Special Report: How Financial Services for Low-Income
Consumers Can Benefit Businesses
Article | 05 Mar 2014
With half of the global adult population still having no access to formal financial services, expanding financial
inclusion among low-income populations can help transform the consumer market in many countries by
reducing poverty and lower income inequality. It can also open up significant business opportunities for
companies in a range of sectors including banking, finance and communications technology, whilst also
unleashing private-sector innovation and investment.
Key points

According to the World Bank’s 2014 Global Financial Development Report: Financial Inclusion,
around half of the global working-age adult population are ‘unbanked’ – that is, having no access to
formal financial services delivered by regulated financial institutions;

There are many reasons for people to be kept away from banks, not least barriers to access such as
the lack of money (to actually need a bank account), cost, travel distance, and onerous
documentation requirements. The poor, women, youth, and rural residents tend to face greater
barriers to access;

Boosting access for the ‘unbanked’ to financial services – that is, enhancing financial inclusion – can
benefit not only low-income people but also companies and the wider economy. This, in turn, can
help reduce poverty, lower income inequality and boost consumer market potentials;

Expanding financial inclusion among low-income populations and other underserved groups can
present business opportunities for companies in a range of sectors, including banking and finance,
technology and retail industry;

In the long term, global consumer expenditure on financial services is set to grow robustly, driven
by rising consumer spending on financial services in the developing world. Over 2014-2030, Asia
Pacific, Middle East and Africa and Latin America will record stellar period growth in consumer
expenditure on financial services (at 118%, 113% and 108% respectively) whilst North America and
Western Europe are expected to see modest growths of 46.1% and 23.4%, respectively, in real
terms during the same period.
Consumer Expenditure on Financial Services by Region: 2013
Source: Euromonitor International from national statistics/Eurostat/UN/OECD
The global ‘unbanked’ – low income earners mostly in developing countries
Around half of the global adult population remain ‘unbanked’, most of them in developing countries:
o
According to the World Bank’s 2014 Global Financial Development Report: Financial
Inclusion, an estimated 2.5 billion adults of working age (15-64) are ‘unbanked’ – that is,
having no access to formal financial services delivered by regulated financial institutions;
o
The lack of access to financial services – whether it is savings or deposit services, payment
and transfer services, credit or insurance – is widespread in, though not restricted only to,
developing countries. In Sub-Saharan Africa, for example, the World Bank estimates less
than a quarter (24%) of adults have a bank account even though Africa's formal financial
sector has grown in recent years;
o
Meanwhile, in developed countries, people on low income and often with a poor credit
history generally struggle to meet banks' minimum criteria to open a personal account
whilst they also have very little access to affordable credit. In the UK, for example, the
number of ‘unbanked’ adults is estimated at 2.5 million.
There are many reasons for people to be kept away from banks:
o
Firstly, banks and financial institutions often regard low income earners as either high risk
or unprofitable, leading to this consumer segment being overlooked and underserved;
o
Secondly, in many low-income countries, where the financial system is under-developed or
where the regulatory environment is weak, consumers tend to lack confidence in banks and
instead opt to hold on to their cash as the preferred, safer option;
o
Lastly, there exist many barriers to access such as the lack of money (to actually need a
bank account), cost, travel distance, and onerous documentation requirements. For
example, 20.0% of the unbanked, most of whom are rural residents, report distance as a
key reason they do not have an account, according to the World Bank. The poor, women,
youth, and rural residents tend to face greater barriers to access.
Universal financial services as a global goal
o
The term "financial inclusion" – typically defined as the proportion of individuals and firms
that use financial services – has gained importance since the early 2000s, a result of
greater understanding about financial exclusion and its direct correlation to low incomes
and poverty;
o
Nowadays, financial inclusion is a subject of considerable interest among policy makers and
is promoted worldwide. Some 50 countries have set formal targets and goals for financial
inclusion whilst many more have charged their regulators with the task of enhancing
financial inclusion;
o
In 2013, the World Bank set the target of universal financial access for all working-age
adults by 2020. The roadmap set out by the World Bank as well as regulatory reforms by
national governments focus mainly on tackling barriers to access, which are mostly nonprice barriers and which can be reduced or even removed with the right policies;
o
Technological advancements such as mobile payments, mobile banking and other new
financial technologies also help to improve access to financial services for the ‘unbanked’,
as they make it easier and less expensive for people to use financial services, whilst also
increasing financial security.
Financial inclusion and implications for consumers and companies
Inclusive financial services will benefit not only low-income people and other disadvantaged groups
(such as women, youth, and rural residents), but also companies and the wider economy:
o
Affordable access to savings accounts, credit or remittances can help poorer households
afford essential services such as water, electricity, housing, and health care. They can even
allow poor people make investments in their (or their children’s) education or become
entrepreneurs. Low cost, accessible financial instruments and basic bank accounts can
provide a gateway to this range of financial services;
o
When small enterprises gain access to financial services such as credit or insurance, they
can reduce business risks, expand their firms and pursue growth opportunities, and create
jobs. A World Banks’s survey in 137 countries found that only 34.% of firms in developing
economies have had a bank loan, compared to 51.0% in developed economies;
o
Financial inclusion can thus contribute to reduce poverty, lower income inequality, and
boost economic growth. To global consumer goods companies, this boosts the purchasing
power of poorer consumers and enhances the consumer market potentials.
Opportunities in reaching the ‘unbanked’
Expanding financial inclusion among low-income populations and other underserved groups can
present many business opportunities:
o
In the same way as businesses in other sectors seek new avenues of growth amid the
global economic downturn by tapping developing and emerging markets and low-income
consumers (for example, through sale of basic, budget goods), banks and financial
institutions can also boost growth by reaching out to the ‘unbanked’, paying more attention
to the needs of this consumer group, and offering them with suitable financial products;
o
For example, commitment savings accounts, where access to cash is possible only after a
period of time or after a goal has been reached, can promote savings. Another example of a
well-designed product is index-based insurance, which links payouts to a well-defined
index, such as the amount of rainfall or commodity prices, reduces the moral-hazard issue
and hence financial risks for the insurance provider, because payouts reflect a measurable
index beyond the control of the policyholder;
o
As seen in the case of Brazil, which increased financial access to people living in remote
areas by promoting “correspondent banking” – financial services provided on behalf of
banks by retails stores, gas stations, and agents on motorcycles and boats on the Amazon
River, business (and employment) opportunities exist for providers of correspondent
banking services;
o
Technology companies can capitalise on the promotion of financial inclusion as they develop
and offer new technologies, which include not only mobile banking but also other
innovations such as borrower identification based on fingerprinting and iris scans. In this
regards, technology firms can even benefit from government support as many governments
provide incentives for the development of new payment platforms.
Household Possession of Mobile Phones and Proportion of
Population Using the Internet by Region: 2013
Source: Euromonitor International from International Telecommunications
Union/OECD/national statistics
Prospects

Between 2014 and 2030, global consumer expenditure on financial services is set
to grow more robustly, at an average annual rate of 3.3% in real terms (or 67.5%
in real terms of the period), compared to the average annual rate of 0.1% (or
0.7% period growth) achieved during the 2008-2013 period;

