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Class Distinctions

Now that America is saturated with stuff, everyone's talking about the growing middle class in developing countries as the hot new market. But does the term "middle class" really mean the same thing in Paraguay as it does in Peoria? Are these consumers, many of them brand spanking new to the concept of disposable income, international versions of the Joneses? Or does rising income in, say, China simply mean more people can now afford refrigerators?

Entrepreneurs, being bottom-line types by nature, want to know which international markets are home to consumers with the purchasing power to afford their products. Yet this seemingly simple question has stumped even the best industry analysts.

"We're in the realm of estimations on top of estimations," says Robert Avila, chief economist of The Futures Group, which has created a database of income information for 85 countries. "We all want data about the [foreign] equivalent of people in the $40,000 or $50,000 household range in the United States. But we're nowhere close to [knowing] that."

"Data that's both comprehensible and usable has been hard to find," says Paul Seever, owner of Global Business Opportunities, a Pound Ridge, New York-based global marketing consulting firm. "We're trying to fill a gap between the broad averages and the detailed, primary research for getting into a particular market."

Seever's solution is a world map measuring household consumption, based on a popular analysis method called purchasing power parity (PPP). PPP measures the cost of a "basket" of products in each country, translated into U.S. dollars.

However, Seever, like other entrepreneurs on the quest to define purchasing power in developing countries, has bumped up against some frustrating blockades.

In many developing countries, for example, tax evasion is rampant, while government census information is spotty at best, erroneous at worst.

Convoluted statistics erect a major wall separating exporters' burning questions from feasible answers. Consequently, most information on developing countries' demographics is "highly fragmented and highly suspect," says John A. Holcombe, contributor to the 1995 Latin American Market Planning Handbook (Strategy Research). "A lot of it just doesn't make any sense."

Bare-bones data has been compiled in a dangerously simplified fashion-dividing a country's gross domestic product by its population to come up with a median income. As Avila points out, "That doesn't tell you how many people are affluent, middle income or poor."

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This article was originally published in the January 1996 print edition of Entrepreneur with the headline: Class Distinctions.

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