Indian Middle Class and its Relevance to Multinational Companies


By

Deepu. M
3rd Semester MBA
Institute of Management in Kerala
Trivandrum
 


Who is the Middle class?

*
The middle class, in colloquial usage, consists of those people who have a degree of economic independence, but not a great deal of social influence or power.

* The term often encompasses merchants and professionals, bureaucrats, and some farmers and skilled workers.

Who all are the Indian Middleclass?

*
The Indian middle class is comprised of families who do not possess inherited family status or unusual wealth.

* Their social and economic position is achieved primarily by their occupation, career orientation and skills.

* It includes professionals, independent businessmen, corporate managers, professors, bureaucrats and skilled workers.

* In a nutshell the middle class in India represents the majority of the white collar group and the top of the blue collar group.'

How Social hierarchy is formed?

*
There are many factors that can define the middle class of a society, such as money, behavior and heredity.

* In the developed countries, it is predominantly money that determines one's place in the social hierarchy.

* In other societies it can be other social factors such as education, profession (white collar rather than blue collar), home ownership, or culture

Indian Social Classes

*
The National Council of Applied Economic Research's mid-1990's report on the growing Indian middle class. It was based on a national population that was estimated to be 900 million rather than today's 1.1 billion. The survey said

* The Very Rich consisted of about 6 million (0.066 %).

* The Consuming class, about 150 million people (16.66%,)

* The Climbers, about 275 million people (30.5 %);

* The Aspirants, about 275 million (30.5 %).

* The Destitute , estimated to be 210 million (23.3%).

Diversities of the middle class Society

*
Social Class is difficult to define in India. Income by itself does not define an individuals class.

* Purchase behavior is related to cultural conditioning, location, source of income and to some extent education and occupation. One income category will contain very disparate purchase behaviors. The diversity is reflected in the markets for consumer products

* Despite the low incomes in India there exists a large class of consumers (rural as well as urban) for packaged and branded consumer goods, home appliances, entertainment electronics and personal transport as well as radio, television, telecommunication and transport services. It is the production and sales of these goods that mainly sustained the annual industrial growth of over 7% in the 1980s.

* This consumer class is widely termed as the Indian middle class and has been a matter of debate in terms of its size and true market potential

Present Scenario

*
1.The era of liberalization in the early 1990s exposed the middle class consumers to the goods and quality they had been yearning for.

* 2. The increased use of mechanized farming along with government policies of farm subsidies and support prices helped improve the farm(rural) incomes (largely untaxed) and thus creating a rural class with more money to spend.

* 3. Color TV's which beamed programs throughout India created a new awareness among the Indian consumers. Marketers got the opportunity to reach a diverse population who were at the same time bound by a common television network.

* 4. This is further supported by the increased use of advertising campaigns giving more choice and information to the consumers. Whether it is a chewing gum, condoms or coke, average middle class consumers were made to realize that they could aspire to better things and better quality which used to be the domain of the super rich.

* 5. The liberalization witnessed a substantial onslaught of foreign companies creating more employment opportunities and opening other fields of employment. As a result there was an increase in the category of households having greater number of salary earners, professionals and businessmen. This period also witnessed a rise in pay packages and increasing the disposable incomes of the professionals

* 6. The improved literacy rate of women especially in the middle class section has added a new dimension to the workforce which is though still male dominated. This has lead to the emergence of multiple income households especially in the urban areas and is reflected by the changed lifestyles of these people, now demanding more convenience products, and this money is all for spending

* 7. The growing number of Indians who work in the Gulf (UAE and other Arab nations ) as unskilled and skilled labor increased especially after the Gulf war. This has had a definite impact in changing the income levels. A sect of a new consumer class was formed.

* 9. The emergence of consumer financing business for durables from negligible levels in 80's to several billions by 90's has been responsible for a spurt in consumer spending. Earlier a professional even with a steady job would have to have the whole money in cash before making a purchase like a car which restricted the market size.

* 10. While corruption in the private sector is negligible, yet the government sector which employs the majority of population leaves lot of room for corruption. These people who essentially form a part of the middle class are always ready to spend this additional income on consumer durables.

How MNC's are viewing the Indian Market?

*
India will become the most populous country in the world according to current population growth trends - with higher fertility rates - and on this criteria alone, it could be India's century.

* The population as a driver in economic development has been recognised by the idea of the purchasing power of the Indian middle class. It is also possible to extend this to the notion of India as a market of 1.1 billion purchasers - with a critical question posed as how to enable the whole of this population to become purchasers through enhancing the economic capacities of all of them (including in the rural areas or shanty towns surrounding major Indian cities

Indicators supporting the existence and potential of the middle class segment

There are a number of factors that lend support to the existence and the potential of this segment of the market.

The increased use of credit cards, decrease in the savings rate, the automobile industry, cell phone industry and the stock exchange and other industry facts are some of the indicators of the potential of this class

1. Credit Cards

*
Visa believes that while the Indian card holding base is still relatively small, the potential is huge.

* At the last count, 42 banks had issued cards and Visa International reported a 42 per cent growth in the number of cards it issued in the 12-month period ending June 2005 (of the 30 million cards issued, 9 million were credit cards)

* Consumers in India were not only more open to the possibility of owning a financial card but were also not averse to using their cards as a payment mode.

* The fact that financial cards are still perceived as a status symbol in India also serves as a contributing factor to the healthy performance registered by financial cards." Of course, India has a long way to go, because Indians, by global standards, are still conservative about living in debt.

2. Decreasing saving rate

*
India's saving rate is estimated to have fallen from 24% of GDP to 22% in the recent years. While governmental dis-saving is one cause, the increased spending on consumer goods is another.

* NCAER study last year concluded that Indians of all classes are spending more and that there has been an upsurge in purchases by even the lowest groups.

