Who Are Tomorrow’s Consumers?

Sanjeev Sanyal

09 August 2012
.




SINGAPORELuxury-brand companies’ stock prices plunged in July, after their financial results disappointed investors, owing largely to slower sales in emerging markets, especially in China. Meanwhile, news reports indicate that high-end shopping malls in India and China are increasingly empty.



What is going on? Many analysts had expected emerging markets to generate exponential growth over the next decade. But now there is talk of how the global crisis is slowing down these economies and killing off discretionary spending.



.

But a slowdown in China’s economic growth cannot really be blamed for slower sales of luxury goods or empty malls. The annual growth rate of China’s $7.5 trillion economy decelerated to 7.6% in the second quarter, from 8.1% in January-Marchhardly a cause for panic. Moreover, two-thirds of the decline is attributable to slower investment rather than slower consumption. For all of China’s long-term structural problems, it is not exactly slipping into recession.



.
The real problem is that many analysts had exaggerated the size of the luxury-goods segment in emerging markets. China is by far the largest emerging-market economy, with 1.6 million households that can be called rich” (defined as having annual disposable income of more than $150,000). But this is still smaller than Japan’s 4.6 million and a fraction of the 19.2 million rich households in the United States. The number of rich households amounts to barely 0.7 million in India and one million in Brazil.



.

The point is that developed countries still dominate the income bracket that can afford luxury goods. The explosive growth recorded by this segment in emerging markets in recent years reflected entry into previously untapped markets, with the subsequent slowdown resulting from saturation. The number of high-income households is still growing, but not enough to justify the 30-40% compounded growth rates expected by some.




.
This does not mean that growth opportunities in emerging markets have disappeared, but expectations do need to be recalibrated. Despite the economic boom of the last decade, China still has 164 million households that can be called “poor” (with annual disposable income of less than $5,000) and another 172 million that are “aspirant” (between $5,000-$15,000). Similarly, India has 104 million poor households and 107 million aspirant households.



.
The real story for the next two decades will be these countries’ shift to middle-class status. Although other emerging regions will undergo a similar shift, Asia will dominate this transformation.




.
A study by the economist Homi Kharas of the Brookings Institution gives us a sense of the scale of this change. He estimates that 18% of the world’s middle class lived in North America in 2009, while another 36% lived in Europe. Asia’s share was 28% (after including Japan).



.
But Kharas’s projections suggest that Asia will account for two-thirds of the world’s middle class by 2030. In other words, Asia will displace not just the West, but even other emerging regions. This is the real business opportunity.



.
Of course, the rise of Asia’s middle class is not the only change we should expect. We are in the middle of a social and demographic shift that will both destroy and create consumer markets. The aging of developed markets is well known, but the latest data show that emerging markets are aging at an even faster pace.



China’s median age is today 34.5 years, compared to 36.9 years for the US. However, the average Chinese will be 42.5 years old by 2030, compared to 39.1 for the average American. The median Russian will be even older, at 43.3 years.



The impact of aging is already being felt in these countries’ education systems. The number of students enrolled in primary schools in China has fallen by 18% since 1990, and by an astonishing 33% in South Korea. At the other end of the demographic scale, the share of the aged is growing explosively.


.
Meanwhile, the nature of the basic consuming unit – the household – is also changing rapidly. In most developed countries, the traditional nuclear family is in severe decline and is being replaced by single-individual households. In Germany, for example, 39% of households consist of just one person. Couples with children now account for barely 19% and 22% of households in the United Kingdom and the US, respectively.



.
Nevertheless, it is not all about consumer atomization. We are simultaneously witnessing the re-emergence of the multigenerational extended family, with as many as 22% of American adults in the 25-35 age group living with parents or relatives. By contrast, the extended family is giving way in India to nuclear families, which now account for 64% of households.



.

All of these changes will profoundly affect the future of consumer markets. For example, we need to revise our mental image of the nuclear family from American suburbia to fit the rapidly expanding cities of India. By the same token, our mental image of the multigenerational extended family needs to include those in the West. An aging but increasingly middle-class Asia will be at the core of this new consumer landscape.



.

