Monday, May 27, 2013

Understanding the Arab Consumer




The low-profile Arla Foods, Scandinavia’s largest manufacturer of dairy products, had become a major player in the Arab world by 2005. The Dano-Swedish cooperative’s brands, such as Lurpak, Puck, and the eponymous Arla, dominated the Middle East’s markets for butter, cheese, and cream, and its sales in the region reached a record $550 million that year. Then the cartoons appeared.
On September 30, 2005, a Danish newspaper, Jyllands-Posten, published an article titled “The Face of Muhammad” along with a dozen cartoons that depicted Islam’s prophet unflatteringly. Muslims the world over were incensed, and in January 2006 Saudi Arabian clerics called for a boycott of Danish goods. Within days, most retailers in the Arab world had pulled Arla’s products off their shelves. The company mounted a massive communications campaign to distance itself from the cartoons, pointing out that it had been doing business in the region for 40 years. But even though the clerics lifted the ban in April, the company’s sales for 2006 were only half the preboycott levels.
In 2008, just when Arla’s sales had nearly recovered, 17 Danish newspapers republished one of the controversial cartoons. Sales plummeted again, costing the company around $274 million. Arla fought back, but its revenues didn’t rebound until 2010—an indication of how powerfully Islam affects Arab markets. In fact, its influence is much stronger in the Arab world than it is in nations with large Muslim populations such as Indonesia, India, and Bangladesh.
In the post-9/11 world, Islam’s resurgence has made multinationals jittery about investing in the 22 countries that constitute the Arab League. The Arab world, runs the stereotyped assumption, is a closed society of mullahs and militants, fatwas and jihad, whose leaders hate foreigners and whose young men and women are taught to despise Western products and culture. Add the political turmoil and armed conflicts of the Arab Spring revolutions—which ousted rulers in Egypt, Libya, Tunisia, and Yemen—and it’s easy to conclude that the region is unstable, chaotic, and closed for business.
Like many other notions about the Arab world, this one is a figment of the imagination. From 2008 to 2010 I traveled through 18 Arab League countries, visiting many markets and companies and speaking with more than 600 people—from CEOs and entrepreneurs in skyscrapers to shoppers in souks and bazaars. Everything I saw and everyone I met suggested that the Arab market is not divorced from the rest of the world. Consumers there have the same demands as people everywhere, and despite the turmoil the region’s markets are growing, globally interlinked, and intensely competitive.
If the Arab League were a single country, its 2011 GDP would have been more than $2.3 trillion, making it the world’s eighth-largest economy—bigger than India or Russia. Its per capita income would have been around $6,700—higher than that of China and India. (See the exhibit “Per Capita GDP in the Arab World.”) More than half the population is under 25 years of age, making it one of the world’s most youthful markets.
The region’s draw is no longer solely the top of the economic pyramid. A growing middle class of more than 150 million people (the total population is over 350 million) is busy earning and spending. (See the exhibit “The Arab Middle Class.”) Household consumption accounted for as much as 44% of the region’s economy, higher than China’s 35% but less than India’s 56%. No wonder Middle East expert Vali Nasr wrote in his 2011 book, Forces of Fortune, “All across the region, a whole new economy is rising, mixing local values with surging consumption and building ever richer ties to the global economy, and this trend is not only every bit as powerful and important as the threat of fundamentalism, it is more so.”

Sources:
 Population data are from IMF’s World Economic Outlook Database and World Bank’s World Development Indicators database (accessed January 2013). Data for Sudan do not include South Sudan. Population distributions are the author’s estimates based on socioeconomic data from several companies in the region. No data were available for Comoros, Djibouti, Iraq, Somalia, and the Palestinian Territories.
 

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