Today's Consumer Shifts Demand New Strategies: Follow the Metrics

U.S. unemployment, at 9.1 percent in August, is likely to remain high for years. Economic growth projections continually seem to be revised downward. And the approval ratings for President Obama and Congress, which are at the lowest levels in memory, don’t inspire confidence or encourage business investment.

Although there are many reasons for pessimism, there is a bright spot. The United States has a tremendous advantage over other developed countries due to its population growth projections and the impact on the economy. Emerging markets, recipients of virtually all non-U.S. population growth moving forward, stand to gain even more.

The Benefit of a Growing Population

From 2000 to 2011, the U.S. population grew by 10 percent reaching 312 million, according to the Census Bureau. And by 2020, this figure is projected to jump another 8 percent to 336 million. Immigration is partly responsible. Thus, in fiscal year 2009 alone, the United States issued more than 1.1 million permanent residence permits, 70 percent more than the next highest country destination.

By 2020, the populations of several developed nations, including Japan, Germany and Russia, will decline. And while the U.S. work force will grow over the next two decades, the European and Japanese labor forces are projected to shrink by 5 percent and 17 percent, respectively, says Robert Doll, Chief Equity Strategist at BlackRock Inc., the world’s largest money manager. Why is this important?

Doll says the long-term growth rate of any economy is the change in the size of the work force multiplied by its productivity. Although American productivity recently slowed, its overall performance is good. And this puts the United States ahead of many developed countries.

What about developing countries? According to Doll, so far the increase in their share of world growth has come mostly at the expense of Japan. The future may hold a different reality.

Look to Emerging Markets

In April 2012, world population is anticipated to reach 7 billion. And virtually all non-U.S. growth will occur in developing countries.

According to the Census Bureau, in 2011 the population of the less developed and more developed countries was 5.7 billion and 1.2 billion, respectively. By 2050, the numbers in less developed countries will swell to nearly 8.2 billion, yet remain under 1.3 billion in more developed ones. What’s more, developing economies are projected to grow two to three times as quickly as the United States next year, the International Monetary Fund says.

In turn, emerging market demand is projected to rapidly rise while developed country demand falls. Thus, according to Credit Suisse, a financial services company, the American share of world consumption, at approximately 27 percent in 2010, is expected to decline to 21 percent by 2020.

During the same period, China’s share of world consumption is estimated to climb from 10 percent to 21 percent. India’s share is expected to double to 5.3 percent; Asia’s overall share, with the exception of Japan, is predicted to rise from 17 percent to 32 percent.

Due to these and other global economic realities, many American corporations are forced to limit the numbers of employees they hire in the United States in favor of increasing employment abroad. Yet, even if the U.S. was growing considerably faster, its unemployment rate still would remain elevated. Why? The exponential increase in U.S. technology has enabled fewer American workers to produce more goods in less time. As a result, labor demand is impacted.

How important are foreign markets? Standard & Poor’s analyst Howard Silverblatt says roughly half the sales and profits of S&P 500 companies are generated in foreign markets. Doll claims 70 percent of their incremental earnings growth will come from abroad. Although estimates differ, the percentage likely is much higher for many of the biggest U.S. corporations.

Reassess Your Global Strategy

When creating short and long-term global business and investment strategies, it’s imperative to know where your target consumers will live. And as world population centers shift, companies must reassess which markets to pursue.

For some, this may mean focusing on growing segments in the United States, a vast market that may temporarily be down, but certainly not out. In fact, the U.S. market has and will continue to achieve remarkable results.

For example, over the last decade, American gross domestic product (GDP) growth increased 18 percent in inflation-adjusted dollars. That is significant considering the bursting of the dot-com bubble in 2001 and the recent Great Recession, which continues to have a significant drag on the economy. American GDP also is 2.5 times greater than China’s, the next largest economy.

In addition, Americans only represent 4.5 percent of global population, yet U.S. innovation delivers more than half the world’s patents each year. Plus, the U.S. share of world value-added manufacturing is nearly 20 percent, United Nations statistics indicate. This market, which can’t be ignored, will once again be a major engine of growth.

In the short term, however, and well into the future, exporters and investors should consider expanding in faster-growing developing countries. In order to succeed, it may be necessary to redesign or add new product lines or services to satisfy different tastes and needs. It also will be important to think outside the box in terms of market potential.

For example, average per capita incomes in developing countries are relatively low. In 2010, GDP per person was estimated by the United Nations at almost $4,500 in China, slightly more than $1,300 in India, approximately $10,600 in Brazil, and $47,000 in the United States. At first glance, U.S. producers are likely to assume that consumers in developing countries can’t afford their products. This is a mistake.

India, for instance, has a middle class of approximately 200 million consumers with the same purchasing power as the United States’ middle class. Compared to the entire U.S. population, many would agree that an additional market of 200 million consumers with substantial buying power is well worth pursuing.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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