Can Modernization Explain the Consumption of Durables in Emerging Markets? Dr. A. N. M. Waheeduzzaman

1. Can Modernization Explain the Consumption of Durables in Emerging Markets?Dr. A. N. M. Waheeduzzaman Presented by: Elizabeth Bennett, Ryan Harvey, Charles Joyce, Jeff Marques, Melanie Swords

2. Author • Professor of Marketing and International Business in TAMUCC College of Business • Degree’s Earned: • Ph.D in Business Administration from Kent State University, Ohio • MBA International Business from George Washington University and Marketing from Dhaka University, Bangladesh • Prior Faculty at • Salisbury State University, Maryland • University of New Haven, Connecticut • North South University Bangladesh • Dhaka University in Bangladesh • Likes Warm Weather versus Snow

3. Introduction • Analyzes the penetration of six consumer durable goods in 20 different countries • Consumer Durables Goods • Dishwasher, Microwave, Refrigerator, Television, VCR, Washing Machine • Countries • Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Israel, Malaysia, Mexico, Peru, the Philippines, Poland, Singapore, South Africa, Thailand, Turkey, and Venezuela

4. Literature Review Research showed increasing consumption of durables in emerging markets Conflicting ideas regarding modernization process Research looking for a link between the consumption of durables and the modernization process First study to quantify the modernization’s effect on the consumption of durables, specifically in emerging markets

5. The Data Models estimated using SAS Longitudinal data used from the period of 1977-2000 Data for income and modernization were collected from the World Development Indicators (2002) from the World Bank Data for durables consumption from Euromonitor, Data for economic freedom gathered from Fraser Institute data 20 Emerging Markets from The Economist were used Excluded Hong Kong due to its convergence with China in 1999, and excluded Czech Republic, Russia, and Taiwan for lack of data

6. Presentation Overview • Three Basic Models for Analysis: Diffusion, Consumer Behavior, and Demand Estimation/Forecasting • Modernization: Quantitative and 9 Factors • Model Specification and Methods • Conclusion and Future Direction

7. Model: Diffusion Studies • Asserts consumers can be classified into two categories • Innovators– adopt new products independent of others • Imitators– Influenced by the pressure of society

8.  Diffusion Model (used for specific growth) • Primarily concerned with Nature of Growth • Coefficient of Innovation (p) • Coefficient of Imitation (m) • Sultan conducted multiple diffusion studies, finding diffusion process was affected more by word of mouth

9. Europe versus United States • Europe has Higher coefficient of innovation than US • Main Findings • Coefficients of imitation not significantly different • Industrial/Medical experience higher coefficients of imitation • Diffusion process accelerated by marketing

10. Model: Consumer Behavior Studies(used at the household level) • Durables are considered high involvement • Major Constructs • Needs, beliefs, attitudes, personality, and many others

11. Aims of the Model • Seeks to explain why consumers prefer certain durables over others • Necessity vs. Luxury • Any pattern in durable acquisitions • The effects of income • Variation by economic development • The effect of saturation

12. Model: Demand Estimation and Forecasting • Stock Adjustment Models • Seek to determine the aggregate of a demand at a specific time •  First time demand, replacement purchases, and demand in secondary market • Demand is explained by macro economic conditions

13. Focus Of Study • Study argues that factors affecting societal modernization can be predictors of durables demand in emerging markets • Relates all of the effects of societal modernization (energy use, working female, etc.) to the consumption of durables

14. Modernization: Individual vs. Societal • Personal attributes vs. Societal orientation • Learned value vs. equated with progress and development • Values of individuals vs. functional specialization by technological advancements

15. Irwin’s Measure of Societal Modernization (1975) Measures economic productivity through the use of energy  M = (GNP/E) [(GNPCAP) + (ECAP) ] M = Modernization Score GNP = Gross National Product E = Energy Consumption GNPCAP = Per Capita GNP ECAP = Per capita Energy Consumption 2 2 1/2

16. Modernization Score Examples U.S. vs. Venezuela (2008) U.S. Modernization GNP = $14.72 T E = 99.305 Q Btu GNPCAP = $47,988 ECAP = 323.8 M Btu M = 4.8 Venezuela Modernization GNP = $313 B E = 3.4 Q Btu GNPCAP = $11,207 ECAP = 121.7 M M = 1.1 U.S. Score is 4.4 Times Venezuela’s

17. 9 Modernization Variables • Energy Consumption • Income • Urbanization • Education • Life Expectancy • Proportion of Working Females • Availability of Credit • Telephone Lines • Economic Freedom

18. Model Specification and Methods Durables show accelerated growth of consumption over time Technology/new products growing at faster rates Modernization variables growing across time

19. Specification One Model predicates that consumption is dependent upon the modernization score of the country (Irwin)

20. Specification Two Model uses all nine variables of societal modernization

21. Specification Three Derivative of model two and uses factor analysis to group the variables into factors to reduce the dataset.

22. Specification One Findings -Societal Modernization derived from Income and Energy -All results statistically significant -Showed highest correlation with Washing machines and Dishwashers -Results likely skewed by the high price and power consumed by Dishwashers and Washing machines. -Modernization score had a positive relationship with durable consumption in emerging markets

23. Specification Two Findings -Correlation increased due to the increase in independent variables -Beta coefficients showed mixed results due to multicollinearity. -Provides some illogical results.

24. Specification Three Findings -Grouped Urbanization, Energy Consumption, and Income into Factor One: Industrialization -Grouped Working Females, Credit Availability, Telephone Lines, and Economic Freedom into Factor Two: Openness -Grouped Education and Life Expectancy into Factor 3: Quality of Life -Factors 1,2,and 3 explained 38,21, and 21% of the variance respectively.

25. Specification Three Findings (Continued) Industrialization Significant in all six regression models -Openness Significant in all but Refrigerators and Washing machines - Quality of Life significant in all but dishwashers

26. Results • All three models provided significant support for the impact of modernization on the consumption of durables. • Nature and degree of influence of modernization varied by product and the methods used to determine modernization. • Factor analysis provides better estimates than multiple regressions and analysis with simple definition of modernization.

27. Summary of Study • Six Durables in 20 Emerging Nations From 1977-2000 • Consumption of Durables Significantly Increased • Increase Strongly Linked to Modernization • All Three Measures Confirm Relationship

28. Modernization Index Approach • R-Squares 0.18 to 0.69 • Limitations • Economic output with respect to technology input • Only two variables • Excludes other socioeconomic variables • Most useful with lack of data or time constraint

29. Multivariate Socioeconomic Measure • R-Squares 0.53 to 0.87 • Income, Energy Consumption, Urbanization, Education, Life Expectancy, Working Female, Credit Availability, Telephone Lines, Economic Freedom • Beta-Coefficients Indicate Multicollinearity is a Problem • Most Useful With Overall Estimates or Robust Estimations

30. Factor Analysis Measure • R-Squares 0.38 to 0.79 • Industrialization, Openness, Quality of Life • Positive relationships • Good estimates provided by model • Changing factor patterns or inclusion of more countries

31. Future Use In Demand Estimation • Other demand estimation models • Starting point for demand in emerging markets • Varies by product, country, period

32. International Marketing Literature • Modernization previously not applied to marketing • Contribution to International Marketing • “Market Potential Estimation in International Markets: A Comparison of Methods”

33. Questions?