Tradition, technology spur rural spending in developing countries
- By Kunal Sinha
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E-mail Shanghai Daily, January 6, 2017
For a long time, marketers and economists have focused on the rise of China's mega-cities. The accepted wisdom in China's retail market was that rural consumers were too far away, too poor and too dispersed to engage with.
No longer. Rural China's 622 million people is fast acquiring a taste for good quality products, customer service and greater choice. Because of the growth in disposable income — annual per capita income has surged to US$6,000 — shoppers are expected to spend US$55.6 billion by the end of this year. There's a trickle-down effect in play as well. Rural workers who have migrated to cities send around US$45 billion every year to their relatives in the countryside.
This has been enabled by various measures taken by the government to reduce inequality. Infrastructure has improved, villages are 100 percent electrified, farmers have been given more freedom to manage their land, and US$22 billion invested to ensure that 98 percent of the countryside is connected to the internet by 2020.
It is in the context of these changes that Vijay Mahajan's book, "Rise of Rural Consumers in Developing Countries," gives us a timely insight into the strategies and tactics which can enable companies to harness the enormous opportunity. Professor Mahajan holds the John P. Harbin Centennial Chair in Business at the McCombs School of Business, University of Texas at Austin in the US.
For over two decades, he has been studying neglected markets such as Africa and the Arab world, and advocating the need for corporations to look beyond the top 14 percent of the population. "Rise" focuses on the "rural top ten" nations: India, China, Indonesia, Pakistan, Bangladesh, Nigeria, Ethiopia, Vietnam, the Philippines and Egypt. The GDP of these ten countries, totaling US$15 trillion, includes a large informal economy which often does not get reflected in GDP calculations.
Mahajan's deeply researched book, brimming with case studies and anecdotes gathered from his personal trips to rural markets, is broken down into three sections: "Recognizing the Rural Opportunity," "Growing and Reaping Rural Opportunity," and "The Rural Challenges."
The rural opportunity has undoubtedly been created through the reduction in extreme poverty, with China contributing the most to the reduction. Between 1990 and 2010, China brought down the percentage of poor people from 60 percent to 9 percent; with remittances spurring rural consumption. China's 274 million internal migrants sent back US$50 billion in 2014, India's 336 million migrants remit between US$14-20 billion to their villages. With consumption deeply linked to religious and cultural occasions, festivals such as Chinese New Year in China, Chaath Puja in the state of Bihar, Baisakhi in Punjab, Diwali across India, Tet in Vietnam and Christmas in the Philippines become big occasions for spending on travel, celebration and buying expensive household goods.
In China alone, 170 million workers return to their villages to celebrate New Year. During Tet celebrations in Vietnam, sales of fast moving consumer goods increase by 60 percent in rural areas, with shoppers buying larger pack sizes. For companies, it is imperative to design special promotions, products and programs to capitalize on this opportunity.
Rural potentials
Quite rightfully, "Rise" recognizes that the mobile phone has connected tens of millions of rural residents with the world, and given companies, governments and non-profits access to millions of consumers. In China, nearly one-third of rural consumers are already online. They aren't buying just the usual clothes, cosmetics and foods; they're snapping up smart TV sets, air conditioners, baby products and kitchen appliances as well.
Alibaba has invested US$1.6 billion in building distribution hubs, 12,000 rural service centers and 100,000 drop-off locations in villages. At the heart of its strategy is the Taobao rural service center, where customers buy goods, pay mobile phone and utility bills, and collect items they have bought online from Taobao. The company provides computers and monitors, ensures timely delivery of purchases, and trains villagers to help run these centers, many of which are in convenience stores. The average order value in the service center rose from 121 yuan (US$20) in December 2015, to 262 yuan during Alibaba's Chinese New Year shopping event in early 2016.
On the flip side, the growth of "Taobao villages," which provide rural entrepreneurs a platform to make and sell their produce to urban residents, taps into the two-way flow of trading. Mahajan visited the village of Dongfeng, in Suining county in Jiangsu province for a first hand look of the transformation of the sleepy village into a bustling furniture manufacturing center. Here, he heard from village leaders and entrepreneurs about how they had developed a complete furniture ecosystem, including wood wholesalers, 29 logistics and delivery companies and even a few firms which made the equipment furniture makers used.
The rapid growth of trade and commerce in rural areas has been enabled by mobile-based payment systems, an area where developing economies hold a clear edge. Banking and similar services are now among the fastest-growing applications in rural areas, providing a platform for savings accounts, remittances and payments.
Mahajan points out that rural tourism holds another valuable opportunity for village residents and companies alike. In Myanmar, he witnessed how the central plains of Bagan, dotted with thousands of historic temples, had witnessed a flourishing craft-based economy, as tourists bought lacquerware and other handicrafts.
The Chinese authorities similarly believe that rural tourism can be a new economic growth engine, investing US$18 billion in the first half of 2016, according to the China National Tourism Administration. The demand for a back-to-roots experience is clearly there. Two billion tourists visited China's countryside last year, and the government is planning to create 150,000 "distinctive rural tourism villages" which will benefit 50 million residents by 2020.
Mahajan's book is an easy read, signposted with thought provoking questions, and filled with inspiration from the courageous pioneers who have overcame logistical and financial challenges in their efforts to serve underserved communities.
He calls upon firms and governments to invest more in rural innovation, perhaps the establishment of a rural world Silicon Valley. He concludes by challenging those in developed economies, which are experiencing market saturation, to learn lessons by engaging with the practitioners of rural marketing.
Kunal Sinha has studied for 25 years consumer and cultural trends to help companies profit from them. Based in Shanghai for over a decade, he has worked in rural and small town markets in China, India, Myanmar and Bangladesh.
