Domestic markets power economic rise of global South

MANILA, Philippines - As trade grows between developing nations, more companies in these countries will adapt and innovate with products and processes that are better suited to local needs.

The 2013 Human Development Report “The Rise of the South” recently released by the United Nations Development Program (UNDP) underscored this amid the growing importance of the domestic market to growth of countries of the so-called global South.

“The middle class is growing in size and income. By 2030, 80 percent of the world’s middle class is projected to live in the South. Countries in South Asia and East Asia and the Pacific will alone account for 60 percent of the middle class population and 45 percent of total consumption expenditure,” it said.

The report cited another estimate indicating that by 2025, a majority of the one billion households earning more than  $20,000 a year will live in the South.

To better serve the growing domestic market, it said that companies develop new business models whereby they make products for a large number of low-income customers, often with low margins.

The report pointed out that countries of the South are also natural locations for experimentation in new technologies and products, such as those based on the global system for mobile (GSM) communications standard.

With the advent of new technologies, it cited mobile phone manufacturers that have re-engineered products for the needs of lower income consumers. Entrepreneurs can also provide business services through mobile phone kiosks.

“These and other transformations multiply the possibilities of what people can do with technology: participating in decisions that affect their lives; gaining quick and low-cost access to knowledge; producing cheaper, often generic medicines, better seeds and new crop varieties; and generating new employment and export opportunities. These possibilities cut across income classes, reaching down to the grassroots,” the report stressed.

To respond to the changing needs of middle class consumers, companies doing well in the South tend to be long-term risk-takers and agile in adapting and innovating products for local buyers.

“Consumers in the South tend to be younger, are often first-time shoppers for modern appliances with distinct in-store habits and are usually more receptive to branding,” it further said.

Meanwhile, the report cited as examples Chinese, Indian and Turkish apparel firms that have shifted production from shrinking global markets to expanding domestic markets.

“Greater reliance on domestic markets will boost internal dynamism and contribute to more-inclusive growth,” the report noted.