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The Rise of the Asian Consumer

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There are five Starbucks coffee shops within an easy, 10-minute walk from my apartment in the central business district of China’s capital city. That may come as a surprise. But Starbucks has become as much a part of daily life in China’s major metropolises as it has in America.

Starbucks already has more than 3,000 stores in 136 cities in the Middle Kingdom. And with a new shop opening about every 15 hours in the country, Starbucks is targeting 5,000 outlets by 2021. China is so critical to the company’s future that it is bringing special offerings to the Chinese ahead of New Yorkers. In December, Starbucks opened a 30,000-square-foot Reserve Roastery in Shanghai, with a two-story roasting cask and the company’s longest coffee bar anywhere. Only its hometown of Seattle has a similar showpiece.

These shops are just one, small sign of what could well be the most important trend taking shape in the global economy today: The rise of the Asian consumer. The newly wealthy Asian family is becoming more important to the world than the American middle-class household. There is no underestimating what that shift means. It is reshaping the global economic order as we’ve known it.

The great economic expansion of the post-World War II era was fueled, to a significant extent, by the acquisitive American consumer. U.S. shoppers, flocking to their local malls, were coveted by companies from Ford to Sony to Samsung. The Gap jeans, Apple iPhones and Nike sneakers they purchased created the jobs that alleviated poverty in countries like South Korea and China and continue to help the poor today in Vietnam, Bangladesh and other countries. The American consumer was just plain indispensable to the global economy – and for the most part, irreplaceable.

Now, however, the American household is losing that stature. As incomes rise in once-poor, but rapidly growing developing economies, more and more families are joining the global middle class. And nowhere is that happening faster or with greater impact than in emerging Asia. According to a 2017 study by the Brookings Institution, 88 percent of the next 1 billion people to enter the middle class globally will be Asians. The size of the Asian middle class is expected to reach nearly 3.5 billion people, or 65 percent of the world’s total, by 2030, a dramatic increase from 1.4 billion in 2015.

China figures large in this transformation, but is not the only source of new Asian consumers. Brookings predicts that India will contribute 380 million people of the next 1 billion to reach the middle class – more than the contribution from China.

These Asian shoppers already play a critical role in the world economy. Brookings figures that in 2015, newly wealthy consumers in China and India already outspent their American counterparts, accounting for a combined 17 percent of consumption by the global middle class compared to 13 percent for the U.S. That gap will continue to widen. By 2030, the middle class in China and India will spend 39 percent of the global total; the U.S. will account for just 7 percent.

Such optimism about future prosperity was shown clearly in this year’s Best Countries survey.

This historic economic shift to the East can be felt across industries. India surpassed the U.S. as the world’s second-largest market for smartphones in the third quarter of 2017, according to research firm Canalys, (China already tops the rankings.) Aircraft manufacturer Boeing forecasts that two out of every five planes sold between 2017 and 2036 will be shipped to Asia, nearly double the amount bought in North America.

In many respects, the rise of the Asian consumer is good news. For the past six decades, global growth has been overly dependent on the U.S. – thus the old adage that if America sneezes, the world catches cold. But now the Asian consumer is creating an entirely new pillar of consumption to support the global economy. That’s a boon to companies, as well. Starbucks Chief Financial Officer Scott Maw recently noted that the company “now has two significant profit engines” – North America and Asia. In its last fiscal year, comparable sales in China rose 7 percent; those in the U.S., 3 percent.


 


Yet the growing importance of Asian consumers presents challenges to the U.S. as well. As the American mall rat loses clout in the global economy, so could America overall. That will only make Washington’s task of maintaining U.S. global power that much harder. China’s President Xi Jinping is already marketing his government as the new world leader in trade and globalization – a claim that gains weight with the size of the Chinese domestic market.

“China offers opportunities for companies in Southeast Asia to look at the China [DK1] ther than the U.S. market,” says Frederic Neumann, co-head of Asian economic research at HSBC. “It shifts bargaining power to China.”

The transition of power from West to East can be seen in changing patterns of trade and investment. In the past, when Asia was relatively poor, consumer products manufactured in Asian factories tended to get shipped out of the region, especially to the U.S. and Europe, where pocketbooks were fatter. Though that sort of exporting continues, Asians are also buying more and more from each other. In 2016, trade between countries in Asia as a share of their total rose over 57 percent, a record high, according to a recent study by the Asian Development Bank. Asian companies are becoming critical to investment in the region as well. Foreign direct investment between Asian economies reached $272 billion in 2016, 55 percent of the total amount to the region.

