Are Emerging Markets Catching Up with the Developed Markets in

Terms of Consumption?

WAHEEDUZZAMAN, A. N. M. (2011), “ARE EMERGING MARKETS CATCHING UP WITH THE

DEVELOPED MARKETS IN TERMS OF CONSUMPTION?" JOURNAL OF GLOBAL

MARKETING, 24 (2), 136-151.

Introduction

Antoine van Agtmael, an officer of the International

Finance Corporation, is credited to have coined the

term “Emerging Markets” in 1981. He wrote a

bestseller “The Emerging Markets Century” in

2007 published by The Free Press

Consumption Revolution Emerging Markets-has

grown very fast in the last 3o years

Consumption in Developed Nations-has slowed

market saturation

Rise of Emerging Markets

May have begun during the colonial period, most growth is recent, 1980-plus

Reasons for their growth globalization supported by stabilization 1970's Political Reforms in 1980's Opening Up/Liberalization of Markets 1980's End of Cold War/Fall of Berlin Wall 1989 Internet Technology/Computer Revolution 1990's Networking of the multinationals

Positive Positive

Rapid Economic Growth

Fast Paced Modernization

Urbanization Large Middle Class Increased Consumer

Expenditure

o Growth of Urban Slums

o Pollutiono Environmental

Degradationo Increasing Inequalityo Confrontational

Politics

Characteristics of the Emerging Markets

Negative Negative

Rank 1980 1990 2000 2010 2020 2030

1USA

2,863USA

5,980USA

10,285USA

14,964China28,372

China62,797

2Japan1,005

Japan2,379

Japan3,261

China11,797

USA23,407

USA37,205

3Germany

769Germany

1,452China3,020

Japan4.351

India8,905

India19,733

4France

542France1,031

Germany2,148

India4,130

Japan6,048

Japan8,901

5Italy514

Italy980

India1,607

Germany2,926

Germany4,237

Germany6,180

6UK449

UK915

France1,535

Russia2,222

Russia3,455

Brazil5,724

7Mexico

348China914

UK1,515

UK2,201

UK3,378

Russia5,248

8India292

Brazil789

Italy1,406

Brazil2,167

Brazil3,341

UK5,197

9Canada

283India762

Brazil1,236

France2,115

France2,829

Indonesia5,069

10Spain275

Mexico631

Russia1,123

Italy1,783

Mexico2,737

Mexico4,925

Top Ten EconomiesPPP GDP, 2013 US Billion International Dollars

(Updated September 29, 2014)

Rise of the Emerging Markets

Source Naming and List of Countries

The Economist Emerging Market Indicators: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, South Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, and Turkey. [27 countries]

Morgan Stanley

MSCI Emerging Market Index: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, South Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey, and Venezuela. [26 countries]

U.S. Department of Commerce

Big Emerging Markets: Brazil, China, Egypt, India, Indonesia, Mexico, Poland, Philippines, Russia, South Africa, South Korea, and Turkey. [12 countries]

Goldman Sachs/Euromonitor

The Next Eleven: Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, and Vietnam. [11 countries]

MSU-CIBER Market Potential Index: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hong Kong, Hungary, India, Indonesia, Israel, South Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, and Turkey. [27 countries]

List of Emerging Markets

Understanding Convergence

Three approaches to determine convergence by the economists β – convergence (growth rate of a country is

negatively correlated with level of income; income convergence, countries at lower level grow faster)

σ- convergence (dispersion) as countries converge over time, dispersion decreases

Conditional convergence (external variables) : population, education, innovation, etc. influences convergence; their influence is inconclusive

Convergence in International Marketing

Meaning substantially different from the economistsIn international marketing closest theoretical

association can be found in two lines of research inquiry Standard Adaptation (S-A) –

Focuses on 4 P’s of marketing “More standardized” = “More Convergence”

Diffusion Research Innovators (leader) Imitators (follower)

This study follows the economists’ notion of convergence

Study Focus and Objective

Discuss the growth of emerging nations and their importance in the global economy

Define consumption convergence and elaborate on models that explain the phenomenon

Investigate consumption convergence in emerging and developed markets during a 30-year period and determine the extent of convergence

Determine the influence of socioeconomic variables on consumption convergence in emerging nations

Suggest the implications of the study in international marketing and offer directions for future research

G7 (Developed) countries: Canada, France, Germany, Italy, Japan, United Kingdom, and United States.

Big Emerging Markets (12 countries): Brazil, China, Egypt, India, Indonesia, Mexico, Poland, Philippines, Russia, South Africa, South Korea, and Turkey.

