Andrew Henderson

Andrew Henderson

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The growing impact of emerging economies consumers

Reporting from: Phnom Penh, Cambodia

I got to talking with one of my waiters the other day, and discussed what life is like here.

Service staff can make as little as $80 a month, and most who speak English earn $100-150 a month. With that, they can live a halfway decent life here in the capital city, albeit it in a one-room apartment with no hot water.

The occasional nice tip – like one American who left a $40 gratuity – help people like this add small doses of luxury to their life. And one luxury that I see a lot of people indulging in is top-of-the-line mobile phones.

Sure, that could be said of a lot of places. But one of the last places you’ve expect to see people sporting brand-new iPhone 5s is Cambodia. After all, per capita GDP here is still hovering around $1,000.

But that’s one of the first luxuries that local Cambodian bloggers and investment trends experts say local youth want to get their hands on when they have a few extra bucks.

While some people do have iPhones, others have slightly cheaper, fuller-featured Samsung phones (there’s a big appreciation for Korea here). And some have cheaper Chinese brands whose lower prices allow them to get into the game sooner.

Some Chinese companies have been entering markets like Cambodia, as well as more developed markets, willing to take razor-thin profit margins or even lose money to gain market share. Contrast that with Apple’s premium strategy that made the iPhone the envy of people everywhere.

I’ve written for some time that this is how companies in emerging markets like China will gain share and take over a lot of marketplaces. Not everyone in the world can afford or justify buying a $750 iPhone when it’s not subsidized by their mobile carrier the way is in the United States.

That means Chinese companies and others like them will continue to find plenty of new ways to innovate and drive costs down.

This is the trend I’m talking about. In markets where plenty of consumers want to experience western-style luxuries, but may not be able to afford the exact thing, local companies will find ways to drive prices down for their own markets in ways western competitors won’t.

And that will force the entire market to adapt and drive entrepreneurship in the western world, too. There’s already evidence of price erosion on the high-end of the mobile phone market – like iPhones – in large emerging economies. This year, two-thirds of global smart phone sales will be to developing markets like China and India.

That is one of the key reasons Asia and the emergence of the developing world will drive twenty-first century commerce.

After all, luxury is a lifestyle. It includes more than just $750 cell phones. Young consumers also want $3 ice cream cones and relaxing days spent with friends at swanky cafes.

We just saw an example of that with rumors circulating that Amazon will release its own smartphone. The online retailer will use the oldest trick in the book to gain market share – give the product away for free.

The interesting part of this development is that Amazon has allegedly been developing their own mobile phone for two years, but has struggled to find hardware partners not tied up with Google. As more companies begin to compete for share in the mobile world, I suspect you’ll see more software companies teaming up with hardware companies in places you wouldn’t have expected but a few years ago.

Large companies in places like China and Hong Kong have already begun to change their focus on hiring expats to hiring “re-pats” – born-and-bred locals with experience overseas. As that trend continues, players wanting to compete in global consumer markets will move beyond a western-centric model.

The Indians have a concept called “paisa vasool” – value for the money – and companies will have to cater more and more to this concept if they want to maintain share in global markets.

Everyone here in Cambodia will eventually have a smart phone. In contrast to the west, it’s a matter of continued economic growth.

After all, western markets don’t offer any kind of real growth compared to places like Cambodia where the only real way for things to go is up.

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