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Recently there have been many reports on weak outlook for global economy. Additionally, concerns have been raised on "Lack of Consumer Spending" and that the better report on "Unemployment Claims" is kind of misleading, as this could due to folks losing umemployment benefits after 26 weeks rather than actually folks finding a job.
No matter how we look at it - It does not look like the fundamentals are improving and the reason why the market is way higher than 52 week lows is probably driven by factors like increased government spending (stimulus) or the fact investors sitting on sidelines are feeling a sense of lost opportunity and moving into the market.
Whatever is the cause, whether we feel we are on the right track or we are faltering, I think caution rather than exuberance is probably the right recipe for the current situation.
Having said that, Lets now get back to the question, I actually wanted to answer today:- Consumer Spending - Are we looking at the right consumer?
This question made sense to me as I was on vacation to India for the last few weeks, just looking around it is obvious, and there are very few signs of a slowdown. It is just amazing to see the investments into infrastructure, new retail malls and outlets. Looks like everyone around you is an entrepreneur and is confident of making it big.
However when you look at the products that are in your face (either Billboards or when you walk into a retail outlet or what people are buying:
Consumer Electronics: you find Samsung / Sony and other non brands made in Korea or China Durables goods: you find LG
Communication (Cell Phones): you find Nokia
Automobiles (Cars and Bikes): you find Honda/Yamaha / Suzuki Bikes; Suzuki, Toyota, Tata Cars
Soft Drinks (hot country): you find Coke / Pepsi and lot bottled water and fresh fruit juices
Shoes: you find Bata / Nike
What is concerning in this picture is the obvious lack of focus by American Companies in markets where there is real money being spent. Except for in Soft Drinks, Bottled Water and Shoe Segments, it is hard to find find real American Products. We are starting to see some cars from Big Three but really, should they not be aggressive? As a very good friend of mine suggested - "Maybe American Companies no longer make what consumer buy, they own the IP or make what is inside these consumer products". There may be some truth to that but I am not sure that is the answer.
My Take:
It is time for American and other global companies to start focusing on where the consumers are still spending rather wait for the American Consumer to start spending. Historically, these emerging markets posed a challenge for cutting edge consumer products, in terms of
1.) Pricing: Inability to extract high margins on leading edge products, spending on older versions was not worth it. Hence very little focus on emerging markets
2.) Size of Market: Though the population is huge, the segment of population that could actually afford these products was low due to low wages. May be it is time to re-look whether this is really true?
3.) Complex: Rules/Regulations and other government functions were more of a hindrance to business than friendly? May be it is time to look at how the Asian and European Competitors are cracking the code?
3.) Technology: The specification for the Markets (Infrastructure, Temperature, Energy, Roads etc. ) pose significant barrier that will need R&D and adaptation ? Probably time to revisit the assumptions, As they may not hold good any more.
4.) Supply Chain Management: Historically, it may have been impossible to manage global supply chain for rapid global releases. However, Reduced Product Life Cycles are a reality today nobody wants version n-1 consumer products. Hollywood has figured it out, so have the Asians and Europeans, so shouldn't the most technologically advanced society figure it out?
5.) Language/Culture Barriers: There may be a perception that dealing with countries like india is like dealing with many countries and many regulations. This may still be true to certain extent but is it really that bad?
In summary, it is necessary for any global company, American or not, to really look at what was the reason not to aggresively focus on Markets like India and re-evaluate validity of their assumptions. If they don't, they risk losing out attracting one of the worlds largest customer base and relegate themselves to irrelevance.
Lastly, over the last decade or couple of decades, I feel the American Consumer has done his fair share of spending to keep the world economy growing, it is now time to for the American Consumer to Save and for global companies to focus selling in markets beyond America to be successful !
Your feedback is appreciated. Please feel free to respond by posting a comment and I will respond if I can. Thank you for reading
Thanks
Nagesh
The views represented in this blog are my personal views and are not a reflection of or opinions of any of the institutions I am associated with or have worked for
