May 8, 2014 12:00 am JST

Asia's expanding middle class gives companies a springboard west

HIROSHI MURAYAMA, Nikkei senior staff writer

BANGKOK --  There were smiles all around when Indonesia's Salim Group announced it was building a noodle factory just outside Belgrade -- and not just because the group's Indomie instant noodles are popular in Serbia.

     The country, located on the Balkan Peninsula, is suffering negative growth and unemployment rate is stuck above 20%. Last year, a delegation from Indonesia visited the town that will host the plant. "Thank you for building the Indomie factory here," the mayor said, beaming.

     Indomie noodles already boast the biggest market share in many parts of the Middle East and Africa. By building a plant in the Balkans this year, Salim hopes to go further west and crack the European market. The entry into Europe -- a region losing steam -- by a company from Indonesia, a nation that has been logging growth of around 6%, carries faint echoes of the Ottoman dynasty's expansion westward in the days of Asia's ascendancy.

     Anthoni Salim, head of the group, is also president and CEO of Indofood Sukses Makmur, the country's largest food maker. Last year, Indofood acquired Chinese and Brazilian food processing and sugar companies.

     Salim Group is not the only Indonesian company spreading its wings, and Europe is not the only destination they have in mind.

     Lagos, the largest city in Nigeria, was once a major center of the slave trade, and European businesses hold sway there even today. The city is also home to a gigantic, orange-roofed pharmaceutical factory, the African base of drugmaker Kalbe Farma.

     The Indonesian company launched full-blown local production of generic drugs in Lagos four years ago. It now produces over-the-counter cold remedies and other medicines and is expanding its sales channels to such markets as South Africa and Zimbabwe.

     In Iraq, meanwhile, shoppers at electronics stores can find Denka-brand refrigerators, audio systems and other products manufactured by Indonesia's Hartono Istana Teknologi under an original equipment manufacturing arrangement.

Born success

Fueling this global growth is Indonesia's booming population, which is forecast to soar from its current 240 million to 300 million by the 2030s. The expanding middle class in particular has served as a springboard for companies, allowing them to build up a strong financial base at home before branching out abroad.

     "The first quarter of the 21st century will see a dramatic rise of the pan-Indian Ocean region, stretching from Southeast Asia to India and Africa," predicts Akihiko Tanaka, president of the Japan International Cooperation Agency. "We're heading into an era dominated by countries sitting along two oceans, the other being the Pacific."

     SM group, the largest retailer in the Philippines, plans to set up 26 shopping malls in the next five years, mostly in the country's smaller cities. The openings will expand the mall network the company built over the past 30 years by 50%. "The Philippines has a young population that keeps growing," a top official at SM group said, "so we won't have a supply glut."

     A creation of North America, shopping malls have come to symbolize that region's culture of consumption. In Asia, they have developed into gigantic "towns," housing facilities ranging from ice-skating rinks and aquariums to health clinics and driver's license renewal offices. Four of the world's 10 biggest malls are located in Southeast Asia, according to a 2012 survey by German data company Emporis.

Youthful vigor

Countries from Southeast Asia to India and Africa all have one thing in common: a young population. Indonesia has 72 million children aged 14 and under, outnumbering Thailand's total population of 66 million. The populations of the Philippines, Vietnam and India are all on the rise, with the median age in the 20s. This compares with Japan, where the median age is in the late 40s and China, where it is in the late 30s.

     When the baby boomers in these regions grow up, the middle class will explode too. The world's middle class is expected to surge from 1.8 billion in 2009 to 4.8 billion by 2030, according to a forecast by the Organization for Economic Cooperation and Development. Asia will account for 89% of the increase. The middle class in Asia-Pacific is predicted to expand from 28% of the population to 66%, while the same group in Europe and North America will shrink from 54% to 21%.

     The world is about to witness the economic and social reversal of the East and the West. The main consumers will shift from the U.S. and Europe to Asia in the next 10-20 years, and signs of such change are already emerging.

     From PCs and smartphones to operating systems and software, North America has long been the standard-bearer in the information-technology industry. But when it comes to chat apps, products from Asia are running neck-and-neck with their American counterparts.

     "I picked this one because my friends and students are using it," a 40-year-old high school teacher in a Los Angeles suburb said, referring to the KakaoTalk mobile chat app from South Korea. Japan's Line is also enjoying a surge in popularity as Asia's growing middle class embraces software that caters to their preferences.

     Global manufacturers are also developing more products with Asian consumers in mind.

     Switzerland-based Nestle, the world's largest food company, has set up a new research center in India and added two research sites in China, bringing its tally there to four. It also expanded a research center in Singapore. U.S. giant Procter & Gamble, which already has locations in China and India, also opened a research base in Singapore earlier this year. The day when Asian standards become the global standard looks to be just around the corner.