Fortune’s Global 500 ranking of the world’s largest companies for 2011 makes interesting reading. In asking where next to look for growth, Fortune comments on four trends:
- Your Next Customer. About 4 billion consumers live at the base of the economic pyramid. Although poor, their aggregate purchasing power is enormous, estimated at $5 trillion. They are economically underserved, creating major opportunities for businesses that can deliver the products they need at prices they can afford.
- Devices Talking 24/7. At any given time, 7 billion devices are communicating with one another worldwide. Sensors embedded in roadways, power grids, appliances and even clothes feed a flood of data that can help smooth traffic flow, conserve resources, improve healthcare delivery and much more.
- The Rise of Urbanization. The growth of mega-cities will drive massive infrastructure spending.
- Scarcity, the New Normal. Three billion people will join the global middle class in the next two decades. The resulting consumption boom will drive natural resource prices higher, opening space for companies that use resources more efficiently. Opportunities to improve resource productivity will grow in areas including food, water and energy.
What I Find Interesting
It’s interesting that two of the themes that Fortune chose to highlight fit right into the focus of this blog: majority world markets and resource scarcity. Here are a few of my thoughts.
Majority World Consumers
- Very few western companies will realise the potential of majority world markets, because of their high cost structure and an inability to change their mindset to that required to serve a completely new type of customer.
- The issue is much more than simply making a product at a low price point. Success will also mean being able to innovate in areas such as marketing, distribution and supply chain, and companies will need to learn how to deal with unfamiliar and unstable governments and regulations.
- Poor people don’t want to be patronised. They are discerning customers but their needs are very different from developed world customers. Simple survival is one reality, but another is that status is very important in many of these cultures. Companies will need to learn how to serve these customers well if they want to successfully tap into these markets.
- Scarcity drives innovation. There have been warnings about a global food shortage since Thomas Malthus made his famous prediction over 200 years ago, but agricultural technology has continued to advance allowing food supply to keep up. Although there may be short-term problems, I would expect the same to happen with regard to energy, water, and minerals.
- Market forces will cause prices to adjust to reflect scarce resources, which is what will drive the innovation. While price increases may be uncomfortable, they are a necessary step on the path to a solution.
- Will we ever outstrip the earth’s resources? Will we ever mine the moon, asteroids and other planets for their resources? I guess we will one day, but not for a long time. Before anything like that is possible, we need to find a new power source that provides unlimited clean energy and enables space exploration.
What is your reaction to the four trends highlighted by Fortune?