A key driver for this accelerating growth is greater access to financial services in
emerging and developing economies. Asia Pacific, Middle East and Africa and Latin
America will record stellar period growth in consumer expenditure on financial
services (at 118%, 113% and 108% respectively in real terms over 2014-2030)
whilst the developed regions of North America and Western Europe are expected to
see modest growths of 46.1% and 23.4%, respectively, in real terms during the
same period;

Countries – including Brazil, India, Kenya, the Philippines, South Africa, and
Tanzania to name a few – that adopt ambitious financial inclusion commitments will
unleash private-sector innovation and investment as well as being able to expect
greatest advancements towards the goals of eliminating poverty and reducing
inequality.
For further information, please contact An Hodgson, Income and Expenditure Manager;
An.Hodgson@euromonitor.com
Internet Retailing in the Philippines
Category Briefing | 04 Jun 2014
HEADLINES

Internet retailing grows by 13% in current value sales in 2013 to reach Ps11 billion

Greater diversity in payment options boosts internet retailing

Apparel and footwear internet retailing makes the largest contribution to internet retailing in 2013

Relatively new entrants take the internet retailing landscape by storm

Constant value sales of internet retailing are expected to grow by a CAGR of 11% over the forecast
period
TRENDS

In 2013, internet retailing enjoyed healthy current value growth of 13%, ending the year with sales
of Ps11 billion. This was the result of increasing internet usage among Filipino households, as well
as overall greater ease in performing online payments. This was linked to the growing number of
Filipinos employed by business process outsourcing companies online, who typically receive
payments through online means, such as PayPal or Xoom. This has paved the way for more options
other than credit cards to make purchases online.

In addition, internet retailers have increasingly partnered with couriers to offer cash-on-delivery
payment options, along with other payment schemes, such as payment through banks or G-cash.
This has helped ease typical fears of revealing credit card information online, making internet
retailing a much more attractive way of shopping.

Nevertheless, the continued upward trend was slower in 2013 than in 2012 in internet retailing. This
is attributed to the dramatic rise in internet retailing sales with the entry of multinational brands
Zalora and Lazada in 2012. Although both companies continued to be aggressive in their expansion
and in maximising the potential for online sales, 2012 recorded a faster growth rate, owing to it
being the entry year of these two dynamic retailing companies.

In 2012, internet access in the home rose to 35% of the population and this continued to rise in
2013. Much of the growth was linked to the rising smartphone usage, which rose to 53% in 2012,
as computer ownership sat at only 20% of all households in the country. Although broadband
internet remains unavailable in many rural areas, the use of smartphones accessing the internet
through mobile phone signals contributed to the rising internet usage in the country.

Up to 2013, apparel continued to be the strongest performing product category in online retailing.
Perhaps the relatively low payout required is the main factor behind its continued appeal, especially
for first-time online shoppers. Over the review period, even direct selling companies increasingly
added apparel to their catalogues, which may have contributed to Filipinos’ becoming more familiar
with purchasing apparel without trying them on. Furthermore, much of the growth may have been
driven by the aggressive expansion of Zalora, which focuses on selling apparel.

Meanwhile, beverages remained one product category that has yet to return any significant sales in
internet retailing. The unpopularity of this item for online purchases is due to the fragile nature of
some of its packaging formats as well as its being mostly consumed on impulse. Tissue and hygiene
products are also negligible in internet retailing due to their very cheap prices and easy accessibility
through numerous sari-sari stores in the country.

With the growth in internet retailing over the review period, many players in store-based retailing
are increasingly also venturing into online channels, in the hope of mitigating any adverse effects to
their store-based businesses. As of 2013, however, there was still little effect on any specific
manufacturer or brand, largely because products sold via the internet do not always focus on any
one brand.

With the rising popularity of apparel and consumer electronics in internet retailing, specialist
retailers offering these items are the most affected, albeit still minimally as of 2013. The threat
appears to be more in terms of lesser-known brands, and not for well-known retailers.

Considering the rapid penetration of smartphone usage in the country, mobile internet retailing is
also increasingly becoming the centre of attention. For example, as of 2013, Zalora had already
launched an Android app to enable smartphone users to access its online store conveniently through
their phones. The continued expansion of Globe Telecommunications’ GCASH in partnership with
rural banks is paving the way for mobile commerce in the country.

When it comes to delivery, internet retailers typically partner with courier companies, such as LBC,
JRS Express, 2Go, and Xend. Some players, such as Zalora, offer free shipping for a minimum
purchase of Ps1,000 for Metro Manila and certain key cities, or Ps2,500 for locations not included in
the list of key cities. They also offer a returns policy for most items within a period of 30 days.
COMPETITIVE LANDSCAPE

In 2013, Zalora and Lazada have quickly risen to become the top players in Philippine internet
retailing. Their leadership position stems from their effective positioning in their specific product
categories, such as Zalora in apparel, and Lazada in consumer electronics.

Zalora recorded a 33% value growth in 2013, the fastest among its competitors. With its strong
marketing campaigns and wide array of products, the group was able to capitalise as one of the first
mainstream internet retailers in the Philippines. Lazada also had strong value sales in 2013 with a
growth of 24%.This was linked to the rising usage of smartphones in the Philippines, not only driven
by increasing consumer interest but also by the increasing affordability of the numerous brands of
smartphones available in the country.

With the concentrated efforts of pure players, they are performing at the top of the charts compared
to multichannel retailers. Although multichannel retailers have the advantage of brand awareness
with the presence of their bricks-and-mortar stores, pure internet retailing players are much more
adept in optimising their online presence and more effective in online marketing. For example,
Zalora is present and active in nearly every social media network imaginable, particularly in Filipino
favourites, such as Facebook, Twitter, and Pinterest.

Although there are also numerous domestic players in internet retailing in the Philippines, such as
myAyala.com, it remains obvious that international operators have the skills and training required
to be more efficient, such as in terms of customer service. This is the main reason behind the rapid
expansion and acceptance of these international players.

The rising acceptance of internet retailing in 2013 may owe a part of its success to the boom of
customer-to-customer transactions in previous years. A large percentage of customer-to-customer
transactions was driven by the popularity of Multiply several years prior to 2013, which has since
closed in the Philippines. Since then, Facebook has become a popular channel for customer-tocustomer purchases, making Filipinos more comfortable with the idea of shopping and paying
online.
PROSPECTS

Internet retailing is expected to continue performing robustly throughout the forecast period.
Constant value sales are expected to grow by a CAGR of 11% as online transactions will become
increasingly more common and familiar to Filipinos.

The continued rise in growth rate of internet retailing is also linked to the expected rise in the
number of aggressive online players, as well as to an added boost from m-commerce. In the first
three years of the forecast period, m-commerce is expected to account for 5% of total internet
sales, largely due to the higher convenience of smartphone usage and the added ease provided by
apps.

With the positive prospects for internet retailing, there is no significant threat to growth. Perhaps a
challenge, however, will come from a lack of nationwide penetration, as shipping continues to be
difficult across the different islands. If anything, growth is expected to soar for the Metro Manila
area, where delivery can be carried out within one or two days, whereas other areas in the
Philippines, apart from key cities, might still need time to adjust to shipping conditions.

By 2018, as much as 40% of the population is expected to have home internet access. Of course,
most of this will still be through smartphones, with the increasing incidence of tablet usage with
internet access, as more tablets increasingly have slots for Sim cards.