Washington could even lose sway over its own corporations. If customers in China or India are more critical to CEOs’ jobs than those in Iowa or Florida, they will have to make their businesses more local in all of these foreign markets – or lose out in fierce global competition.

“Globalization has untethered American companies from America,” says James McGregor, chairman of consulting firm APCO Worldwide for China. “The leaders of China and India are becoming more important to many American multinationals than the people in Washington.”

These U.S. companies are facing threats from the rising Asian consumer, as well. Traditionally, American companies like Apple or General Motors have been dominant in consumer sectors, but now Asian up-and-comers with a strong presence in their rapidly growing home markets are emerging as dangerous rivals. Research firm Strategy Analytics calculates that three of the five largest smartphone makers in the world are now Chinese (Huawei, OPPO and Xiaomi), with a combined global share of 25 percent in the third quarter of 2017 — twice that of Apple.

Still, the dominance of the Asian consumer is a future prospect, not present reality. Total consumption is still much larger in the U.S. than China, and that means the American consumer remains the world’s buyer of last resort. Even for a company like Starbucks, China has a long way to go to challenge the U.S. At the end of its last fiscal year, Starbucks had 13,930 stores in the U.S., a figure even fast-growing China will take quite some time to match.

Total Chinese consumer spending won’t overtake that of the U.S. until the early 2030s, says HSBC’s Neumann. “We’re about two-thirds of the way of the Chinese consumer replacing the U.S. consumer as the driver of global spending,” he says.

Nor, of course, is the ascent of the Asian consumer – like any economic outcome — inevitable. Emerging economies often stumble or stall, slowing or even reversing the income growth necessary to fund bigger shopping sprees. China right now is struggling with an historic buildup of debt that poses a grave risk to its economy. India has all too often failed to live up to its boundless potential.

But with India and China accounting for more than a third of the world’s population, it is far more likely that greater and greater heaps of the world’s stuff will be bought by Asians. Starbucks believes China will one day be home to more of its coffee shops than the U.S. Now that’s a lot of lattes.

US News



22 Comments on "The Rise of the Asian Consumer"

  1. Sissyfuss on Tue, 23rd Jan 2018 9:05 pm 

    China will continue to attempt to grow their middle class’ purchasing power but where are they going to get the resources? Probably try too steal them from everyone else. It is an empires way after all.

  2. Mad Kat on Wed, 24th Jan 2018 12:00 am 

    There are at least five Starbucks within 10 minutes walking distance from my condo in Manila. In fact, there is one in my building. At least 15 in the city. (324 in the Ps according to Statista) I don’t like their coffee and would not even drink it if it was free, but they have some very good cheesecake.

    There is also a Subway sub shop beside it. A Dominoes Pizza on the other side. A Pizza Hut down the street. A KFC across the street. And, of course McDonalds on the corner. (I frequent none of them.) Not to mention the Chinese restaurants, shops and grocery shelves in the malls. Most are licensed, not company owned/manged. Soon, China will have enough consumers in Asia that they will not need the US as customer.

  3. Simon on Wed, 24th Jan 2018 1:55 am 

    MK -They will not need the US, because they will have become the US

  4. Mad Kat on Wed, 24th Jan 2018 2:14 am 

    Simon, I doubt that. They will become something like it, but the Chinese government is not a democracy nor total capitalist. They also plan many years ahead. The US has no real plans for next week or even tomorrow.

  5. Hello on Wed, 24th Jan 2018 4:03 am 

    Get out Mad. Now you’re calling the us a democracy? Before you told me it was a police state. You leaving me all confused.

  6. Simon on Wed, 24th Jan 2018 4:24 am 

    MK – Sounds like if the Chinese had a choice they would go full on USA

  7. deadly on Wed, 24th Jan 2018 4:46 am 

    Starbucks makes church coffee served at the Lutheran potluck on Sundays, not real coffee. It’s bad.

    If you want real coffee, you have to buy Starbucks roasted coffee in the one pound bags and take it home to brew your own.

