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ONE

Consumption in China and India

The Dawn of a Golden Age

What and why the new consumers buy, how they think and shop, how their needs and tastes are changing

WE KNOCKED ON THE DOOR. There was no sign, just a street number. “Is this the Li family restaurant?” we asked, after a tortuous walk through the alleyways of Beijing’s Xicheng District. The older woman who had come to the door nodded and then called for her grandson, who hurried to the entrance and, speaking English, invited us inside the plain cinder block building.

We were shown to one of three Formica tables and sat down on rickety folding chairs. A fan whirred in the background. We could see the chef and his assistants toiling in the kitchen, seemingly oblivious to the bright flames leaping over the pots on the open cooktop. Tantalizing aromas drifted through the room as we were handed the Chinese-language menu with pictures of a few of the delights soon to be coming our way.

Across from us, four garrulous Texans were feasting on the restaurant’s most expensive option—a set of dishes that the menu dubbed “the grand banquet.” At the other table, five Chinese men wearing white shirts and plain blue suits were delighting in the menu’s midpriced option, nudging each other and smiling when they found a dish particularly good.

We too selected the midpriced option, and soon the dishes started to arrive: an exotic mushroom soup, a small plate of prawns with snow peas, hand-carved carrots, and jasmine rice. After that, shark fin soup, then abalone and more mushrooms, and then scallops on a bed of leeks. We paid a slight premium for the restaurant’s version of Peking duck—paper-thin crusted skin, succulent meat. Dessert was three courses—a pineapple sorbet with small fruits, hand-decorated cakes with a raspberry sauce, and a double-chocolate torte with a hot filled center. At the end of the meal, we had to pay cash, because the restaurant did not accept credit cards. But it did not matter—we had enough renminbi to cover the cost of the meal: $10 per person. It was a meal that we will remember for a lifetime—magnificent cuisine in a humble setting served with grace and style by the cook’s extended family.

Even then, nearly two decades ago, this was a bargain. The food was visually stunning, perfectly plated, sensuous, and exotic. It was, in fact, fit for an emperor. Li Shanlin, the restaurateur, is the grandson of the supervisor of the last emperor’s imperial kitchen. His grandfather, Li Shunqing, was lord secretary to the dowager empress and was responsible for the imperial menu inside the Forbidden City.

Born in 1920, Li grew up watching his grandfather prepare imperial-style meals. But after university, where he studied aeronautical engineering, he became a scholar, teaching mathematics at the Capital University of Economics and Business in Beijing. During the Cultural Revolution, when Chairman Mao waged an offensive against intellectuals and party elites, the university was closed. Purged from his university post, he turned to the study of imperial cuisine, refining the recipes that his grandfather had handed down.

Li eventually returned to teaching. But at the age of sixty-five, when he finally retired, he reawakened his lifelong passion for cooking—and he took his chance, opening a three-table restaurant in the family home (figure 1-1). In the beginning, there were no employees; family members served, cleaned, and helped cook. Food preparation was classical, with a sharp knife, perfect ingredients, and a focus on taste, texture, and visual presentation. In this sense, he was way ahead of his time, spurning modern cooking equipment, microwave ovens, and food processors.

Although it was hard to find, Li’s restaurant soon garnered critical acclaim. As a result, it then became hard to book a table. According to the family, Bill Clinton, Jackie Chan, Bill Gates, and the Rolling Stones have eaten at the original restaurant. And, indeed, as we paid, we saw a framed note from Bill Clinton, which expressed his thanks for “a wonderful time.”

Today, if you visit the newest branch of the Li family restaurant, it is equally hard to book a table—but the experience, not to mention the cost, is altogether different. For a start, the restaurant—called Family Li Imperial Cuisine—is hard to miss. It is located just off East Zhongshan Yi Road, Shanghai’s grand riverfront boulevard. The building is magnificent, with a glass and marble interior, a lily garden with a fishpond, spacious private dining areas, gold-plated dinnerware, and a wine list to rival Paris’s finest restaurants (figure 1-2).

