Tuesday, March 9, 2010

Who will replace the American consumer?

Robert Zoellick the president of the World Bank is leading a global search for the replacement of the American consumer. The American consumer served the world well over the past decade. They bought in large quantities, extravagantly and indiscriminately. They bought regardless of where the product came from, what it did for them and whether they had place in the house to keep it – which led to their having to buy larger and larger houses to keep the things that they bought.

The workers in far off lands of China, India and Africa toiled away in Dickensian conditions to satiate the American consumer demand. They worked 12 hours a day in sweltering workshops, with no overtime or social security to provide affordable goods to American consumers, who in turn obliged by consuming prodigious quantities of them. However, it is felt that American consumer can not do an encore of this remarkable performance in the coming decade. A desperate need exists to find a replacement. Someone, who could continue to fuel the global growth that we benefited from in the last decade – or else the world faces a recession.

The Chinese candidacy

In a number of circles the name of the Chinese consumer is being whispered as a possible candidate this role. Can the Chinese consumer spin the same magic as the American consumer and keep us on the growth trajectory? The advocates for designating the Chinese consumer as the replacement of the American sustainers of world economy argued, that the fact that there are four times as many Chinese as Americans is a good starting point and makes the Chinese consumer a good potential candidate. “But they don’t even have one tenth of the purchasing power,” argued Robert Zoellick. “That money is required to make a purchase, is an old-fashioned concept and is has been clearly demolished by the American consumer,” argued the advocates. Anyway money is a nebulous concept, we have seen trillions go here and there and none is wiser as to why and where it went and how it seems to be re-appearing again. What we do know is that when it re-appears it does seem to gravitate to the bonus packages of the American bankers. In fact sometimes it reaches the banker even before it reaches the bank, which itself needs to be kept afloat by funding from the State.

The clinching argument came from those who triumphantly revealed that it was anyway the Chinese money that the Americans were spending. Hence it wasn’t really the American consumer but actually the Chinese consumer who was providing the growth to the world economy. The Chinese consumers toiled in sweatshops and gave a part of their hard-earned money to Americans who used it to buy the goods that the Chinese workers sweated to produce. So it all worked out quite well – Americans did what they did best and are known for, and the Chinese did what their culture and tradition guided, giving them satisfaction of following their values of hard work, thrift and moderation.

Then why bother to change? Change will mean that both Chinese and American consumers will need to go against their grain. Imagine embarrassed and flustered Chinese moving through the supermarket aisles and staring at large packs of frozen dumplings or dried beef that they know they will not be able to eat, or looking at toys for their only child who they know does not need any more. At the same time, American consumers having to change their perception of a bank to a place where they save their money than where they borrow money from (and take out sub-prime mortgages from), is also an uphill task. Given the current image of the banks and the federal bail-outs, how will American consumers have the heart to trust their own money with a bank? For decades they have been guided by a belief that it is better to have the bank’s money with them than have their money in the bank and it will not be easy to change this principle which has served them so well over the years..

Status quo

Still immersed in deep reflection, Rober Zoellick concluded,” The solution is status quo - and even more status for the Americans and more quo for the Chinese”. Let Chinese workers labor more and produce even cheaper and better goods for the American consumers. Let them lend more money to their American brethren so that they can continue to stuff their large houses with more toys, electric drills, synthetic carpets and dildos made by Chinese factories. Only the Americans have houses large enough to accommodate more shopping any way.

President Obama congratulating Ben Bernanke on being the Person of Year for the TIME magazine for 2009 said, “Ben, you do us proud. You have done well so far. If you need more money – go East, young man. Work closely with your runners up in TIME magazine – the unnamed Chinese worker – and you might just save the world.”

Written by Ashok Sethi

Thursday, January 28, 2010

Shoe for a shoe

Jail term for a pioneer

Wiser counsel seems to have prevailed. Muntadhar al-Zeidi, condemned for three years in Iraqi jail for throwing shoes at George Bush is out in six months They pronounced a three years sentence for a brave visionary who tried to change the world through innovative thinking! If we need to put Al-Zeidi, the Iraqi hero for flinging his shoes at George Bush behind bars, why not put all the marketing gurus and most of all Philip Kotler in jail, whose text book of marketing management clearly describes the marketing strategies of market expansion and product extension.

Saviour of soles

The shoe factories in Guangdong province of China were reeling under the impact of financial crisis. The anguished migrant workers losing their jobs and dreading the prospect of being reunited with their families in their rural abodes were desperate. “Stimulate domestic demand as a substitute for exports” cried out the venerable economists, eager to give advice and bring succor to the lives of the affected poor in export reliant countries. But can even the 1.3 billion Chinese consumers match the demand created by Americans, who on an average used to buy 30 pairs of shoes in a year!

It was a remarkable demonstration of the innovative thinking that the Guangdong Shoe Export Association hired Al-Zeidy to throw a pair of shoes at George Bush and demonstrate a new use for the product to boost its sagging demand. Imagine, if people started throwing shoes as well as wearing them? With millions of appropriate and deserving targets and billions of potential throwers, the factories can open their gates again and the workers can get back to the task of stitching the uppers to the soles. The Chinese government’s buy-in and support was secured, and the Prime Minister Wen Jia Bao himself volunteered to be the spokesman and a target for shoes in Cambridge University earlier this year.

A whole new world

Special shoes will be designed for bankers, made from sub-prime materials and leveraged at the heels. The politicians will get thick leather shoes to match the thickness of their own hides. The insurance companies will get shoes, the risk of wearing which will match the risk profile of the assets that they insured. We could even get rating agencies to rate the shoe in terms of aerodynamics, the speed and distance to which it can travel, and how much it will hurt when it will hurt the target.

The market could be segmented both by the thrower and the throwee – stilettos for the highbrow, the humble canvas shoe for the amateur, sneakers for the nimble, athletic types and budget shoes for those on a shoe-string. Shoes could be color coordinated for maximum impact – black shoes for Obama, white for Bush, brown for Manmohan Singh and yellow for Wen Jiabao.

Shoe for a shoe

The mind boggles at the opportunity, if the principle of “a tooth for a tooth and a nail for a nail” could be extended to “a shoe for a shoe”. The great leaders and the eminent public speakers, would then come to the meetings equipped with their own set of shoes, to fling them back at any miscreant who dares to throw one at them. Imagine public meetings, in which shoes are flying like rockets in each direction and every swing contributing to the rescue of shoe industry in Southern China, and ultimately to the rejuvenation of the global economy.

“Let me make it very clear,” president Obama said. “White House will not abandon the view that a shoe is a wearable accessory, whose primary role is protection and adornment of the feet. However, if it can find additional utility as a saviour of the global economy, I am sure Secretary Geitner will welcome it with open arms.”

In Dongguan in Guangdong province of China, as the shoe factory worker Lian Ping uses his chopsticks to voraciously swirl multiple strands of noodles from his bowl to his mouth, he can be rest assured that his next bowl of noodles or rice is not imperiled by the lack of demand of shoes in the world. He has to thank Al-Zeidy for this - who would not have spent six months in jail for nothing – he would have saved our soles.

Written by Ashok Sethi