Fri, Dec 26, 2008 - Page 9 News List

Asia can’t compensate for lost US spending

It’s not that Indian and Chinese shoppers aren’t eager, but how many Buicks, Barbie dolls and kiwi lip balms can they buy?

By Elaine Kurtenbach and Monika Mathur  /  AP , MUMBAI, INDIA

They were supposed to keep the good times going: Prakash Shetty, caught recently thumbing through Singh is Kinng DVDs at a mall in India, and Zhu Xiaolin, who enjoys cute Adidas sportswear and Body Shop cosmetics in China.

But how far can Shetty and Zhu, both 26, and other Asian consumers go to save the groaning global economy? Just how many Buicks, Barbie dolls, Wrangler jeans, waffle fries, kiwi lip balms and plastic thingamajigs are they willing or able to buy? Not enough, it turns out.

Much has been made of the power and promise of Indian and Chinese consumers. Each country has a rapidly growing economy, rising incomes and more than 1 billion people — many of whom have yet to burn through a single credit card or experience the joys a washing machine can bring.

China will be the world’s third-largest consumer market by 2025 and India will be No. 5, ahead of Germany, McKinsey & Co has predicted. As US sales swooned this year, emerging markets were the sole bright spot on many balance sheets.

But such heraldry obscures a painful bit of math: US consumers still buy more than five times as much as Indian and Chinese shoppers combined. And despite rambunctious growth, revenues from India and China have barely softened the blow of declining sales in the developed world — even for the companies that have chased after rupees and yuan most aggressively.

From Adidas to General Motors, companies that have plunged into India and China are finding that these markets are, by and large, still too small to make up for the slowdown in the US and other rich countries. Moreover, India and China are not immune to the global crunch. Declining exports, particularly in China, and tight credit have cooled spending growth, despite the favorable long-term trends.

Chinese consumer spending is projected to reach US$1.3 trillion this year, market research firm Euromonitor said. That would approach France’s US$1.4 trillion but pales in comparison to the US’ US$9.9 trillion. Indian consumers will spend US$660 billion, or about half of China’s.

In October, Americans spent US$102.8 billion less than they did in September. That one month drop is nearly two and a half times more than Indian consumer spending is expected to grow this entire year.

“In dollar terms they can’t offset,” said Arvind Singhal, chairman of Technopak Advisors, a retail consulting firm based in New Delhi.

It’s not that Indian and Chinese shoppers aren’t eager. Take Shetty. Trim and gregarious, he just got promoted to assistant manager at the Leela Kempinski, a luxury hotel in Mumbai where rooms were going recently for US$280 a night. After he got the news, he handed his mom a fistful of cash, bought a television set, two cell phones (one for his dad), a stack of DVDs, a US$700 gold necklace for his fiance and a couple of new outfits for himself.

“You feel great when you buy new clothes,” he said, fending off a small crowd at the DVD rack of Big Bazaar, a popular discount shop.

His appetite for shopping helps explain why growing markets such as India and China “may make up for some of the stagnation you have in more mature markets,” said Jan Runau, a spokesman for Adidas Group. By the end of this year, China is expected to surpass Japan as the second largest market for Adidas worldwide, after the US.

But, Runau cautioned that once other countries entered the recession, India and China would be affected: “They can’t make up for everything.” Dell Inc, the world’s second-largest PC maker, saw revenues grow 48 percent in India and 18 percent in China in the third quarter, but global sales still fell 3 percent to US$15.2 billion.

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