Are Emerging Markets Catching Up with the Developed Markets in Terms of Consumption?

1. 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.

2. 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

3. 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

4. Characteristics of the Emerging Markets Positive Rapid Economic Growth Fast Paced Modernization Urbanization Large Middle Class Increased Consumer Expenditure Negative • Growth of Urban Slums • Pollution • Environmental Degradation • Increasing Inequality • Confrontational Politics

5. Top Ten EconomiesPPP GDP, 2013 US Billion International Dollars (Updated September 29, 2014)

6. Rise of the Emerging Markets

7. List of Emerging Markets

8. 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

9. Convergence in International Marketing • Meaning substantially different from the economists • In 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

10. 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

11. Methodology-1 • 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: 1980-2009 • Data source: Most data came from the Global market Information Database, Euromonitor; The World bank, Heritage Foundation, Freedom House, and the United Nations

12. Methodology-2 • 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

13. Table 2: Decade averages of the variables

14. 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 dummy • If 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

15. Table 3: Time Growth and Trend Difference Models

16. 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

17. Trend Difference Model (TDM) • Indicates convergence and divergence in consumption over time ∆ Yi = F(YD-Yi)= α + β1t • YD: 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

18. Table 3: Time Growth and Trend Difference Models

19. 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 year • Convergence on ∆CAL > ∆PROT

20. Table 4: Trend difference Models-BRIC Nations

21. Findings-TDM-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

22. 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

23. Table 6: Socioeconomic Influence Model

24. Table 7: SIM-Full and Reduced

25. 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.

26. 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. • Braziland 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.

27. 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

28. 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

29. Future Research • Investigate using other time frames, more variables and countries • Plan economic strategies for different countries • It is open for discussion…..

30. 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.