FIGURE 1-1

The first Li family restaurant in Beijing

The top-priced set menu is RMB 2,000 (around $300). It features, among other things, scallops, deep-fried prawns, stir-fried cabbage with pheasant meat, bird’s-nest soup, duck with shrimp paste and sesame, and steamed snow frog. This can be washed down with a bottle of a 1990 Château Lafite Rothschild for RMB 16,800 (around $2,700).

Shanghai has become one of the world’s capitals of cuisine, supported by talent, investors, and fresh-food supply chains that did not exist when Professor Li first launched his enterprise. Now, the Li family restaurant successfully competes with other prominent restaurants in the city once known as the Paris of the East, including Jean Georges (from France’s Jean-Georges Vongerichten), Laris (from Australia’s David Laris), and Issimo (from Italy’s Salvatore Cuomo), as well as the restaurant of Ho Wing, the former chef at The Hong Kong Jockey Club.

FIGURE 1-2

A beautiful water garden at the new Li family restaurant in Shanghai

The Li family restaurant in Shanghai is the story of newly affluent Chinese consumers living like emperors: choosing the best food and wine, enjoying haute cuisine in a magnificent setting. It is about pleasure, personal indulgence, and, to some degree, hedonism. The painful years of subsistence living are distant memories that can be put behind with today’s purchases.

The Rise of the Newly Affluent Consumers and the $10 Trillion Prize

In 1992—a few years after Professor Li had opened his first restaurant—Deng Xiaoping, China’s supreme leader, made his famous southern tour of China’s small but booming special economic zones, pushing aside more conservative party cadres and opening China up to foreign investors and to the private sector. Two years later, Gordon Wu, a Hong Kong tycoon, opened a superhighway connecting Pearl River Delta farmland to Hong Kong’s container ports. The farmland soon became factory towns, foreign investment poured in, and China truly began to join the global economy. Through the 1990s, Zhu Rongji, the prime minister, drove massive economic reform programs that prepared China for joining the World Trade Organization, after which investment flows ratcheted up even higher, and China’s growth accelerated.

In the two decades since Deng’s tour, several factors have combined to create China’s economic miracle—the greatest rise in economic productivity that the world has ever seen—a productivity boom that is still under way and that underpins the dramatic rise of the consuming classes. The following are some of these factors:

 Welcoming market forces into the economy: letting markets set prices, allowing entrepreneurs to set up shop, and forcing state-owned enterprises to compete with each other. China also dismantled its “iron rice bowl” model of state enterprise (a system in which workers were given job security)—a painful but necessary reform that displaced more than seventy million people.

 Making infrastructure investments that expanded the economy’s productive capacity, tapping into high domestic savings, leveraging the system of five-year plans, and intelligently using the state’s ultimate ownership of all land. These investments, coupled with agricultural reforms, also unleashed a migration to the cities, bringing people into urban environments, where much more remunerative employment opportunities existed.

 Embracing trade and foreign investment, using membership in the World Trade Organization as a catalyst for driving domestic reforms, and creating an investment environment highly attractive to foreign investors. The ability to leverage Hong Kong’s trading prowess and Taiwan’s technology has been a huge advantage here.

 Educating a highly capable workforce of women as well as men, and mobilizing this workforce into the high-growth sectors of the economy (indeed, a physical mobilization of more than 150 million migrant workers within the country), while sending the best and brightest abroad for even more study.

 Developing private-property rights, which has led to large-scale home ownership.

India’s economic miracle began with different starting conditions and followed its own pathway, but is no less impressive. Prior to the 1990s, India’s version of state capitalism, the “License Raj,” was arguably even more effective at stifling productivity than China’s Communist system. The Licence Raj system consisted of India’s elaborate requirements for starting businesses, including multiple permits for opening, operating, or expanding an enterprise. At their height, License Raj regulations, red tape, and bureaucracy constrained Indian growth and productivity—and effectively created oligopolies with very high prices in many sectors. Entrepreneurialism was crushed by the resulting government-erected barriers to entry and by corruption. The first wave of changes happened in the 1980s—including changes in the monopoly laws and some sporadic sectoral reforms. In 1991, soon after Rajiv Gandhi was assassinated, the newly elected prime minister, Narasimha Rao, and his finance minister, Manmohan Singh (the prime minister as of this writing), found the old economic system in total crisis, with its foreign exchange reserves having dropped to $1.2 billion. With foreign debt obligations looming, the country was literally only weeks from bankruptcy. The duo launched a wide-ranging set of reforms that would liberalize the Indian economy. The reforms embodied several key elements:

 Dismantling the License Raj—promoting competition in more than seven hundred industries previously protected and reserved for small and medium-sized enterprises. This helped many manufacturing companies achieve efficiencies and become competitive, because they were no longer subscale.

 Supporting international trade by reducing the costs of import licenses.

 Removing protectionist measures that stifled foreign direct investment and actively courting foreign multinational companies to invest in India. This has resulted in the opening up of most sectors for foreign direct investment.

 Launching a program of privatization, with full or partial sales of the government’s stake in state-owned enterprises.

The economic miracles of China and India, spurred by fundamental reforms begun two decades ago, have now driven a boom of productivity gains that will remain strong and even strengthen in the future. By 2029, if not sooner, China will have surpassed the United States as the world’s largest economy (figure 1-3). By 2028, India will likely have surged past Germany and Japan, establishing itself as the world’s third-largest economy.

China’s productivity growth rate is forecast to be particularly strong in the current decade as its workforce gains experience, and growth tapers only moderately after 2020. India’s productivity growth has been more sluggish and starts from a lower base, but it is predicted to grow strongly in the next three decades, as education and infrastructure improve, urbanization accelerates, and an abundance of young and energetic citizens enters the workforce.

Productivity is important because it strongly correlates with the growth of personal incomes—which, in turn, will fuel the consumer revolution. The increased consumption that results is proportional—we have coined it the $10 trillion prize.

We calculate that between 2010 and 2020, the people of China and India will consume goods and services worth a total of $64 trillion. Chinese consumers will spend $41.5 trillion over this period, with annual expenditures rising from $2.0 trillion to $6.2 trillion, an increase of 203 percent. Indians will spend $22.5 trillion, with their annual expenditures rising from $991 billion to $3.6 trillion, an astonishing 261 percent increase (figure 1-4).

In other words, Chinese and Indian consumers will be spending nearly $10 trillion a year by 2020—more than three times the amount they are spending today. Their combined share of the global market will grow from 8.2 percent to 15.7 percent.¹ In appendix A, we describe the mosaic of cultures in these two vast and heterogeneous countries and explain how a local market understanding is required for success.

Of course, there is uncertainty in any forecast of the future—forecasts presume stability, and in the real world, they can be knocked off course by economic downturns, natural disaster, political instability, and corruption. In appendix B, we issue a word of warning, highlight what we call the hit-the-wall scenario, and explain why the road to the $10 trillion prize could potentially be a rocky one.

FIGURE 1-3

GDP levels for the five largest economies, 1960–2030

Nevertheless, for Chinese children born in 2009, continued economic progress will probably mean that over the course of their lives, they can expect to consume thirty-eight times more material goods than their grandparents (figure 1-5). Life expectancy has grown from forty-seven years for a Chinese baby born in 1960 to seventy-three years for one born in 2009. An Indian baby born in 2009 can expect to live to the age of sixty-four—twenty-two years longer than its grandparents—and consume thirteen times more material goods than its grandparents, too (figure 1-6). In comparison, a child born in the United States in 2009, although likely to enjoy the world’s highest standard of living, might consume only twice as much as his or her grandparents and live only nine years longer.

