Nick McIlroy, Shanghai Office, Bord Bia - Irish Food Board

A recent McKinsey report suggests that the growth of the ‘consuming class’ in the developing world dwarfs even the industrial revolution in importance as ‘the biggest growth opportunity in the history of capitalism’. Using the analogy of the Olympic decathlete, McKinsey argues that companies must excel in a number of disciplines to compete effectively in developing markets, citing ten crucial capabilities which require a radical review of developed-world capabilities, spanning marketing, operations and resource allocation models.

Of particular interest to the Chinese market, McKinsey indicates two critical variables as key to understanding the growing consumer market.  Firstly, grouping markets into clusters of similar regional cities can be very useful, particularly as regions can be very diverse in terms of consumer tastes, market conditions and purchasing power.  A clustering approach can help companies target consumers more effectively in these cities- cities which in some cases are ‘economically larger than entire European countries.’

Secondly, getting the timing right to tap into explosive growth in different cities is crucial to success.  McKinsey suggests that demand for a good or service is non-linear, but rather can be plotted as an S-curve, where the critical variable is per capita income.  The S-curve differs greatly for different products with low unit-cost products accelerating earlier on the curve, and higher value items later in the curve, so consumption rates of different products will depend on the per capita income of the cluster, rather than the national average.

With developing markets forecast to account for almost half of the world’s consumption by 2025 ($30bn out of a total $64bn), McKinsey emphasises the importance of understanding these markets as the key to success.