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? A.N.M. WaheeduzzamanJournal of Global Marketing(2011) Presented by Group 4:Bengú ÇetinkaleBurç KöksalEmrah KartalCarrie Miller February 21, 2012

2. Vita A.N.M. Waheeduzzaman EducationPh.D. in Business Administration from Kent State University MBA in International Business from George Washington State University MBA in Marketing from Dhaka University in Bangladesh

3. Texas A&M University-Corpus Christi more than ten years Graduate and UndergraduateTeaching Past and Current Research International competitiveness Globalization marketing standardization-adaptation Modernization Economic convergence Country branding Emerging markets Business ethics Current research extends his study of economic convergencein emerging markets

4. What is an emerging market? • Coined by Antoine W. Van Agtmael in the 1980s • The Emerging Markets Century (2007) • PROS and CONS of Emerging Markets • PROS • Rapid economic growth • Fast-paced modernization • Urbanization • Growing middle class • Increased consumer expenditure • CONS • Urban slums • Pollution • Environmental degradation • Increasing inequality • Confrontational politics

5. Urban Growth 1950-2010 (in millions) Source: UN Department of Economic and Social Affairs

6. Why Study Emerging Markets Now? • Emerging Markets have grown over the last 30 years • Stabilization of inflation in the 1970s • Democratic and political reforms of the 1980s • Opening up and liberalization of market in the 1980s • Fall of the Berlin Wall in 1989 • Technology/Computer revolution of the 1990s • Additional? Arab Spring in 2010 • Consumption revolution taking place in emerging nations • Consumption in developed countries is slowing • Gap in research: Economic consumption convergence research is scarce

7. Emerging Markets No agreed upon set of emerging markets

8. Big Emerging Markets (BEM) 52% World Population 34% Gross Domestic Product

9. Big Emerging Markets (BEM) & Group of 7 (G7) BRIC Nations : Brazil, Russia, India & China

10. Convergence in Economics Convergence is an ex post social explanation Three different approaches to the study of convergence: β – convergence σ – convergence Conditional convergence

11. β – convergence studies • The growth rate of a country is inversely related to starting level output or income. • Diminishing returns to scale in total factor productivity explain an income convergence among countries • Countries at lower levels of economic growth grow faster than the countries at higher levels of economic growth

12. σ –convergence studies • σ –convergence studies focused on the dispersion • Dispersion decrease as countries converge over time. • β -convergence studies focused on the slope

13. Conditional convergence Variables that affect convergence; • Population • savings rate • Fertility • level of technology • Trade • investment/capital flow • labor migration • Education • government policies • Innovation diffusion

14. Convergence in International Marketing • “Standardization-adaptation (S-A)” research • “Diffusion” research

15. S-A Studies • Focuses on • The four Ps of marketing, and marketing program and planning variables. • Meaning: standardization (more standardization, more convergence)

16. Diffusion Studies • When a product/idea becomes diffused, convergence occurs between a leader (innovator) and a follower (imitator/adopter) • Categorize consumers as innovators and imitators. • Innovators do not depend on the decisions of other individuals in a social system when adopting new products. • Imitators are influenced by the pressures in a social system. • Application of the model in variety of countries based on a various range of product/ideas helps to determine the speed and pattern of diffusion.

17. Study Focus and Objective • The study uses economic approach to explore consumption convergence between the developed and emerging nations over a 30-year period – 1980-2009.

18. 1980-2009 • 1980-2009 is critical for the economic growth of the world. • Especially emerging markets have enjoyed one of the fastest growth periods. • The developed markets have enjoyed a steady growth. • Since the developed markets’ growth was slower than the emerging markets’; the time period is prosperous for testing consumption convergence between two groups – G7 and BEM.

19. Objectives of study • 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

20. Modeling Consumption Convergence • Consumer Expenditure • Expenditure on food and beverages • Indicating a family’s expenditure on basic necessities • Expenditure on household goods and services • Indicating a family’s expenditure on secondary items. • DSW (Dishwasher) • MCW ( Microwave) • REF ( Refrigerator) • WSM (washing mach.)

21. Modeling Consumption Convergence • Actual Consumption • Daily per capita consumption of calories • Daily per capita consumption of protein

22. Research Models Time Growth Model (TGM) Trend Difference Model (TDM) Socioeconomic Influence Model (SIM)

23. Time Growth Model (TGM) • Growth in consumption for a particular item • β-Coefficient (slope) • Yi = D(t)= α + β1 + β2m a. Yi= consumption in market i b. t= discrete time interval t c. m= group dummy

24. Time Growth Model(Assumption growth in Consumption)

25. Time Growth Model for BEM

26. Trend Difference Model (TDM) • Convergence and divergence in consumption over time • β (slope) shows the trend or direction of growth • Variance (σ) indicates the dispersion around the mean

27. Trend Difference ModelAssumption in growth differences in ConsumptionF(YD-Yi)= α + β1t

28. Trend Difference Modelfor FOOD between BEM and G7

29. Socioeconomic Influence Model (SIM) • Reasons of convergence or divergence a. economic b. political c. social d. international variables • Four variables a. per capita income b. per capita energy consumption c. life expectancy at birth d. per capita total trade

30. Socioeconomic Influence Model

31. Methodology • Global Market Information Database (GMID) • One of the most Credible sources • 30 years historical window • Some variables does not have data for all 30 years

32. Findings G7 Vs BEM Convergence is real but with a slow pace BEM countries consumption has increased significantly BEM is growing at a rate double than that of G7 G7 countries has a lot more consumption than BEM countries

33. BRIC vs. BEM • 50% of economic growth comes from BRIC countries • BRIC countries consumption increasing significantly • BEM nations consumption average is not growing as much as BRIC countries

34. BRIC Nations Amongst Each Other • BEM calorie average : 9 • Russia calorie average : 26 • Brazil calorie average : 23 • China calorie average : 16 • India calorie average : 8 Durables: China>Brazil>Russia>India

35. Socioeconomic Influence on Convergence • Per Capita income has profound influence in consumption convergence • Strong influence of life expectancy in consumption emphasizes a good proxy for quality of life • Life expectancy have more influence than energy consumption

36. Implications and Future Research • Study for Consumption Convergence • Useful for International marketing managers • Forecasting the difference • Energy strategy • Market penetration/saturation • Market segmentation or Country profiling • Study can be used for other product nondurables and services

37. Conclusion • Primary Goal : Consumption convergence in international markets • Consumption may differ amongst culture and social life. • Globalization affect on consumption • Global brands’ influence