FIGURE 1-4

Consumer spending in China and India: the $10 trillion prize

The big reason for this growth in the standard of living in China and India, which will put enormous pressure on global supply, is rising incomes. From 2010 to 2020, annual per-capita incomes will increase, on average, from about $4,400 to $12,300 in China and from $1,500 to $4,400 in India (figure 1-7). As a result, China’s upper class will grow from 24 million to 91 million households, the middle class will grow from 109 million to 202 million households, and the lower class will shrink from 260 million down to 138 million households (figure 1-8). The number of people living on less than $1.25 a day—the international poverty line—will fall from 208 million to 150 million. India’s upper class will rise from 9 million to 32 million households, the middle class will jump from 63 million to 117 million households, and the lower class will decline from 152 million to 110 million households. The number of people below the poverty line will fall from 455 million to under 200 million.

FIGURE 1-5

Lifetime consumption patterns in China

Average incomes in the United States will grow more slowly, but they are still likely to be considerably higher than those in China and India—$68,800 per year in 2020. But it is the tripling of incomes in the world’s most populous nations that will really drive global growth and patterns of consumer spending.² According to our research, one of the paradoxes of the modern world is that those who have little feel rich, while those who have much feel poor and threatened. And over the next forty years, those who have little will grow ever richer. In a recent report, the investment banking division of HSBC goes far beyond our forecast time frame, arguing that between 2010 and 2050, per-capita income will increase by 800 percent in China and 600 percent in India.³

FIGURE 1-6

Lifetime consumption patterns in India

Another reason for the growth is that the newly affluent consumers will eventually dip into their extensive savings and tap into consumer credit. In China, consumers, companies, and the government save a staggering 53.6 percent of gross domestic product (GDP), while in India, the figure is 33.6 percent. In the United States, just 9.8 percent of GDP is saved for future use.⁴ The savings from all sources fund a significant share of capital reinvestment. If even just a small proportion of these savings were diverted to pay for goods and services, it would amount to a massive, incremental “wall of money.” This represents an upside case to the $10 trillion prize—taking the size of the prize to $13 trillion.

FIGURE 1-7

Per capita income in China and India, 1960–2020

Chinese consumers continue to save at a prodigious rate, particularly in the face of declining GDP growth. They remain concerned about the lack of a social security net, the rising cost of education for their children, and the need to provide funds to their male children to buy a first apartment. According to our 2012 surveys, attitudes among young consumers, especially those under the age of twenty-five, reflect a similarly conservative outlook and an interest in maintaining high savings rates—young people are now more willing to park their earnings for a while because of rising job insecurity. Nonetheless, we expect that their feelings of optimism for the long term will gradually translate into an increase in spending.

FIGURE 1-8

The distribution of income in China and India, 2010 and 2020

A third factor in the rise in the standard of living is that the Chinese and Indian governments are clearly focused on boosting domestic consumption. Both countries know that economic growth—and thereby social harmony—depends on driving demand at home. There is a tradeoff between current consumption and savings. Savings is one of the three drivers of national economic growth. The other two are labor force growth and labor force productivity. India has the potential to realize a triple, with strong performance in all three dimensions over the next decade.

The New Consumer Kings and Queens

The consumer is king, and China and India’s newly affluent consumers will take a commanding position in the domestic and global economy. They have the ambition, energy, and resourcefulness required to make it in China and India today—and over the course of the decade, they will move to new homes, buy an array of appliances, pay for better food, invest in their children’s education, and begin to travel in their own countries and beyond. It is a heady and uplifting time.

We interviewed hundreds of consumers in the course of our work, and we tell some of their stories throughout this book. The most important shared elements are these:

 Humble origins

 A drive to create a better life for themselves and their children

 An animated and specific dream of the elements of a better life, often filled with material goods—including a home and a car—as well as great experiences through travel and leisure activities, and access to modern health care and education

We introduce many of these consumers in the book (figure 1-9). Two of them are Rakesh Kumar Sahu and Zhou Zhanghong.

Rakesh is thirty-nine years old and lives in Lucknow, the capital city of Uttar Pradesh, India’s most populous state, with more than two hundred million people. Rakesh started out as a snack seller with a handcart and earned only about 90,000 rupees (about $2,000) a year—barely enough to cover all of his necessities. Now, married and with a fourteen-year-old son, he owns and runs a small restaurant-cum-eating stall. Dark-skinned and quick to smile, he has a roundness that supports his belief that he is carrying an extra twenty pounds. It is a sign of his newfound wealth. His life over the past ten years has been, as he puts it, “a rocket.” He currently earns 450,000 rupees a year (about $10,000), which puts him firmly in the middle class in India.

