By Michael J. Silverstein
The current trade dispute between the United States and China isn’t
the first and won’t be the last. This one involves auto parts. Earlier
it was solar panels. Before that: rare earth minerals. Next it will be
something else.
All of these disputes will be resolved in due course.
They are important for many reasons. But none should cause us to lose
sight of the promise China holds for U.S. companies, American workers,
and the U.S. economy.
China can fuel economic growth in the United States for decades to
come. U.S. companies that plant the flag early, learn Chinese consumers’
tastes, and are willing to go on the wild ride that lies ahead will win
the prize. The opportunities in India are nearly as great.
Currently, U.S. sales in China are only $124 billion per year: less
than Japan, Korea and Taiwan. Germany, with a much smaller economy than
America’s, sells China some $92 billion in manufactured goods. If you go
into a hotel in Shanghai or Beijing, the business travelers you see are
just as likely to be Germans as Americans.
In the years ahead, the majority of China’s 1.3 billion people,
including more than a billion upper- and middle-class consumers, could
be customers for U.S. branded goods. Our research indicates that these
consumers have their eyes on the same things generations of Americans
have demanded: a nice home, one or more cars, modern appliances and
conveniences, beautiful clothes, electronics, a good education for the
kids, better health care, and more travel and leisure.
The math, which most Americans haven’t yet done, is startling.
We have calculated that between 2010 and 2020, the people of China
and India will consume some $64 trillion in goods and services. Chinese
consumers will spend approximately $41.5 trillion, with annual
expenditures increasing from $2 trillion in 2010 to more than $6
trillion in 2020. Indians will spend $22.5 trillion, with annual
spending rising from $991 million to $3.6 trillion.
In China, annual per-capita income is projected to rise, on average,
from about $4,400 in 2010 to $12,300 in 2020; in India, it will increase
from $1,500 to $4,400.
Combined, they will be spending some $10 trillion per year by 2020 –
more than three times what they’re spending today. That’s the prize.
That’s where we want to negotiate: access, preference, open markets.
Due to rising incomes and longer life expectancies, we estimate
that Chinese children born in 2009 will likely consume approximately 38
times more than their grandparents during their lives; Indian babies
will consume 13 times more than their forbears.
China’s upper-income bracket will nearly quadruple, from 24 million
to 91 million households; its middle class will grow from 109 million to
202 million households. India’s upper-income bracket will increase from
about nine million to 32 million households and its middle class from
63 million to 117 million households.
What these newly affluent consumers want is more and better – and now.
For more than a decade, we’ve been studying changes in consumer
sentiment in the world’s most important economies. Our most recent
findings show that 36 percent of Chinese consumers and 19 percent of
Indians expect to increase their discretionary spending in the next year
– compared to only 11 percent of Americans, 8 percent of Europeans, and
5 percent of Japanese.
Granted, forecasts presume stability and can be knocked off course by
economic downturns, natural disasters, political unrest, and unchecked
corruption. The road ahead may be rocky.
Chinese and Indian entrepreneurs and executives understand precisely
what’s happening. They have witnessed tremendous new government
investments in infrastructure; they see booming cities; they see
hundreds of millions of new middle class consumers ready and eager to
spend. As a result, they see boundless future opportunity. Some
confidently predict that their businesses could grow by a factor of ten
in the next ten years.
We believe U.S. companies could – and should – be growing with them. China shouldn’t be feared; it should be welcomed.
By the end of this decade, there will be a billion middle-class
consumers in China and India. Their buying power could reenergize the
U.S. economy. It’s time to embrace the possibilities, understand Chinese
and Indian consumers, and market the American Dream to them.
Michael J. Silverstein is a senior partner of The Boston Consulting Group (BCG) and co-author, most recently, of The $10 Trillion Prize: Captivating the Newly Affluent in China and India (Harvard Business Review Press, October 2012).
www.forbes.com
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