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Product Description
This report was created for global strategic planners who cannot be
content with traditional methods of segmenting world markets. With the
advent of a "borderless world", cities become a more important criteria
in prioritizing markets, as opposed to regions, continents, or
countries. This report covers the top 2000 cities in over 200
countries. It does so by reporting the estimated market size (in terms
of latent demand) for each major city of the world. It then ranks these
cities and reports them in terms of their size as a percent of the
country where they are located, their geographic region (e.g. Africa,
Asia, Europe, Middle East, North America, Latin America), and the total
world market.
In performing various economic analyses for its
clients, I have been occasionally asked to investigate the market
potential for various products and services across cities. The purpose
of the studies is to understand the density of demand within a country
and the extent to which a city might be used as a point of distribution
within its region. From an economic perspective, however, a city does
not represent a population within rigid geographical boundaries. To an
economist or strategic planner, a city represents an area of dominant
influence over markets in adjacent areas. This influence varies from
one industry to another, but also from one period of time to another.
In
what follows, I summarize the economic potential for the world's major
cities for "printing and binding of hardbound technical, scientific,
and professional books" for the year 2009. The goal of this report is
to report my findings on the real economic potential, or what an
economist calls the latent demand, represented by a city when defined
as an area of dominant influence. The reader needs to realize that
latent demand may or may not represent real sales.
Product Details
- Published on: 2009-05-01
- Format: Download: PDF
- Binding: Digital
- 341 pages
Editorial Reviews
Excerpt. © Reprinted by permission. All rights reserved.
Market Potential Estimation Methodology
Overview
This study
covers the world outlook for printing and binding of hardbound
technical, scientific, and professional books across more than 2000
cities. For the year reported, estimates are given for the latent
demand, or potential industry earnings (P.I.E.), for the city in
question (in millions of U.S. dollars), the percent share the city is
of the region and of the globe. These comparative benchmarks allow the
reader to quickly gauge a city vis-a-vis others. Using econometric
models which project fundamental economic dynamics within each country
and across countries, latent demand estimates are created. This report
does not discuss the specific players in the market serving the latent
demand, nor specific details at the product level. The study also does
not consider short-term cyclicalities that might affect realized sales.
The study, therefore, is strategic in nature, taking an aggregate and
long-run view, irrespective of the players or products involved.
This
study does not report actual sales data (which are simply unavailable,
in a comparable or consistent manner in virtually all of the cities of
the world). This study gives, however, my estimates for the worldwide
latent demand, or the P.I.E. for printing and binding of hardbound
technical, scientific, and professional books. It also shows how the
P.I.E. is divided across the world's cities. In order to make these
estimates, a multi-stage methodology was employed that is often taught
in courses on international strategic planning at graduate schools of
business.
What is Latent Demand and the P.I.E.?
The concept
of latent demand is rather subtle. The term latent typically refers to
something that is dormant, not observable, or not yet realized. Demand
is the notion of an economic quantity that a target population or
market requires under different assumptions of price, quality, and
distribution, among other factors. Latent demand, therefore, is
commonly defined by economists as the industry earnings of a market
when that market becomes accessible and attractive to serve by
competing firms. It is a measure, therefore, of potential industry
earnings (P.I.E.) or total revenues (not profit) if a market is served
in an efficient manner. It is typically expressed as the total revenues
potentially extracted by firms. The "market" is defined at a given
level in the value chain. There can be latent demand at the retail
level, at the wholesale level, the manufacturing level, and the raw
materials level (the P.I.E. of higher levels of the value chain being
always smaller than the P.I.E. of levels at lower levels of the same
value chain, assuming all levels maintain minimum profitability).
The
latent demand for printing and binding of hardbound technical,
scientific, and professional books is not actual or historic sales. Nor
is latent demand future sales. In fact, latent demand can be lower
either lower or higher than actual sales if a market is inefficient
(i.e., not representative of relatively competitive levels).
Inefficiencies arise from a number of factors, including the lack of
international openness, cultural barriers to consumption, regulations,
and cartel-like behavior on the part of firms. In general, however,
latent demand is typically larger than actual sales in a city market.
