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


Competing for the Global Middle Class

Myth: We don’t need to alter our products — we just need to educate our customers.

Reality: In the near term, many newly minted middle-class consumers cannot afford developed-market products no matter how much they might value them. As the middle classes mature and their purchasing power grows, this will change. Nonetheless, customers in countries such as India, Brazil, and Turkey will continue to want distinctive features and options. Many of their needs, wants, and tastes stem from unique cultural or environmental conditions, and are unlikely to change soon.

Too often, companies try to create middle-market variants of higher-priced products by subtracting a few features and pushing them through the existing business model and value chain. This results in compromised products at overly high prices. The better alternative is to rethink the value chain entirely. For example, the papermaking machinery industry in China is a rapid-growth, low-margin sector with many local upstart competitors. Multinational incumbents that want to enter this market must provide integrated manufacturing packages, including fiber systems, environmental solutions, automation, and rolls and fabrics. To accomplish this, they often build their capabilities through acquisitions and partnerships.

Myth: Entering the global middle market will be too disruptive to our operations.

Reality: Companies need a business model suited to the task. The R&D function, for example, should avoid innovation races and the creeping elegance associated with sophisticated and expensive products. Instead, take a more local approach to innovation, designing products for specific markets. The products can then flow elsewhere, finding support and additional markets wherever they strike a chord. Investing in local R&D that can rapidly turn middle-market customer insights into products and services is another key to success.

The manufacturing footprint will likely expand in many companies as the number of products designed for specific middle markets begins to grow. In lower-income markets, manufacturing processes may need to emphasize volume and efficiency over customization. Farther back in the value chain, suppliers will be rewarded for minimizing complexity and meeting the value and cost expectations of middle-market customers.

Marketing will need to identify distinct middle-class markets and gain an intimate understanding of the customer segments within each one. It will have to craft and effectively communicate tailored value propositions that don’t undermine more expensive offerings, especially when they bear the same brand names. Sales and service will need to be rightsized for each market — often, this will entail more of a self-serve approach that keeps costs low.

For executives of multinational corporations, it may take a change in the conventional business mind-set to tap into global middle markets effectively. The most successful companies are establishing new business units; rethinking their decision rights and other practices; and giving their leaders the freedom, authority, financial resources, and talent needed to develop and run these businesses. The opportunities in the global middle market are worth the effort.

Reprint No. 11309

Author Profiles:

  • Edward Tse is a senior partner with Booz & Company and the firm’s chairman for Greater China, based in Hong Kong and Shanghai. He is the author of The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy (Basic Books, 2010).
  • Bill Russo is a senior advisor with Booz & Company. Based in Beijing, he has more than 20 years of experience in the automotive industry, most recently serving as vice president of Chrysler’s business in Northeast Asia.
  • Ronald Haddock is a former partner at Booz & Company, where he helped companies build businesses in China, India, Korea, Russia, and other emerging markets.
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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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