With the continued rise in smartphone usage, it is possible that consumer electronics will become
more popular over the forecast period. Although apparel is likely to remain the bulk contributor, in
terms of growth, it may easily be overtaken by consumer electronics as demand for the category
soars.

This means that Lazada, with its focus on consumer electronics, may enjoy a strong performance
during the forecast period. Then again, with Zalora’s plans to launch an initial public offering (IPO)
during the forecast period, it may also prove to be aggressive in terms of expansion, also signalling
the possibility of either of these two players, also sister-companies, leading the fray in internet
retailing in the Philippines.

Meanwhile, smaller online companies, especially those that are typically family-owned, are expected
to underperform during the forecast period. They will generally be outpaced by the larger players,
leaving them with very little scope, especially in the first few years of the forecast period when
internet retailing will continue to expand in the Philippines.

With the increasing power of social media networks, internet retailers will do well to make sure they
cover their bases in this regard. This will be especially true in the forecast period, when there will be
an increasing number of social media networks deemed by the average internet user as being an
essential component of their social life. An effective online marketing strategy will remain key in
promoting internet retailers, whilst also ensuring the most convenient payment and delivery
schemes offered, taking into account the difficulty of shipping to cities outside of Metro Manila.
CHANNEL DATA
Table 1 Internet Retailing by Category: Value 2008-2013
Ps million, retail value rsp excl sales tax
2008
2009
2010
2011
2012
2013
Beauty and Personal Care
107.5
116.6
130.5
147.3
154.3
160.1
Apparel and Footwear
2,730.6 2,923.7 3,138.3 3,391.7 3,784.0
4,201.2
Consumer Electronics and Video Games
Hardware
570.8
668.6
855.6
1,115.3 1,736.0
2,210.9
Consumer Healthcare
-
0.1
0.3
0.5
0.5
0.6
Consumer Appliances
81.8
76.1
93.4
103.8
111.8
127.8
Home Care
1.8
1.8
1.9
2.0
2.0
2.1
Ps million, retail value rsp excl sales tax
2008
2009
2010
2011
2012
2013
Home Improvement and Gardening
27.9
28.5
29.4
30.3
31.3
32.2
Housewares and Home Furnishings
54.7
60.9
67.9
75.9
84.6
93.5
Media Products
879.9
960.9
1,037.7 1,141.5 1,232.8
1,313.0
Food and Drink
78.6
70.7
73.8
77.8
82.5
86.9
Traditional Toys and Games
12.0
11.5
12.3
13.3
14.2
15.1
Other Internet Retailing
1,584.4 1,658.1 2,035.9 2,331.2 2,799.6
Internet Retailing
6,130.0 6,577.5 7,477.0 8,430.5 10,033.7 11,376.5
3,133.1
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade
interviews, trade sources
Table 2 Internet Retailing by Category: % Value Growth 2008-2013
% current value growth, retail value rsp excl sales tax
2012/13
2008-13 CAGR
2008/13 Total
Beauty and Personal Care
3.8
8.3
48.9
Apparel and Footwear
11.0
9.0
53.9
Consumer Electronics and Video Games Hardware
27.4
31.1
287.4
Consumer Healthcare
13.4
-
-
Consumer Appliances
14.3
9.3
56.2
Home Care
1.1
3.0
16.1
Home Improvement and Gardening
2.9
2.9
15.3
Housewares and Home Furnishings
10.5
11.3
70.9
Media Products
6.5
8.3
49.2
Food and Drink
5.3
2.0
10.6
Traditional Toys and Games
6.7
4.8
26.3
Other Internet Retailing
11.9
14.6
97.7
Internet Retailing
13.4
13.2
85.6
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade
interviews, trade sources
Table 3 Internet Retailing Company Shares: % Value 2009-2013
% retail value rsp excl sales tax
2009
2010
2011
2012
2013
Zalora Philippines Inc
-
-
5.7
8.2
9.6
Lazada Philippines Inc
-
-
4.0
7.5
8.2
Amazon.com Inc
3.5
3.6
3.2
2.8
2.5
Ayala Corp
2.3
2.5
2.3
2.1
2.0
eBay Inc
1.4
1.4
1.2
1.1
1.0
Others
92.9
92.5
83.6
78.3
76.7
Total
100.0
100.0
100.0
100.0
100.0
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade
interviews, trade sources
Table 4 Internet Retailing Brand Shares: % Value 2010-2013
% retail value rsp excl sales tax
Company
2010
2011
2012
2013
Zalora
Zalora Philippines Inc
-
5.7
8.2
9.6
lazada
Lazada Philippines Inc
-
4.0
7.5
8.2
Amazon
Amazon.com Inc
3.6
3.2
2.8
2.5
myRegalo
Ayala Corp
2.5
2.3
2.1
2.0
eBay
eBay Inc
1.4
1.2
1.1
1.0
myAyala
Ayala Corp
-
-
-
-
Others
Others
92.5
83.6
78.3
76.7
Total
Total
100.0
100.0
100.0
100.0
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade
interviews, trade sources
Table 5 Internet Retailing Forecasts by Category: Value 2013-2018
Ps million, retail value rsp excl sales tax
2013
2014
2015
2016
2017
2018
Beauty and Personal Care
160.1
165.3
173.4
182.7
193.0
204.1
Apparel and Footwear
4,201.2
4,491.3
4,795.2
5,119.6
5,466.4
5,626.3
Consumer Electronics and Video Games
Hardware
2,210.9
2,591.6
2,947.9
3,248.6
3,516.4
3,807.1
Consumer Healthcare
0.6
0.8
0.9
1.0
1.1
1.2
Consumer Appliances
127.8
137.2
147.5
158.8
171.4
185.1
Home Care
2.1
2.0
2.0
1.9
1.9
1.8
Home Improvement and Gardening
32.2
32.3
32.5
32.9
37.1
41.8
Housewares and Home Furnishings
93.5
100.3
107.5
115.0
123.1
131.7
Media Products
1,313.0
1,378.6
1,440.7
1,498.3
1,550.7
1,597.2
Food and Drink
86.9
89.1
91.5
94.3
97.4
100.8
Traditional Toys and Games
15.1
15.6
16.0
16.3
16.7
17.0
Other Internet Retailing
3,133.1
3,544.2
4,110.8
4,879.9
5,862.8
7,231.9
Internet Retailing
11,376.5 12,548.2 13,865.8 15,349.4 17,037.9 18,946.1
Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources
Note: Forecast value data in constant terms
Table 6 Internet Retailing Forecasts by Category: % Value Growth 2013-2018
% constant value growth, retail value rsp excl sales tax
2013-18 CAGR
2013/18 TOTAL
Beauty and Personal Care
5.0
27.5
Apparel and Footwear
6.0
33.9
Consumer Electronics and Video Games Hardware
11.5
72.2
Consumer Healthcare
14.8
99.0
Consumer Appliances
7.7
44.9
Home Care
-2.7
-13.0
Home Improvement and Gardening
5.3
29.8
Housewares and Home Furnishings
7.1
41.0
Media Products
4.0
21.7
% constant value growth, retail value rsp excl sales tax
2013-18 CAGR
2013/18 TOTAL
Food and Drink
3.0
16.0
Traditional Toys and Games
2.4
12.6
Other Internet Retailing
18.2
130.8
Internet Retailing
10.7
66.5
Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources
;
Emerging Focus: Rising middle class in emerging markets
Article | 29 Mar 2010
A new middle class is developing in emerging market economies as significant proportions of the population
rise up from poverty in line with rapid economic growth. The expansion of this middle class not only provides
competition for labour and resources, but also enormous potential for global consumer markets. As a result,
there will be a gradual shift in the dominance of global consumer markets from advanced economies to
emerging market economies.
Households with annual disposable income of US$5,000-15,000 in
emerging market economies: 2000 and 2010
% of total households
Source: Euromonitor International from national statistics
Note: (1) Data for 2010 are forecasts. (2) Emerging market economies covers 25 key economies which
include Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Kazakhstan, Malaysia,
Mexico, Morocco, Peru, Philippines, Poland, Romania, Russia, Saudi Arabia, South Africa, Thailand, Turkey,
the UAE, Ukraine, and Vietnam.
(Click here to view map in detail.)
Key points