His clients are the local businesspeople and tradesmen who pass by his stall. Primarily, he serves a regular set of customers, people who enjoy his trademark khasta puri, bada, and dahi bade (popular Indian fried snacks). As you go into his restaurant, the smell of onion, garlic, cumin, turmeric, lemon, curry, coriander, and coconut—among other distinct aromas—rushes at you. He makes all of his food fresh from locally sourced ingredients. The only exception is his Pepsi cooler.

Rakesh has prospered as Lucknow and Uttar Pradesh have prospered. In recent years, the state and its capital have enjoyed a significant measure of government investment in roads, buildings, and infrastructure. They still lag behind the rest of the country in education and health care, but things have improved over the last decade. The Mahatma Gandhi National Rural Employment Guarantee Act, enacted in 2005, has brought a minimum living standard to many people. The program guarantees jobs with a daily wage of about $2.60. In 2010, the government spent $8.1 billion on the program.⁵ Some of that money goes to Rakesh in the form of snack purchases by the poor workers in Lucknow.

FIGURE 1-9

Major Chinese and Indian characters in the book

Confident and ambitious, Rakesh cuts the air with his hands to make a point, and his sentences come out rapid-fire. “Earlier, I had nothing. Today, because of my hard work, I have reached quite a height—now I have everything,” he says proudly. “I used to live in a one-room rented flat. Now I own a flat with two rooms. I have also bought a plot of land and very soon I will build my dream house there.”

Material goods have flowed into Chinese and Indian middle-class households. Rakesh has two televisions, two mobile phones, a washing machine, a small refrigerator, a Suzuki Versa van, and a motorcycle. Ten years ago, he ate cheap rice, avoided fruit because of the cost, and could never afford the medicine prescribed by his doctor. Now, he buys branded refined oil and basmati rice and eats all the fruit and vegetables he wants. His son is at a top Lucknow private academy—the City Montessori School—and he has money for an occasional movie and gifts for his wife. He can even save a full quarter of his income for a rainy day.

But he does not forecast many gloomy days ahead. He expects to see continued prosperity. Where Lucknow goes, he goes. “My life is good—more than I could ever have expected,” he says. “My life will not go backward, only forward. Progress will be everywhere.”

You can see the excitement on Rakesh’s face as you listen to his story of success. It is the same with Zhou Zhanghong, a thirty-three-year-old woman in Shanghai.

A successful entrepreneur, she was born in a small farming village in Shandong, a province on China’s northern coast. She has three sisters and two brothers. Her parents raised wheat and vegetables and had an income of just $1,500 a year to feed, clothe, and house their family of eight. She never had a chance to go to college.

“I had to drop out of school to allow my younger brother to attend school,” she says. “He is the first son and was the better student. For me, it was a very tough life. I still remember wanting to buy a new pair of pants for RMB 13 (about $2), but we could not afford them. I just hoped that I would someday make money and be able to live on my own efforts.”

Today, Zhanghong is a picture of upper-middle-class affluence. She is pregnant with her second child. If you can pay roughly $20,000, most provincial governments allow couples to have two children, in spite of the one-child rule introduced in 1978. As we talked in her office, she was wearing a gray cashmere cardigan and beautifully tailored black dress pants. She smiles and carries a lilt of optimism and excitement in her voice.

She is proud of her life story. At the age of eighteen, she left home and found employment at a printing factory in Nanjing. She learned how to set type and the basics of design. At that time, her annual income matched her family’s income. “But it was not enough to generate much in the way of savings because of rent, clothing, and food needs. My boss appreciated my hard work, and I began to think I could make it big.”

