LEAD FEATURE
In contrast, China has a more developed retail landscape. “We can add value to retail in India where we could not in China,” says Paver. “There are plenty of chain owners operating 2,000 to 3,000 stores in China so where can we add value? In India our knowledge is still valuable.” India is not the only opportunity. Where
there was once only Brazil, Russia, India and China – according to the BRIC acronym coined by Goldman Sachs – now there are the BRICS. This month, India hosts the fourth BRICS summit in New Delhi – the fi rst time leaders from South Africa (the ‘S’) will participate since the club was extended last year. And Jim O’Neill, the Goldman Sachs economist who is credited with coining the original term, now talks freely of the ‘Next 11’: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.
Brazil and Mexico are driving the rapid rise of middle-class consumption in Latin America. A study by the Foreign & Commonwealth Offi ce’s economics unit last year highlighted that the region’s middle class had doubled in the last 30 years to 274m. By 2030, it is predicted to hit 450m – matching the European Union’s current population. Brazil accounts for almost 40 per cent of the current middle class, with Mexico at 25 per cent. This is creating opportunities for businesses selling to the emerging middle class and also for the local companies that already serve them. As discretionary spending increases, so recreational activities such as watching motorsports become more common, and as attendances rise, the commercial value of the activity increases. For the commercial organisers, this means rising standards and a willingness to pay a premium for the best.
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Kharas observes that the G7 economies’ global income share has already fallen to new post-World War II lows, and by 2034 could be just 24 per cent
RACING AHEAD Enter Berkshire-based Xtrac, which landed contracts two years ago with the organisers of Brazil’s leading stock and touring car races. Peter Digby, chairman of Xtrac, says the rise of discretionary spending has been a big factor in his company’s success. “People start off buying the cheapest,” he says, “but as the market matures around the world, after a while they start to look for value for money. Xtrac has never gone in being the cheapest, but we offer other things – durability and customer service.” Adopting the model it had applied successfully in the US for the Indianapolis 500, which it has supplied for 11 years, every racing team taking part in Brazil’s competitions now has to have an Xtrac gearbox. Digby says: “We are now looking closely at Asia - where we need to be based and what we need to offer.” Xtrac enjoyed a record year in its 25th anniversary in 2011. “We are busier than we have ever been,” explains Digby. “We have taken on 60 people in the last 12 months and now employ 280.” The map of the global middle class is changing all the time. Consultants McKinsey & Co examine d the 600 cities that account for 60 per cent of global
GDP and worked out that over the next 15 years the population of this group will shift east and south. It forecasts that by 2025, one in every three development- country cities that sit in the 600 today will fall out. And new urban giants will emerge among developing economies. McKinsey & Co expects that 100 of the 136 new cities to enter the 600 will be in China, including Harbin, Shantou and Guiyang. India will contribute 13, including Hyderabad and Surat. From Latin America, Cancun and Barranquilla will emerge among the elite, it predicts. Alongside UK strategies to grow manufacturing, this change in the global status quo means exporters potentially have a once-in-a-generation opportunity to expand rapidly. As John Cridland, the CBI’s director general, told The Daily Telegraph recently: “In the next decade, it could be our decade rather than the Germans’. The Germans did it with capital goods exports. We in the next decade can hoover up the available demand from the emerging middle classes with money; of Mexico, Indonesia, China and India and all those other countries. We have the consumer products and services that those middle- class populations want to buy.” ■
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