Sanjeev Sanyal is Deutsche Bank’s Global Strategist.

 

.
Copyright Project Syndicate - www.project-syndicate.org



August 11, 2012

German Austerity’s Lutheran Core

By STEVEN OZMENT
.

 
IF there’s one nationality the rest of the world thinks it readily and totally understands, it is the Germans. Combine their deep involvement with Nazism and anti-Semitism and, voilà! — 2,000 years of gripping, complex history vanishes.



Since the beginning of the euro crisis, this reductionism, which can be found inside Germany as much as outside it, has come in the form of sifting through the fatal legacy of the Weimar era, the years of promising democracy that began in the defeat and humiliation of World War I and ended with the Nazi takeover in 1933.



On the one hand, we’re told, the 1920s legacy of destabilizing inflation explains Germany’s staunch aversion to expansionary monetary and fiscal policies today; on the other hand, the Nazi taint on the interwar years seems to prove for some that, even in 2012, the intentions of democratic Germany can’t be trusted when it comes to Europe’s well-being.



But rather than scour tarnished Weimar, we should read much deeper into Germany’s incomparably rich history, and in particular the indelible mark left by Martin Luther and the “mighty fortress” he built with his strain of Protestantism. Even today Germany, though religiously diverse and politically secular, defines itself and its mission through the writings and actions of the 16th century reformer, who left a succinct definition of Lutheran society in his treatiseThe Freedom of a Christian,” which he summarized in two sentences: “A Christian is a perfectly free Lord of all, subject to none, and a Christian is a perfectly dutiful servant of all.”



.
Consider Luther’s view on charity and the poor. He made the care of the poor an organized, civic obligation by proposing that a common chest be put in every German town; rather than skimp along with the traditional practice of almsgiving to the needy and deserving native poor, Luther proposed that they receive grants, or loans, from the chest. Each recipient would pledge to repay the borrowed amount after a timely recovery and return to self-sufficiency, thereby taking responsibility for both his neighbors and himself. This was love of one’s neighbor through shared civic responsibility, what the Lutherans still callfaith begetting charity.”




How little has changed in 500 years. The German chancellor, Angela Merkel, a born-and-baptized daughter of an East German Lutheran pastor, clearly believes the age-old moral virtues and remedies are the best medicine for the euro crisis. She has no desire to press a secular ideology, let alone an institutional religious faith, on her country, but her politics draws unmistakably from an austere and self-sacrificing, yet charitable and fair, Protestantism.



.
If Ms. Merkel refuses to support so-called euro bonds, it is not because it would be like giving free money to the undeserving poor but because it would not help the redeemed poor take responsibility for their own houses and grow strong for both themselves and their needy neighbors. He who receives, recovers and profits from society in a time of need has a moral responsibility to pay society back by acting in turn as a strong citizen who can help fill the common chests and sacrifice for his now needy neighbors, who had once helped him. Such is the sacrificial Lutheran society.



.
For this point of view Ms. Merkel has been derided as the “austerity queen,” and worse. But she is undeterred. She admits that austerity is the toughest road home but hastens to add that it is also the surest and quickest way to recover the economy and gain full emancipation from the crisis. Luther would agree.


 

.
According to polls, so do Ms. Merkel’s fellow Germans. They hold tight to their belief, born of staunch Lutheran teachings, that human life cannot thrive in deadbeat towns and profligate lands. They know that money is a scarce commodity that has to be systematically processed, recorded and safeguarded before being put out to new borrowers and petitioners.




.
And they take comfort in the fact that, unlike what they consider the disenchanted, spendthrift countries of Greece and Italy, those living in model German lands have obeyed the chancellor’s austerity laws and other survival programs designed for a fair, shared recovery.



.
But if their Lutheran heritage of sacrificing for their neighbors makes Germans choose austerity, it also leads them to social engagement. In classic Lutheran teaching, the salvation of the believer “by faith alonedoes not curtail the need for constant charitable good works, as ill-informed critics allege. Faith, rather, empowers the believer to act in the world by taking the worry out of his present and future religious life.



