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THREE

The Boom of the Superrich

The Millionaires (and Billionaires)

How ambition, persistence, luck, and timing create a significant population of wealthy consumers

IN 2001, FIFTY YEARS AFTER Mao’s revolution and Gandhi’s triumph, there were just five billionaires in the two most populous countries in the world (figure 3-1). Back then, China’s only billionaire was Rong Yiren, an eighty-five-year-old descendant of Wuxi traders whose close relationship with China’s top leaders became a platform upon which he built a business empire. Three of the four Indians on the Forbes 2001 list were self-made entrepreneurs whose fortunes were transformed after the end of British rule. The fourth hailed from an old business family.¹

Azim Premji, aged fifty-six in 2001, turned Wipro, originally a palm oil company, into one of the world’s largest information technology (IT) services companies; Dhirubhai Ambani, then aged sixty-nine, started Reliance Industries, India’s largest conglomerate; and Shiv Nadar, fifty-six in 2001, cofounded HCL at the age of thirty-one, which became India’s second-largest IT company.² Finally, Kumar Mangalam Birla, a youthful thirty-four in 2001, ran Aditya Birla Group, another conglomerate, after his father’s untimely death in 1996 at the age of fifty-two.

That there were only a handful of ultrawealthy people in these two countries told the story of the economic stagnation and isolation of China and India in the decades prior to the 1990s. It demonstrated that the economic reforms then under way had yet to create opportunities for massive wealth creation in the private sector. Only a dramatic upward surge in domestic consumption and a dramatic deepening of capital flows between these markets and the world would make this possible—and, in the 1990s, these had yet to occur.

FIGURE 3-1

Number of billionaires by country, 2001 and 2011

But by 2011, there were at least 170 Chinese and Indian billionaires. According to Forbes, they were worth $477 billion. China accounted for 115 of the billionaires, behind only the United States with 412. But India’s 55 billionaires were richer. Individually, they were worth, on average, $4.5 billion—$2 billion more than the Chinese billionaires. And some were rich beyond imagination. Two—Lakshmi Mittal and Mukesh Ambani, the son of Reliance Industries founder Dhirubhai Ambani—made the world’s top-ten richest list. Only the United States—with Bill Gates, Warren Buffett, Larry Ellison, and Wal-Mart’s Walton family—had more top-ten billionaires. The highest-ranking Chinese billionaire was Robin Li, the forty-two-year-old chief executive of Baidu, China’s answer to Google. He was number 95.³

But this list represented only a snapshot in the rise of the billionaire class. Six months later, it looked very different. No sooner had Li been anointed China’s richest man, with a fortune of $9.4 billion, than another entrepreneur, Liang Wengen, chairman of Sany Heavy Industry, the construction equipment manufacturer, rose to the top of the Forbes China’s richest list, his wealth soaring as China’s construction market boomed.

Moreover, the number of Chinese billionaires increased to 146. In other words, 31 billionaires were “created” in China between March and September—more than 1 per week.⁴ Collectively worth $60 billion, the top ten built their fortunes by pursuing business opportunities in some of the high-growth sectors of China’s rapidly diversifying domestic economy, including the Internet, real estate, retail and consumer goods, home appliances, pharmaceuticals, and manufacturing. In India, most of the top ten are leaders of conglomerates with interests in diverse sectors ranging from commodities such as aluminum, cement, petrochemicals, and steel to service businesses such as IT, construction, and financial services.

These billionaires and multimillionaires are not just statistics. They are men and women with ambition, drive, energy, and vision. Adi Godrej, chairman of the Godrej Group, is one of them. His company, as he puts it, is 114 years young—having started out as a lock manufacturer. Today, it is a conglomerate with a presence in fast-moving consumer goods and durables, chemicals, and real estate. He inherited a small household products company nearly forty years ago. Since then, he has grown the company from $25 million in sales to $3 billion today. Now aged sixty-nine, he is still ambitious for his company and his country. “Today, we have just annunciated what we call a ten-by-ten vision—ten times bigger in ten years,” he calmly says. He believes in this vision and says it is possible because India is at a “tipping point”—providing unprecedented opportunities for massive wealth creation and fertile ground for entrepreneurs. “I don’t look at it as an unachievable goal,” he says. “But it’s going to be tough, and it’s going to need not only strong strategic thinking but also excellent execution.”

