Guest Commentary

By Dominic Barton

 

Asia is changing beyond all recognition. At the heart of the most sweeping social and economic transformation the world has seen is the rise of a powerful new—largely urban—consuming class. Asia is already home to over 800 million middle class consumers who aspire to the same lifestyle we do: a car and a smart phone; time to travel and enjoying dinners at restaurants. China’s urban middle-class population alone is already almost seven times the size of Canada’s population. And the pace of change is extraordinary. By 2025, the Asian consuming class will swell to over two billion people and spend an estimated $22 trillion, nearly one-third of global consumption. Just five years later, Asia’s consuming class will comprise 2.7 billion people. This is not just a story of China and India. In Indonesia, for example, 90 million people—2.5 times Canada’s population today—will join the consuming class.

The rise of Asia’s middle class has enormous significance for Canadian businesses. Their rising consumption creates markets for food, manufactured products, and services, which in turn fuel a rapacious appetite for energy and natural resources.

To capture the opportunity, Canadian companies need to arm themselves with an intimate understanding of the new Asian consumers. First, on the consumption and services front, they need to locate these consumers—and with forensic precision. Asia is obviously a very diverse market and the consumer profile of its cities varies widely. To build an effective strategy, companies need to go beyond national plans and look at the opportunities by city. Take three examples. For a medical products company looking for “silver cities” with a growing number of older, upper middle class consumers, five of the global top 10 hot spot growth cities are in China: Beijing, Shanghai, Tianjin, Chongqing, and Nanjing. For a company selling diapers or baby food, the cities with the largest opportunities in Asia are Mumbai and Delhi. For providers of financial products and services, cities in Indonesia offer an important market, not just in Jakarta but in rapidly expanding midsize cities such as Balikpapan and Samarinda.

Second, they need to understand the diverse and evolving tastes of the Asian new consumers. Across the region, the number of higher income households is rapidly expanding. These consumers are more international in their outlook, more willing to pay a premium for quality products, and often young. They consume more services, from education and healthcare to foreign travel. Last year, in China alone, 80 million people traveled abroad as tourists – a number that is rapidly expanding. With our country’s natural beauty and diverse population, Canada is well positioned to become a top destination for Asian tourists and students.

Providing the food, energy, and natural resources needed to produce and deliver these goods and services also represents a significant opportunity for Canada. By 2030, global demand for food is expected to rise by over 25 percent, mostly in Asia– and fertilizer demand by 50 percent. Global steel demand is poised to grow by 80 percent; energy demand by a third. With its rich resources, Canada has an opportunity to have, for instance, some of the first liquefied natural gas export terminals ready to meet the rising demand in Asia.

Canada should also capture its share in building and satisfying the enormous need for infrastructure in Asian cities to cater to their burgeoning consumer classes. The region’s cities need to more than triple annual physical capital investment from around $4 trillion today to almost $13 trillion by 2025. Across Asia, the investment needed for municipal water infrastructure alone is an estimated cumulative $190 billion by 2025. Asia’s global port container handling capacity needs to expand 2.5 times by 2025 in order to handle the rising volume of consumer goods trade and their supply chain logistics. British Columbia – on this side of the Pacific – is also particularly well positioned to benefit as a North American entry point.

Asian middle-class consumers are transforming not only their region’s economies, but world markets. Canadian businesses that identify where the growing consumer markets are, how they change demand for natural resources, and what infrastructure is needed to cater for their needs can carve out very lucrative new opportunities. 

 

Dominic Barton is the Global Managing Director of McKinsey & Company. He is also on the Board of Directors for the Asia Pacific Foundation of Canada.