<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published December 22, 2008
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>India, China can't yet offset US sales losses
Americans still buy five times as much as two countries' shoppers combined
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(MUMBAI) They were supposed to keep the good times going: Prakash Shetty, caught recently thumbing through Singh is King DVDs at a mall in India, and Zhu Xiaolin, who enjoys cute Adidas sportswear and Body Shop cosmetics in China.
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</TD></TR><TR class=caption><TD>Major purchases: In India, sales of basic items such as food and clothes have held up far better than credit-driven purchases, such as homes and cars </TD></TR></TBODY></TABLE>But how far can Mr Shetty and Ms 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 a 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 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 favourable long-term trends.
Chinese consumer spending is projected to reach US$1.3 trillion this year, according to Euromonitor International, a market research firm. That would approach France's US$1.4 trillion but pales in comparison to America's 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 21/2 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 Pvt Ltd, a retail consulting firm based in New Delhi.
It's not that Indian and Chinese shoppers aren't eager. Take Mr 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 mum a fistful of cash, bought a TV set, two cell phones (one for his dad), 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 AG. By the end of this year, China is expected to surpass Japan as the second largest market for Adidas worldwide, after the United States.
But, Mr 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 per cent in India and 18 per cent in China in the third quarter, but global sales still fell 3 per cent to US$15.2 billion.
The two markets contribute about 5 per cent of the company's revenues, while the US accounts for half.
'It's starting to have a meaningful impact on Dell's results, but it's not enough to offset what's going on in the United States,' said Steve Felice, president of Dell Asia Pacific and Japan.
For Vodafone Group plc, the world's biggest mobile phone service provider by sales, India and China are 'absolutely vital', said company spokesman Simon Gordon. 'That's where the growth is.'
But more than 70 per cent of Vodafone's sales still come from Europe. In the first half of this fiscal year, India accounted for just 6 per cent of the group's £19.9 billion (S$43.5 billion) in revenues and less than one per cent of adjusted operating profits. Vodafone does not operate in China, though it owns a 3.21 per cent stake in China Mobile. During that period, the company posted a 35 per cent fall in net profit, despite adding 10.5 million new customers in India and growing India revenues by 41 per cent.
Now, the economies of India and China are themselves slowing. Their stock markets have plunged, businesses and households are finding it harder to access credit, and fears of job losses have shaken consumer confidence. Lower export growth in China is spilling over into consumer spending, as workers fret about pay and job security.
Despite government efforts to spur domestic spending, many Chinese remain frugal, concerned about saving for health care and retirement.
'Consumer demand is not going to be the answer to disappearing exports,' said Robert Lawrence Kuhn, chairman of Kuhn Global Capital LLC and a long-time adviser to the Chinese government. 'China's domestic consumption is necessary but not sufficient to stabilise China, much less the world.'
India relies less on exports. They account for about 20 per cent of the Indian economy, versus 35 per cent in China. Still, the global financial crisis has hit the Indian stock market and sparked a nasty credit crunch. Many consumers are unable to get loan approvals or afford the high interest rates. That, plus lingering inflation, has hurt consumer confidence and crimped growth.
Gibson Vedamani, chief executive of the Retailers Association of India, says overall retail sales in India will likely grow 8 per cent to 10 per cent this year, down from about 30 per cent last year.
Sales of basic items such as food and clothes, which account for most Indian spending, have held up far better than credit-driven purchases, such as homes and cars. -- AP
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>India, China can't yet offset US sales losses
Americans still buy five times as much as two countries' shoppers combined
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>(MUMBAI) They were supposed to keep the good times going: Prakash Shetty, caught recently thumbing through Singh is King DVDs at a mall in India, and Zhu Xiaolin, who enjoys cute Adidas sportswear and Body Shop cosmetics in China.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Major purchases: In India, sales of basic items such as food and clothes have held up far better than credit-driven purchases, such as homes and cars </TD></TR></TBODY></TABLE>But how far can Mr Shetty and Ms 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 a 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 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 favourable long-term trends.
Chinese consumer spending is projected to reach US$1.3 trillion this year, according to Euromonitor International, a market research firm. That would approach France's US$1.4 trillion but pales in comparison to America's 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 21/2 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 Pvt Ltd, a retail consulting firm based in New Delhi.
It's not that Indian and Chinese shoppers aren't eager. Take Mr 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 mum a fistful of cash, bought a TV set, two cell phones (one for his dad), 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 AG. By the end of this year, China is expected to surpass Japan as the second largest market for Adidas worldwide, after the United States.
But, Mr 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 per cent in India and 18 per cent in China in the third quarter, but global sales still fell 3 per cent to US$15.2 billion.
The two markets contribute about 5 per cent of the company's revenues, while the US accounts for half.
'It's starting to have a meaningful impact on Dell's results, but it's not enough to offset what's going on in the United States,' said Steve Felice, president of Dell Asia Pacific and Japan.
For Vodafone Group plc, the world's biggest mobile phone service provider by sales, India and China are 'absolutely vital', said company spokesman Simon Gordon. 'That's where the growth is.'
But more than 70 per cent of Vodafone's sales still come from Europe. In the first half of this fiscal year, India accounted for just 6 per cent of the group's £19.9 billion (S$43.5 billion) in revenues and less than one per cent of adjusted operating profits. Vodafone does not operate in China, though it owns a 3.21 per cent stake in China Mobile. During that period, the company posted a 35 per cent fall in net profit, despite adding 10.5 million new customers in India and growing India revenues by 41 per cent.
Now, the economies of India and China are themselves slowing. Their stock markets have plunged, businesses and households are finding it harder to access credit, and fears of job losses have shaken consumer confidence. Lower export growth in China is spilling over into consumer spending, as workers fret about pay and job security.
Despite government efforts to spur domestic spending, many Chinese remain frugal, concerned about saving for health care and retirement.
'Consumer demand is not going to be the answer to disappearing exports,' said Robert Lawrence Kuhn, chairman of Kuhn Global Capital LLC and a long-time adviser to the Chinese government. 'China's domestic consumption is necessary but not sufficient to stabilise China, much less the world.'
India relies less on exports. They account for about 20 per cent of the Indian economy, versus 35 per cent in China. Still, the global financial crisis has hit the Indian stock market and sparked a nasty credit crunch. Many consumers are unable to get loan approvals or afford the high interest rates. That, plus lingering inflation, has hurt consumer confidence and crimped growth.
Gibson Vedamani, chief executive of the Retailers Association of India, says overall retail sales in India will likely grow 8 per cent to 10 per cent this year, down from about 30 per cent last year.
Sales of basic items such as food and clothes, which account for most Indian spending, have held up far better than credit-driven purchases, such as homes and cars. -- AP
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