Godrej expects to see the company grow its share of the personal care, hair care, and household products markets. “We have leadership positions in some of these categories, so that will help us grow strongly,” he says. “And there are underpenetrated categories, so the opportunity to get nonusers to become users is strong in a country like India.” He adds, “In fast-moving consumer goods, we are very competitive with any producer anywhere in the world. In consumer durables, I would say the Chinese probably have an advantage over us because of scale, size, and volume.”

Adi Godrej reflects the best of the accelerator mind-set that we see in China and India: successful business leaders who clearly see significant growth opportunities ahead and who have a well-formed vision and a strategy for capturing it. They possess a confidence to invest and to act—knowing that the markets are booming around them and that their own actions can spur the growth of the markets.

Many entrepreneurs in China see similar opportunities and have been busily building empires—while also envisioning more substantial growth ahead. One is Zhang Yue, founder and chairman of Broad Air Conditioning (Broad Group). This engineering company is headquartered on the outskirts of Changsha, a city of seven million where he was born fifty-one years ago. Zhang, with a fortune estimated at $780 million, has become a crusader against pollution and the emission of greenhouse gases. The company motto is “Champion of Earth.”⁵

The corporate campus is called Broad Town. White-collar workers wear blue blazers, while factory workers wear blue uniforms and get free food (grown on company-operated organic farms and fishponds) and housing. Slogans designed to inspire the workforce are spread around the campus and include quotes from Winston Churchill, Abraham Lincoln, and Martin Luther King Jr.

Zhang, who trained as an artist and interior designer, has steered his company toward sustainable development. It is one of the leading manufacturers of air conditioners, and the nonelectric coolers use lithium bromide and natural gas. The company claims that the units are twice as effective as conventional air conditioners and yet have just one-quarter of the carbon dioxide emissions. One of his most recent innovations is the Broad sustainable building, or BSB for short. The BSB is an energy-efficient system for designing and assembling prefabricated buildings strong enough to withstand earthquakes. It took one of his teams just six days to fully construct a fifteen-story hotel; the video of this stunning demonstration of building prowess is on YouTube.⁶

We estimate that there were nearly four hundred ultrawealthy households—those with more than $100 million—in China in 2010. That put it eighth in the world ranking. The year before, it was thirteenth. If we add Hong Kong’s ultrawealthy residents to the list, China would surge into the world’s top five, ahead of Russia and just behind the United Kingdom.⁷

Below this select group, there is a burgeoning number of millionaires. China boasted more than 1 million millionaire households in 2010, behind Japan’s 1.5 million and the 5.2 million in the United States. The year before, China had recorded just 670,000 such households. India, ranked eleventh in the world, has 190,000 millionaire households.⁸ Some of these will soon reach the billionaire threshold.

The key to success for many of these people has been working out how to serve the new domestic markets, while at the same time managing government stakeholders for necessary support. Robin Li’s Baidu figured out how to overcome the challenges of developing a Chinese-language search capability and serving advertisers while ensuring a position as the government’s preferred company in the Internet business. Likewise, Liang Wengen’s Sany figured out how to deliver an ever-higher-quality range of construction equipment in a highly competitive market while ensuring sufficient government sponsorship in a sector where state-owned companies are the major buyers.

In each case, the business leaders secured positions on the crest of massive waves of growth: the Internet user base zoomed from tens of millions in 2000 to nearly five hundred million by 2011, and the construction sector has grown by 30 percent a year for a decade. Then, they turned to overseas stock markets to translate the sweat equity of their Chinese domestic businesses into globally tradable hard currency. The listing of Baidu on NASDAQ and Sany Heavy on the Hong Kong Stock Exchange created shares traded outside China in foreign currency, transforming the two founders into U.S. dollar billionaires on the world stage.

In India, the top wealth creators have a diversified set of businesses. Some of these, such as Nandan Nilekani, have decided to give something back to their country, taking on public-service jobs at no pay.

Nandan Nilekani: From Global Entrepreneur to Best-Selling Author to Public Servant

Nandan Nilekani is a man of the world. For thirty years, he was the public face of tech giant Infosys. He traveled the globe convincing companies that Indian engineers could deliver world-class programming at much lower prices. As the company moved from a start-up in 1981 to a global competitor with a market cap of nearly $30 billion, he served as chief operating officer and later CEO. Nilekani is also the author of Imagining India—a sweeping best seller that chronicles India’s dynastic past, complicated present, and hopes for a bright future.