.It is true that Lutheranism, as a faith, has declined in Germany in recent decades, as the forces of multiculturalism and secularism have washed over the country. And yet witness the warmth with which Germans of all backgrounds embraced their new president, Joachim Gauck, a former Lutheran pastor.



.


And it is true that Lutheranism is hardly the only social force alive in Germany today. Yet it is of a piece with the country’s two millenniums of history, filled as it is with redemptive self-sacrifice and bootstrapping. In the fourth century A.D., German warriors controlled virtually every senior military post in the Roman army. Later, Germans turned the wilds of northern Central Europe into a bountiful breadbasket — and, most recently, an industrial machine.


.

What’s more, Lutheranism survived both right-wing Nazism and left-wing Communism, both of which tried to replace its values with their own. If anything, its resilience comes to the fore when challenged by change.





.

With the steady advance of Islam into Europe over the last two decades and in the face of unrelenting economic pressure from their neighbors, it is no surprise that Germans of all backgrounds have now again quietly found “a mighty fortress” for themselves in their own Judeo-Christian heritage.



.
Steven Ozment is a professor of history at Harvard and the author of “The Serpent and the Lamb: Cranach, Luther, and the Making of the Reformation.”
 



August 10, 2012 5:01 pm

Valley of God

By April Dembosky
.
Faith in technology is at the heart of Silicon Valley but Christianity is a force here too– from Bible apps to the divine power of the internet

..
Silicon Valley©Winni Wintermeyer
In Silicon Valley, 43 per cent of residents belong to religious institutions





Alexa Andrzejewski sits in the balcony watching the pastor pace the floor below. Before the sermon gets rolling, she sneaks out her iPhone and opens her social networking app. She “checks in” at her San Francisco church, and looks to see if anyone else from her technology start-up world is in the packed pews this Sunday morning. The pastor asks them to pray and then to turn to Mark 15:21 in their Bibles. In unison, Andrzejewski, her husband and their friend all pull out their phones and swipe through their Bible app to the passage.



.It is the week before Easter, and Andrzejewski is in the middle of some unsettling business hurdles around the start-up she runs, a mobile app called Foodspotting. It’s a typical lurch in the constant rollercoaster that all Silicon Valley entrepreneurs ride. Some of them, like Andrzejewski, turn to the story of Jesus’s crucifixion to find solace.



.“My faith helps me to separate what I do from who I am,” she says, after the service. Recognising that I have a value that comes from being loved by someone outside of myself, who created me for a reason, has given me a lot of strength as a founder. Because of that, I don’t have to worry about losing my identity if I fail.”





Silicon Valley, the epicentre of the global technology industry, is ruled by rationality and science. Data drives decisions, computer code solves problems. And yet there is a strong current of faith that permeates everything – an extreme idealism that motivates entrepreneurs, a staunch belief among engineers that technology can cure the world’s ills and contribute to the progress of humanity.




.

Sometimes that belief is drawn directly from a Christian teaching. But rarely are such values expressed in the boardroom or on the demo stage. Getting the job done is paramount in Silicon Valley, so religious believers often keep quiet about their faith in public forums, for fear of alienating co-workers or customers, says Jan English-Lueck, a professor of anthropology at San José State University. “Dogmatic faith would get in the way of good work relationships,” she says, “and that is the true sin in Silicon Valley.”



.But within Christian circles, a shared faith can also turn into a powerful business alliance. Christians find each other at informal prayer groups at Google and Facebook, and at fellowship gatherings for entrepreneurs, forming social bonds that segue back to the office.




“There is a network of people who are Christian that help each other in the workplace,” English-Lueck says. “In Minnesota, you wouldn’t find people so openly and freely drawing on any domain in their lives to create a work relationship. There would be a boundary that you don’t exploit your religious network. That’s not the idea in Silicon Valley: it’s not exploiting, it’s leveraging.”



.In Santa Clara County, into which most of Silicon Valley falls, 43 per cent of residents claim membership of a religious institution, the majority of them Catholic and Evangelical, according to a religious census in 2010. Though that’s less than the national 50 per cent, it is more than expected from an area perceived as godless.



.

Just as religion influences their business goals and decisions, technologists of faith are in turn pushing the boundaries of traditional preaching, reshaping how Christianity is taught in the region. Local churches have no choice but to adapt, in an attempt to stem the haemorrhage of young members.