BRIC nations: Brazil, Russia, India, and China.Time period: 1980-2009Data source: Most data came from the Global

market Information Database, Euromonitor; The World bank, Heritage Foundation, Freedom House, and the United Nations

Methodology-1

Convergence hypothesis based on 8 consumption variables First categories: Consumer expenditure - FOOD, HGS Second categories: Actual Consumption - CAL, PROT -

DSW, MCW, REF, WSM.

Exogenous influence variables: PCI, PCEC, LIFE, PCTRD

Time period: 1980-2009

Methodology-2

Table 2: Decade averages of the variables

Time Growth Model (TGM)

• Growth in consumption for a particular item • β-Coefficient (slope)

Yi = α + β1t + β2m

Yi= consumption in market i

t = discrete time interval t m= group dummyIf there is a difference between the developed

and emerging markets then the beta-coefficient of t is expected to be positive and the dummy m is expected to be significant

Table 3: Time Growth and Trend Difference Models

Findings-Time Growth Model

All models are significant (see the F-values) and the R-Squares are also reasonably good

Consumption has increased significantly over time, t shows a good rise

Difference between G7 and BEM consumption is significant (dummy m is significant)

We got what we expected

Trend Difference Model (TDM)

Indicates convergence and divergence in consumption over time

∆ Yi = F(YD-Yi)= α + β1tYD: mean score of consumption in G7 Yi: in merging market i t: discrete time interval t

In case of convergence, the difference between developed and emerging nations will decrease, i.e., the beta-coefficients of t is likely to be negative

Table 3: Time Growth and Trend Difference Models

Findings-Trend Difference Model (TDM)

All models are significant (see the F-values) and the R-Squares are also reasonable

The consumption convergence between G7 and BEM is real, but very slow.

∆FOOD: BEM – catch up by $25.03 every year

∆HGS: $6.5 per yearConvergence on ∆CAL > ∆PROT

Table 4: Trend difference Models-BRIC Nations

All models are significant (see the F-values) and the R-Squares are very high

The consumption convergence is taking place. However, the rate of convergence varies among nations

Brazil and Russia have better convergence on FOOD and CAL consumption

Durable consumption such as refrigerator and washing machine, China has the lead

Findings-TDM-BRIC Nations

Socioeconomic Influence Model (SIM)

∆ Yi = F(YD – Yi) = α + β1X1 + β2X2 + β3X3 + β4X4

YD: mean score of consumption in G7, Yi : consumption in emerging market i,

X1: PCI in market I, X2: PCEC, X3: LIFE, X4: PCTRD

Explain why the convergence is taking place

Table 6: Socioeconomic Influence Model

Table 7: SIM-Full and Reduced

Findings-Socioeconomic Influence Models

All models are significant (see the F-values) and the R-Squares are very reasonable

PCI, PCEC, LIFE, and PCTRD-all indicate significant influence at the Univariate level (Table 6)

Full and Reduced Model PCI is the most convincing of the four influence variables.

All negative β –coefficients indicates PCI has contribution to increase consumptions.

LIFE has low R-squares but strongly influence FOOD and CAL consumption.

PCTRD was dropped because it is highly correlated with PCI.

PCEC and LIFE influence some of the consumptions.

Summary of Findings

This study investigates consumption convergence between developed and emerging nations using three types of models. Previous studies only examined economic development and marketing but NOT consumption convergence.

Consumption convergence between G7 and BEM is taking place , but at a very slow rate: $25 in FOOD, $6.5 in HGS, 9 calories and 0.5 gram protein, and only 1% for durable consumption category.

Brazil and Russia are leading in consumer expenditure and basic consumption. China leads in durable consumption.

PCI as the most influence in consumption. Life expectancy has more influence than energy consumption.

Implications

Time Growth Models Forecasting, determine difference among countries Help understanding the lead-lag hypothesis Determine entry strategy-order of countries to enter

Trend Difference Models Determine market saturation by setting TGMs to zero,

managers can estimate the level of saturation Determine the penetration strategy based on market

saturation

Socioeconomic Influence Models Socioeconomic variables can be used for market

segmentation and country profiling Causal variables for forecasting-income, energy

consumption, trade and life expectancy

Conclusion – Interpret with Caution

The models are inherenly economic in nature and results are data-driven.

Consumption has both economic and social/cultural aspects. Social cultural experience cannot be always expressed by numbers. It is affected by our culture, attitude, group membership, economic freedom and the dynamics of the society in which we live

Also, consider the impact of globalization, social media, Internet, tourism and multinationals

Future Research

Investigate using other time frames, more variables and countries

Plan economic strategies for different countries

It is open for discussion…..

Discussion Questions

Discuss the models of consumption convergence presented in the study. Distinguish their similarities and differences.

Write a critique of the study.How would you extend the study? Offer future

directions on the topic.