Is Your Emerging-Market Strategy Local Enough?: Case Write Up

Is your emerging-market strategy local enough?: Case Write Up

1. The author talks about the difficulty of measuring future trends of a cluster in China based on any historical patterns. The long time history of a poorer segment paired with the rapidly increasing wealth can make this a difficult exercise.

2. One variable that must be treated in a granular fashion is the growth of incomes and product categories. Using historical patterns to infer future trends is difficult even with extremely detailed historical data. The reason for this is that consumer spending habits change so rapidly once wealth rises. Many categories are just developing in the poorer clusters. A large number of people are just now passing the threshold at which more goods become affordable. This phenomenon is known as the wealth effect and it causes people to spend more as the value of their assets rise. The idea is that when consumers’ incomes increase, they feel more financially secure, so they increase their spending. Increased consumer spending is followed by an increase in business revenues. Those revenues result in more jobs which once again result in more spending. The opposite is also true, when consumers see the value of their portfolios fall they tend to spend less. Decreased spending leads to decreased revenue, loss of jobs, and even less spending. Some research says that a $1 increase in wealth can increase spending by 2 to 8 cents. Other factors such as changes in employment rates, tax rates and household expenses also have a major effect on consumer spending. Looking at this strategically, the richer clusters still provide a major growth market for premium goods but they do not offer as much growth as many mass-market goods do in the developing areas.