The Hindu Business Line : Spend force

The rich Indians do not shop in Singapore, they shop at the best of places in Europe! But the rich Indonesians are holidaying in Singapore; many of them are in this hotel (Four Seasons).

Dr Yuwa Hedrick-Wong

A mind-boggling business opportunity of over $600 billion is awaiting those business houses that target the fast growing affluent people in Asia. About 11 million of these wealthy households will be in `affluent Asia' and over 58 million in `emerging Asia' by 2015, says a study done by Dr Yuwa Hedrick-Wong, Asia Pacific economic advisor to MasterCard Worldwide.

Published as a book, Succeeding like Success (John Wiley & Sons), which was released in Singapore last month, the study provides an interesting insight on the pathways to success, behaviour patterns and spending habits of the rich in Asia. Australia too has been included in this study and forms a part of `affluent Asia', along with Hong Kong, Japan, Korea, Singapore and Taiwan. Emerging Asian countries included in the study are China, India, Malaysia, the Philippines and Thailand. Incidentally, India is the only country from South Asia in the list that will determine targeted marketing of consumer goods and services, particularly luxury goods and international travel.

Dr Yuwa has done an interesting compilation of the three pathways to affluence — inheritance, pioneering and professional. The chapter on the affluent Indian consumer notes: "If there is a business aristocracy in India, it will have to be the Tatas. The Tata business dynasty was founded in 1868 by Jamsetji Tata, making the business 138 years old in 2006. As a business house Tata Sons has been famous for its entrepreneurial energy and vision and Jamsetji set the pattern," notes the study, relating a tale Indians love to listen to, again and again.

"After being refused entry to a hotel reserved for the British in Bombay, he built the legendary Taj Mahal Hotel on the waterfront of the bustling city, opposite the India Gate. The Taj chain of hotels and resorts today is among the best in India and neighbouring counties. J.R.D. Tata, two generations and a few decades later, pioneered commercial aviation in India winning the colonial government's grudging approval."

Rata Tata, who is now riding a wave of admiration and awe for Tata Steel's acquisition of Corus, is credited by the Canadian economist for the "remarkable process of rejuvenating the moribund business that seemed to have lost focus and (had) been suffocating under the licence raj. Educated at Cornell University and Harvard Business School, Ratan Tata began to professionalize management, and moved to invest aggressively and successfully in the booming IT sector by launching Tata Consulting."

Pioneering Pathway to affluence

Succeeding like Success: The Affluent Consumers of Asia By Yuwa Hedrick- Wong
Publisher: John Wiley & Sons

In the pioneering pathway to amass wealth, Dr Yuwa puts Infosys' Narayana Murthy, "one of the many brilliant Indian entrepreneurs who successfully rode the new wave of information technology and the Internet to establish world class businesses, amass fabulous personal fortunes, and create hundreds of thousands of well paid jobs for young and well trained Indians."

Along with the Indian IT czars, Dr Yuwa also details the case of Reliance's Dhirubhai Ambani who charted a "completely different way to succeed as a pioneering entrepreneur under the licence raj". The child of a humble schoolteacher, Dhirubhai worked in Eden for eight years in a variety of "menial jobs for Arab merchants and traders in oil and textiles. Returning to India in the 1960s, he set himself up as a trader in the then Bombay, touting his Middle East connections as an asset. What set him apart from the crowd of all the other traders, everyone as sharp and shrewd as the next, was that he was able to find a way to work the licence raj to his advantage — amassing a personal fortune and making a mockery of Nehru's comprehensive planning.

"Operating out of a borrowed pigeon-hole of an `office' in Bombay's Bhaat Bazaar, he spent the day chewing paan and drinking tea with other bazaar traders, scheming deals that would allow him to bypass government regulations or subverting them to his own advantage."

The affluent Indian professional

But rather than these two routes to wealth, it is the "professional pathway to affluence" that will give those targeting the Indian market their big numbers, points out Dr Yuwa. Tens of thousands of well-paid new technical jobs are being created each year in the IT sector by both Indian and global IT majors such as IBM, Oracle and SAP. These companies are the points of entry "for well educated and skilled Indians to join the ranks of the mass affluent, defined as households earning between $7,500 and $50,000 per year."

On the supply side, Dr Yuwa estimates, each year there are 440,000 university graduates with degrees in technical disciplines such as computer sciences and other engineering branches, 300,000 post-graduates and about 2.3 million university graduates with non-technical degrees. Together they add up to over three million graduates, but not all of them would have got quality training of the kind provided by world-class institutions like the IITs, IIMs, and some others. But even if only a quarter of this number are of a high standard, the number comes to a massive 760,000 graduates a year, says the MasterCard study.