The World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to
1.2 billion in 2030, defining the middle class as earners making US$10-20 a day (a range of
average incomes between Brazil and Italy). China and India will account for two-thirds of the
expansion;

While there is no universal definition for what constitutes the middle class due to varying income
levels between advanced and emerging market economies (EMEs), but also within advanced
emerging economies (Brazil, Poland, Mexico and Saudi Arabia) and secondary emerging economies
(emerging Asia, Romania and Russia), growth in households with annual disposable incomes
between US$5,000 and US$15,000 has been striking. Kazakhstan, Romania and Russia saw the
fastest growth during 2000-2010 with over 50.0% of households in this category by 2010;

The share of emerging and developing economies in world GDP in purchasing power parity terms
(PPP) is expected to overtake advanced economies by 2014, according to the IMF. China is forecast
to be the biggest contributor to world GDP growth by 2017, overtaking the USA and accounting for
18.4% of world GDP in PPP terms from 7.1% in 2000. India, with a share of 6.2% of world GDP in
PPP terms, will be the third largest contributor towards world GDP in 2017;

The rising middle class in EMEs is also a result of the rapid increase in populations within these
economies. The workforce (population aged 15-64) for these economies together will rise to 3.0
billion in 2020 from 2.7 billion in 2010, accounting for 68.8% of their total population in 2020. The
most rapid increase in the working-age population over 2010-2020 comes from Saudi Arabia
(25.6%), followed by the Philippines (23.5%) and the UAE (21.6%);

The transition for the emerging middle class, however, is not devoid of challenges. Skills shortages
are likely to become more apparent despite a new educated mass of people, while resources might
become scarce. Income inequality is expected to rise mainly due to the widening difference in
earnings potential between skilled and unskilled workers.
Biggest growth potential lies in emerging Asia
The biggest potential in terms of growth in the middle class lies in emerging Asia. Most emerging market
economies are experiencing rapid economic growth with a significant proportion of the population rising from
a low income base:

As global drivers of world economic output and the most populous states in the world, China, India
as well as Indonesia hold the biggest potential. The increase in the educated population is a key
component leading to strong average incomes. In 2010, households with annual disposable incomes
of US$5,000-15,000 as a percentage of total households is expected to be 31.7% in China, 14.6%
in India and 35.7% in Indonesia. This will reach 46.2% in China, 41.1% in India and 58.3% in
Indonesia in 2020;

In 2010, 65.1% of Kazakh, 68.2% of Romanian and 52.6% of Russian households are expected to
have an annual disposable income of US$5,000-15,000. However, the proportion of households in
this income band will decline to 5.2%, 3.8% and 7.8% respectively by 2020 as households move to
higher income bands;

The potential for growth in the middle class in emerging Asia also stems from the increase in the
number of households with annual disposable income of US$5,000-15,000. The total number of
households in this income band for EMEs is expected to reach 331 million in 2010 from 104 million
in 2000, of which emerging Asia accounted for 62.2% of households compared to only 32.8% in
2000. This will further rise to 79.6% by 2020 with China and India accounting for 306 million of the
488 million households within the income band.
Number of households with annual disposable income of US$5,00015,000 in selected economies: 2000-2020
Million
Source: Euromonitor International from national statistics
Note: Data for 2010 and 2020 are forecasts.
Growing opportunities for global consumer markets
The rising middle class of emerging market economies presents immense opportunities for global consumer
markets. This new middle class will have discretionary income to buy higher-end consumer goods, better
healthcare and to spend on education:

The average per capita consumer expenditure in EMEs is expected to reach US$6,490 in constant
terms (2009 fixed exchange rates) by 2020 (from an estimated US$4,381 in 2010). These levels
are still low compared to advanced economies with per capita consumer expenditure averaging
US$28,067 in G7 economies by 2020. In 2010, China, India, Vietnam and Egypt will see the highest
annual increase in per capita consumer expenditure in the EMEs in real terms rising by 8.6%, 7.1%,
5.7% and 5.5% respectively;

The new middle class is keen to consume. Vietnam's, India's and Philippines' consumer markets are
fuelled by young professionals who spend on electronic goods, communications and transportation.
By 2020, the population aged 0-29 will constitute 53.3% and 56.9% of the total population
respectively in India and Philippines compared to 34.2% and 33.1% of the total population in Russia
and China;

Over 2010-2020, the population aged between 0-29 will decline in some countries like Brazil, China
and Vietnam. Nonetheless, its proportion to total population remains significantly higher than most
advanced economies. The consequence of Beijing's one-child policy combined with the population's
strong preference for male heirs has created a gender imbalance and is leading to a rapidly ageing
population in China. While declining birth rates and high mortality related to unhealthy lifestyles and
poor healthcare are causing Russia's population to shrink, extensive emigration has produced a
demographic crisis in Ukraine;

Poverty levels are declining in developing economies creating a new market for consumer goods and
services. According to World Bank estimates, the percentage of the global population living on less
than US$2.0 per day will drop to 29.8% by 2020 from 47.0% in 2005.
Growth index of population aged 0-29 in selected economies: 2010 –
2020
2010 = 100
Source: Euromonitor International from national statistics/UN
Note: Data for 2010-2020 are forecasts
Challenges beyond potential

Strong growth in middle class incomes is adding to the problem of income inequality in many EMEs
with terms like 'upper middle class' and 'lower middle class' increasingly used. Income inequality
measured by the Gini Index (an index between 0-100 with 0 indicating most equality and 100
indicates total inequality) has risen most in China, Indonesia, Malaysia and India between 2000 and
2010. In China, it will reach 51.3 in 2010 from 40.2 in 2000;

By 2020, the urban population in these economies will reach 53.1% of the total population
compared to 48.7% in 2010. The most significant growth in urban populations will be in Indonesia,
China and India rising to 62.5%, 52.7% and 34.1% of the total population in 2020 from 53.5%,
47.2% and 30.1% respectively in 2010. However, the growing demand from urban consumers is
likely to exert pressure on existing resources and could lead to spiralling inflation;

Middle class earners in EMEs are savers by nature despite growing levels of annual disposable
income. The savings ratio as a percentage of disposable income is expected to remain high in most
EMEs with the highest rate of 54.8% in Saudi Arabia in 2010. During the same year, in China, India
and the UAE it will reach 26.0-38.0% of disposable income compared to 8.0% in the USA.
Prospects
Emerging Asia's middle class will be one of the fastest growing populations in the world and the biggest
market for consumer goods and services:

Euromonitor International forecasts that China, India and Indonesia are expected to be the best
performing emerging economies in 2020 with annual real GDP projected to grow by 8.8%, 7.1%
and 7.0% respectively;

EMEs are projected to be the largest contributor towards population growth between 2010 and
2020. There will be growing demand for basic products and a consequent increase in consumer
spending. Consumer spending in EMEs is forecast to grow by an annual average rate of 10.4%
between 2010-2020 in US$ terms with China, India, Brazil and Russia being the largest consumer
markets within EMEs in terms of total spending;

By 2020, the total income of households with a disposable income of US$5,000-15,000 in emerging
Asia will account for 4.9% of global annual disposable income from 0.8% in 2000. Consumer
demand in EMEs will gradually move from basic needs to more sophisticated demand patterns and
will be the key driver of global consumer markets.
Risks and Vulnerabilities Philippines: Typhoons are a Risk
but Don’t Rule out the Emerging Market Potential
Opinion | 22 Nov 2013
Media EghbalHead of Countries' Analysis
In November 2013, one of the strongest typhoons to make landfall since records began struck the central
Philippines. It is too early to assess the full damage to the overall economy but Euromonitor forecasts a
slight downward revision in real GDP growth in 2013 and 2014 (to around 7.0% and 6.5% respectively) in
line with government estimates that the typhoon may reduce economic growth by as much as 1 percentage
point in 2014. However, we believe that investors should not rule out the country’s long term potential as
one of the next major emerging markets to watch globally. Furthermore, reconstruction efforts will provide a
boost to economic growth in the impacted regions in the short term.
The scale of the tragedy and human cost that Super Typhoon Haiyan (known locally as Yolanda) left in its
path of destruction across the central Philippines cannot be overstated. With the death toll topping 5,000 at
the time of writing, the International Labour Organization (ILO) estimates that five million workers
(equivalent to the population of Norway) have been impacted by the devastation. Euromonitor’s Risks and
Vulnerabilities Country Briefing highlights the fact that the country’s tropical climate makes it prone to
storms that often turn into typhoons and cyclones. However, as has been evident in previous such disasters
around the world, reconstruction efforts will be a priority for the government and will bring hope,
opportunity and a revival of the economic and labour outlook for the worst-hit regions.
Reasons to remain optimistic
Our Risks and Vulnerabilities Country Briefing and Business Environment report for the highlight the reasons
that the country should not be ruled out as an important investment destination.

The Philippines is a member of the Association of Southeast Asian Nations (ASEAN) and accounted
for 10.8% of their total GDP in 2012;

Real GDP growth reached 6.8% in 2012, amongst the fastest growth of the ASEAN countries;

The Philippines benefits from a buoyant business process outsourcing (BPO) sector with services
accounting for 57.1% of GDP in 2012;

Remittances inflows accounted for 9.8% of GDP in 2012 and grew by just over 50.0% in US$ terms
in 2007-2012. The typhoon could well result in a spike in remittances during 2013 and 2014;

With total exports accounting for 20.8% of total GDP in 2012, the Philippine economy is not overly
export-dependent for economic growth. It is likely that the worst effected exports will be from
agricultural products that were wiped out by the typhoon;

The general government budget registered at just 0.9% of GDP in 2012. Its public debt stood at
41.9% of GDP in 2012, meaning that government finances are in a strong position to be able to
invest and assist in aid and reconstruction;

The Philippines’ credit rating reached investment grade status in 2013 highlighting the country’s
macroeconomic fundamentals.
Challenges remain significant but investors should not rule the Philippines out
The Philippines will continue to experience weather-related disasters in the future. Storms and flooding
affected 24.9 million people and caused damages of US$3.2 billion in the 2007-2012 period, according to
EM-DAT. Corruption remains a problem and the Philippines rank poorly in the World Bank’s Ease of Doing
Business 2014 at 108th out of 189 countries. Other challenges include a significant brain drain resulting
from the large number of emigrants leaving the country, poverty, a high youth unemployment rate and
persistent income inequality.
The super typhoon’s impact will largely be felt in central areas, home to the agricultural sector with rice and
sugar cane crops especially damaged. We may well see some short term spikes in inflation as rice and food
shortage pressures build. However, the damage to the capital city of Manila was more limited as was the
effect on the manufacturing sector, which is the largest contributor to the economy at 20.3% of total gross
value added (GVA) in 2012. The economy will benefit from the aftermath of natural disasters in the form of
reconstruction efforts, which will boost employment, construction and incomes. Although the country ranks
poorly in the World Bank’s Doing Business rankings in 2014, it saw a major upwards improvement of 25
places compared to 2013. Overall, the Philippines offer long term promise with a young and largely Englishspeaking population and we maintain that it will continue to be one of the main emerging market economies
to watch.
For any further enquiries, please contact Media Eghbal, Country Insight Manager at Euromonitor
International at media.eghbal@euromonitor.com
Philippines: A Rapidly Growing and Urbanising Population
Datagraphic | 05 Nov 2013
In 2030, the population of the Philippines will reach nearly 128 million, an increase of 32.1% from 2012.
Population growth will be driven by increases in all age groups with particularly fast growth for those aged
60+. However, the Philippines will remain an overwhelmingly young country in 2030 with 71.4% of the
population aged 40 years or under. The urban population will overtake the rural population for the first time
in 2016 and by 2030 it will make up 56.3% of the population.
Why are New Vehicle Sales in the Philippines Consistently
Lower than They Should Be?
Opinion | 10 May 2013
Neil KingAnalyst - Automotive
Despite being the second most populous country in the ASEAN region, the Philippines is only the fourth
largest automotive market by sales volume. This in itself is understandable given that GDP per capita is
more than double in Thailand and four times as much in Malaysia. However, in the context of household
incomes and comparatively low car prices, new vehicle sales in the Philippines fall incredibly short and so
there must be other factors at play.
In monetary terms, a clear pattern emerges across the ASEAN region, whereby passenger car ownership
generally exceeds 10% once annual household income reaches US$10,000. However, the number of
households with annual disposable income over US$10,000 is actually higher in the Philippines than in
Malaysia, where four times as many vehicles are sold annually. Similarly, there are typically five new
vehicles registered in Thailand for each one in the Philippines - even though the tally of homes with annual
disposable income over US$10,000 is only around 30% higher.
Households with annual disposable income over US$10,000 in
selected ASEAN countries, 1990-2020
Source: Euromonitor International
As it is, light vehicle sales have struggled to equate to even 10% of the number of households with annual
disposable income over US$15,000 in recent years. The situation is not entirely different in Vietnam but this
can at least be partly explained by higher car prices than in other ASEAN countries, whereas prices are lower
in the Philippines, which is actually a positive factor. One negative factor is that the economy performed well
in 2000-2005 but the pace of growth slowed markedly in the second half of the decade. Without any change
to autos demand in relation to household incomes, the market could therefore climb just 100,000 units to
250,000 units by 2020. However, with low interest rates and more affordable auto loan packages from
banks and other financial institutions in the short term and 5% GDP growth potential in the medium term,
consumers are more confident and so a more upbeat scenario of 400,000 light vehicle sales in 2020 is
certainly realistic.
A final negative factor is that the used car market is comparatively developed in the Philippines, thus
limiting demand for new vehicles because of the price difference. To put this into perspective, an
inordinately high percentage of consumer expenditure on transport, even by ASEAN standards, is on the
operation of personal transport equipment; 60%.
Percentage of consumer expenditure on transport by category in
selected ASEAN countries, 2013
Source: Euromonitor International
In other words, consumers are spending more on the maintenance of their older vehicles than in
neighbouring countries. Moreover, across the region, the percentage of consumer expenditure on transport
that is on the purchase of vehicles is around 30% but in the case of the Philippines, it is only about half this
amount. There could therefore be a case for a fiscal package in the Philippines which would remove older
vehicles from the roads and thus stimulate demand for new vehicles but that money could of course also be
spent on developing the public transport network, thus boosting the comparatively low consumer
expenditure on transport services.
For further information, please contact Neil King, Analyst – Automotive; neil.king@euromonitor.com
Emerging Focus: Natural Disasters Disproportionately Affect
Emerging Market Economies
Article | 17 Jun 2013
Emerging market economies, particularly those in Asia, are at a greater risk from natural disasters such as
floods, droughts, earthquakes and storms. These economies are more exposed to severe disruption in
supply chains with financial and agricultural damage affecting consumers and businesses domestically and
globally. However, emerging Asia continues to be at the forefront of global economic growth and better
management of disaster risks will help reduce vulnerability.
Key points

