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 / Autumn 2011 / Issue 64(originally published by Booz & Company)


Competing for the Global Middle Class

Three types of companies are jockeying for position in emerging economies, seeking to capture the loyalty of billions of new consumers.

In the 1920s, when Alfred P. Sloan Jr. reorganized General Motors Company, he promised shareholders “a car for every purse and purpose.” Sloan tapped into a teeming middle-class market of Americans who couldn’t afford luxury cars, but nonetheless wanted product options far beyond the “any color so long as it’s black” Model T Ford. This immense U.S. middle-class cohort propelled GM past Ford into a leadership position among carmakers that lasted for the rest of the century.

Today, leaders of multinational corporations have a similarly lucrative opportunity on a much bigger playing field: a global middle-class market. This worldwide economic phenomenon encompasses a huge customer base. In 2011, it includes about 400 million people in the mature middle classes of the U.S., Europe, and Japan, and another 300 to 500 million people, depending on how the middle class is defined, in emerging economies. (The World Bank defines middle class as people who are above the median poverty line of their own countries. This might make them poor by the standards of Europe or the U.S., but gives them enough purchasing power to become consumers of manufactured goods and services.) This new global middle class is particularly evident in Brazil, China, India, Indonesia, Mexico, Nigeria, Turkey, Vietnam, and other countries with relatively large working populations and rapid economic growth rates.

The middle class in each of these emerging economies has its own unique profile of demand. However, they all have one thing in common: They are recovering from the global recession with an increasingly urbanized lifestyle, and their numbers are expanding at very high rates, especially compared with the rest of the world. The value chain of companies that provide this population with goods, services, and infrastructure is becoming known as the “global middle market.” Companies that secure leading positions within that market could well become the 21st-century equivalents of Alfred Sloan’s General Motors.

One such company may be China’s Haier Group. In 1985, Haier was a bankrupt domestic refrigerator manufacturer. Product quality was so bad that general manager Zhang Ruimin (now chairman and CEO) built his case for change by lining up 76 defective units and ordering workers to destroy them with sledgehammers. Today, one of the sledgehammers is on display in corporate headquarters, and Haier is one of the world’s largest appliance makers — a multinational corporation with a reputation for world-class quality and 2010 revenues approaching US$20 billion.

Zhang put in place three successive strategic initiatives, aimed, respectively, at improving product quality, expanding globally, and diversifying the company’s product line: for example, offering washers at a range of price points for consumers in different income segments, just as GM did with its cars early in the 20th century. Then, in December 2005, Zhang announced a new thrust. Haier would stop shipping products from China to the rest of the world; instead, it would design and manufacture products elsewhere, customizing them for specific national and regional markets. Today, Haier produces extra-large-capacity washers that can accommodate the robes of Middle East consumers; electronically sophisticated washers that can cope with the frequent power fluctuations in India; whisper-quiet, timer-equipped washers for Italians who want to take advantage of the lower power rates available late at night; and other locally targeted variants.

Haier is not the only company that has transformed itself to seek a share of the global middle-class market. In a variety of industries — including consumer packaged goods, electronics, automobiles, medical products, and agricultural equipment — corporate leaders are discovering that they must rethink their product and service lines, go-to-market strategies, and operating models to build a presence in emerging economies.

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  1. Pankaj Ghemawat, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter (Harvard Business School Press, 2007): A highly effective approach to global strategy, one middle market at a time.
  2. Vijay Govindarajan, Jeffrey R. Immelt, and Chris Trimble, “How GE Is Disrupting Itself,” Harvard Business Review, October 2009: Describes reverse engineering in GE’s medical systems business.
  3. Ronald Haddock and John Jullens, “The Best Years of the Auto Industry Are Still to Come,” s+b, Summer 2009: The global middle-market opportunity in motor vehicles.
  4. Richard Shediac, Rainer Bernnat, Chadi Moujaes, and Mazen Ramsay Najjar, “New Demographics: Shaping a Prosperous Future as Countries Age”  (PDF), Booz & Company white paper, May 2011: The underlying dynamics that have created the global middle class.
  5. Edward Tse, The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy (Basic Books, 2010): How to successfully enter one of the largest global middle markets.
  6. For more on this topic, see the s+b website at:
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