    Consumers of Starbucks coffees are getting hosed when they buy a coffee drink at Starbucks.

    No other way to get a decent cup of coffee.

    Not in China, not in America, can you buy a decent cup of coffee.

    If you have a McDonald’s anywhere near you, your life is in danger. Don’t go there unless your dog is hungry. lol

  8. Mad Kat on Wed, 24th Jan 2018 5:09 am 

    The US is a pretend ‘democracy’, Hello. Like they are a pretend First World Country. There are no true democracies and there never was. Equality does not exist in the US. Never did. Never will. If I was not clear in my comment, Sorry.

  9. Mad Kat on Wed, 24th Jan 2018 5:20 am 

    deadly, I had some very good instant coffee from Ethiopia (Tesco brand). Unfortunately, I have not been able to find it again.

    I do remember real coffee from my youth in the 50s. Fresh ground in the store the day you bought it and perked at home. The smell of the beans as they were being ground still stays with me. Better than the smell of roses.

    I look forward to trying all the types of coffee grown here in the Ps. I am looking for a grinder for the beans I have bought. We even have three types growing on the farm but it will be a few years before the first cup.

    Starbucks is proof that some people will pay ridiculous prices for terrible coffee. For example … Civet cat coffee. I see it on the supermarket shelves here in the Ps for about $30 for a few ounces.

    https://www.theguardian.com/sustainable-business/2014/sep/19/civet-cat-coffee-worlds-most-expensive-brew-made-sustainably-kopi-luwak

    I’ve had no interest in trying it. lol

  10. Mad Kat on Wed, 24th Jan 2018 5:23 am 

    Simon, maybe, but they will not be allowed to go there, I think. Mainly because there are not enough resources for 1.4 billion people to become wasteful consumers like Americans. Nor will there be time before the economic reset and a total redefinition of “consumer”.

  11. JuanP on Wed, 24th Jan 2018 6:12 am 

    Who gives a fuck about Starbucks? I think there is one Starbucks in my neighborhood inside the Publix supermarket two blocks away. I’ve never seen it because I don’t go there but someone told me a while back they were doing that. I will try and remember to look for a sign the next time I drive by.
    My wife bought us new iphones 8+ last week. Both our phones broke down and we needed new phones. This is the first time ever I buy a mobile; all my previous ones were gifts, mostly secondhand. Are Starbucks and Apple important to the world economy? Is this what we have become?

  12. Davy on Wed, 24th Jan 2018 6:59 am 

    Good coffee is specially selected Arabica beans. Be careful on the roasting some ruin the natural taste or change up the roasting to reconnect with different tones found in different coffees. I get the highest caffeine kind I can find. Store this fresh coffee in vacuum containers. Never buy bulk coffee that can go stale. Freshly grind the beans at the time of preparation. You then have to have good water that you bring to boil and then let cool to around 200 F. French press is the best way to get all of the good ingredients in coffee. This coffee must set at least 4min and be sure to stir if it is blossoming. There are other ways too like a good espresso machine or specialty drips systems. Filters destroy good coffee taste. Drink coffee in glass or ceramic not stainless that reacts with coffee. I drink 20 oz in the morning. No more no less. Never add milk or sugar to a fine black coffee or you will destroy the unique flavor. Sometimes I get a Starbucks double shot cappuccino (small) with whole milk as a treat in this case milk and sugar is OK.

  13. Dredd on Wed, 24th Jan 2018 7:26 am 

    Like measuring the rise of the sea, the measuring stick is sometimes fantastic and sometimes not (On The More Robust Sea Level Computation Techniques – 7).

    Rise is not always the way to go.

  14. Davy on Wed, 24th Jan 2018 12:08 pm 

    “First Solar Is Using Robots to Better Tap the Sun”
    https://tinyurl.com/yczd27c7

    “A year ago, First Solar Inc.’s future looked uncertain. Deeply underpriced by a string of Chinese competitors, the Tempe, Ariz., maker of solar panels laid off hundreds of workers, sold equipment, and shut down its factory on the outskirts of Toledo, its only one in the U.S., as it prepared to gut and remodel the place. That last move, however, has paid off. The Ohio plant has been reborn as an almost fully automated operation, daily churning out hundreds of solar panels for a fraction of what it costs rivals to make them. The secret: supersize panels made with cadmium telluride, an energy-absorbing metal compound that First Solar engineers figured out how to spray on glass sheets in a thin film. First Solar invested more than $1 billion in researching and developing the cad-tel spray over the course of two decades. Its success upended the business of solar panel production even before the Trump administration announced tariffs on overseas solar hardware on Jan. 22.”

