By 2025, annual consumption in emerging markets will rise to $30,000bn – up from $12,000bn in 2010 – and it will account for nearly 50% of global consumption, according to a report by global management consulting firm McKinsey Global Institute (MGI). MGI's forecast takes into account a new consuming class in emerging markets in the coming years, and predicts that within 15 years almost 60% of the 1 billion households with earnings of more than $20,000 a year will live in the developing world. Accordingly, emerging market consumers will account for the majority of global demand and their preferences will drive global innovation in product design, manufacturing, distribution channels and supply chain management.
By 2025, the number of people in the consuming class is set to exceed the number of those unable to fulfill their basic needs in developing countries. This development has been referred to by MGI as “the biggest growth opportunity in the history of capitalism”. MGI reported that the urbanisation of developing markets will power developing countries’ economic growth, and more than double the size of the consuming class in developing markets to 2.4 billion people.
Indeed, long-term trends such as the integration of peripheral nations into the global economy, the removal of trade barriers and the spread of market-oriented economic policies has led to increased development among emerging economies. MGI’s research suggests that by 2025, the consuming class will further expand to 4.2 billion consumers, out of a global population of 7.9 billion.
Demographically, it will be people in their 20s and 30s that will lead the growth of developing countries’ consumer base. According to MGI: “These new consumers have come of age in the digital era… [And] already, more than half of all global internet users are in emerging markets.”
MGI's recent survey of urban African consumers in 15 cities from 10 countries found that 60% owned phones or smartphones that were connected to the internet. As e-commerce and mobile-payment systems spread to remote regions, emerging consumers will shape as well as participate in the digital revolution, leapfrogging developed market norms.
Nonetheless, MGI found that multinational firms have been slow to act upon this, owing to the complexities related to operating in developing countries. According to MGI, in 2010, 100 of the world’s largest companies headquartered in developed economies derived just 17% of their total revenue from emerging markets. This is in spite of finding that emerging markets accounted for 36% of global GDP and are likely to contribute more than 70% of global GDP growth between now and 2025.