Asia’s consumer base is big. The continent contains more than 60% of the world’s human population – 3.96 billion people in 2006 – and more than 600,000 communities and numerous subcultures. Economies such as China, India, Japan and the countries of the Association of South-East Asian Nations (ASEAN) provide a big middle-class base of consumers. Companies are constantly trying to find ways of extracting more profits out of this diverse and large regional market. Among the richer economies, like Singapore, the top consumer expenditure items are transport and communication, rent and utilities, food and beverage, and leisure.

Asia’s private consumption expenditure is now declining but expected to grow in the medium term. The IMF reported that consumption as a share of gross domestic product in emerging Asia is low by international standards and has been declining for some time. This is due to increased precautionary savings caused by the Asian crisis, reduced economic growth, limited social safety nets, population ageing and tightened domestic bank credit.

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However, the factors that have caused decreased consumption are themselves beginning to change. An increasing number of workers are expected to retire and consume out of their savings. Consumers have become less cautious in the wake of the Asian crisis. Ongoing banking sector reforms, such as improved risk management systems, can lead to the development of household credit instruments. These potentially can reduce precautionary savings in the medium term to 2015 because households would be less likely to save for emergencies.

Infrastructure improvements can lead to the growth of private consumption expenditure. Consumption of durable goods and services depends on the availability of infrastructure such as roads, electricity, telecommunications and health services. At present, Indonesia, China, India and Philippines are below the global average.

Asia’s invisible market segment

Having money answers many problems and reduces social tensions. Poverty is a curse that needs to be continuously addressed and reduced. I like what Dr CK Prahalad wrote in his book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits. Once more businesses are convinced that the microbottom-of-the-pyramid segment offers good profits. If their goods and services meet the segment’s needs, these people will sow into the businesses with their microspending. This creates a magnet for more businesses to serve the BOP, attracting supporting businesses. In turn, the BOP gets more employment due to the lower technology involved (with lower consumer sophistication). More BOP jobs with microcredit financing for mini-entrepreneurs mean one big way to alleviate poverty.

Of the 690 million extremely poor people in developing countries of Asia, 93% are in India; and more than 80% of Asia’s poor live in the countryside. If every one of them spends $1, this amounts to $690m – not a small sum by any means. Businesses should reconsider this oft-ignored segment and identify opportunities to miniaturise and simplify their services, for example providing cheaper independent power plants or $100 computers to serve the rural areas, exporting cheaper just-turned-obsolete or slightly blemished goods to these areas, establishing low-charging entertainment establishments and other creative goods and services not yet thought of. Some of our clients earn their millions in revenues by value-serving the BOP with goods and services priced in cents.

Just think of the potential Asia BOP market size and the effect it will have on corporate profits for companies that can serve the needs and improve the well-being of those 690 million people, to help them climb slowly out of poverty.

Businesses that can patiently study the needs of Asia’s poor and aged, help improve infrastructure, execute and deliver excellent goods and services and serve them well will themselves be blessed. Who knows: one of the poor customers you serve now may become the likes of Mochtar Riady, the billionaire who rose from poor circumstances in Jakarta to become a highly successful executive at the private Bank Central Asia before founding his own empire, the Lippo Group, which has assets worth billions.

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Serve the poor and the aged well and your own business might well be shining brighter in the marketplace and in the wallets.

Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services.

E-mail: Lawrence@asiabizstrategy.com

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