There comes a point of saturation in every rich man's life that he owns everything he needs and he buys no more. Ditto with rich countries. At this point of saturation there are 3 kinds of demand that drive growth namely, - Replacement demand - to replace old products that are not satisfactorily functional
- New Product demand - a product that satisfies previously unsatiated needs. Too far and too few innovations
- FMCG demand - regular consumption, as the name suggests
These demands cannot fuel double digit growth of economies. On this intersting premise, Arindham Chaudhuri builds the case why the current recession is good for India and other emerging economies.
Drawing an example, he suggests that it is essentially because of this phenomenon coupled with the non-materialistic culture of the country and its declining population that the Japanese economy has been reeling under recessionary pressure for over the last decade.
He extends the logic to Americas and Europe where he says despite the above mentioned saturation, people have been drawn to buying more than they actually need owing to their materialistic culture and easily available credit. Now a time has come when on an avearge every American's income for the next 15 years has been pledged to fuel this consumerism. This has in effect built up a dangerous bubble. Credit cannot no more drive safely drive consumerism here. The bubble has burst and banks can no more offer have loans that are not sub-prime.
Why is it good for India?
Like the Sonys and the Toyotas moved outside the boundaries of the Japanese market in search of growth over the last few decades, the only option ahead of the America Inc is to explore large virgin markets viz. India, China, Eastern Europe, Latin America SE Asia and Africa. In essence these companies will also work to give the Indian population the purchasing power that can so much be a short-cut for all their investor's woes. The next couple of decades look promising !!!
To read more: Page 62, B&E, 30th April 2009
Hmmm...nice to see your varied interests in choosing the topic for your blog...
ReplyDeletegood point and may be strong fundamental from basics of economics .. but i have some doubts for the way we are other factors..government, culture .. traditional way .. are these really working towards good of common man? may be in short term true .. but i doubt if we have even started preparing ourselves for long term effects..
ReplyDeleteBut , Will Developing companies let them in at the cost of Toplines of Domestic Companies?
ReplyDeleteThe post rightly hit the ringing bells of recession.... but there is some thing thats on my mind...
ReplyDeleteif all the needs were met.. then there would not be a recession... its more out of emptiness within, the scarcity within themselves for the money that they went ahead to seek for more.. more and more... thats how it probably hit us.
but again..
the recession would economically for businesses ask to go and seek for new markets... but is that what a developing market like ours look at?
I jus want to make the point that.. as long as businesses approach new markets with idea to exploit and make money.. this recessions would continue...
rather they should seek for creating value in the new markets.. then money will automatically flow in.. :)
Gud one..
ReplyDelete