    “First Solar’s patented handful of steps takes just three and a half hours, compared with the three days the leading Chinese solar companies need to make similar-size silicon panels. The conventional process requires more than 100 steps, including fabricating silicon ingots in a furnace, shaving them into wafers, wiring on metal contacts to make cells, and assembling 60 or so of those cells. The panels coming off the new line in Ohio are triple the size of First Solar’s previous model and produce 244 percent more power at a manufacturing cost of as little as 20¢ per watt, about 30 percent less than the cheapest Chinese equivalent. The advantage widens in hot, humid, and low-light conditions. “They have a great new product and a significant cost advantage for at least a couple years,” says Jay Rhame, a portfolio manager at Reave Asset Management, which has invested in First Solar.”

  15. DerHundistlos on Wed, 24th Jan 2018 1:18 pm 

    This just released……

    Humans Extinct in 9 Years Based on New Analysis:

    https://youtu.be/qOAaz26bmjU

  16. rockman on Wed, 24th Jan 2018 4:41 pm 

    Davy – Interesting to see the First Solar stock price history after reading your post. So far it doesn’t look like the Wall Street analysts are very impressed with the new technology. But they been wrong many times before. Such as boosting the stock initially to $311/share in May 2008. And the see it fall to $93/share just 6 months later.

    But it has doubled in price to $68/share in the last 8 months. Between the new tech you explain and the new trade rules I would have expected a much bigger move. But that may come yet.

    https://www.google.com/search?source=hp&ei=mgZpWvWhK82SzwKy7bTICw&q=first+solar+stock&oq=first+solar+stock&gs_l=psy-ab.1.0.0i131k1j0l9.3555.24030.0.28688.19.19.0.0.0.0.287.3721.0j13j6.19.0….0…1.1.64.psy-ab..0.19.3703…0i131i46k1j46i131k1j0i13k1j0i8i13i30k1.0.ZB7NMLkJc-E

  17. Mad Kat on Wed, 24th Jan 2018 5:25 pm 

    Perfect example of the 1%ers and their wannabees. All the gullible Starbucks consumers who want to be seen with a Starbucks cup or in a Starbucks store. Too stupid to buy and make their own for <10% of the cost. But then, they could not pretend to be what they are not. About like a Niki consumer. LMAO

  18. Kristin on Wed, 24th Jan 2018 6:19 pm 

    It’s easy to start: Sign up in 30 seconds – Complete a brief interactive course for beginners – Select one of our out-of-the-box strategies – Practice in a demo account – Fund your account with your preferred payment method – Trade with high payouts. $ 154 375 Paid to our traders yesterday. Register now and get 10.000 virtual FUNDS in case of right forecast! This is FREE! далее вот 6f09s.tk

  19. Davy on Wed, 24th Jan 2018 6:42 pm 

    “All the gullible Starbucks consumers who want to be seen with a Starbucks cup or in a Starbucks store.”

    Give the drama a rest mad kat, I rarely see any 1%’ers at starbucks. There are mostly college kids hanging out in the one I go to sometimes. You really are losing your sense of reality.

  20. Mad Kat on Wed, 24th Jan 2018 7:04 pm 

    Davy, maybe the 1%ers don’t frequent the ones you do, but they do here. And the others are just wanting to be seen as such. Wannabees, too stupid to think for themselves. Brainwashed by the US MSM propaganda mill. Time for the US to be put down.

  21. Go Speed Racer on Thu, 25th Jan 2018 12:19 am 

    STARBUCKS COFFEE TASTES
    LIKE BURNT CAT PISS.

    THAT’S WHY YOU GOTTA ADD
    SO MUCH CREAM AND SUGAR.

  22. Mad Kat on Thu, 25th Jan 2018 1:46 am 

    Got that right Go. Not sometime I am going to pay 10 times what it is worth, just for the name. But, there are a lot of suckers who think it is chic, I guess, and they obviously have too much money and not enough brains.

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