SOURCE: The Boston Consulting Group

The Boston Consulting Group

March 04, 2010 00:01 ET

New Methodology From The Boston Consulting Group Helps Global Companies Capture Spending Power as China's Middle and Affluent Class Rapidly Expands

In 2005, a Consumer Company Doing Business in 70 Cities in China Could Reach 70 Percent of the Middle and Affluent Class; to Achieve the Same Coverage Today, a Company Must Be in Nearly 240 Locations; by 2020, That Number Will Exceed 400, According to a New Report From The Boston Consulting Group

BOSTON, MA--(Marketwire - March 4, 2010) -  China's persistent growth, despite the economic crisis, will bring close to 100 million households into the middle and affluent class over the next decade. Consumer spending power will double in nearly a quarter of China's cities.

In The Keys to the Kingdom: Unlocking China's Consumer Power, BCG's analysis of disposable household income in China indicates that its rapid increase across the country has magnified the complexity that companies encounter in serving the emerging middle and affluent class as it expands out from the largest coastal cities to the northern and western provinces. According to coauthor Jeff Walters, by 2020 nearly 800 urban locations will have real disposable income per capita greater than Shanghai's today. Even rural China can be an attractive market for some companies and an engine for growth after most of urban China has been reached. But with the highest incomes in some rural areas as much as 30 times greater than the lowest, picking the right markets to enter is critical.

China's dynamic environment has implications for all companies. Those that have been growing need to ensure that they are building a sustainable economic model, not just blindly pursuing "white space." Laggards can capitalize on market dynamics and quickly catch up to the leaders by winning in newly important locations. Market leaders will need to reevaluate their plans for resource deployment and expansion to maintain positions in markets where they are strong and establish new leadership positions in markets with rising spending power. Making the wrong decision today about regional expansion will impose a high penalty on a company's ability to reach the most valued consumers in the future.

"In China, scale is king," notes coauthor Hubert Hsu. "Not only must companies choose the right places to enter for long-term growth, they must cluster them to ensure competitive scale economies across China's vast country." That puts enormous pressure on knowing which locations are most appropriate for a company's business model.

Lack of reliable data is often cited as an excuse for shortcutting this critical step. "Too often, companies use off-the-shelf statistics, highly generalized data on city rankings, or generic definitions of clusters instead of the complex analysis needed to accurately prioritize and group locations," Walters points out. "That can result in a misallocation of funds in a market where competition is intense, regional variations are significant, and capable talent is scarce. Instead of simplistic approaches, companies need customized solutions for China's dynamic market."

In the report, BCG describes its new flexible and field-tested methodology for helping clients expand their geographic footprint on the basis of their specific business model and competitive dynamics. The methodology is supported by a proprietary analytic model for forecasting the size of different income segments through 2020 for all of urban and rural China, including some 650 cities and 1,600 counties. Companies can use BCG's methodology to run a variety of scenarios on future economic growth and income inequality to stress-test results. 

To receive a copy of the report or arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 68 offices in 39 countries. For more information, please visit www.bcg.com.