With the demand for quality graduates booming in India, attrition levels are rather high and translate into even higher wages. "For the well trained and qualified, the professional pathway to affluence is literally operational in full throttle today."

Mass affluence

Hence, argues the economist, while the inheritance and pioneering pathways were exclusive and had limited numbers, with demand for technical professionals and managers booming, the road to mass affluence has been opened up in India through the `professional pathway'.

So how big is the size of the mass affluent market in India today? And, even more important for marketers, how big will it be in 2015? Taking the annual household income bracket $7,500-50,000 as a definition, he says that in 2005 there were 5.2 million mass affluent households in India, accounting for 2.7 per cent of total households. He estimates this number to double to 10.5 million households by 2015, with an average income of $11,912.

The rich households (annual income above $50,000) numbered 145,000 in 2005 and are expected to increase to 405,000 by 2015. Though small in terms of percentage of total Indian households (0.08 per cent in 2005 and an estimated 0.18 per cent in 2015), their average household income was significant at $63,000, and is expected to remain about the same in 2015. "Collectively, however, their income is massive — $9.4 billion in 2005 and almost $26 billion in 2015," says the study.

At the apex of the rich households are the 40 richest, ranked by Forbes on an annual basis. Many of them are in the billionaire category, with the `poorest' of them worth a few hundred million dollars! Interestingly, points out Dr Yuwa, 17 per cent of the 40 richest in India in 2005 made their fortunes in IT.

Have it, spend it

Buy word!: Shopping figures prominently in the projected spending patterns of affluent Indians. -- A. ROY CHOWDHURY

Coming to how these rich people will spend their money, a trend watched eagerly by global businesses looking at the growing Indian market, the study says that the estimated discretionary spending per household for the mass affluent was quite impressive at $3,700 in 2005, and is expected to rise to $5,000 by 2015. In the `rich' category, the average discretionary spending will go up from $21,400 in 2005 to $27,000 in 2015. But, he cautions, the average figure can be deceptive as the income for the `rich' category starts with $50,000 but goes up to several hundreds of million dollars at the very top among the 40 families. "One can only imagine the amount of discretionary spending power held by the top rich families in India," he comments.

So where have the mass affluent and the rich been blowing up their money, and how will they spend it in 2015?

According to Dr Yuwa, by 2015 the mass affluent Indians will spend the highest amount — $14.4 billion — on shopping ($5.6 billion in 2005), $8 billion on dining and entertainment ($5.3 billion), $13.6 billion on travel and leisure ($3.3 billion), $8.9 billion on automobiles, PCs, mobile phones, etc ($2.8 billion) and $6.4 billion on private health and luxury medicine ($1.8 billion), taking the total spend to a huge $51.3 billion.

But if you think that's an impressive figure, consider that against $51.3 billion spent by the Indians, the mass affluent Chinese will spend a staggering $157.9 billion on these items. The highest discretionary spend will be on automobiles, PCs and mobile phones ($40.8 billion) followed by travel and leisure ($37.5 billion), dining and entertaining ($33.2 billion), private health and luxury ($25.8 billion), and shopping ($20.6 billion).

The Japanese mass affluent will spend a total of $169.1 billion — dining and entertaining ($54.4 billion), travel and leisure ($50.1 billion) and shopping ($29 billion) and autos etc ($27.1 billion).

Coming to the `rich' Indian households — about 400,000 — their total discretionary spend by 2015 will be in the region of $11 billion, with the highest amount (($3.6 billion) going to shopping, followed by travel and leisure ($2.3 billion), dining and entertaining ($2 billion) autos etc ($1.7 billion) and private health ($1.4 billion). Incidentally, during the conference Dr Yuwa had this perception to offer about the shopping habits of rich Indians. "These days the rich Indians do not shop in Singapore or Thailand, they shop at the best of places in Europe! But the rich Indonesians, for instance, are holidaying in Singapore; many of them are right here in this hotel (Four Seasons)."

On what was it about the Indian gene that made Indians splurge on shopping, he said, "The shopping malls arrived late and are new to your country. In Japan they came in the 1960s and by now the affluent Japanese are sick and tired of them."

He also made an interesting distinction on the manner in which the rich, in all the Asian countries, will spend their money. Families with history of wealth going back a few centuries acquire a refinement and sophistication when it comes to spending their money. But the first-generation rich are bound to "advertise their wealth as loudly and conspicuously as possible." An interesting distinction here was higher education; those with higher education, even though newly rich, were bound to attain a "level of sophistication and subtlety as consumers not typically associated with their relatively new status of affluence," thanks to the "polishing" provided by higher education.

Response may be sent to rasheeda@thehindu.co.in

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