“Follow the money,” the saying goes.Today, rom a global company’s per-spective, more and more o that money is ound doing business in emergingeconomies. Indeed, Accenture analysiso more than 40 o these marketssuggests that their collective householdincome will jump by more than $8.5trillion in real terms between 2010 and2020, contributing nearly 60 percent o the entire global increase in householdearnings during that period.Little wonder that in a recent Accenturesurvey o nearly 600 executives atmultinational companies, 80 percentsaid they’re primarily ocused onemerging economies or their nextstage o growth.For business leaders, the ripening o a number o emerging markets hasurther complicated an already complexsituation. Consider, or example, thattoday more than 20 emerging econo-mies—including Kazakhstan, Venezuelaand Nigeria—have more householdswith annual incomes that exceed$50,000 than China, the perennialavorite among these markets.But this is only a snapshot in time,and the larger picture continues tochange. With the rise o so many attractive emerging markets, and withthose markets hitting various devel-opment stages within dierent timerames, strategic decision making ismore o a challenge than in the past,when developed economies were theonly real game worth pursuing, or evenmore recently, when you could countthe number o promising emergingalternatives on the ngers o one hand.Today, choose wrong and you could wait years or a market to become active.Or, worse, you could enter it too late.To make sound strategic decisions,companies need a way to synthesizeall o the inormation available intoan accurate assessment o a market’spotential and, critically, how it willevolve over time. We believe that aundamental concept in economics—the industry consumption-curvemodel—provides a rigorous way to makethis critical evaluation. Consumptioncurves oer a robust approach that putsglobal opportunities into perspective,balancing trade-os across time horizonsand revealing where and when it makesthe most sense to invest.
Consumption curves, rst used morethan 150 years ago, are economic modelsthat plot the relationship between acountry’s average annual income andthe expected sales or penetration rateso products or services in specicconsumer industries (see sidebar, page6). Used correctly, these curves canprovide a detailed understanding o to-day’s ast-evolving emerging markets.They enable businesses to exploit therecent explosion in data and analyticstechnologies, allowing them to apply tested theoretical constructs to practicalapplications in strategic planning.This story begins with the earliestormal expression o an income-con-sumption curve, developed by Germanstatistician Ernst Engel in 1857. Engelwas the rst to describe in systematicterms how expenditures on a particular good or service will vary with house-hold income. With more income, con-sumers can trade up rom buying basicproducts like soap to premium oeringssuch as shampoos or conditioners, toput this in a contemporary context.Or, i incomes rise enough, people canbegin to trade in their bicycles or motorcycles, or motorcycles or their rstautomobiles—trends currently takingplace in many emerging markets. You can construct an Engel curvethat specically addresses your industry and target markets—witheither a global or a country-by-country ocus. The latter approach can helporganizations understand the otenunique actors that infuence demandand the development o local markets,allowing executives to make more
Consumption curvesput global opportunitiesinto perspective,balancing trade-osacross time horizonsand revealing whereand when it makes themost sense to invest.