Nearly 60 per cent of young Christians drop out of church life after the age of 15, many of them citing their perception of the church’s antagonism to science as one of the main reasons, according to a 2011 study by the Barna Group, which tracks religious trends.
.
Alexa Andrzejewski and her husband Seth outside the restaurant where they organise an 'eatup'©Jamie Kingham
Alexa Andrzejewski and her husband Seth outside the restaurant where they organise an 'eatup'



Local Christian churches are making explicit efforts to address the concerns of technologists, and talk about the role of faith in work. City Church in San Francisco, which attracts a number of Silicon Valley stars, offers weekly faith-based discussion groups for tech entrepreneurs and employees, as well as occasional weekend retreats. The pastors say they learn as much from entrepreneurs about how to shape their message as the entrepreneurs learn about how the stories of the Bible fit with their modern lives.



.

Silicon Valley entrepreneurs are some of the most creative and curious people when it comes to how Christian faith is understood,” says Chuck DeGroat, a pastor at City Church. “They’re curious about the intersection of faith and globalisation. They want to understand the intersections of faith and science.”




Andrzejewski wants to build a similar com­munity within her church, Reality SF, by organising lunch-time meet-ups for other techies. After services on Sunday, she and her husband stand outside holding a sign readingeatups”. People from Google and Facebook and other start-ups join them for burgers.



.Among them are engineers she’s tried to hire in the past, and a few she might try to hire in the future. They talk about which new mobile apps have the best design, coding challenges for iPhones versus Android phones, and how their work aligns with God’s plans for human flourishing.

.
At the 'eatup', after church in San Francisco©Jamie Kingham
At the 'eatup', after church in San Francisco





She also draws solo inspiration while sitting in church listening to the sermon. As the band plays a lilting rock song and the pastor talks about sacrifice, she pulls out a small black journal and starts writing notes. Some are philosophical ponderings about what matters in life, some are ideas for a new feature for her app. “I got the idea for our logo and our website redesign in church,” she says.



. . .




Jim Gilliam needed a lung transplant when he was 27. After two bouts with cancer in a year, the radiation had scarred his lungs so badly that he couldn’t breathe without a new pair. He tried to get his name on a waiting list for the surgery at the University of California at Los Angeles, but surgeons rejected him, saying the procedure would be too complicated.





Gilliam took his frustration to the internet. He wrote an angry blog. A friend who saw the blog emailed the university. Then more friends emailed, then colleagues. The UCLA inbox was flooded. Two weeks later, Gilliam’s name was added to the list. A year after that, he was recovering from lung transplant surgery. Today, he’s 34, cancer-free, and born again, though not in a conventional Christian sense.






“The internet is my religion,” he says, in an online video about his conversion. “As I was prepped for surgery, I wasn’t thinking about Jesus, or whether my heart would start beating again after they stopped it, or whether I would go to heaven if it didn’t. I was thinking about all the people that had gotten me there.”






Gilliam speaks in heated, punctuated language, like a preacher. Raised as a fundamentalist Christian, he has given a lot of thought to the dynamics of a successful religioncompelling stories, solid infrastructure, and a place to meet on a regular basis and build a community. As a student at Liberty University in Virginia, founded by the ultra-conservative evangelist Jerry Falwell, Gilliam worked in the computer lab, built the university’s first website, and even fixed Dr Falwell’s computer. The power to meet other people online, to find information and share stories, evolved into a faith in and of itself. It’s a faith he holds to now as he works to get his second internet start-up off the ground, and one he sees shared by fellow entrepreneurs, even if they do not articulate it the same way.





“The thing you are believing in is the power that people are connected,” he says. “The leap of faith that you have to make is that we have the potential, when we are connected, to really do something amazing. And that’s not obvious. You have to believe that.”




When Gilliam was five years old, he moved with his family to Silicon Valley, where his father had a job at IBM. They knew no one, but their new home was across the street from a popular megachurch with thousands of members. It was 1982. “It was a ready-made community,” he says. “This was the rise of the suburb and exurb, and the church stepped in to fill that void.”
.

