The Hooker Furniture Corporation offers everything from bed frames and dressers to sofas and armchairs. In 1925, four-year-old Clyde Hooker Jr. pulled the cord on the steam whistle to mark the first workday at the company. It had been founded a year earlier in Martinsville, Virginia, less than 10 miles from North Carolina, which became the heart of America’s furniture industry. In the 1990s, cheap imports from Mexico and elsewhere started to undermine the region’s producers after decades of growth. “Increasingly, our customers weren’t willing to buy domestically produced furniture,” says Paul Toms, the chairman and CEO of Hooker. The company was forced to shut down five plants, and its workforce was cut to 200 employees — a 90 percent decrease. North Carolina’s furniture industry as a whole lost about 60 percent of its jobs. “These were good, hardworking people that were doing everything that we asked of them, and it was through no fault of theirs,” says Toms. “There was no other alternative. We sold furniture below what it cost us to manufacture it.” Meanwhile, the Chinese furniture industry is booming, not because of exports but primarily thanks to burgeoning demand from the country’s rapidly growing middle class.

The divergent fortunes of the middle classes in the developed world and the emerging markets will be a defining economic and political reality in 2030 and beyond. The Joneses will indeed have trouble keeping up with the Singhs and the Wangs in more ways than one. “Depending on who and where you ask, the middle class is either growing or shrinking, optimistic or anxious, getting richer or getting poorer, politically engaged or opting out,” argues Clive Crook, a columnist for Bloomberg News. Do the middle classes across the world compete for jobs and prosperity with one another? If they do, and there’s unfair competition, then extraordinary measures — like protectionism — gain traction among the electorate.

In 2015, the Pew Research Center announced that the combined numbers of poor and rich households in the United States had, for the first time in two generations, exceeded the number of middle-class households. In 1971, there were 80 million middle-class households, compared to 52 million either above or below. By 2015, there were 120.8 million middle-class families and 121.3 million in the two other groups combined. The sluggish, if not declining, living standards of the American and European middle classes have been recklessly blamed, by politicians and pundits, on immigration, unfair competition from emerging markets, and elite indifference to the dark sides of globalization. The global economic and geopolitical order that emerged after World War II is under heavy fire from both sides of the political spectrum.

The clash is also taking place among companies. Those from emerging markets are growing bigger and bigger by the day, while those from Europe and the United States are downsizing — with some notable exceptions, such as tech. But even in the tech sector, Chinese and Indian companies are growing not only because of the sizes of the populations they serve but also because more people in those populations are online and using digital services. China and India both have more broadband, social media, and mobile payment users than does the United States. This gap will only continue to widen.

How will European and American companies fare as the center of gravity of global middle-class consumption shifts to Asia? Can they compete for market share alongside their foreign counterparts? Alibaba has more users than Amazon. Didi just purchased Uber’s Chinese operations, and India has more technicians and engineers employed in the information technology sector than does the United States. Strong companies are important to the middle class because they create good-paying jobs and offer careers and paths to professional advancement. This post-global economy is a tough competitive landscape for everyone, and especially so for the old middle class, precisely because companies like General Motors and Sears are on the decline.

Now consider new types of companies like Spotify and Airbnb. These two widely admired champions of the tech economy are “unicorns” — privately held companies valued at more than $1 billion and the darlings of angel investors and venture capitalists. And yet the vast majority of their customers and their revenues are confined to Europe and the Americas. Airbnb has struggled to expand. Spotify doesn’t report how many customers it has in China or India; remarkably, both nations are subsumed under the generic category “rest of the world.” Something is awry when a company like Spotify fails to distinguish two national markets that are about to become the world’s largest.

Even Netflix — a U.S. company that operates in more than 190 countries, has more subscribers and streaming revenue internationally than domestically, and as of late 2019 accounted for 13 percent of total global online traffic — has so far postponed entering the Chinese market. It produces Mandarin-language content, but for the Chinese diaspora. Netflix faces fewer hurdles in India, but it has been forced to cut subscription prices there to accelerate its sluggish growth. “Already wrestling with global giants such as Walt Disney Co. and Inc.,” the Economic Times of India reported in 2019, “Netflix now also contends with broadcasters and Bollywood powerhouses allied with billionaire-backed wireless carriers, who are luring users with free offers or as low as 40 cents a month. … The intense competition could derail Chief Executive Officer Reed Hastings’s goal of 100 million customers in India.” At the time the article was written, Netflix had just four million customers there, in a video streaming market that’s twice as big as America’s. Are U.S. companies dropping the ball?

More broadly, if a company has been successful with the old middle class, there’s no guarantee it will be equally successful with the new middle class. There are numerous horror stories of American companies grossly misreading the preferences and habits of consumers in emerging markets. It may seem obvious, but the new middle class doesn’t necessarily love what Americans love. For example, eBay consistently underperformed TaoBao in China because it failed to recognize that Chinese consumers prefer interacting directly with suppliers and care little about a rating system. Walmart carried skis in Brazil — a country without snow-capped mountains, let alone ski slopes! — and packaged items in wholesale sizes in South Korea, where consumers prefer to buy small quantities. It also ignored differences in consumer attitudes: Large stores are perceived by Indian and Chinese consumers as expensive, whereas in the United States, they’re considered home to the cheapest goods.

And there’s another potentially disruptive effect involving the rise of middle-class consumption in emerging markets such as China: The younger generation of consumers isn’t saving as much as its parents and grandparents used to. “For my parents’ generation, for them to get a decent job, a stable job, is good enough — and what they do is, they save money, they buy houses, and they raise kids,” observes Liu Biting, a millennial who has a marketing job in Shanghai. “We see money as a thing to be spent.” An increasing number of Chinese millennials are taking short-term loans from multiple online lending platforms to service other loans they previously took to fuel their consumption. Yu Runting also works in marketing in Shanghai. Her monthly income of about $1,300 is just enough to cover her rent and basic necessities. Yet, as reported in the Jing Daily, she has purchased a “Celine ‘Medium Classic’ Box shoulder bag (retail price, $4,400), Chanel’s ‘Gabrielle’ Hobo Bag ($4,500), Bulgari’s ‘Serpenti Forever’ shoulder bag ($2,100), and Tasaki ‘balance eclipse’ gold earrings ($1,800) — by maxing out four credit cards and topping it off with credit offered by Alipay’s online lending system, Huabei.” Yu asserts that “everyone working in my company, from receptionists to managers, owns at least two luxury handbags, and I know most of my colleagues at my level borrow.” May Yee Chen, who heads the Innovation Group at Wunderman Thompson Intelligence for the Asia-Pacific region, observes that “many of these millennials and Gen-Z luxury consumers are single children … free from the practical or cultural constraints of their parents’ generation, who were taught to save, save, save.”

Clearly, young Chinese consumers are starting to behave like Americans, a development that undermines the cozy arrangement whereby Chinese people saved while Americans spent. As of 2020, the proportion of Chinese household debt to GDP hovered at around 50 percent, compared to 76 percent in the United States. By 2030, both countries could be at the same level. Americans will need to tighten their belts if China’s younger generation no longer does their saving for them.


Mauro Guillén is the Dr. Felix Zandman Professor of International Management, management professor, and former director of the Joseph H. Lauder Institute of Management & International Studies.

Published as “Middle-Class Clash” in the Fall/Winter 2020 issue of  Wharton Magazine.