the Olympic cauldron.
However, by 2011 Chinese shoppers had begun to turn to cheaper Western brands, and profits
fell sharply. The company has revamped itself and is now sponsoring the Chinese Basketball
Association in a bid to restore its image, as well as setting its sights on international markets.
On the US market, Li-Ning initially had little success in competing with established giants like
Nike and Adidas and the company was forced to close its retail store on the West Coast after
just two years. However, it has now shifted its focus on-line with Digital Li-Ning, a joint venture
with Chicago-based marketing firm Acquity Group. Li-Ning successfully relaunched in the US in
March 2012, heavily branded with the slogan Straight Out of New China and featuring a
number of high-profile endorsements. Such was the demand for its special edition Year of the
Dragon shoes that it caused the site to crash. Fellow Chinese sports brand Peak also opened a
US headquarters in 2011, and its first US store in Los Angeles in early 2012. The brand has
over 6,000 authorised retailers globally.
Bosideng establishes flagship store in London
Two other upmarket Chinese fashion brands that are looking to establish themselves in the
West are Bosideng and Eve Enterprise. Bosideng had sales of around US$1,300 million in
2011, and operates more than 8,000 stores. The retailers first foray abroad was its opening of a
three-storey flagship menswear store in Central London in time for the 2012 Olympics. The
company intends to follow this up with concessions at three UK department stores.

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For Eve Enterprise, a presence in London is also seen as critical to building international
brand awareness. The company plans to open its first European store in Londons Notting Hill
neighbourhood by 2013, before expanding, eventually, to North America. With the support of the
British Fashion Council, Eve staged a catwalk show at London Fashion Week, in early 2012.
However, establishing a name as a high fashion brand in the West and in particular getting
the styling right for the Western market is a huge challenge for Chinese fashion houses. To do
this, they are partnering with local designers. Bosideng, for example, enlisted Nick Holland,
founder of UK mens tailoring brand Holland Esquire, and Ash Gangotra, the founding director of
singer Liam Gallaghers clothing label, Pretty Green, to launch Bosideng London, a new
upmarket collection designed for Western consumers along the lines of brands such as Hugo
Boss and Paul Smith.
Eve has also opened design studios in Western cities, including London, Milan and Paris,
which have enabled the company to enlist the expertise of employees who better understand
local tastes. Eves Chinese-influenced collections also have European-sounding names, such
as Eve de Cine, Eve de Uomo, Notting Hill, Kevin Kelly and Jaques Pritt.
Hi Panda is another successful fashion brand that has gained a huge following among
Chinas youth market and is beginning to expand globally. The brand is present in Japan and
South Korea, and by 2011 was being sold in 43 outlets across Europe and 50 stores in China.
The company also intended to enter the US market in 2012.
Domestic brands fend off competition at home
In other areas, many Chinese brands are successfully holding their own against the major
international players in their domestic market. For example, Herbal toothpaste brand Yunnan
Baiyao has managed to capture a 9% share of Chinas toothpaste market with its premium
brand after just five years, and is now targeting the bigger shampoo and pharma-cosmetics
segment, thus posing an ever greater threat to companies such as Procter & Gamble. Between
2006 and 2011, Yunnan Baiyaos sales more than tripled to US$1.8 billion, while profits
quadrupled. Furthermore, Hengan International Group overtook Procter & Gamble in tissues
and hygiene products in 2010 and held its lead in 2011 with a market share of 11%, marginally
ahead of Procter & Gambles.
Another Chinese cosmetics company has set its eyes on international expansion and is ready
to compete with global giants such as LOral. Shanghai Jahwa United, whose businesses
covers not only skin care products but also fashion services, spa salons, jewellery and boutique
hotels, gained almost RMB20 million in sales from overseas markets in 2010. With a 19% stake
in LVMHs Sephora beauty specialist retailer chain, Shanghai Jahwa sells its Herborist brand
through Sephora stores in European markets, including France, Italy, Spain, the Netherlands,
Turkey and Luxembourg, and plans to enter the North American market over the forecast
period. The company also relaunched its premium cosmetics brand Shanghai Vive in 2010. The
brand, which dates back to 1898, is positioned to appeal to luxury consumers in China and the
West by tapping into its heritage and Chinas growing global cultural identity.
Chart 22

