Michael J Silverstein - Going for gold in China and India
One of the biggest challenges facing the technology business is how to compete in China and India. Nick Smith talks to the co-author of a new book that addresses the subject.
China and India are the world's biggest customers for cars, mobile phones and electronic appliances. Fact. By the year 2020, consumers in these emerging super-economies will generate $10tn in total annual revenue for the companies smart enough to be selling to them. This is the prize we should all have in our sights, says Michael J Silverstein, co-author of 'The $10 Trillion Prize'.
The book's subtitle is just as tempting, but requires more thought. "Captivating the newly affluent in China and India" is the key that unlocks the treasure chest, and Silverstein sets out to tell us where we might find that key, and having found it, what we should do with it. But $10tn sounds suspiciously like one of those mythical numbers that publishers pull out of the air to sell books. Silverstein, who is one of the founders of the Boston Consulting Group's global consumer practice, says that it's based on sound research. His consultancy has been busily analysing "all elements for consumption in both China and India", and while some of the economic factors taken into account are highly technical, what it all comes down to is that projected growth in these markets is based on high consumer-expenditure. In other words, the emerging billion-strong population of the middle class in China and India has disposable income the like of which has never been seen before. And crucially, they want to spend it.
"The world is moving to a knowledge and skill economy," says Silverstein, who forecasts that these two territories alone will soon be producing in excess of 100 million graduates. "These people will come to the market with languages, mathematics and computer skills. It will be an increasingly capable population. In China we expect the government to steer investment into sectors where there is growth." Silverstein also predicts huge increases in average incomes. In India there will be a rise from in the region of $1,000 to $4,000, while in China there will be a rise from $4,000 to $12,000. "This is a profound change," says Silverstein, who further predicts that manufacturing in these territories will become "vibrant and increasingly oriented to technology output".
This is all well and good if, like Apple, you already have a manufacturing presence in these territories. But what do European and American technology suppliers and manufacturers need to do to tap into this market? The answer is investment. "Both markets require investment. They want suppliers that have full field sales and service offices. They want help on installation and training. German companies really get this and are investing heavily, and their exports to China are nearly the same as US exports. The difference is that the US sells agricultural products, while Germany sells technology."
Realising the potential
The authors of 'The $10 Trillion Prize' are the first to admit that this is not the first book that sets out a blueprint for how to trade with China and India. But what sets it apart from the volumes that have gone before is its aim to focus on what forces will shape the consumer markets in a decade's time. "It is a manual for how to enter China and India and win," says Silverstein, who stresses that the authorial standpoint is specifically that of the "consumer voice". He goes on: "We are aiming to help companies and leaders identify this amazing growth opportunity and start down the path of realising the potential. Most companies have identified, but few have tamed or completed their plan. This book helps companies prioritise and invest."
Getting to know what the Chinese and Indian middle class wants is vital to any strategy in these countries. "They will be investing in a better life and will be buying PCs and tablets, digital cameras and big screen TVs." But, before this whirlwind of spend on consumer electronics comes into place there will be societal changes that need to happen.
For many of this demographic, the economic explosion will represent their first exposure to proper healthcare and pharmaceuticals. It might mean their first exposure to a high-protein diet, pure water and fresh vegetables. "Then they will want a better house with modern amenities. A car or a scooter. Then comes the consumption of more oil or electricity to fuel their new appliances and vehicles." This will drive a large-scale distribution infrastructure, government databases, and, according to Silverstein, "a mass of highways, rail and bus systems".
The authors say that the West needs to "captivate" these markets. So, is there a danger that if it fails to do so it will be locked out of the markets and denied the chance to pick low-hanging fruit? "The West will not get locked out. But there will be winners and losers. Many who enter late and without enthusiasm and appropriate sustained investment will create cash traps and will never make money. They will never really learn and will have no winning lessons form China and India. Their teams in those markets will have been wasted."
Finally, I ask Silverstein what are his key pieces of advice for the CEOs and CTOs of technology companies who want to get a slice of the action. His answer is a litany of points that we all know, or think we know, already. The points are based on common sense. He places his emphasis less on the high-powered economic rationale that defines the market opportunity, and more on the established commercial values required to do business in what might very well be a business environment strikingly out of your comfort or knowledge zone.
"Open your sales office and hire local language-ready staff," says Silverstein. "Do a comprehensive sketch of the size, growth and segmentation of the market. Aim to achieve market leadership in five years and create a financial model that allows you to make money in year two. Customise your product enough to allow you to claim local authenticity."
Most importantly, he urges potential investors to realise that you are dealing with real people. "Experience China and India. Spend time in the market. Meet customers up front and personal. Listen to their hopes and wishes. Get your shoes dirty and don't miss out on the chance to learn a local custom. Be human and respectful, Go to learn and listen." *
'The $10 Trillion Prize' by Michael J Silverstein et al, is published by Harvard Business Review Press, £20