New MasterCard Study Reveals Twin Revolution of Consumption and Intra-regional Outsourcing to Spur High Performance Growth in Asia/Pacific

MasterCard International today released a new study which projects that a twin revolution - the consumer revolution and the intra-regional outsourcing revolution - will drive economic growth to new heights in the coming years in Asia/Pacific.

The study, jointly released with CLSA Asia-Pacific Markets, determines that the region is no longer purely the manufacturing workhouse of the world but is developing its own internal economic drivers – consumers, many of whom are young, single and high spenders, and an intra-regional outsourcing hierarchy that produces not only exports but also high-value added services.

The research findings were presented by Dr. Yuwa Hedrick-Wong, economic advisor, Asia/Pacific, MasterCard International and Dr. Jim Walker, Chief Economist, CLSA Asia-Pacific Markets, at a briefing to business and financial leaders in Singapore today.

“Dr. Hedrick-Wong utilizes proprietary information and his own research to show the structural shift that is taking place in Asia/Pacific economies’ growth engines. He compellingly establishes that the old model of growth led by low-value added exports and investment is no longer valid to the region. Instead, he expounds that the twin engines of consumer spending and intra-regional outsourcing as the new economic drivers,” said Dr. Jim Walker.

“The consumption revolution is changing how Asia consumes, and the intra-regional outsourcing revolution is changing how Asia produces. You cannot get more comprehensive changes than that. Each of these revolutions is a powerful driver of change on its own. But they are closely connected and are mutually reinforcing. That is what makes them a “twin revolution”. Together, they strongly leverage the region’s comparative advantages to deepen specializations and raise productivity, broaden the domestic consumer market, and expand the size of the middle class. They are transforming Asia/Pacific into a major importer and a major exporter at the same time,” said Dr. Yuwa Hedrick-Wong.

Consumer Consumption Revolution

The consumption revolution is about increasing domestic demand, driven largely by the burgeoning mass middle class across the region, in sharp contrast with the past conditions of a small elite group buying luxury goods. This is making many of the region’s domestic markets bigger and more appealing to suppliers of consumer goods. The bigger consumer markets then provide added momentum for the development of the pan-Asia supply network supported by better economies of scale and scope efficiencies.

Of the fast emerging middle class, the young (aged 25 to 34 years), single and high spenders will be key drivers of the consumption engine. This young single segment will account for about 12% of the total population in the 11 key economies (Japan, Korea, China, Taiwan, Hong Kong, Singapore, Thailand, Malaysia, Indonesia, Philippines, Australia) in Asia/Pacific by 2007, but command 47% of the estimated total discretionary spending with some US$300 billion of purchasing power.

“The power of the consumption revolution in Asia/Pacific is that of compressing developments that took several decades in North America and Europe into a much shorter time frame,” commented Dr. Hedrick-Wong. “In doing so, it drives the growth of the service sector – a powerful generator of employment and business profit – elevating it to match the manufacturing sector as a new engine of growth.”

Intra-Regional Outsourcing Revolution

Working hand-in-glove with the consumption revolution in transforming Asia/Pacific is the intra-regional outsourcing revolution. The countries in Asia/Pacific, through outsourcing, are producing goods to meet the needs of the region, thus leveraging each of their respective strengths and deepening their specialization.

The intra-regional outsourcing revolution has been greatly facilitated by progress made in tariff reductions for cross-border trade in Asia/Pacific, a high proportion of which is valuable high-tech components and highly time-sensitive inputs that form the ‘just-in-time’ network of the outsourcing revolution.

The operations of this pan-Asia supply network can no longer be classified just as ‘manufacturing’. Instead, they are now a complex mix of manufacturing and other activities that are mutually interdependent and reinforcing.

This pan-Asian supply chain is building competitiveness, increasing profitability and generating growth all the way along the value-added spectrum. By participating in it, local firms, both large or small can engage the international market instantaneously at their own level of capacity.

Dr. Hedrick-Wong said that Asia’s foundation of growth will be more balanced and sustainable, and as a result more knowledge intensive and higher paying employment will be created. “The twin revolution, which is firmly underway today, will see the emergence of Asia/Pacific as a high-performance economic region in the coming years. Asia/Pacific will be a highly competitive producer for the global market through its pan-Asia supply network, but it will also be a massive importer from the global market because of its consumption revolution.”

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