The EM Millennial moment
Author: Special Feature
January 28, 2019
Millennials, the cohort largely born in the 1980s and 1990s, are one of the key drivers of consumption growth in Emerging Markets (EM) and globally. Their sheer numbers, rising incomes, greater overall wealth and technological savviness, combined with the proliferation of online social networks, are all contributing to this rapid rise in growth.
A force to be reckoned with
More than 80% of the world’s Millennial population resides in EM countries. China and India each have five times the number of Millennials than the United States, boasting Millennial populations greater than that of the entire U.S. population. Given their size, we believe China and India are clearly the two most important markets for businesses and investors. Although India has a greater number of Millennials, they remain fragmented by different cultures and languages. Chinese Millennials are more homogeneous as they speak the same language, write the same entrance exams and belong to similar cultures. Moreover, Chinese Millennials have higher disposable incomes than their Indian counterparts. However, the importance of the Indian Millennial population cannot be underestimated as it has a more open market for global firms to do business.
Sources: left chart: Young China Group, UN World Population prospects 2017, right chart: * Other: Middle East, Africa, Latam, Eastern Europe, Source: Business Insider UK, based on BCG Global Wealth Market-Sizing Database, 2016 and BCG analysis.
EM Millennials are very different than their parents. Because they are financially better off than previous generations, they are less concerned with providing for basic needs and tend to be more adventurous than their parents. They also like to spend and their consumer behavior is heavily influenced by social media posts, and in online communities such as WeChat and QQ. Because they are driven by a desire for more emotional purchases, convenience, as well as higher quality goods, their spending habits have given rise to a phenomenon known as “premiumization.” For example, Millennials in China have driven a significant rise in the affordable luxury segment, which in the past, was largely restricted to a wealthy demographic. This higher-end spending is seen in categories as diverse as apparel and cosmetics, appliances as well as food and beverages. And it’s a phenomenon that’s expected to spill over into new product groups as spending continues to rise and with technological advancement.
Technology is driving shopping habits
EM Millennials, especially in China, are at the forefront of the adoption of technology, resulting in the evolution of retail and consumption trends. Unlike in the West, EM Millennials are not pursuing the typical transition to mobile (PC to laptop to tablets and smartphones), but rather bypassing the intermediate steps and going straight to smartphones. According to the Financial Times, some 70% of online purchases in China are conducted on a mobile phone, double the U.S. level. As digital natives, while Millennials are more likely to shop online compared with previous generations, they also value holistic experiences. In response, retailers are not only catering to their online habits but shifting to an O2O (Online to Offline) framework. This offers the best of both worlds, converging online and in-store channels to create a true omnichannel experience.
Digital payments and mobile wallets have gone hand-in-hand with the evolution of e-commerce, and is another area where EM Millennials differ from older cohorts. Millennials have an increasing preference to go cashless, preferring digital wallets and peer-to-peer payments over credit cards. As a result, the FinTech industry has focused on making it easier for customers to transact, particularly in EM where financial institutions continue to focus on the development of cashless payment methods. This is markedly different from the experience in the West, where the presence of credit cards is more ubiquitous.
A long-term boom
The EM Millennial boom is a long-term growth opportunity. However, investors and businesses alike would be wise to take into account important cultural differences, behaviours and other social nuances that can vary between countries. Globally, in terms of future consumption growth, Chinese Millennials are the most important demographic given their size, and their influence is only expected to grow in lockstep with rising incomes and wealth accumulation. This will not only impact domestic markets, but markets around the world. Meanwhile, Millennials in countries like India and Indonesia, currently playing catch up, will also see their purchasing power increase, impacting the consumption landscape in the coming decades. Companies that successfully connect and cater to this demographic are likely to benefit from a long secular tailwind of growth.
 Financial Times, May 25, 2018
This story was written by Regina Chi, Lead Portfolio Manager of Emerging Markets; Harsh Narsinghani, Global Equity Analyst; and Mark Weinberg, Global and Emerging Markets Portfolio Specialist.
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