Global Shares of Selected Chinese Consumer Goods Companies 2006/2011

% volume share

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Source:

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Implications
The advantages of Chinese investment
Chinas growth in FDI outflows and exports, and the globalisation of its brands will have
significant consequences on the economies and consumer spending choices of the rest of the
world. The Chinese investment boom has the potential to spur economic growth, jobs and
innovation in developed markets in the same ways that Japans have done since the 1980s. It is
reported that during the 2006-2010 period, employment opportunities provided to local citizens
by Chinese multinationals grew by 28% a year. In 2010, alone, Chinese multinationals
employed around one million people, 71% of whom were local citizens.
Facing stagnant economies and significantly lower levels of global FDI in their own markets,
many companies in the US and Europe will welcome the arrival of Chinese investment, as well
as the opportunity to divest some of their non-core assets. Furthermore, since Chinas
companies are in a weak position when it comes to running overseas operations and will need
help in establishing a presence in advanced market economies, the move of Chinese firms into
new markets will also offer plenty of opportunities for co-investments and partnerships.
Chinas export growth also has a positive effect on other Asian countries, which are
instrumental in providing supplies for Chinas final goods that are exported to the West. This
supply chain allows other Asian countries, especially smaller ones, greater access to global
markets.
Chinese investment in developed economies will also open up new opportunities in the
Chinese market, since it provides the Chinese government with the impetus to accelerate the
pace of opening at home. The Chinese government has declared that it will gradually open up
new categories to private and foreign investment. This could lead to new era of liberalisation in
China, offering wider opportunities for foreign multinationals in industries currently prevented
from entering the market.
The corporate responsibility challenge
Chinese companies often lag behind their peers from other, mostly wealthier countries, in
terms of Corporate Social Responsibility (CSR) and labour issues. According to data from GMI
Ratings, the New York City based Environmental, Social, Governance research company,
almost three quarters of the China-listed companies that operate in industries affected by
environmental concerns have not achieved ISO 14001 environmental certification, a globally

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recognised standard. In its 12th Five-year Plan (2011-2015), China urged companies investing
overseas to take their social responsibilities seriously and make greater contributions to host
countries social development.
A challenge for Chinese companies operating in the US and Europe will be learning to comply
with local laws and regulations, since they will be subject to US courts and litigation in cases of
improper behaviour.
The threat to Western brands
The influx of Chinese investment and brands will transform the competitive landscape in the
West. The acquisition of foreign brands and technology will make Chinese companies stronger
in their home market, which is in some cases currently dominated by international players
especially in the areas of cars or luxury goods. It will also help China to reach new markets
which are currently dominated by Japanese and Western companies.
At present, the main impact of the growth of Chinese powerhouse brands is on the domestic
market. These brands are threatening the growth of international brands that have until now
been coveted by the growing Chinese middle class. Consumers confidence in their domestic
brands is growing, with these brands gaining the same kudos that was previously attributed only
to foreign brands. An example of this is Xiaomis Mi-One smartphone, featuring a 1.5GHz
processor, a four inch (10cm) display, and an 8-megapixel camera, which recently began to be
distributed by China Unicom at a cost of just RMB1,999 less than half the price of comparable
models from Apple or Samsung.

