Though you may not hear it talked about much in the debates this election or see it on the front page of The New York Times, we are living through the greatest transformation in the history of modern capitalism. In the next 15 years, the number of people in the consuming class will double and, for the first time ever, emerging markets will spend more, in real numbers, than the developed economies combined.
This massive growth in consumption, which is expected to reach $30 trillion dollars by 2025, represents an economic event 100 times the size of the Industrial Revolution, driving a force 1000 times the scale. While it’s easy to picture the impact 4 billion new consumers will have on our industries and the environment, it’s more difficult to imagine what this transformation will mean for our most sacred institution: our ability to innovate.
Despite the wide adoption of new consumer products around the globe, the vast majority of innovations are developed with the first world in mind. Only when technologies can be made sufficiently cheap and on a wide enough scale do they make their way into emerging markets, either as backdated or stripped-down versions of what’s available in the west. The difficulty of reaching consumers in these growing markets has kept them on the periphery of corporate agendas, but as billions of new consumers become richer and more connected, this is likely to change. As the emerging middle class moves from the sidelines to the center stage of global economy, might we be forced to reconsider the top-down way in which we innovate as well?
It’s presumptuous to think that emerging market consumers will want the same things we do or that their adoption patterns will mimic ours. Differences in purchasing preferences and use cases are well-documented and likely to widen as consumers in the middle of the pyramid take over the reigns. In mobile technology, for instance, Kenya leads the world in willingness to adopt mobile payments while Latin America has built out the most coverage and is experiencing the fastest growth.
For multinationals, the warning sirens are ringing. This year, nearly all of the major global consulting firms are leading with emerging market strategies, but for many of the world’s largest organizations, it may be too late. Case studies are piling up in which local upstarts with a better understanding of the customer are beating international companies. The local white-goods manufacturer Godrej, for example, was able to gain market share in rural India with a $70 refrigerator run on computer cooling chips rather than the traditional compressor.
But inventions like these remain rare, and the opportunities for the kind of innovations that have rebuilt the first world may be plentiful in the second and third. The challenge of activating the next four billion customers will be not only in understanding their needs but amending our notion of what innovation means. As multinationals stumble to gain market share and local companies are slow to change, there is an unprecedented opportunity for globally minded entrepreneurs. The barriers that once kept startups out of emerging markets are quickly vanishing, and today anyone with an internet connection is a tweet away from the developing world. Even so, few aspiring entrepreneurs heed the call.
Every year, blue-chip venture capitalists sit through tens of thousands of pitches searching for the nearest exit as the world’s brightest grads flock to Silicon Valley with dreams of making it big. But for the vast number of these entrepreneurs and investors, success will mean competing in saturated and static markets for discerning consumers whose wealth is unlikely to grow. If they were able to look a little further they might see the billions of underserved consumers whose lives are about to be radically changed.
For founders who operate on intuition, it’s difficult to see what’s outside your field of vision, or imagine lives different from your own. But with trillions of dollars and billions of customers at stake, surely the future will belong to those who do. I challenge entrepreneurs to use a little imagination and apply their vast talents to solving the greatest problems that the future will hold. If they can innovate for the middle of the pyramid, they can share in their remarkable prosperity.
Otherwise, entrepreneurs are sure to be left behind.
The government of Chile, which I am proud to serve, is extending an invitation to entrepreneurs around the globe. Heed the call to change the world through innovation and this administration will provide you with a stage. Whether it be in Santiago, Chile or Azerbaiyán, the world is ripe with opportunities you can only see when you’re looking!
Photo via Flickr (cc) user Hector Garcia.
