Procurement is key to tapping into the growing global middle class

11 November 2011

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11 November 2011 | Adam Leach

By 2030 the global middle class population will have increased by three billion and companies must adapt their procurement strategy to take advantage of the new business opportunities, according to a report.

Innovating for the next threebillion, published this week, by Ernst & Young finds that the middle class, particularly in emerging economies, is growing at a substantial rate. The total global figure stands currently at 1.8 billion and is set to reach 4.9 billion over the next 20 or so years. The report argues: “Over the longer term, this explosion of spending power has the potential to make a significant contribution to a sustained global economic recovery and unwind long-standing economic imbalances between West and East.”

As the economic and socio-economic climate changes, innovation will become more important as companies try to adapt to new markets. And according to the report, supply chains will play a key role. The research found 85 per cent of businesses see the supply chain as important to innovation. Building new and stronger relationships with stakeholders across the supply chain, seeking new distribution channels and increasing efficiency were identified as important aspects.

Bill Delves, area leader of Asia-Pacific strategic growth markets at Ernst & Young, said: “Creating low-cost but high-quality products and services for the middle class in rapid-growth markets will require companies to innovate across the entire value chain. They will need to strip out costs, increase efficiency and establish highly productive relationships with key suppliers and distributors to ensure that they can meet the price points that lower-income customers can afford.”

Navi Radjou, a fellow at Judge Business School and leading authority on innovation, believes that success in the new markets will rely strongly on having a cost efficient development process and as a result the supply chain must be efficient. He said: "The frugal product can only happen if you have a frugal supply chain."

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