Paisa vasool[a follow up]

You might have noted this blog named Authors India mentioned  about a totally different person in the earlier entry. Actually we intend to introduce  not alone writers, poets ,historians, musicians and other people of importance in specific fields; there are others.Marketing personalities, financiers who help to roll the wheel of money which rules the day of  present.
As a follow up to the previous entry we wish to some more.

BCG’s managing director Michael Silverstein and head of consumer (South Asia) Abheek Singhi.

 

Bangalore: Michael Silverstein , managing director at the Boston Consulting Group (BCG), and Abheek Singhi , head of consumer (South Asia), co-authored (with two others) a book called The $10 trillion Prize, which predicts spending in India and China on consumer goods and services will together triple to $10 trillion (around Rs.524 trillion today) a year by 2020. The consultants, who work with the world’s biggest retail and food companies, spoke in an interview about consumer-buying patterns globally amid the economic slowdown, foreign investment in India and how acquiring companies is the right strategy for foreign firms entering India. Edited excerpts:

How has consumer spending trended worldwide amid the global economic slowdown?

Silverstein: We just did a survey of several thousand consumers in China, India, the US and the UK. Chinese and Indian consumers remain positive and optimistic about the future. More Chinese intend to spend more than Indians, but not by much. So it’s China first, followed by India, then the US and the UK.

Are consumers trading up or down? Which sectors have held up well relatively?

Silverstein: In the US, the car market has been booming. The housing market, where three-four years ago there was a deadening silence, is alive and vibrant. The sector that is a little bit depressed is grocery. There’s a huge amount of segmentation in the US. About 25% of Americans are under extreme financial pressure. They’ve seen no recovery. About 25% of Americans think the recession ended a year ago and things are good. The rest are waiting to see who becomes the president.

Singhi: In India, consumer product companies have been largely unaffected (by the wider economic problems). From a growth perspective, the packaged foods sector has done really well. Consumer durables have done reasonably well. There has been postponement of repeat purchases. For example, in entry level TVs and washing machines, growth has been great, but the repeat purchases have slowed.

What advice are you giving to the companies?

Silverstein: We are telling them to fasten their seat belts. Hold on for a while, but overall, the time between now and 2020 is going to be fantastic. Make a set of deliberate investments, don’t be speculative. Add capacity cautiously (in developing economies). In the US, there is no need for capacity growth, so few companies are making capital investments for growth.

You travelled around India and China during the course of writing your book. What are the three key insights that you picked up that are unique to the Indian consumer?

Silverstein: The uncanny thing about the youth of India is that they all want to have more than what their parents have; 80% of Indians believe that the next generation is going to have a better life than the prior generation. Whereas in the US, only 20% believe so. Second, I’m a big believer in the Indian phrase paisa vasool (value for money), which is a global export from India. Indian consumers are frugal. They’ve always wanted to have more for less. Third, there is going to be a tripling in the consumer goods market in India and China between now and 2020.

What is unique about the Indian consumer wanting value for money? How is that different from the West?

Silverstein: American consumers have not been very value-oriented. For years and years, they were willing to take middle-market goods that were average quality, had product deficiencies, but had fat margins. An example is Chevrolet. If you compare it with Toyota’s Camry in quality, reliability and features per value, you’d find that 15 years ago, Toyota had an overwhelming operational advantage. With paisa vasool, that market is being destroyed. There’s a trading up and trading down phenomenon. Paisa vasool is a concept invented in India and applicable across the world.

Which sectors in consumer products will be the fastest growing in India over the next decade?

Singhi: The fastest growing sectors are going to be the ones related to education and leisure. One thing that we found in our research is that consumers are willing to stretch themselves most on education. That’s the one thing they see as their children’s ticket to a brighter future.

Was there excitement among your clients when the recent foreign direct investment reforms in retail were announced?

Silverstein: All our clients are excited about the growth in India. But it’s a more complicated story than one move opening the market. Our clients look at India as a complicated country with many different states and much regulation, and a lot of people (politicians) saying ‘we’re open’, and then blocking the door. So it will take more to get a cascade of activity.

One of the effects of the boom in consumer spending in India and China is what you have called the boomerang effect (where demand in India and China is going to drive up commodity prices worldwide). Could you elaborate?

Silverstein: With minor increases in demand, when supply is fixed, prices skyrocket. When you see minor drops in demand, prices plummet. We’re telling our clients: you have to be ready for massive changes in commodity prices. In order to deliver profitability, you have to be ready to change your prices very quickly.

You’ve said one of the best ways to deal with the boomerang effect in India is to buy companies. Why?

Singhi: If you look for successful consumer companies in India and China both...there aren’t many. Unilever is extremely successful in India, but not that much in China; P&G, the other way round.

The companies which are successful in both markets are the ones that have used the acquisition route. Kraft is an example. Our research has shown that in India, in the consumer space, if you are below $250 million (in annual sales), you’re below the minimum efficiency scale if you’re a national player.

Will there be a boom in mergers and acquisitions (M&A) activity in the consumer space in India? Which sub-sectors will see a lot of activity?

Singhi: We’ll see an increase from what we’ve seen in the past. I’m not sure if there’s going to be a boom because if you look at the available set of players, it’s not that long a list. The one key driver of M&A growth will be private equity investments. There are close to 100 brand equity investments which have been made by (private equity firms) ranging from $5 million to $25 million in the last two to three years. 

Note:They are related with Food, Personal Care and related categories

 Source: Live Mint