Natural disasters affect emerging market economies (EMEs) disproportionately, with economies in
emerging Asia at greater risk than other EMEs. According to the Centre of Research on
Epidemiology of Disasters (CRED), of the 126 natural disasters that occurred in EMEs in 2012, 83
natural disasters or 65.9% of the total occurred in emerging Asia;

According to Annual Disaster Statistical Review 2011, published by CRED, four of the top five
countries most frequently hit by natural disasters in over a decade were Asian EMEs. In 2012, China
had the highest number of natural disasters globally (29), followed by the USA (25), the Philippines
(22), Indonesia (15) and India (10);

The financial burden of natural disasters is heavy and also affects EMEs disproportionately. In 2012,
the estimated damage cost of natural disasters in emerging Asia alone amounted to US$22.3 billion
or 76.4% of the total estimated damage by natural disasters in EMEs. China, again, bore the
highest damage costs in EMEs, at US$19.8 billion;

EMEs in Asia, as a result, are more susceptible to the adverse impacts of natural disasters affecting
consumers, businesses and the overall economy. They disrupt supply chain, cause disruption in
day-to-day business, lower agricultural production and exacerbate the problems of poverty;

Emerging Asia is, nonetheless, at the forefront of global economic growth and presents a huge
potential for businesses despite the impact of natural disasters. In 2012, the average real GDP
growth in emerging Asia stood at 5.8% compared to 2.8% in the remaining EMEs.
Top 5 Countries with Highest Number of Natural Disasters and
Estimated Damage Costs in EMEs: 2012
Source: EM-DAT; Centre for Research on Epidemiology of Disasters (CRED) International Disaster Database
Emerging Asia most affected by natural disasters

In 2012, 89 natural disasters or 65.9% of the natural disasters in EMEs occurred in emerging Asia
alone incurring estimated damage costs of US$22.3 billion or 76.4% of the total estimated damage
by natural disasters in EMEs. Of the total number of people affected in EMEs, 98.5% of the total
affected in EMEs were from emerging Asia during the year;

Emerging Asia is most susceptible to natural disasters like earthquakes, storms, floods and other
natural hazards thanks to its proximity to the Pacific and the 'Ring of Fire' - a belt of seismic risk.
Each year, heavy rains due to the monsoon season adversely affect millions of people in countries
like China, India, Indonesia, Thailand and the Philippines;

In 2012, China had the highest number of natural disasters globally (29), followed by the USA (25),
the Philippines (22), Indonesia (15) and India (10) according to CRED. These countries feature in
the top five countries hit by natural disasters each year. On the other hand, Hungary, Morocco,
Romania, and Turkey were the least affected by natural disasters in EMEs with only one occurrence
in 2012 and close to no estimated economic damage costs;

In China, disasters affected over 44.6 million people with estimated economic damage costs of
US$19.8 billion during the year. Floods in Beijing in July 2012 were the most damaging natural
disaster in EMEs during the year affecting over a million people with an estimated cost of US$8.0
billion.
Impact on consumers, businesses and economy

The disproportionate impact of natural disasters in EMEs also impacts human development
disproportionately and exacerbates issues relating to poverty. It can cause food shortages,
malnourishment and spread diseases. As a result, poverty alleviation becomes slow and backtracked
in many of these economies. For example, rural areas in China are more susceptible to natural
disasters as they are less developed and not strong economically;

Natural disasters disrupt manufacturing activity and affect local and regional supply chains. For
example, the 2011 floods in Thailand had broad implications on electronic supply chains and the
auto industry and its adverse effects on the industry continued well into 2013 for some hardware
providers. As a result of the floods and the disruption caused, the Thai economy grew by only 0.1%
in real terms in 2011;

Crop damage from natural disasters could cause food price inflation, affect domestic and
international supplies and drive up the cost of living for consumers. For example, in India, droughts
in 2012 caused high food-price inflation. During the year, annual inflation stood at 9.3% compared
to 8.9% in the previous year;

Natural disasters cause disruptions in day-to-day business activities affecting their profitability,
long-term competitiveness and sustainability. Businesses operating in EMEs that are at higher risk
of natural disasters may choose to leave the country altogether and new businesses may become
weary of making new investments or sourcing from these EMEs having a negative impact on the
business environment;

Economies are also exposed to a huge financial risk in terms of infrastructural damage which
includes disruptions in power, water supply and telecommunications. Furthermore, they are also
exposed to the risk of direct economic losses in housing and local infrastructure whose damage
estimates are difficult to assess and not included in disaster databases according to the United
Nations Office for Disaster Risk Reduction (UNISDR) Global Assessment Report 2013;

The tourism industry in emerging Asia can also be affected by the higher frequency of natural
disasters lowering tourism revenues and impacting related industries. Countries like Indonesia and
Thailand are highly dependent on their tourism revenues, which contribute to around 5.0% of GDP
each year.
Emerging Asia offers more opportunities compared to other EMEs
EMEs in emerging Asia have amongst the brightest economic prospects that provide significant opportunities
for businesses across sectors:

In 2012, the average real GDP growth in emerging Asia stood at 5.8% compared to 2.8% in the
remaining EMEs and 3.1% in the world economy. Although real economic growth in emerging Asia
has slowed owing to the turmoil in the global economy, real GDP growth in many economies like
China and Indonesia are robust compared to global standards at 7.8% and 6.2%, respectively, in
2012;

The sheer size of Asia's population brings in an array of opportunities for businesses across sectors
that can target a wide range of groups. In 2012, the working-age population (aged 15-64) in
emerging Asia included 2.8 billion people or 60.9% of the global working-age population;

The emergence of a large and expanding middle class with growing disposable incomes and rising
purchasing power create a dynamic market for marketers for a range of products and services.
Between 2007 and 2012, the annual disposable income in emerging Asia grew by 49.0% (fixed US$
constant terms) compared to the 10.9% increase in EMEs on an aggregate basis and 2.3% rise in
advanced economies;