He is now an unpaid public servant and the mastermind behind a scheme to give every one of India’s citizens an official identity. Three years ago, he began the third chapter of his life when he was asked by India’s prime minister to create a unique identifier, a cutting-edge biometric identity system for all 1.2 billion Indians. This identity system is described in Nilekani’s book and is his brainchild. He says his intention is to provide access to financial services, health care, government assistance, and education to the hundreds of millions who live an identity-free life—migrants in Indian society and the left-behinds. If successful, the system will also reduce corruption. A numeric identity will enable the poor and uneducated to open a bank account; obtain a passport; receive government-assisted wheat, rice, and oil rations; and directly participate in government minimum-income labor programs.

Nilekani was born in Bangalore, the son of a mill manager. In his town, there was no prep school for the IIT entrance exam. But he was convinced, like many of his peers, that engineering was a ticket to a good job. He still beams when he speaks of being ranked number 127 nationally on the admissions test and being able to graduate from IIT Bombay in 1978. He describes IIT as the defining break in his life. A cofounder of Infosys, he helped to take the company public on the NASDAQ stock exchange, a move that created great wealth for the cofounders and many employees.

“I succeeded beyond my wildest dreams,” Nilekani told us, as he sat in the New Delhi office where he is chairman of the Unique Identity Authority of India. This office is a step down from the lavish headquarters of Infosys, where he enjoyed a breathtaking view of a beautifully landscaped campus built to celebrate the company’s achievement and stature. Outside the present building, two dozen street vendors were aggressively soliciting Delhi’s citizens to buy a winter coat on the coldest January day in recent history.

Nilekani is a rule breaker and a commanding presence in India. While many of his contemporaries left IIT for Silicon Valley, he chose to create an Indian powerhouse. “Creating a company here in India and creating jobs was more fulfilling for me,” he says. “When we started Infosys, we believed software was a major play for India. We knew we had human capital and a global market. I knew it was going to happen. I was more confident as a young man. It was the arrogance of youth.”

He says that running the sprawling global Infosys business is simple in comparison with public policy and running a new government agency. “In a company, you just need to convince yourself, a few of your colleagues, and your board—and then you make it happen,” he says. “In India, we live in a diverse society. Everyone has an opinion and everyone voices it. You have to work to create consensus.”

So far, the Identity Authority has enrolled 170 million people and is adding a million people a day across twenty thousand locations. “We hope to achieve a level of accountability and transparency,” Nilekani says. “We will use the identification system to deliver services to millions of people. We know there will be many benefits to the people—they will get food rations, better health care, and education.”

Nilekani is an inspiring communicator. Each of his sentences is delivered with animated imagery and quiet confidence. “The politicians are supportive because the people are supportive. The system opens doors for them. It is part of an inclusive society,” he explains. “It will help bring money out of mattresses and bring productive capital to the market. But we have many more stakeholders—politicians, media, the judiciary, activists—a diverse and interested population. They all must be enrolled.”

He continues, “We have been successful so far because Indians have had positive experiences from technology. They see how it has opened up markets to them. Indians have found technology liberating. The key to success in India is the same as the key to success anywhere. You need a purpose, a vision, and a tenacity to get things done. You need to overcome obstacles.”

He says that while he pays close attention to the opinion of others, he is resolute in his mission. “The cacophony in India is high. It is a part of our lives and our historical roots,” he says. “If you are in a position of leadership, you need to filter the noise from reality. Hyperindividualism is definitively Indian.”

Nilekani remains a strong India booster. He sees his country as bringing four key advantages to the world stage: the globe’s largest young, ambitious population; a culture of entrepreneurs; English as a common second language and ease of communication in global markets; and an ability to use diversity as a means to better problem-solving and integration. He believes that no single country can grow in a no-growth world, but he is confident that India will prosper over the next decade.

“We need to leverage the aspirations of the people,” he says. “The speed of change is dizzying. We need to overcome government bureaucracy and boost development. We need to create a healthy and educated population, and we need a better, faster legal system. We need to build a platform to unleash the aspirations of the people. The biggest risk is not doing enough things fast enough. Our young population can get old and angry fast. Over the next ten years, we need to lay the foundation for better platforms.”