Jim Gilliam
©Steve Schofield
A battle with cancer made Jim Gilliam an evangelist for the power of technology



Gilliam went to Christian schools, watched only Christian television shows on the devoted Christian satellite network, and played on Christian soccer and baseball teams. “We prayed during practice,” he remembers.





Megachurches were popping up all over the US at the time, with the largest number of them in California. The intense, highly produced church experience, helmed by a charismatic leader, appealed to educated, upwardly mobile suburbanites searching for meaning in new places. Silicon Valley mirrored this national trend, as it has many other religious quests through the decades. In the 1960s, as the hippie movement took hold of the Valley, so did the countercultural movement of “Jesus freaks”, who wanted to reclaim earlier Christian practices that focused on a personal experience of God and social justice.





Today, evidence of both shows up in Silicon Valley. The late Steve Jobs, Apple’s chief executive, took a seven-month trip to India in search of enlightenment, meditated regularly and lauded the spiritual benefits of LSD. Google offers regular meditation sessions and yoga classes to its employees, and has a modern-day commandment as its corporate motto – “Don’t be evil”. Other entrepreneurs are building apps that help people find kosher restaurants and synagogues, calculate tithe amounts, even confess from their smartphones. Almost 15 per cent of US mobile phone owners have downloaded a Bible app, according to data from the Barna Group.




Taken together, all these points illustrate the most widespread expression of religious values in the Valley – what English-Lueck calls a “cheerful mash-up of religions”. The Valley’s steady flow of immigrants has brought a diverse collection of religions to the area, with Eastern religions, especially Zen Buddhism, receiving a particularly warm welcome. The practice-based, disciplined nature and the lack of a deity appeal to the intellectual side of engineers, and make it a good match for blending with traditional monotheistic religions. Jewish Buddhists – “Jew-Bus” – and Christian-Buddhists are common.





“We’re seeing this curatorial effect, where people see a menu of spiritual practices and are unmooring them from traditional contexts,” says Rachel Hatch, research director at the Institute for the Future, a research group. “They’re using that as a zone for self-improvement.”




As a teenager, Gilliam had difficulty reconciling his beliefs with technology. He led what he calls a double lifeone where he went to church three days a week, and another online. The division peaked in college, when he got sick for the first time. Two weeks after he was diagnosed with non-Hodgkin’s lymphoma, his mother was diagnosed with adrenal cancer. She died five months later.




Gilliam had a crisis of faith. He didn’t feel that Christianity provided sufficient explanation for losing his mother. “What ended up working for me was believing that it was all a big coincidence. That there was no great purpose, there was no big plan,” he says. “All of a sudden, this huge burden was lifted off of me. The world just made sense.”





He stopped going to church. Instead, he went to the computer – “there was this thing called Google” – and started researching theories of evolution to recast his understanding of the world. After the terrorist attacks of September 11 2001, he discovered the potential to organise political activists on the internet. And when he got sick again, he credited the internet with saving his life. He replaced his faith in the Christian God of his childhood with faith in technology.





Today, Gilliam is the founder of an internet start-up called NationBuilder, which builds and sells tools to help political organisers. And he’s become a kind of evangelist for his new internet religion, retelling his story – in person and online – and collecting similar stories from other entrepreneurs. He refers to this as testimony, borrowing the Christian term, and believes it will help build faith in the internet. Worship, to him, comes in the form of engineers building more web tools and software that connect people. “The internet is the saviour, so to speak,” he says, “and yet it’s not really that. It’s people connected that is. God is all of us connected together.”




. . .




The internet and social media present a conundrum for Chuck DeGroat, the pastor at City Church. With a congregation of hip modern professionals, from architects and financial advisers to programmers and venture capitalists, he can’t afford not to have a Facebook page, Twitter handle, or website. And yet, the social media channels that dominate so many of their lives conflict with various Christian principles he hopes they will live by.




“We follow people on Twitter,” he says to a half-full church on a recent Sunday. “We follow news stories. We follow celebrities. We check boxes to say ‘I’m a fan of this.’ But what does it really mean to follow?” He launches into a text from Corinthians 1, telling of a city whose people are obsessed with reputation, who boast of their prominent roles in the community. He draws a parallel to today and people’s obsession with how they present themselves online. “God is not impressed with your status update,” he says. “He’s impressed with what’s beneath the pretence.”
.