With the rise in incomes, consumer expenditure in emerging Asia will also witness robust growth
with spending patterns changing towards more discretionary spending (everything except food,
non-alcoholic beverages and housing). Between 2013 and 2020, consumer expenditure in emerging
Asia is forecast to grow by 43.9% (fixed US$ constant terms) compared to a 30.7% increase in
EMEs on an aggregate basis.
Real Growth in Annual Disposable Income in Advanced Economies,
EMEs, and emerging Asia: 2007-2012
Source: Euromonitor International from national statistics
Note: (1) EMEs cover 25 key economies that include Argentina, Brazil, Chile, China, Colombia, Egypt,
Hungary, India, Indonesia, Kazakhstan, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Romania,
Russia, Saudi Arabia, South Africa, Thailand, Turkey, the UAE, Ukraine, and Vietnam. (2) Emerging Asia
includes China, India, Indonesia, Kazakhstan, Malaysia, Philippines, Thailand and Vietnam.
Prospects

Over the coming years, emerging Asia will continue to be more affected by natural disasters as the
influence of climate change increases the number of weather-related disasters. At the same time,
unplanned urbanisation and lack of investments, planning and informal settlements make these
economies more vulnerable to disasters. According to the World Bank in 2013, 40.0% of floods
worldwide occurred in Asia each year;

EMEs in Asia need to manage disaster risk more effectively by building their resilience to mitigate
the disruption and impact of an event. These economies need strong governance, established
infrastructures, disaster preparedness and reliable hazard forecast services. Improvement in these
areas would prove to be cost-effective in the long run and should greatly reduce the impact of
natural disasters.
Emerging Focus: Rising middle class in emerging markets
Article | 29 Mar 2010
A new middle class is developing in emerging market economies as significant proportions of the population
rise up from poverty in line with rapid economic growth. The expansion of this middle class not only provides
competition for labour and resources, but also enormous potential for global consumer markets. As a result,
there will be a gradual shift in the dominance of global consumer markets from advanced economies to
emerging market economies.
Households with annual disposable income of US$5,000-15,000 in
emerging market economies: 2000 and 2010
% of total households
Source: Euromonitor International from national statistics
Note: (1) Data for 2010 are forecasts. (2) Emerging market economies covers 25 key economies which
include Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Kazakhstan, Malaysia,
Mexico, Morocco, Peru, Philippines, Poland, Romania, Russia, Saudi Arabia, South Africa, Thailand, Turkey,
the UAE, Ukraine, and Vietnam.
(Click here to view map in detail.)
Key points

The World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to
1.2 billion in 2030, defining the middle class as earners making US$10-20 a day (a range of
average incomes between Brazil and Italy). China and India will account for two-thirds of the
expansion;

While there is no universal definition for what constitutes the middle class due to varying income
levels between advanced and emerging market economies (EMEs), but also within advanced
emerging economies (Brazil, Poland, Mexico and Saudi Arabia) and secondary emerging economies
(emerging Asia, Romania and Russia), growth in households with annual disposable incomes
between US$5,000 and US$15,000 has been striking. Kazakhstan, Romania and Russia saw the
fastest growth during 2000-2010 with over 50.0% of households in this category by 2010;

The share of emerging and developing economies in world GDP in purchasing power parity terms
(PPP) is expected to overtake advanced economies by 2014, according to the IMF. China is forecast
to be the biggest contributor to world GDP growth by 2017, overtaking the USA and accounting for
18.4% of world GDP in PPP terms from 7.1% in 2000. India, with a share of 6.2% of world GDP in
PPP terms, will be the third largest contributor towards world GDP in 2017;

The rising middle class in EMEs is also a result of the rapid increase in populations within these
economies. The workforce (population aged 15-64) for these economies together will rise to 3.0
billion in 2020 from 2.7 billion in 2010, accounting for 68.8% of their total population in 2020. The
most rapid increase in the working-age population over 2010-2020 comes from Saudi Arabia
(25.6%), followed by the Philippines (23.5%) and the UAE (21.6%);

The transition for the emerging middle class, however, is not devoid of challenges. Skills shortages
are likely to become more apparent despite a new educated mass of people, while resources might
become scarce. Income inequality is expected to rise mainly due to the widening difference in
earnings potential between skilled and unskilled workers.
Biggest growth potential lies in emerging Asia
The biggest potential in terms of growth in the middle class lies in emerging Asia. Most emerging market
economies are experiencing rapid economic growth with a significant proportion of the population rising from
a low income base:

As global drivers of world economic output and the most populous states in the world, China, India
as well as Indonesia hold the biggest potential. The increase in the educated population is a key
component leading to strong average incomes. In 2010, households with annual disposable incomes
of US$5,000-15,000 as a percentage of total households is expected to be 31.7% in China, 14.6%
in India and 35.7% in Indonesia. This will reach 46.2% in China, 41.1% in India and 58.3% in
Indonesia in 2020;

In 2010, 65.1% of Kazakh, 68.2% of Romanian and 52.6% of Russian households are expected to
have an annual disposable income of US$5,000-15,000. However, the proportion of households in
this income band will decline to 5.2%, 3.8% and 7.8% respectively by 2020 as households move to
higher income bands;

The potential for growth in the middle class in emerging Asia also stems from the increase in the
number of households with annual disposable income of US$5,000-15,000. The total number of
households in this income band for EMEs is expected to reach 331 million in 2010 from 104 million
in 2000, of which emerging Asia accounted for 62.2% of households compared to only 32.8% in
2000. This will further rise to 79.6% by 2020 with China and India accounting for 306 million of the
488 million households within the income band.
Number of households with annual disposable income of US$5,00015,000 in selected economies: 2000-2020
Million
Source: Euromonitor International from national statistics
Note: Data for 2010 and 2020 are forecasts.
Growing opportunities for global consumer markets
The rising middle class of emerging market economies presents immense opportunities for global consumer
markets. This new middle class will have discretionary income to buy higher-end consumer goods, better
healthcare and to spend on education:

The average per capita consumer expenditure in EMEs is expected to reach US$6,490 in constant
terms (2009 fixed exchange rates) by 2020 (from an estimated US$4,381 in 2010). These levels
are still low compared to advanced economies with per capita consumer expenditure averaging
US$28,067 in G7 economies by 2020. In 2010, China, India, Vietnam and Egypt will see the highest
annual increase in per capita consumer expenditure in the EMEs in real terms rising by 8.6%, 7.1%,
5.7% and 5.5% respectively;

The new middle class is keen to consume. Vietnam's, India's and Philippines' consumer markets are
fuelled by young professionals who spend on electronic goods, communications and transportation.
By 2020, the population aged 0-29 will constitute 53.3% and 56.9% of the total population
respectively in India and Philippines compared to 34.2% and 33.1% of the total population in Russia
and China;

Over 2010-2020, the population aged between 0-29 will decline in some countries like Brazil, China
and Vietnam. Nonetheless, its proportion to total population remains significantly higher than most
advanced economies. The consequence of Beijing's one-child policy combined with the population's
strong preference for male heirs has created a gender imbalance and is leading to a rapidly ageing
population in China. While declining birth rates and high mortality related to unhealthy lifestyles and
poor healthcare are causing Russia's population to shrink, extensive emigration has produced a
demographic crisis in Ukraine;

