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In the good old days a man who saved money was a miser; nowadays he is a wonder!

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Personal Finance article in Advisorkhoj - In the good old days a man who saved money was a miser; nowadays he is a wonder!

India can take pride that we have always been a country of savers. From a high savings rate of 36% of GDP to a low of 30% of GDP, Indians have always been big savers. Most of our savings are directed towards physical assets instead of financial assets is a different point that needs to be tackled separately.

There was a time when we sat in awe and envy of the way in which the western world spent and spent. We envied their lives with all the social security cover to take care of them in case of a rainy day. However the financial meltdown of 2008 has turned out to be a watershed moment for the western world. The meltdown coupled with the demographic shift taking place in the advanced nations has left them with no option other than following the austerity model of earning less, spending less and living frugally. And though one may wish to call it a temporary blip, it seems to be here to stay for a long time.

According to the IMF, the rich economies would grow at a paltry 1.3% this year down from 1.6% in 2011. Britain is expected to continue to climb the austerity curve all the way till 2018. America is bracing to save itself from toppling over the fiscal cliff by raising taxes and spending cuts. An interesting trivia doing the rounds is the decision taken by Cyprus, Greece, Portugal and Poland to stay away from the Eurovision song contest in order to save cost.

So where does all this lead to? How would businesses survive if customer sentiments are not propping their cause? How would businesses survive if customers don't have job security and enough disposable income?

In all likelihood, it seems that the advanced nations would seek inspiration from the likes of emerging markets. The story of “products in sachets” which revolutionized the FMCG industry in India is now folklore for budding marketers to ape. Sachets enabled brands serve those who would never have otherwise been able to afford the dream products seen on television. Now this very marketing folklore is kindling the hopes of westerners. Spaniards and Greeks have taken this sachet story into their own backyards with some Greek company serving mashed potatoes in sachets.

India is now being revered for its innovative spirit in addressing the bottom of the pyramid. A third of Americans who could classify themselves as middle-class have now slipped from their erstwhile status. It may be necessary for companies to launch brands that could cater to the needs of the submerging middle class population in the West.

Renault has launched a brand Dacia which provides stripped down version of their cars. Likewise P&G has launched brands of diapers and detergents under the name Luvs and Gain targeted at the lower-income segment. Clearly the bottom of the pyramid in the West is growing, In keeping with the postulate of Management Guru, the late C K Pralhad, entrepreneurs have realized that there is wealth to be made by servicing this segment.

In the US alone there are 46 million Americans living poverty line and another 50 million who do not have a health cover. Entrepreneurs have started rising to serve this segment and profit from its potential. A company called Conversion Sound is selling hearing aids at $50 - $200 instead of the $2000 - $3000 that was the erstwhile price range. Instead of going to the doctor for testing one's hearing power, DIY (Do It Yourself) applications have been developed that one can use along with the Smartphone to check hearing power. Google is planning to launch $99 laptops. What is causing this disruption in the market? The key word is “technology”. The power of computing has grown several folds. Add to that the possibilities created by Cloud technology. So while problems are enormous and mounting by the day for the world at large, we can take respite from the fact that harnessing technology can add to productivity manifold. And this could go a long way in abating the dilemma facing the advanced nations. Information technology is one such tool having the ability to annihilate erstwhile cost structures of many businesses. The Khan Academy has done this by standing true to its vision of providing free world class education to anyone, anywhere. The academy which started in 2008 does an impressive job by providing videos conceptual clarity on various subjects.

A large number of Americans (24%) who do not have a credit or debit card have been assisted by PayNearMe to purchase online. If one has only cash and wants to buy online, PayNearMe makes it possible to use cash and make online transaction through a process devised by the company. Social media sites help people to buy and sell goods like children's old clothes, tools and spare bed-rooms. Thus technology is making it possible to bring about capacity utilization in the economy which is what is needed if one wants to ride the downturn without dropping off.

This culture shock of austerity lifestyle that has hit the back-bone of advanced nations is bound to find resistance from conservative folks. Health care companies will fight hard to defend their fat margins made possible in a profligate system. For nations who have lived miles above the poverty experiences of emerging nations, this pill seems even bitterer. With a quarter of all Europeans expected to be over 65 by 2030, the writing on the wall simply reads, “Where are the consumers who can afford”.

So while it may appear that austerity is here to stay, it should be understood that austerity is not a bad word. Emerging markets have been built on austerity and that finds them well poised to face the challenges posed by the markets of world. Some of the emerging markets are not only living but flourishing. After all a shampoo in a sachet works as good as in a luxury pack. The experience of using a mobile app to check your hearing may even be better option than going to a doctor and standing in a queue outside his room. And eating simple wholesome meals instead of fast food would certainly benefit the health of kids.

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Dharmendra Satapathy

Dharmendra has just turned an entrepreneur. Prior to this he was Head-Marketing at Tata Asset Management. He is a Mechanical Engineer from University of Pune & MBA in Marketing from Symbiosis Pune. Spent the first 14 years of his career in advertising with Lintas, O&M and FCB. Entered world of finance 7 years ago. To help common man understand financial jargons he created Professor Simply Simple which has more than 100,000 downloads from across the world.

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