She was drawn to Shanghai, where she worked for another printing company. At that point, she married one of her work colleagues, and they decided to open their own business. Together they founded Shanghai Jingma Gift Company. This company is similar to Red Envelope in the United States—inexpensive items for birthdays, anniversaries, company celebrations, and personal use. It sells diaries, notebooks, calendars, leather goods, pens, watches, and other gift items. Consumers place orders either in-store or online. Her husband runs sales and marketing while Zhanghong is in charge of finance and internal management. After a grueling eight years, the company is now operating with twenty employees and is still growing fast: it is projected to have revenues of $3 million for 2012. The couple have an income of roughly $7,000 a month, which places them in the top 1 percent of households in China.

“I believe that as long as I work hard enough, I will achieve my goal. Life is full of opportunities and will only become better,” Zhanghong says. She is grateful for her progress. “I remember our village first got electricity when I was twelve, and our aunt in the city gave us a used TV. That was the very first TV in the village. The entire village would come to our house to watch TV together at night.”

Zhanghong is the chief financial officer both at work and at home. She is the key purchase decision-maker, managing the entire household budget. She and her husband earn more than fifty times what her parents were making in the village. She has reached a level of affluence where, she says, “It’s not about how to survive but how to live.”

They own two apartments (one is their home, one is an investment), two cars (one BMW, one minivan), and many branded modern home appliances, including a thirty-two-inch flat-screen color TV (a local brand called Changhong), a side-by-side refrigerator (Electrolux), a microwave oven (Galanz), two mobile phones (Oppo), two air conditioners (Midea), a washing machine (Rongshida), and a branded toilet (Kohler). They travel domestically twice a year and are thinking of visiting Paris or New York in the future. They have a very active social life and go to the movies at least once a week, dine out at better restaurants frequently, and play mah-jongg with friends on the weekends. Her favorite brands include Estée Lauder, Esprit, and Louis Vuitton. Her husband recently joined a golf club.

Zhanghong is very happy with her life and feels grateful for her experiences. “I learned how to treat every job with 100 percent dedication and not just focus on short-term return.” As she is about to deliver her second baby and her elder son is going to enroll in elementary school next year, she plans temporarily to “slow down” at work so that she can spend more time with the family. But that does not mean that she is going to terminate her career. She sees her career as a lifetime journey and plans to rejoin the company soon after giving birth. “I feel it is my duty to further develop the business, to create better lives and futures for the employees.”

In the next decade, Zhanghong expects to be the beneficiary of China’s growth and development. “I am calm and very optimistic,” she says. “I always believe in a bright future. I am confident that my hard work will pay off.”

Consumer Sentiment: The Hopes and Dreams of the Newly Affluent

If Rakesh and Zhanghong are exceptional, there are many others, across China and India, who have great dynamism and determination to succeed, to spend money, and to be happy as never before. We know this from BCG’s annual consumer attitude survey, which helps us to understand consumer passions and preferences. Our Center for Consumer and Customer Insight has now tracked the hopes and dreams of the Chinese for a decade and of Indians for five years. Consumers in China and India have high aspirations, are optimistic about their future, and are eager to enjoy their first taste of affluence. Their attitudes are in sharp contrast to those of the recession-humbled consumers in the Western world.

According to our survey of twenty-four thousand consumers around the world, 36 percent of Chinese and 19 percent of Indians expect to increase their discretionary spending over the next 12 months (figure 1-10). By comparison, only 11 percent of Americans, 8 percent of Europeans, and 5 percent of Japanese expect to do so.

FIGURE 1-10

Appetite to spend and willingness to trade up, by country

Also, many consumers in the two countries expect to trade up to higher-quality goods: 39 percent in China and 34 percent in India, compared with 18 percent in the United States and 16 percent in Europe. The driving impulse is the desire for greater technical and health benefits. Electronics, apparel, and home decor are the top trading-up categories. Also, spending on health care is rising in both countries, although China’s per-capita spending in this category has increased at double the rate of India’s and now stands at $309 per capita, compared with $132 in India.⁶

One of the biggest budget expenses of the newly affluent consumers is food at home and in restaurants (including sit-down, stand-up, and to-go outlets)—and they are buying a wider variety of foods than ever before. We expect an individual’s average daily calorie consumption to rise by roughly 10 percent in both India and China by 2020. But if the preference for fresh vegetables is rising, it is not likely to lead to a healthier population. In China, the new diet also has more meat, and this, together with the consumption of prodigious amounts of cigarettes and alcohol, is likely to lead to an epidemic of obesity, cardiovascular disease, and diabetes.