Another
reason why sales do not equate to latent demand is exchange rates. In
this report, all figures assume the long-run efficiency of currency
markets. Figures, therefore, equate values based on purchasing power
parities across countries. Short-run distortions in the value of the
dollar, therefore, do not figure into the estimates. Purchasing power
parity estimates of country income were collected from official
sources, and extrapolated using standard econometric models. The report
uses the dollar as the currency of comparison, but not as a measure of
transaction volume. The units used in this report are: US $ mln.
For
reasons discussed later, this report does not consider the notion of
"unit quantities", only total latent revenues (i.e., a calculation of
price times quantity is never made, though one is implied). The units
used in this report are U.S. dollars not adjusted for inflation (i.e.,
the figures incorporate inflationary trends) and not adjusted for
future dynamics in exchange rates (i.e., the figures reflect average
exchange rates over recent history). If inflation rates or exchange
rates vary in a substantial way compared to recent experience, actually
sales can also exceed latent demand (when expressed in U.S. dollars,
not adjusted for inflation). On the other hand, latent demand can be
typically higher than actual sales as there are often distribution
inefficiencies that reduce actual sales below the level of latent
demand.
As mentioned earlier, this study is strategic in nature,
taking an aggregate and long-run view, irrespective of the players or
products involved. If fact, all the current products or services on the
market can cease to exist in their present form (i.e., at a brand-,
R&D specification, or corporate-image level) and all the players
can be replaced by other firms (i.e., via exits, entries, mergers,
bankruptcies, etc.), and there will still be an international latent
demand for printing and binding of hardbound technical, scientific, and
professional books at the aggregate level. Product and service offering
details, and the actual identity of the players involved, while
important for certain issues, are relatively unimportant for estimates
of latent demand.
The Methodology
In order to estimate the
latent demand for printing and binding of hardbound technical,
scientific, and professional books on a city-by-city basis, I used a
multi-stage approach. Before applying the approach, one needs a basic
theory from which such estimates are created. In this case, I heavily
rely on the use of certain basic economic assumptions. In particular,
there is an assumption governing the shape and type of aggregate latent
demand functions. Latent demand functions relate the income of a
country, city, state, household, or individual to realized consumption.
Latent demand (often realized as consumption when an industry is
efficient), at any level of the value chain, takes place if an
equilibrium in realized. For firms to serve a market, they must
perceive a latent demand and be able to serve that demand at a minimal
return. The single most important variable determining consumption,
assuming latent demand exists, is income (or other financial resources
at higher levels of the value chain). Other factors that can pivot or
shape demand curves include external or exogenous shocks (i.e.,
business cycles), and or changes in utility for the product in
question.
Ignoring, for the moment, exogenous shocks and
variations in utility across countries, the aggregate relation between
income and consumption has been a central theme in economics. The
figure below concisely summarizes one aspect of problem. In the 1930s,
John Meynard Keynes conjectured that as incomes rise, the average
propensity to consume would fall. The average propensity to consume is
the level of consumption divided by the level of income, or the slope
of the line from the origin to the consumption function. He estimated
this relationship empirically and found it to be true in the short-run
(mostly based on cross-sectional data). The higher the income, the
lower the average propensity to consume. This type of consumption
function is labeled "A" in the figure below (note the rather flat slope
of the curve). In the 1940s, another macroeconomist, Simon Kuznets,
estimated long-run consumption functions which indicated that the
marginal propensity to consume was rather constant (using time series
data across countries). This type of consumption function is show as
"B" in the figure below (note the higher slope and zero-zero
intercept). The average propensity to consume is constant.
Is
it declining or is it constant? A number of other economists, notably
Franco Modigliani and Milton Friedman, in the 1950s (and Irving Fisher
earlier), explained why the two functions were different using various
assumptions on intertemporal budget constraints, savings, and wealth.
The shorter the time horizon, the more consumption can depend on wealth
(earned in previous years) and business cycles. In the long-run,
however, the propensity to consume is more constant. Similarly, in the
long run, households, industries or countries with no income eventually
have no consumption (wealth is depleted). While the debate surrounding
beliefs about how income and consumption are related and...
