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

1. Group 4 Thomas Eitzen YueTian Are Emerging Markets Catching Up With the Developed Markets in Terms of Consumption?

2. This study tests the consumption convergence hypothesis between developed and emerging markets over a 30 yr period (1980-2009). 8 Consumption & 4 Socioeconomic Variables INTRO

3. Consumer Expenditure on Food • Consumer Expenditure on House hold goods and services • Average consumption of calories per day • Average consumption of protein per day • Possession of 4 durables • Dishwasher • Microwave • Oven • Refrigerator Consumption Variables (Dependent)

4. Energy Consumption • Income • Life Expectancy • Trade Socioeconomic Variables (Independent)

5. Emerging Markets are characterized by their rapid growth Identifying them as a group could be useful in international business and marketing Developed countries have slowed down consumption and are currently facing market saturation Background

6. There are many classifications for Emerging markets an there is not an agreed on list on which we can depend. • Some of the mentioned classification in the text: • Emerging Markets Indicator with 27 countries • Morgan Stanley Competitive index (MSCI) 26 countries • Center for International Business Education and Research of Michigan State University (CIBER-MSU) annually reports market potential of 28 countries • Goldman Sachs recently named 11 nations as the “Next 11 to Watch” • The U.S Department of Commerce cites 12 as the Biggest Emerging Markets (BEM) because they are the largest of the group. Market Classification

7. BEM • Brazil (B) • China (C) • Egypt • India (I) • Indonesia • Mexico • Philippines • Poland • Russia (R) • South Korea • South Africa • Turkey A subset of this group known as BRIC is often noted for their intense growth and impact on the worlds economy. In 2010 The BEM comprised 52% of the world’s population and 34% of the world’s GDP.

8. G7 • Canada • France • Germany • Italy • Japan • United Kingdom • United States In 2010 The G7 nations made up 11% of the world’s population and 40% of the world’s GDP.

9. The Rise of emerging markets during the past 30 years can be observed in the GDP growth and ranking of economies.

10. UNDERSTANDING CONVERGENCE Economic vs. Marketing Economic Convergence β, σ, and Conditional research • Beta: Focus on Slope • Is there a relationship? • Sigma: Focus on Dispersion • Are we converging? Are we diverging? • Conditional: Focus on independent variables that effect convergence and the impact of them on economic growth and convergence. • Why are we converging? Marketing Convergence Standardization-adaptation (S-A) analysis and diffusion research • The marketing definition for convergence as defined in S-A literature is synonymous to standardization. • Diffusion research understands convergence by the following : • “As a product or Idea becomes diffused, some form of convergence takes place between a leader (innovator) and a follower (imitator/adopter).”

11. 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 variable on consumption convergence in emerging nations. • Suggest the implications of the study in international marketing and offer directions for future research. STUDY FOCUS AND OBJECTIVES

12. Time Growth Model (TGM) Time Group dummy: G7 and BEM Yi = consumption in market i, t= discrete time interval t, and m = group dummy, where 1= G7 and 2 = BEM

13. Trend Difference Model (TDM) Indicates the variance convergence between G7 and BEM. YD = mean score of consumption in G7, Yi = consumption in an emerging market i, and t = discrete time interval t.

14. Socioeconomic Influence Model (SIM) Determines various influences on consumption convergence through independent variable analysis. YD = mean score of consumption in G7, Yi = consumption in an emerging market i, X1 =PCI in an emerging market i, X2 = PCEC in an emerging market i, X3 = LIFE in an emerging market i, and X4 = PCTRD in an emerging market i.

15. Finding

17. TGM • Consumption has increased significantly. • There is a significant difference between G7 and BEM. • TDM • All negative β –coefficients indicates the convergence between G7 and BEM are increase. Convergence is Real but Very Slow

19. Individual Variable Model: • PCI and consumptions are relevant but contribution are slow. PCTRD is similar. • LIFE has low R^2 Value but strongly influence some consumptions such as FOOD, CAL. Socioeconomic Influence on Convergence

21. 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. • PCTRD was dropped because it is highly correlated with PCI. • PCEC and LIFE influence some of the consumptions.

23. The regression results indicate that the emerging markets are catching up in terms of consumption but at a very slow rate. Consumption of durables shows a slightly faster convergence rate than other variables. All 4 socioeconomic variables exert some degree of influence on consumption convergence. Income showed the greatest affect CONCLUSION & IMPLIMENTATION:

24. “One should be aware that consumption is also a social and cultural experience that takes us beyond economics and numbers.”

25. Society dynamics • Culture • Attitudes • Group membership • Economic freedom • Globalization • Tourism • Mass Media • Internet Consumption is also influenced by…..

26. Forecasting &Demand Estimation (TGM / TDM) • Segmentation (TGM / Socioeconomic) • Market Penetration (TGM) • Market Saturation (TGM / TDM) • Country Profiling (Socioeconomic) For Managers

27. QUESTIONS?