Poverty levels are declining in developing economies creating a new market for consumer goods and
services. According to World Bank estimates, the percentage of the global population living on less
than US$2.0 per day will drop to 29.8% by 2020 from 47.0% in 2005.
Growth index of population aged 0-29 in selected economies: 2010 –
2020
2010 = 100
Source: Euromonitor International from national statistics/UN
Note: Data for 2010-2020 are forecasts
Challenges beyond potential

Strong growth in middle class incomes is adding to the problem of income inequality in many EMEs
with terms like 'upper middle class' and 'lower middle class' increasingly used. Income inequality
measured by the Gini Index (an index between 0-100 with 0 indicating most equality and 100
indicates total inequality) has risen most in China, Indonesia, Malaysia and India between 2000 and
2010. In China, it will reach 51.3 in 2010 from 40.2 in 2000;

By 2020, the urban population in these economies will reach 53.1% of the total population
compared to 48.7% in 2010. The most significant growth in urban populations will be in Indonesia,
China and India rising to 62.5%, 52.7% and 34.1% of the total population in 2020 from 53.5%,
47.2% and 30.1% respectively in 2010. However, the growing demand from urban consumers is
likely to exert pressure on existing resources and could lead to spiralling inflation;

Middle class earners in EMEs are savers by nature despite growing levels of annual disposable
income. The savings ratio as a percentage of disposable income is expected to remain high in most
EMEs with the highest rate of 54.8% in Saudi Arabia in 2010. During the same year, in China, India
and the UAE it will reach 26.0-38.0% of disposable income compared to 8.0% in the USA.
Prospects
Emerging Asia's middle class will be one of the fastest growing populations in the world and the biggest
market for consumer goods and services:

Euromonitor International forecasts that China, India and Indonesia are expected to be the best
performing emerging economies in 2020 with annual real GDP projected to grow by 8.8%, 7.1%
and 7.0% respectively;

EMEs are projected to be the largest contributor towards population growth between 2010 and
2020. There will be growing demand for basic products and a consequent increase in consumer
spending. Consumer spending in EMEs is forecast to grow by an annual average rate of 10.4%
between 2010-2020 in US$ terms with China, India, Brazil and Russia being the largest consumer
markets within EMEs in terms of total spending;

By 2020, the total income of households with a disposable income of US$5,000-15,000 in emerging
Asia will account for 4.9% of global annual disposable income from 0.8% in 2000. Consumer
demand in EMEs will gradually move from basic needs to more sophisticated demand patterns and
will be the key driver of global consumer markets.
Waterfront Philippines Inc in Travel and Tourism
(Philippines)
Local Company Profile | 27 Nov 2014
STRATEGIC DIRECTION

Waterfront Philippines is expected to continuously upgrade its facilities to allow it to cope with the
heightened competition as new luxury hotels are being established in Metro Manila. In order to
capture a good mix of business and leisure tourists, it will ensure that its rooms are of the right
combination of suites and standard rooms. The company is also expected to continually develop the
skills of its staff to improve its service standards and assure the loyalty of its patrons.
KEY FACTS
Summary 1 Waterfront Philippines Inc: Key Facts
Full name of
company:
Waterfront Philippines Inc
Address:
7th Fl, Manila Pavilion Hotel, United Nations, Ave, corner Ma Orosa St, Manila, the
Philippines
Tel:
+63 (2) 559 0888
Fax:
+63 (2) 559 0129
www:
www.waterfronthotels.com
Activities:
Hotel and casino operator
Source: Euromonitor International from company reports, company research, trade press, trade sources
Summary 2 Waterfront Philippines Inc: Operational Indicators
2011
2012
Net sales
PHP2.0 billion
PHP2.0 billion
Net profit (loss)
(PHP145.2 million)
PHP7.7 million
Number of employees
n/a
1,036
Source: Euromonitor International from company reports, company research, trade press, trade sources
COMPANY BACKGROUND

Waterfront Philippines is a publicly listed company which was registered with the Philippines
Securities and Exchange Commission on 23 September 1994. The Wellex Group, owned by the
Gatchalian family, remained its major shareholder in 2012, owning a 46% share of the holding
company. The company’s business interest is centred on hotels but it also has tourism-related
subsidiaries such as those involved in entertainment, fitness and a pastry business.

Waterfront, which is the country’s largest Filipino-owned hotel chain, has outlets in key cities
throughout the country. In Luzon, the company has two outlets, namely, Waterfront Manila Pavilion
Hotel and Casino and G Hotel Manila by Waterfront. In the Visayas, it likewise operates two hotels
located in the key business district of Cebu. These are the Waterfront Cebu City Hotel and Casino
and the Waterfront Airport Hotel and Casino Mactan. In Mindanao, the Waterfront Insular Hotel
Davao is located in the region’s business centre of Davao.

Waterfront is more inclined to acquire existing hotels and refurbish them, as the company views this
practice as a more responsible method of reaching its business goals. The Waterfront hotels in
Manila and in Davao are examples of this strategy. As of 2013, Waterfront operates 1,500 rooms,
owns 41,000 sq m of convention and gaming space and has a workforce of 1,500 employees.

In 2013, two of Waterfront’s hotels underwent renovation in response to the changing market
conditions. The Waterfront Airport Hotel and Casino in Cebu is undergoing an upgrade of its facilities
by stages to complement the undergoing expansion of the Mactan Cebu International Airport. The
company is planning to increase the number of its rooms to bring its total to a minimum of 250.
Completion of the renovation is targeted before the upgrades in the airport are completed by 2016.
Waterfront Manila Pavilion Hotel, on the other hand, undertook a PHP500 million renovation in the
midst of the rising number of luxury hotels and integrated resort casinos in the Manila Bay area.
The upgrade is hoped to improve the hotel’s room revenues by 50% from bookings by high-end
corporate and leisure clients.
COMPETITIVE POSITIONING

Waterfront Philippines ranked second overall in the hotel market with a 1% value share in 2013. It
trailed behind international company, Shang Properties, which took the first spot in the hotel market
in 2013 making Waterfront the leading domestic hotel company. Its operation of five outlets in key
locations throughout the country allowed the company to maintain its dominance against competing
local hotel brands. The company also ensures that sufficient marketing and promotional activities
are utilised through traditional formats and newer mediums such as the internet.

The company’s value share has been registering marginal decreases since 2011. This is indicative of
Waterfront’s limitation in securing the continued patronage of its guests and in growing its customer
base amidst the rising number of travel accommodation options available. Nevertheless, Waterfront
remains responsive to the ever-changing business environment as exemplified by its renovation of
Waterfront Manila Pavilion Hotel. The planned upgrades are geared towards improving the aesthetic
appeal of its rooms whilst ensuring maintenance costs are kept manageable in the face of stiff
competition against new luxury hotels.

Waterfront hotels cater to mid-market travellers. Its casino operation is amongst those that help the
company attract leisure guests. The company’s renovation efforts, on the other hand, are aimed at
improving its share of business travellers. Its outlet in Manila, however, is likely to face challenging
times ahead as the four luxury casinos in the Entertainment City in the Manila Bay area are
completed by 2016.
Summary 3 Waterfront Philippines Inc: Competitive Position 2013
Product type
Value share
Rank
Hotels
0.9%
2
Source: Euromonitor International from company reports, company research, trade press, trade sources, trade interviews
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