The geography of the global middle class: Where they live, how they spend
If technological advances, shifting consumer attitudes and regulatory change are key forces driving change in European markets, on a global scale, few trends are as important as demographic change.
The rise of the global middle class means that businesses operating on the international stage need to consider not just how to attract and keep consumers but fundamentally, who those consumers are, and where they are.
In a 2018 economic research report, Visa and Oxford Economics look at the emerging global middle class and analyse how digital technologies are driving a wave of globalisation unlike anything we have seen before. The report looks at middle class spending patterns through several lenses, creating new tools for quantifying the remarkable shifts in global commerce.
TheThe report is available in full here. Alternatively, please see this ‘at-a-glance’ infographic or read some of the key takeaways from the report below.
The Geography of the Global Middle Class: Where They Live, How They Spend Key highlights
Aggregate consumer expenditures of the 22 countries included in the study will increase by an estimated $15 trillion in constant dollars by 2030, with middle class households accounting for more than 60 percent of that increase. The bulk of the growth in consumer expenditures by 2030 will occur in cities in the mid-range of globalisation today, which highlights the profitable opportunities global firms have to further expand into markets where they currently may have a limited presence.
The distribution of the global middle class encompasses a much wider geographic spread today versus just 10 years ago. There are now hundreds of millions more consumers whose purchasing power extends beyond their basic needs. They are both able and willing to buy the best the world has to offer. The study provides examples of the changes that occur in consumers’ budgets as their incomes grow— such as shifts in food expenditures as new amenities of the middle-class lifestyle (e.g. restaurant spending) are added to the family budget.
As globalisation marches on and more people join the middle class, consumer-spending patterns are also slowly converging over time. Historically, these spending patterns have varied according to local and national policies, preferences, development levels, and customs. However, in the world’s most global cities, variations are less pronounced. Particularly between developed and developing countries, the differences are gradually narrowing in what consumers spend on food, hotels, restaurants, and personal services.
Globalisation’s reach extends deeper than national aggregates would suggest, especially when measured at the city level. The distance between newly emerging centres of the middle class and the most global cities like London, Singapore, or Dubai is much shorter than the difference between countries would indicate.
The spread of digital payments has enabled the dramatic expansion of new consumer-centric commerce platforms that can seamlessly connect a consumer to a seller halfway around the world with just a tap or a swipe on a mobile phone. New trends emerging in one part of the world gain rapid global adoption. In 2015, San Francisco was the only city globally where at least 20 percent of Visa-branded cards were used on a sharing economy platform. Fast forward to 2017, the number of cities had risen to over 80, including Bangalore, Tijuana, Cairo, London, Singapore, and Sydney.
Global brands are gaining traction with middle class consumers around the world. Visa-branded payment card data was analysed to understand whether and how much middle class consumers shop at global brands in the focus cities. The data shows that across all of the cities covered, the more affluent a consumer, the more likely he is to shop at global brands. Surprisingly, the strength of this relationship between household income and global brands is even tighter in less globalised cities. In other words, global brands can be aspirational for consumers entering the middle class. However, when it comes to how much a consumer spends at a global brand, other factors beyond income play a bigger role, such as what they are buying and where they live. Understanding these nuances can help global brand managers position themselves in new markets and make the most effective payments, supply chain, and product lifecycle management decisions.
Technology and population aging are two important drivers shaping the global urban landscape. The study constructs two alternative scenarios to the baseline on how these two forces in combination could impact the world. In the first scenario, cities diverge demographically, with young, productive workers moving to cities with above-average growth, while cities with sub-par growth hollow out and experience a population decline. In the second scenario, cities converge in their spending patterns toward the most global cities in their demographic group.
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