Capturing the world's emerging middle class

It seems that the MNEs will have to take advantage of the exponential growing middle class in order to make exponential growing profits. In this essay, I'm going to explain a little bit the steps that they are taking into account in order to keep growing middle class in mind, a good focus to find new oportunities after the biggest Financial crush of the history, which I'm going to write about this weekend.

The middle class consumers are not only growing in the well known BRIC countries, but also in other ones. This group of people is spending a total amount of $6.9 trillion annually, and It's expected to rise up to $20 trillion during the next decade, which is the double of current USA consumption.

There always has been opportunities to MNEs to take advantage of increasing-level of income groups of people, and so it seems it will happen again in the following years.

But is not everything that easy, as multinational are challenging competition in emerging markets, which have local firms growing exponentially thanks to the known of the market, thereby decreasing political, economical, cultural and currency risk. Local competitors will always have advantage over foreign firms as governments want to increase potential of their own firms, which increases local GDP, rather than giving the opportunity to MNEs to use local resources in order to increase the GDP where the main offices are located.

The potential of this local competitors is not only the government aids, but also the potential to fill the small gaps were MNEs do not arrive, or it's more difficult to arrive. Lets focus on Hangzhou Wahaha for instance, which is a Chinese beverage maker brand which has invested $5.2 billion in order to kick Coca-Cola and PepsiCo out from the low-income markets by selling to rural areas which require low-costs products, require cultural knowledge in order to fulfill their needs, and focusing on patriotism.

Coca-Cola finds this market such a small place that doesn't want to get into it. They prefer to focus on already middle-class markets in order to keep the brand name, keep their marketing image, and do not reduce costs, which would put a black mark on the name of Coca-Cola.

Coca-Cola has performed good in its entrance to the Chinese market though. Even when they knew that black color represented the death for the chinese people, and knew that the occidental name wouldn't get presence in that market, they decided to get into it. But reducing the cultural risks and adapting its product to the chinese market, culture and behavior.

They did so by changing its name to (ké kôu ké lè) which means delicious happiness, and changing its black color to red, by adding some colorants into the drink. What they achieved with that was to get consumer confidence in order to be able to change again to black color some years later once they already had presence in that market and were sure they were not gonna lose it by giving a black color to their drink.

Another strategic way for MNEs in order to get into the foreign emerging markets and succeed is to take advantage of the well-knowing culture of their employees. Although they are not well prepared and so they don't know how to manage a multinational, it seems that MNEs are focusing some expenses in training their local employees by building inside business academies that promote leadership and needed skills in order to succeed on the management of such big projects. It will also be better for MNEs to take advantage of this, as it's way easier to teach a chinese how to manage a business, rather than taking an american and teaching him or her during 30 years about what are the chinese needs, what is their culture, how they act in each circumstance, how they feel and how they are.

A good example of all things stated above is China. The second potential in the world. Chinese government will have to open their mind even more internationally if they want to finish being the first potential in the world. They are restricting foreign brans such as Facebook, Yahoo or Google in order to give strength to local internet brands and local social networks such as QQ, which already have more than $600 Million chinese users.

Chinese governments also give preferences to local potential brains by having rules such as restricting the entrance of MNEs if they don't have a local CEO into the brand. The idea of this model is to get the management know-how of that firms and the high-tech know-how in order to give this added value to local competitors.

In my opinion, China is doing good right now by giving preferences to local brands in order to increase their knowledge, but they'll have to be open-minded once they get the sufficient know-how. As we all know, the more open minded, the more earnings, prosperity and innovation a country gets. But it's not time to this now. Now it's time to give local competitors enough advantage to get into the exponentially growing middle class in order to increase their power to be able to compete against global brands such as BMW, Mercedes, Coca-Cola, and so on.

Let's see how all of this will perform in recent years.

Marc Ramon Hernández
Based on McKinsey Report, Emerging Middle Class