In 2020, Asian GDP will outstrip the rest of the world together. The region is expected to contribute around 60% to global growth by 2030. The Asia-Pacific region will also be responsible for the vast majority (90%) of the 2.4 billion new middle class members entering the global economy.
Most of this growth will come from the developing markets of China, India and Southeast Asia and will result in numerous new decisions for companies, governments and non-governmental organizations. They are pressured to direct the development of Asia in a just manner that is directed towards solving numerous social and economic problems.
Different countries, different perspectives
While these estimates provide a picture of massive consumer growth, consumption patterns will vary across markets, with growth rates depending on local demographics and other macro factors. For example, China’s aging population will have a negative impact on population dividends, as the work of the World Economic Forum on the future of consumption in fast-growing consumer markets shows, but rising wages, urban migration, service jobs, and an expected decline in household savings rates will boost consumption , India’s massive demographic dividend and emerging middle class will boost consumption and stimulate economic growth.
In Indonesia, the Philippines and Malaysia, the number of employees is expected to increase significantly, which will lead to an increase in disposable income per capita. The rapidly advancing digital economy in the region will provide additional access to previously unserved and consumer needs for convenience and efficiency.
A new consumer profile
All of these macroeconomic forces lead to a bipolarization of consumption, in which consumers have more power and at the same time demand both high quality and inexpensive goods and services. The consumer of the future will likely be far more demanding, from what they consume (personalized / localized / healthy / sustainable), where they shop (omnichannel, shop at will) to their influence (less by businesses and consumers) more from social communities).
Local and regional actors are gaining ground
A trend that will play an increasingly important role is that local and insurgent companies outgrow the established companies and begin to disrupt the market. It is equally visible in developed and developing markets. Nimble local players win by using proprietary access and local familiarity. For example, Wardah has captured a 30% market share in Indonesia by focusing on halal-compliant cosmetics.
Another benefit for local businesses is the commitment to short-term weather turmoil. In an Indonesian conglomerate, the C-Suite’s view is to take a worldly view, invest it and stay on course – and not worry about the quarterly or annual fluctuations in results.
We also see the emergence of an Asian multinational – Huawei in technology, DBS in banking, Unicharm and Kao in personal care; and Suntory, Universal Robina and Indofood in F&B to name a few. Entrepreneurship peaked in Asia in 2019 with more than 140 unicorns. China is a leader in the number of patents for artificial intelligence and deep learning.
Questions for companies
The Asian era is here and as companies step up their ambitions and efforts, they have to ask themselves some basic questions. The most important:
- Do we have a strategy for the future (we imagine the future and then work on the steps required to position a company for competition in 10 or 20 years) that is right for the dynamics of the region?
- Are we building future-proof competitive advantages and business models?
- What do our consumers want, which new products will meet their needs, how can they best be addressed and served?
- How do we deal with data?
- Do we have a sustainability agenda that will help support this consumption boom without affecting the planet even more?
- How should we organize ourselves to be extremely agile to make the most of this unprecedented opportunity?
A changing job market
Governments in developing countries in the Asia-Pacific region are fighting poverty, lack of infrastructure and other key obstacles to keep pace with the rest of the digital world. The digital transformation and the fourth industrial revolution in the markets will replace existing jobs, and the distribution of jobs across sectors will change significantly.
Healthcare employment is expected to increase, which is being spurred on by the aging population, for example. In labor-intensive sectors such as production, transportation and storage, however, a decline in employment levels due to automation is expected. It is expected that 53 million workers will have to be trained in ASEAN alone. This dynamic is further complicated by the rise of the gig economy, in which qualified graduates take on jobs as drivers and couriers for the delivery of food.
The new focus on sustainability
Sustainability and its environmental, social and economic impact will continue to increase on the agendas of governments and NGOs in the region. Both the institutional definition and the business scope will be expanded to cover topics from health and wellness to diversity and equal opportunities. Investors must also do their part: Many large investors in the Asia-Pacific region have started to switch from primary industries such as oil and gas, mining and agricultural commodities to business models that address ecological and social needs such as renewable energies and for- Benefit from hospital networks, the underserved population groups have better access to health care.
A difficult balance for the government
As this future unfolds, governments need to do a few things right. They need to create trade and investor friendly reforms that promote social and financial inclusion, invest in hard and soft infrastructure and enter into public-private partnerships. They need to innovate and reform the education system to ensure that there is a competitive and skilled workforce. As they take these steps, they must balance technological advances, job creation and talent retraining, economic development and sustainability, and scale the benefits and concentration of power. Southeast Asia’s ability to realize its growth potential will largely depend on it.