He contrasts India and China by saying that each can learn something from the other. “The issue is bottom up versus top down. India is a bottom-up culture. China can get a road built in a week. It is a country that has had central command for a thousand-plus years. You need a minimum sustainable top-down approach for a bottom-up culture to work. Being exclusively bottom up is chaos. Being exclusively top down wipes out creativity and a spirit of independence.”

Many of China’s and India’s billionaires have created new corporate empires and vast new fortunes. Between 2005 and 2010, the total market capitalization of stocks listed on the Shanghai Stock Exchange Index rose by 144 percent, and the Bombay Stock Exchange Index grew by 143 percent. By contrast, the London Stock Exchange rose by only 5 percent, and the Tokyo and New York Stock Exchanges actually fell by 21 percent and 6 percent, respectively.⁹

This buoyant stock market has also produced increasingly large numbers of wealthy individuals and families—large enough that they now constitute a major portion of the economy and represent important but diverse target markets. Understanding these broader segments of wealthy Chinese and Indians is essential for companies seeking to grow in these countries. We explore these groups in turn.

China’s Superrich: The New Millennium Millionaires

In our work with China’s superrich, we have identified some important features of this fast-expanding group: they are young, new to their wealth, and spread out across China.

In 2010, according to our research, most of China’s nouveaux riches—people with more than $250,000 of annual income—had made their financial moves in the previous five years. About 70 percent of the 700,000 in this upper echelon, a half-million households, were not superrich in 2005. And the trend will continue: we expect another 800,000 households to join this rarefied group by 2015.

Another characteristic of this group is its relative youth. A striking 80 percent of China’s rich are less than forty-five years old. By contrast, only 30 percent of wealthy people in the United States have not yet reached their midforties.¹⁰ It goes to show that in a fast-growing market, it is relatively easy to turn an idea into a business and a business into a small fortune.

China’s billionaires are a bit older than the rest of China’s superrich—it takes a little longer to make the first billion. Of the top ten Chinese billionaires in 2011, only Robin Li and Ma Huateng, thirty-nine and founder of Tencent, the world’s third-largest Internet company, were under forty-five. Even so, they are still relatively young.

A third common characteristic is that the wealthy are popping up across China, not just in a few locations. For example, the billionaires hail from forty-nine Chinese cities.¹¹ According to our research, Guangdong province boasts the highest number of rich households: 18 percent of the total. Shanghai, which is China’s wealthiest city, has 12 percent. Further behind are the eastern coastal provinces of Zhejiang, Jiangsu, and Shandong, as well as Beijing; together these account for 28 percent of China’s wealthy households. A further 30 percent were located in thirteen other tier 1 cities, and another 16 percent lived in twenty-three tier 2 cities.

As we will explain in chapter 5, the likely growth of the superrich population will take place in the cities that currently rank tier 3 or below—those with fewer than one million inhabitants. By 2015, we expect that 600,000 of the 1.5 million superrich households in China will be located in these smaller cities, compared with 200,000 in 2009.¹²

India’s Superrich: The Rise of the Bollygarchs

Besides the billionaires, there is a small and growing superrich segment in India. This group can be divided into three subsegments.

First are the business families that are old money. These consumers have always been wealthy—though not at the billionaire level. Many of them are traditional and conservative in their social outlook—and they are comfortable with spending their money and displaying their wealth. One such consumer we talked to is Anjali. Born in 1969, she was raised in a traditional family and sent to an all-girls boarding school—as expected in those days. Her father, worth $11 million at the time, expected her to abide by the strict social norms and mores of the day.

To illustrate how her life has changed in the last twenty years, she takes the example of the apparel that she wears every day. When she won a coveted place at the best local college, she was still required to live at home and wear saris rather than jeans and a T-shirt. “Western clothes were off-limits,” she says, “and we didn’t have the guts to rebel against the family.” But from the late 1980s onward, the restrictions started to ease. “As society started to get more Westernized, it became more acceptable to wear Western-style clothing,” Anjali recalls. She gained a further measure of independence when she married a wealthy pharmaceuticals entrepreneur. “By this time, I was able to make my own decisions, and I didn’t want to wear just Indian clothing anymore.”

