"The growing middle class," is an expression I often hear on my travels. It is a fuzzy term that is used with optimism, reflecting the economic growth in many developing economies.
On one level, the term has a unifying role for marketers, sociologists, bureaucrats and politicians. On most other planes, it means different things in different parts of the world.
As is obvious anywhere, the middle class is in the middle of three universally used strata, sandwiched between upper and lower. But the size of each class and the quality of life led within each, varies dramatically from country to country.
Expressed another way, one could argue that the lower income group doesn't have the economic means to meet their material needs, the middle class is able to meet most of their needs and some of their wants, and the upper class has no difficulty with either needs or wants. Struggling. Comfortable. Very comfortable. Words that telegraph socio-economic strata.
Researchers in each country use monthly household expenditure as the primary indicator of the three broad classifications, typically A then B plus C, followed by D plus E. If B represents Upper Middle and C represents Lower Middle, then E represents the poorest among us. But it is no secret that an extended family of six comprising three generations and two modest breadwinners have little or no disposable income, and struggle to feed six mouths, despite being collectively classified as C. Personal income is a better indicator of spending power, or the lack of.
The complexity of the terminology debate doesn't end there. In Indonesia, as in many parts of the developing world, the same coin can buy significantly more or less of the same vegetable depending on whether you are buying jagung (corn) in a Jakarta supermarket or a Sulawesi pasar.
Internationally, a popular view is that the price of a McDonalds cheeseburger is a good indicator of the value of the local currency. On the other hand, a burger is a blue-collar lunch in Australia and a white-collar treat in Indonesia.
In the search for a universal symbol that represents the aspirations of the developing countries of Asia, consider the new motorcycle. A 350cc bike maybe the plaything of the middle class in the West, but a new 125cc bike is the affordable transportation of their counterparts in the East.
A household that has a motorcycle has gone beyond the struggle for the essentials. Going through life stages, the first step could well have been a second-hand cub, followed by a new one if finances improved. Moving further up the socio-economic ladder would finally enable an upper middle income family to aspire to a car, a used one to begin with. These assumptions are reflected in reality.
Around Indonesia, there are about 35 million households that have a motorcycle, whether bought used or new. Half of these are parked in the country's middle income homes, almost half in lower income homes and the rest in A-class households. Two-thirds of the used motorcycles were bought in rural Indonesia. Most of those in lower income households were also purchased second-hand.
The dispersion of the motorcycle population correlates with the 65 million people above the age of 14 who live in the approximately 25 million middle class households. Some of these middle class homes will have progressed to owning a car. It is a section of society that is growing at over 10 percent per annum.
With financing more readily available now, the middle class will find it even easier to buy the over 8 million new units that are currently the projected annual demand for Indonesia. Having recovered from the dip of September 2005, demand is moving forward almost in tandem with the growth of the middle class itself.
Almost half of that demand is from Rural Indonesia, though some of those hopes will remain unfulfilled. Residents of the Top 20 Cities will account for the smallest source of sales in the future, and as more public transportation becomes available, a further decline in share will occur over time. "Other Urban", comprising smaller cities and towns offering hardly any transportation options, will continue to grow in the near term. What is equally noteworthy is that almost 40 percent of that demand is created by women riders, hailing from both urban and rural.
The reasons for brand preference vary by gender, by urban and rural residents. Recognizing these differences and meeting the different expectations can accelerate further change in market share within the 2-wheeler market. The middle class will continue to fuel the growth.
These conclusions are based on Roy Morgan Single Source, the country's largest syndicated survey with over 27,000 Indonesian respondents annually, projected to reflect 90 percent of the population over the age of 14. That is a universe of 140 million people. The results are updated every 90 days. The writer can be contacted at Debnath.Guharoy@roymorgan.com
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