We have identified a virtuous circle that is driving the new optimism of the Chinese and Indian consumers (figure 1-11). Besides higher incomes, the newly affluent are opting for smaller families. In China, of course, the one-child policy has created a nation where four grandparents and two parents devote their love and resources to one family heir. This permits massive investment in that child’s social welfare, health, and education. But even in India, where efforts by Indira Gandhi to sterilize mothers had to be abandoned in the 1970s, there is a trend toward smaller families—especially in urban areas, where the average among the affluent class is two children.

FIGURE 1-11

Virtuous circle of growth in India and China: high savings, smaller families, more investment

In addition, the Chinese and Indian governments have been making major investments, which are programmed through a series of five-year plans and which are designed to improve the lives of the people. In particular, as we will show in chapter 11, the governments, as well as individuals, have been investing heavily in education, knowing that this will serve as the grand escalator to greater opportunities and higher-paying jobs.

The bountiful optimism is leading Chinese and Indian consumers to believe, possibly for the first time, that they will be able to achieve their dreams—prosperity, security, and relative affluence. As part of our consumer sentiment work, we track changing values. In India, the family, education, savings, wealth, and the home are all seen as more important than they were two years ago. So too is “value for money,” reflecting the enduring power of paisa vasool, which we investigate in chapter 12. Other rising values include status, convenience, and wellness.

In China, wellness, the home, the family, spirituality (but not religion), and savings have become more important over the past two years. Other rising values include the environment, conviviality, education, friends, and wealth. This underlines the continuing influence of the Confucian notion of a xiaokang society—translatable as a well-off, harmonious society. These values both reflect the confidence of people who have grown up in an era of economic liberalization and greater social freedom and underpin people’s hopes and dreams. And, as we will see now, there are companies that are cashing in on this opportunity by providing better goods, more dependable distribution, and access to information about product safety and technical benefits.

Making Dreams Come True: Meeting the Needs of the New Consumers

Just as we started the book with a story of how a Chinese entrepreneur is serving the new appetite for haute cuisine, we will close the chapter with a story of how an Indian entrepreneur is serving the new appetite for healthy living.

Harsh Mariwala embodies the archetypical traits of an Indian entrepreneur—he is a man with an idea a minute, guided by a vision of growth and expansion and a sense that no barrier is too high. He joined Marico, his family business, in 1971, and today he is the chairman and managing director. He says he wakes up every day with the same energy that he had on his first day on the job. “I love the company, I love our achievements, and I love our future,” he says.

Mariwala has lived a life obsessed with the needs of the new consumers. His goal has been to provide them with products that are convenient, easy to use, affordable, and healthy. “We have unlimited opportunities,” he says, with animation. “We have always been a story about making decisions, taking action, thinking through the eyes of our consumers.”

He handed us a copy of his book, An Uncommon Journey. He then told us his saga of creating a publicly owned consumer goods and solutions company in beauty and wellness over the past forty years. This was a time in Indian history when the country went from being regulated, restricted, and antibusiness to being free-wheeling and celebrating the spirit of entrepreneurs. He is particularly proud of his company’s packaging innovations, investment in people and capabilities, new product lines, advances in point-of-sale information technology, and efforts to expand internationally. “Forty years ago, we set off on a journey armed with nothing but our dreams,” he says. “We invented, we innovated, we twisted and turned to find supply, machinery, and distribution—and consumers who would buy our products.”

When Mariwala began at Marico, it was a small producer of bulk edible oils. Today, the business is a leader in hair care products as well as edible oils, functional foods, instant starch products, and, most recently, skin care services. He and his family own 63 percent of the shares. Over the past ten years, it has been one of the top-ranked FMCG (fast-moving consumer goods) companies in India on the basis of total shareholder return—above Nestlé, Hindustan Unilever, and Tata Tea. Its success has been built on a far-reaching sales and distribution network: 3.3 million retail outlets.

