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Regional Focus: Asia Pacific’s Changing Consumption Patterns Spur New Opportunities

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April 2nd, 2013
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An HodgsonAnalyst Insight by An
Hodgson, Income and Expenditure Manager at Euromonitor International

Rising incomes in Asia Pacific
has not only led to higher consumer expenditure but also changes in consumption
patterns. Asian consumers are shifting towards greater discretionary spending,
especially spending on communications, education and health goods and medical
services. These new spending patterns are creating exciting opportunities for
businesses and investors, despite the fact that market potentials in some
sectors concentrate among richer households.


Real Period
Growth in Per Capita Annual Disposable Income in Asia Pacific and Other
Regions: 2007-2012

Real Period Growth in Per Capita Annual Disposable Income in Asia Pacific and Other Regions 2007-2012

Source: Euromonitor International from national
statistics

Despite the impact of the
2008-2009 global economic downturn, countries in the Asia Pacific region have
experienced strong economic growth and rising incomes:

  • Over the 2007-2012 period, real GDP growth in Asia Pacific averaged
    6.3% per year, compared to the 3.3% average annual real growth for the
    global economy. Although falling exports as a result of plummeting global
    demand weighed on their export-oriented economies, the average annual real
    GDP growth over this period still reached 10.1% in China, 7.3% in India,
    6.3% in Vietnam and 6.0% in Indonesia;
  • On the back of strong economic expansion, consumers in the region
    have enjoyed rising incomes. Over 2007-2012, Asia Pacific's average per
    capita disposable income
    grew by 19.3% in real terms. In particular, per
    capita annual disposable income in China rose by 63.3% in real terms over
    the period;
  • Consequently, per capita consumer expenditure in the region saw a
    healthy real growth of 20.3% over the 2007-2012 period, with China
    recording a neck-breaking growth rate of 83.3% in real terms;
  • In addition to rising expenditure, the consumption patterns have
    changed towards greater discretionary spending – that is, spending on
    items other than food, non-alcoholic beverages and housing. In China, for
    example, discretionary spending as a proportion of total consumer
    expenditure stood at 35.4% in 2012, up from 42.7% in 2000.

Implications

The changing consumption
habits in Asia Pacific
open up business and investment opportunities in a range
of sectors:

  • Communications is the fastest growing consumer spending category in
    Asia Pacific over the 2007-2012 period, with a real period growth of
    52.4%. In comparison, the region's overall consumer market grew by 27.2%
    in real terms over the same period. Asia Pacific is already home to
    technology power houses such as Japan and South Korea. It also has six of
    the ten largest mobile phone markets in the world, and a large, youthful
    and tech-savvy population, among whom social media has gained popularity.
    Therefore, the region offers abundant and diverse opportunities in online
    marketing, online advertising, e-commerce and m-commerce;
  • Health goods and medical services is not far behind communications,
    as this category recorded a growth rate of 51.7% in real terms over the
    2007-2012 period. In China, consumer expenditure on health goods and
    medical services grew by 114.3% in real terms over the same period. Driven
    by rising incomes, better standards of living, longer life expectancy, and
    population ageing in countries such as China and Japan, there will be
    growing demand for hospitals, medical and dental services. As government
    spending alone will not be sufficient to meet such rising demand, there
    will be plenty of opportunities for the private sector to fill in the gap;
  • Education is another area with significant potentials thanks to
    rising incomes, aspirational middle-class consumers and an Asian culture
    that prizes educational attainment. Between 2007 and 2012, consumer
    expenditure on education rose by 93.8% in real terms in China, by 90.7% in
    Indonesia and 53.0% in India. However, as Asian consumers are eager to
    spend to bridge the gap in quality between the state and private education
    sectors, the region's education market is largely dominated by richer
    households;

Annual Real
Growth in Total Consumer Expenditure and Consumer Expenditure in Selected
Categories in Asia Pacific: 2007-2020

Annual Real Growth in Total Consumer Expenditure and Consumer Expenditure in Selected Categories in Asia Pacific 2007-2020

Source: Euromonitor International from national
statistics/UN/OECD

Note: Data for 2013-2020 are forecasts

  • Even within the non-discretionary category of food and
    non-alcoholic drinks, Asian shoppers are trading up to better quality as
    well as embracing a wider range of products, including Western foods.
    Therefore companies in the food and non-alcoholic drink sector will certainly
    find plenty of opportunities to expand further in this region as the level
    of sophistication of the consumer increases.

Prospects

  • Over the 2013-2020, Asia Pacific's per capita annual disposable
    income will rise by 35.2% in real terms and per capita consumer
    expenditure is expected to grow by 37.2% in real terms. Key emerging
    market economies in the region will continue to drive regional consumer
    spending growth, especially as they are striving to reduce exports
    dependence and enhance domestic consumption in an effort to balance the
    economy. Per capita consumer expenditure is forecast to grow by 75.3% in
    real terms in China and 69.4% in India over the forecast period;
  • Communications, education and health goods and medical services
    will continue to be the fastest growing consumer spending categories in
    the region, recording real growth rates of 80.9%, 76.5% and 68.9%
    respectively over the 2013-2020 period. Euromonitor International
    forecasts that China will overtake the USA as the world's largest education
    market in 2017.
Have a question or a thought to add? Leave us a comment below.

Lydia Gordon