* Public saving weakened in the early 1990s to reach a low of 0.5 percent of GDP in 1993/94, a significant reduction compared with the levels of 45 percent of GDP seen in the early 1980s.

3. Growing liberalization

*
Smaller families has more disposable income and their lifestyles are becoming increasingly westernized.

* This has given rise to increasing numbers taking vacations which is further supported by the outbound travel. It has been estimated that Indian outbound travel has been experiencing double digit growth per year in the nineties.

* More disposable income, greater consumer confidence and a greater willingness to spend are all very positive to tourism related industries. This is largely helping airline, hotel businesses.

4. Automobile Industry and ancillaries

*
Automobile industry has seen a very high boom during the last few years. In a market that boasted of only two major brands, Ambassador and Premier Padmini fiat, a little over a decade ago is now home to a score of brands. The traditional middle class who used scooters and motor bikes are quickly switching over to Cars. This has been largely attributed due to the financing agencies and various schemes offered by them.

* The boom in automobile industry inturn helped an upsurge in ancillary industry and other motor components. Delphi Systems, Robert Bosch etc entered Indian market at this context

5. Advertising Agencies

*
Another proof in support of the argument is the extent to which the advertising industry is booming. This is perhaps fueled by the rapidly increasing TV penetration. About 40 million of the households now have access to the medium and a vast majority of them are connected to cable, a medium which did not exist a few years ago.

* Newspapers are also playing more significant roles now.

* Various advertising agencies are bringing in more innovative ideas to attract the

6. Attitudinal Change

*
Whether as a result of increased exposure to western culture through media or as a result of their dormant aspirations, 'there is a marked change in the outlook of the middle class consumers, which is more pragmatic and western.

* The middle class have grown more innovable and amenable to new product and ideas and always wanting to try things that they had seen on the foreign magazines and movies.

7. The changing Indian Woman

*
The growth in education, the media influence and the growing number of working women have created a new middle class woman.

* This woman is more self-assured, confident and health conscious and is making increasing demands for personal and convenience products. Personal products may range from lipstick to a sanitary napkin.

* A US based lingerie and cosmetics company that accompanied a trade delegation to India a few years ago learnt that Indian women of 350 million is a ready made market, equally ready to spend their money on garments and cosmetics.

8. Demographics

*
It is estimated that by the turn of the century sixty percent of the middle class population will be below the age of 40 years.

* Over 70% of the middle class families will continue to live in urban India.

* Thus the younger consumer living in an Urban area is becoming increasingly cosmopolitan. This is going to lead to more secular attitude and a better acceptability and adaptability to change.

9. Political voice

*
The urban middle class has found itself involved with the politics right from the movement for independence.

* Majority of the leaders came from this class. It has been the source from which the cadres of the civilian and military bureaucracy were drawn both before and after independence.

* Both its huge size in absolute terms and its growing prosperity over time have demanded that it be given close attention

10. Apparel market

*
The middle class reputation of India has attracted many a foreign fashion brands. Some of the famous names are Benneton which entered India in 1988 followed by Pierre Cardin Fashions, Levi Strauss, Denim etc.

* The focus of these fashion retailers is the middle class which is evident from their pricing strategies - geared towards the relatively affluent rather than the truly wealthy

* The market is countrywide as is indicated by the marketing strategy of Dupont sports the licensee of Wrangler jeans which advertises in several languages other than English like Hindi, Bengali and Tamil

10. Stock Exchange

*
Another indicator of the potential of the middle class is the growth of the Indian stock exchange. M.R Maya, the executive director of the Bombay Stock exchange attributes the surge in the exchange to the growth of the middle class.

* This group which is becoming more consumer oriented forms a huge market for domestic producers. And also because stock markets began to be a viable hedge against inflation, more people put their savings in stocks rather than gold, silver or real estate. India has the largest share owning population after US ( 15 to 20 million) Out of that total between 10 to 12 million hold equity shares, 4 to 5 million hold bonds or debentures and 5 million invest

11. Cellular market

*
Talk about emerging markets fueling growth for the mobile industry. According to the Telecom Regulatory Authority of India (TRAI), the country added 12.91 million mobile customers during the second quarter, bringing the total number of subscribers to 105.95 million out of 1 billion or so people.

* India's two largest operators, Bharti Airtel and Reliance, both exceeded analysts' expectations for the second quarter. According to a new report from The Diffusion Group, the number of mobile subscribers in India is expected to grow to more than 350 million by 2010--an addition of 250 million subscribers in just four years.

* Motorola, Nokia, Ericsson, Panasonic, Sony, Siemens and Samsung are some of the major foreign cellular phone handsets suppliers selling in India.

Conclusion

*
Briefly, the Indian middle class holds a substantial amount of money that exceeds the national income of many countries. The consumer durable market in India is biggest in Asia (except) Japan ; it is even bigger than China where income distribution is more even than in India and prices are much higher

* and same is the case with other consumer durables from scooters to bicycles and washing machines to refrigerators.

* In a nutshell it is this booming middle class that has attracted brands like Mercedes - Benz, Opel Astra, Ford Escort, Adidas, Reebok, Nike, McDonald's, Pizza Hut, KFC, Domino's, Thank God It's Friday, Electrolux, Samsung, Whirlpool, Southern Comfort, Pepsi Cola, Coke, Avon, Revlon, Swiss - watches, Parker and countless other multinationals into the country. The emerging middle class represents a viable qualified available market - the set of consumers who have interest, income, access to durable products. The shopping behavior of the Indian consumers should be enough of an assurance.
 


Deepu. M
3rd Semester MBA
Institute of Management in Kerala
Trivandrum
 

Source: E-mail March 27, 2007

 

      

 

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