Mariwala is full of facts about his company. “We are the leading consumer of coconuts in India. One out of every twelve coconuts produced in India is sold to Marico,” he says. In the next sentence, he wants affirmation. “Haven’t we created something exciting here? We’re fast and decisive, and we know what our niche is.” Two of the company’s brands, Parachute and Saffola, are particularly successful. Parachute is a coconut oil packaged for a variety of consumer usages. Indians consume edible oils in prodigious quantities, and coconut oil is high in saturated fat. Saffola, an edible oil low in saturated fat, has been skillfully positioned as a product for a “healthy heart” and sells mainly to middle-class consumers.

Marico started as part of Bombay Oil Industries Limited, a company that has been in existence for more than sixty years. Only in the last three decades, under Mariwala’s direction, has the company evolved into one of the largest fast-moving consumer goods (FMCG) companies in India. Sales were about $700 million in 2011. The company has expanded internationally, with a large presence in Bangladesh, Egypt, parts of the Middle East, Southeast Asia, and South Africa.

“We will certainly continue to grow both domestically and abroad,” Mariwala says, beaming. “We won’t chase the biggest markets. We will enter the markets with an emerging middle class. We will be there for their beauty and wellness needs.”

Mariwala is proud that he has competed and won against Hindustan Unilever, a much larger consumer packaged goods competitor in the core oils business. To secure victory, he says, he “contemporarized” packaging, ramped up distribution, and improved quality. “It was the core business for us, so we had no choice but to win.” In the end, Marico acquired the Nihar brand of hair oil from Hindustan Unilever. He calls it “an emotional and psychological victory.”

“We will grow and expand the product line,” he says. “We know how to stay out of the bright lights of the multinationals. We know how to exploit niches. We know that our power is our extensive distribution. India will grow and develop tremendously over the next decade—roughly 10-plus percent compound annual growth. When Indian consumers want to spend their extra money on personal care and healthy food products, when they want a fix on skin or hair, we will be there.”

He says mind-set is critical—and he is a prime proponent of the accelerator mind-set, which we will explore in chapter 14. “Grow faster than you are comfortable,” he says. “Never stop seeking new opportunities. Push the envelope.”

“We have very high energy and amazing persistence,” he says. “I love it here. Our rapid-growth days are still in the future. You need patience, perseverance, perpetual reinforcement, and no escape buttons.”

The rise of the newly affluent consumers will have a double-edged effect. It will create new opportunities and, at the same time, give rise to a new era of competition. For those companies in the United States and Europe that are fast and resilient enough to take advantage of the market growth, there will be spectacular wealth: a share of the $10 trillion prize. For those that are not fast and responsive, there will be competitors that, having grown up in China and India, will attack with deadly force in Western markets with low-priced, high-quality goods.

To help companies, we have tried to fill The $10 Trillion Prize with an abundance of practical lessons and strategies. We believe that the newly affluent in China and India are different from those in the West. They grew up with nothing and suddenly find their lives filled with choice. They are careful buyers yet they want the recognition, respect, and sophistication conveyed by branded products. They are uniquely optimistic about the future. They expect to be richer and they expect to command a greater share of the world’s resources and income.

To win these new consumers, it is necessary to win them over—to captivate them. You can do this by focusing on six emotions:

 Help fulfill their dreams—give them a moment of gratification and elevation.

 Help brand them as in-the-know—discerning, informed, visibly affluent.

 Help them live big, on less. Understand that they “work hard, spend hard”—every renminbi, every rupee, is precious and causes them angst as it leaves their pocket.

 Understand that painful memories still haunt them. Almost every consumer we have talked with in China and India has either firsthand or family memories of deprivation and personal risk. You need to respect their history and provide them with an optimistic view of the future.

 Earn their loyalty and reverence by aiding the advancement and health of their children.

 Listen hard. The new consumer wants to engage in a dialogue and is looking for your respect and appreciation.