Middle Class, Maximum Potential
In the first part of our article on Ultrapreneurs, we learned about their risk-averse approach to foreign expansion. In part two, we see how their behaviour is consistent with recent research about markets with the most middle class potential
Developed countries offer the most middle class market potential despite more rapid economic growth elsewhere, according to research by Euromonitor International, which indicates the most successful Elite Entrepreneurs are probably wise to refrain from expanding to riskier markets.
Euromonitor ranks the United States and Japan, in addition to Europe’s three largest economies of Germany, the UK and France, as providing the best prospects for companies seeking to sell to the middle classes.
“Although emerging and developing economies are leading the global middle class expansion, developed countries will continue to offer more solid middle classes with higher disposable incomes and greater homogeneity in terms of incomes, tastes and needs than their emerging market counterparts,” Euromonitor wrote last April.
The market research company defined middle class as households earning 75-125% of the median income; $45,000 was the threshold median income for a country to be considered.
When BNP Paribas Wealth Management’s 2017 Global Entrepreneur Report surveyed 538 “Ultrapreneurs” — entrepreneurs with a net investible wealth of more than $25 million — it found that these business owners ranked the United States as offering the best opportunity to start or run a business, followed by Germany, France, the United Kingdom, Japan, Hong Kong, Switzerland, Australia and Singapore. That list includes all the countries cited by Euromonitor.
American entrepreneur Kamran Elahian applies similar logic when selecting companies to invest in. Elahian is the chairman of Global Catalyst Partners, a technology-focused venture capital firm he co-founded in 1999 and which has investments in the US, Japan, China, India, Israel and Singapore.
“In 1999, the US, Japan and China were the three biggest markets and India was emerging to be a large market within five years,” said Elahian, 62, who prior to becoming a venture capitalist founded 10 companies that went on to have a combined market capitalization of $8 billion.
“When you invest in companies and you help them win a good share of these big and growing markets, you can generate a great IRR (Internal Rate of Return) for your fund,” he said, adding, “Israel is a small country, but has produced a large number of successful high-tech companies.”
But not all data suggests Ultrapreneurs should skip less developed economies. In the 1980s, emerging markets generated about 36% of global GDP and accounted for 43% of global GDP growth, the International Monetary Fund estimates. This decade, these figures have swelled to 56% and 79% respectively.
79%
of global GDP growth that emerging markets accounted for this decade
“Small firms normally use less structured approaches to international market selection,” noted a 2014 study by Italian academics.
“The strategic decision is strictly influenced by the business owner’s personal goals, and by factors such as the firm’s stability, resource constraints and resistance to change. Intuition prevails as a mechanism for supplementing rational analysis, and the right strategy for the decision-maker is the option that gives him/her a “gut-feeling” about a foreign country.”