Today, she still wears clothes by some Indian designers, such as Vivek Narang and Bina Modi, as well as footwear from Joy Shoes, a Mumbai-based store (located opposite the Louis Vuitton store at the Taj Mahal Hotel) favored by Bollywood divas. But she has also seized the moment to buy big-name international luxury brands on shopping trips to Dubai and Fifth Avenue and Oxford Street. Her wardrobe now features clothes from Burberry and Shanghai Tang. In her choice of clothing, Anjali is an archetypal consumer from the upper echelon of the superrich consumer group. These consumers have money and they like to spend it—both in India and abroad. They are aware of brands—but pick and choose the brands with which they like to associate.

The second group is what we call the educated rich. These are typically professionals with a university degree who work in banking, private equity, professional services firms, and global multinational companies. Infosys alone has granted stock options worth $10 billion since its inception—creating hundreds of millionaires in the process. One of them is Chandra—an Infosys lifer. He joined Infosys nearly fifteen years ago after completing his engineering degree at the IIT in Delhi. He has lived around the world, and he is now back in Bangalore leading one of Infosys’s distribution businesses.

For Chandra, who says his newfound wealth has been the natural product of his education and his effort, his top priorities have been a good house for his family, a nest egg for his retirement, and the best education for his children. He has earmarked about $1 million for his son’s education in the United States (partly because he believes that the U.S. education system is the best and partly because he is not sure whether his son will be able to get into the ultracompetitive IIT system). Beyond this, he indulges in the best electronic gadgets, but only after a lot of research. For many other things—whether it is furniture or apparel—he and his wife favor functionality rather than global brands. In this, he is a typical “educated rich” Indian. Most grew up in middle-class homes and worked incredibly hard to achieve what they have today, so they are reluctant to consume conspicuously.

The third group consists of what we call the emerging rich. These people can be found in the top eight cities, but many also hail from tier 2 or emerging cities such as Coimbatore, Ludhiana, Surat, and Visakhapatnam. One of them is Nirlipt Singh (not his real name) from Ludhiana. Nirlipt has a successful midsized apparel export business—and he likes to display his wealth. He recently bought a BMW 7 series automobile and a Porsche. Alka, his wife, visits Dubai twice a year to buy her Gucci and Louis Vuitton bags. She has no interest in buying these items in India. As she told us, she finds the Emporio Mall in Delhi (which carries the same luxury brands) “a waste of time because it does not carry the latest collections and it is also more expensive.”

The emerging rich are typically first-generation entrepreneurs who have set up small and medium-sized companies in manufacturing, services, or trade—and they have made it big as the economy has expanded. They travel widely and are influenced by what they see during their visits to Europe and the United States. They have high aspirations and are willing to buy international brands to announce to the world that they have arrived.

Implications for Business

China’s and India’s superrich will spend on modern houses, fast cars, complete luxury wardrobes, financial advisers, and servants to prepare their meals and clean their homes. They will travel, educate their children abroad, and, for the most part, live the dreams of the rich and soon-to-be-famous. A few will engage in social enterprise, helping their fellow compatriots (and the world) to achieve more.

They may be a small segment of the population, but the sheer number of millionaires in China and India and their rapid growth make them an important consumer market. As we will explain in chapter 9, China will soon be the world’s top luxury market and India will soon achieve the critical mass of wealthy families necessary for a place on the global luxury map.

Serving these consumers requires a company to understand that they are not one homogeneous segment. To win, you must divide the groups into microsegments—and not just based on income. As we have shown, education, profession, and family background drive attitudes and behavior. It is also essential to develop the right go-to-market model—because large numbers of these consumers do not reside in the big cities. Successful segmentation models aggregate groups of consumers into targets that can be specifically addressed—with customized products, focused distribution, and advertising that is compelling and informing.

Moreover, you must stay true to the rules of new luxury consumption. Deliver the following, and the large China market and the emerging India market can be yours:

 Technical, functional, and emotional benefits

 Rich and graphic consumer targeting

 A continuous stream of innovation

 A deep and broad product line

 A communication strategy that engages the core consumers to just say yes

 A map of the needs and dissatisfactions of each segment and how to respond to them

 An environment that matches their need for exclusivity, privilege, and catering

 The back story of the brand, which defines the reason to believe