Pastor Chuck DeGroat (centre) among his congregation
©Jamie Kingham
Pastor Chuck DeGroat (centre) has many tech entrepreneurs among his congregation




DeGroat is a down-to-earth guy. He wears jeans when he preaches and sometimes swears in conversation. He talks more in philosophical, intellectual terms than religious ones. The services he leads at City Church are utterly lacking in the multimedia shows of many modern churches that try to appeal to a younger audience. There are no flashing lights here, no video clips interspersed through the sermon, no eight-piece rock band.





With such a technically talented population, DeGroat figures they better not even try. Instead he appeals to their intellect with solid reasoning. He wants to take sceptics seriously. “We don’t want to bullshit people because, particularly in San Francisco, there’s a big bullshit meter,” he says.




Taking a page from the Facebook playbook, DeGroat tries to build the relationship with his congregants around two-way conversations, rather than one-way Sunday sermons. He gets as much advice from his tech entrepreneurs as he gives. One works for Google and travels to Africa frequently.





She challenges the church to think about the Christian principle of being a good neighbour to people in the developing world. Another works in social media, and thinks about how to build tools that nurture the best of human relationships, not the narcissism and self-promotion that is often fostered by such public broadcasting channels. “Technology can be used in ways that are very dehumanising,” DeGroat says.





While these technologists talk closely with their pastor, most are reluctant to speak publicly about their faith. Several prominent Silicon Valley leaders deliberately keep their beliefs private for fear that they would influence consumers’ perception of their business, or give their bosses or investors the idea that they are not 100 per cent committed to the success of their company.






Faith tends to be more under the surface here,” says Jon Dahl, chief executive of Zencoder, which formats television and radio content for the web and mobile devices. He says he must compartmentalise his Christian beliefs to meet the demands of the Valley. “Something feels a little bit off, spending 10 hours a day focused on profit,” he says, “and spending the rest of my life focused on what I believe is good for the world.”





Dahl grew up in a Christian household in Minnesota. He went to church regularly. At university, he studied religion and philosophy, then went on to get a graduate degree in theology. While he pored over Kierkegaard, he wrote software on the side for money. That grew into a full-fledged consulting business. “Then I got the start-up itch after that,” he said.





He came to San Francisco with his wife and two children in 2011, and they found City Church through a Google search. They go almost every week and participate in outreach projects with the homeless and prison populations.




.
Dahl relies on his faith to keep the deal-striking, money-making ways of Silicon Valley in context. Buyers have been courting him for six months, and Dahl has just agreed to sell his company to Brightcove, an online video host.



.
He sees the payout he’ll get as a responsibility, rather than a ticket to a lavish lifestyle. Everyone is entrusted with money and time and resources and gifts for a reason, to steward and to use well, and not just for ourselves,” he says.





At City Church’s weekly meetings for entrepreneurs and at weekend retreats, the challenges of the working world are explored in depth, as people worry that advertising campaigns that they help create are promoting a harmful image, or that they are merely a cog in a wheel at a huge technology company.






DeGroat sees his job, in a place like Silicon Valley, as one that helps remind people that their identity is not just their work. He helps steer them away from the status updates and think about building technology that helps humanity. “That’s what worship is really aboutus rediscovering our core identity as a beloved of God,” he says. “So when we go back in life and say stupid stuff on Twitter, I have good people in my life who can call me on it.”




Alongside the strict science of the computer industry, there is so much ambiguity. Nine out of 10 start-ups fail, as the local meme goes. Patent wars and talent wars plague the large technology companies.





Colleagues become competitors overnight. The uncertainty is as much a part of the culture as the certainty. And people seem to revel in it as much as they struggle with it.





“They are seekers,” DeGroat says. People here are on a faith journey, not necessarily a Christian journey, but they’re seekers trying to findwhat is meaning for me.”




.
April Dembosky is the FT’s San Francisco correspondent




.
Copyright The Financial Times Limited 2012