The rise and rise of rural consumers
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Vijay Mahajan prefers to cite anecdotal evidence for everything he says or writes. So, it is no surprise that the professor, who was in India for his book launch in New Delhi last week, starts quizzing the attendant in the restaurant who is serving him green tea, to prove his point on remittances. Published by Sage, his book is titled Rise of Rural Consumer in Developing Countries and professor Mahajan is John P. Harbin Centennial Chair in Business at the McCombs School of Business, University of Texas at Austin. He was also the dean at the Indian School of Business, Hyderabad, between 2002 and 2004.
The book is all about the growing power of consumers in rural markets in developing countries in Asia and Africa. It examines the forces that are adding to rural prosperity, including the billions of dollars in remittances. And the young man waiting on Mahajan in the coffee lounge of a prominent New Delhi hotel becomes an instant case study. He comes from a village in Uttarakhand and landed in Delhi looking for work. His father tends to his farms back home. But the young man who is being quizzed says he sends money to his parents. And the money is transferred online. “That’s a live example of remittance going back to the village and adding to the rise in rural consumption,” says Mahajan as he concludes his conversation with the waiter.
About 48% of the world’s population lives outside urban areas and nine of every 10 of those people, or about 3 billion, live in rural Africa or Asia, he says. “Companies that discount these consumers essentially cut their global marketplace in half. The bigger opportunity lies in the up-and-coming rural populations of emerging economies, particularly in Asia and Africa,” he adds.
For the book, he focused on 10 countries with the largest rural populations, seven of them in Asia and three in Africa. The rural top 10 include India, China, Indonesia, Pakistan, Bangladesh, Nigeria, Ethiopia, Vietnam, Egypt and the Philippines.
Mahajan says he focused on these because collectively they total nearly 2.2 billion people or two-thirds of the entire world’s rural population. “They represent a massive market opportunity for the progressive consumer companies. These economies have increasing spending power,” he says.
Between 2013 and 2015, Mahajan travelled to each of the rural top 10 countries, as well as to Thailand, Myanmar and Bhutan. In these countries, he discovered an increasingly affluent consumer base “whose needs were the same as any consumer I have seen anywhere around the world”. So, a big takeaway from his travel around the world is that consumer aspirations are the same everywhere. There is no difference between the aspirations of the urban and rural consumers and the aspirations of rural consumers in different parts of the world, says the professor.
“From a marketing point of view, there are people who are poor, people who are rich and people who are in between. But their aspirations don’t change. After travelling to 60-70 countries, I can say that mothers everywhere are the same. They want to give their children better than what they have and they want them to achieve what they have not achieved. That’s why aspirations are universal,” he says.
The rural story in his book is directed at the company CEOs in Mumbai, Shanghai and New York as well as for the policymakers, he says. “I wanted to tell them what they are missing. I wanted to say that you cannot have sustainable economic growth unless you have an inclusive strategy. That inclusive strategy must include the world’s non-urban population,” he adds.
As mentioned earlier, rural markets are being transformed by the remittances from migrant workers. Then there is government intervention, which may be improving their lot. There are several government schemes in India for the benefit of the rural folk, says Mahajan. In China, too, the government subsidized a lot of white goods during recession. It wanted to encourage people in rural areas to buy those products.
Non-governmental organizations or NGOs too play a dominant role in bettering their lives. While some NGOs work with tribals and teach them how to use natural resources, others employ local rural talent to create products and help them boost their incomes. He cites the example of BRAC, the world’s largest non-governmental development organization which is based out of Bangladesh and its social enterprise Aarong that works with women in Bangladesh to make ethnic handcrafted products.
In some countries like China, the rural markets have exploited technology to boost incomes. The cyber villages of China, for instance, sell their products online all over the world. “A village that specializes in making dormitory furniture set up a shop on the Chinese e-commerce site Alibaba. The online platform has a payment gateway which facilitates their payments as well,” Mahajan says, adding that cyber villages achieve economies of scale as the whole village is making the same thing and technology helps them in a major way.
While there are several factors that are impacting and improving lives in rural India, the fast-moving consumer goods companies here have reported slower growth rates and subdued consumer sentiment in rural markets.
Mahajan has no patience for such complaints. “If companies complain, they themselves are to blame. Competition has definitely increased and consumer habits are changing. So, these are the things they should be looking at,” Mahajan says, illustrating his point with the example of his close relative, a physician, who is now using Baba Ramdev’s Patanjali Ayurved edible oil back home in his native Jammu.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.