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.
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