Outlook
Overseas investment will step up
Experts expect Chinese companies investments overseas to see explosive growth in the next
decade. The Chinese economy is set for further strong expansion, with GDP growth forecast to
exceed 8% each year to 2016. Furthermore, Chinas Go Global strategy is part of the official
12th Five-year Plan (2011-2015), announced by the government in March 2011, and in a recent
survey of Chinese executives, some 80% said globalisation is a strategic priority and half said
they plan to be multinational players within a decade.
Developed countries have been earmarked as key recipients of Chinese investment. They
can expect to receive a substantial share of the US$1 to US$2 trillion in FDI that China will
make around the world over the coming decade. For US and European businesses, the growth
of Chinese investment may provide unwelcome competition both at home and abroad. However,
it also brings new opportunities to companies, such as divestment of assets, co-investment and
new business opportunities in China.
In order to remain globally competitive, Chinese multinational companies will make greater
efforts to engage in corporate citizenship as they expand into the global market. Over the long
term, these companies might even lobby the Chinese government for a level playing field at
home, once they are able to compete in a rules-based and sophisticated market economy and
see this as competitive advantage compared to less globalised domestic competitors.
The rise of the Chinese brand
Chinese brands will continue to close the perceived quality gap with foreign products, and will
gain share at the expense of well-established international brands as they sharpen their
branding. Fuelled by constantly improving technologies, a higher quality workforce and booming
domestic consumption, Chinese brands will flourish in areas such as white goods and consumer
electronics, IT and mobile phones, and fashion.

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In developed markets that are still suffering from recession and economic uncertainty, as well
as emerging markets with a growing middle class, the appearance on the market of Chinese
brands that offer similar features and quality to Western products but at lower prices will be
welcome. Indeed, the future could see Chinese tastes and preferences exert a greater influence
on global consumer products and services.
Furthermore, traditional barriers to the success of foreign brands, such as lack of heritage and
cultural differences, will become less prominent as the world becomes more homogeneous and
globalised. As a result of these trends, established Western and Asian brands will need to work
harder to retain market share.
Brands to watch
Hurun Research Institutes annual report shows the top 100 brands in China in 2011. The
report shows that, on average, top 100 brands had increased by 27% in value from the previous
year, and that there were nine Chinese brands worth more than US$10 billion. Many of these
brands are expected to grow significantly over the next five years and will turn their focus to
international expansion.
Many of the leading brands in Huruns list were from the financial services, real estate or
telecoms categories, which are excluded from the summary below. In terms of consumer goods
brands, the largest were alcoholic drinks companies such as Moutai and Wuliangye (worth
US$9.9 billion and US$7.5 billion, respectively), or tobacco players such as Chunghwa,
Huanghelou and Fu Rongwang. Wahaha was the largest food and drinks brand, with a market
value of US$4.4 billion.
Tsingtao Brewery is Chinas second largest beer brand, and has gained a presence in a
number of international markets. Tsingtao is a Chinese beer with German roots. Founded in
1903 by Anglo-German settlers, it is brewed to strict German standards and with mineral water
from Chinas Laoshan Spring. According to Hurun, the brand had achieved a value of US$2
billion by 2011.
Summary 6
Brand

Top 20 Chinese Consumer Goods Brands 2011


Sector
Market value (US$ billion)

Moutai

Alcoholic drinks

9.9

Chunghwa

Tobacco

9.8

Wuliangye

Alcoholic drinks

7.5

Wahaha

Food and drinks

4.4

Huanghelou

Tobacco

4.2

Fu Rongwang

Tobacco

4.1

Midea

Consumer
appliances/electronics

3.0

Liqun

Tobacco

2.9

Gree

Consumer
appliances/electronics

2.8

Yunyan

Tobacco

2.8

Luzhoulaojiao

Alcoholic drinks

2.7

Hongtashan

Tobacco

2.7

Lenovo

Digital and computer

2.4

Haier

Consumer

2.3

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appliances/electronics
Yurun

Food and drinks

2.0

Tsingtao

Alcoholic drinks

2.0

Metersbonwe

Clothing

1.8

Semir

Clothing

1.7

Changyu

Alcoholic drinks

1.6

Baisha

Tobacco

1.6

Source:
Note:

Euromonitor International from Hurun Most Valuable Home-grown Brands List 2011
Excludes services and pharmaceutical

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