MERG-Oxford Economics
Global Convergence and Divergence in consumption patterns:
A literature review and what we can learn from macro-level data.
Prepared by:
Wen Jian, Jacqueline Warren, Kunal Singhal, Trang Cao, and Shaun Ng
Global Convergence and Divergence in Consumption Pattern
2
Introduction
This paper examines the argument put forward by Theodore Levitt in 1983, that globalization
will lead to a convergence of consumption pattern between the rich and the poor countries as income
gap narrows between these countries. In the field of international marketing, words such as “global
consumer” have been coined to project the image of a “global citizen” living in a “global village”. He is
kept abreast with the latest fashion and trends globally through the Internet and has his taste and
preferences adjusted to global opinions. This leads to the idea that we should be witnessing a “global
monoculture” in the future whereby these “global consumers” demand the same standardized goods that
are of quality across the globe. The opposing cultural argument is that as income level increases to a
basic level, cultural factors can better explain differences in consumption patterns. Instead of a
harmonizing process, the cultural argument states that cultural differences between countries would
result in a divergent consumption pattern. This paper will provide a general framework for both
globalization and cultural factors determining changes in consumption, useful for future empirical
testing. The paper will also put forward the argument that both localization and globalization forces need
not be opposing and can co-exist together in a single market.
The “globalization of markets” hypothesis
Theodore Levitt was an American economist and professor at the Harvard Business School. He
was also the editor of Harvard Business Review and was most famous for his article “Globalisation of
Markets”. This paper was published in 1983.
Levitt (1983)’s main argument is that there is a convergence in taste and preferences of global
consumers. This process of homogenization requires firm to rethink how they market goods and
products. He advocates a standardization of product, produced cheaply but at high quality, across the
world.
His thinking is in direct conflict with the prevailing marketing ideology, that due to cultural and
social differences, products should have a certain degree of specialization and cultural adaptation. Levitt
believes that this way of market segmentation is obsolete and inefficient. He cited an example of Hoover
automatic washer: Conforming to the German preference for high quality, the German Hoover machine
uses high quality materials and its marketing strategy focuses on branding it as the top of the line
machine. For the emerging Italian market, the Hoover machine uses less expensive materials and is
simply a machine that works for half the price. What is surprising is that many Germans purchased the
Italian machine rather than the German ones. This example showed that market research merely reveals
what consumers want and not what consumers need. They may not pay the extra money for what they
want but only for what they need. High quality machines is good to have, but many would not fork the
extra money for quality only, if the alternative were also something that works for them.
Global Convergence and Divergence in Consumption Pattern
3
Levitt’s thinking rests on the observation about globalization, an idea that has to be differentiated
from internationalization. Many critics of Levitt simply mistook his idea of globalization. Despite being
an economist, Levitt’s idea of globalization does not refer to the measurable trade terms such as
increased imports and exports per capita. Such quantitative idea is encapsulated by internationalization.
For Levitt, globalization is an immeasurable qualitative trend that pervades the world today. It is a trend
aided by proliferation in communication technologies that connects citizens of each country together.
These increased exchanges of ideas and beliefs help homogenize wants and preferences. Examples could
be Apple and Samsung products in personal electronics; Zara, Levis for clothes; Coca-Cola, Pepsi,
McDonalds and KFC for food; Nike and Adidas for sports clothing; Heineken, Guinness for beer etc.
These products are usually standardized, relatively cheap, and of high quality. They represent a class of
goods that faces the entire global market and not targeted to a specific country per se.
We have to bear in mind that Levitt did not seek to provide a marketing manual with his paper. It
was more of a call for market research rethink rather than to provide a step-by-step guide to achieving
global status for the company. In fact, what Levitt has illustrated to us is a very dull world to live in,
perhaps the end of time for marketing personnel and managers alike, due the homogenization of product.
However, from this “ideal” state, we can draw some important insights and also a certain rebuke to the
golden rule of marketing theory that is product customization and specialization.
Product Choice Preference of Japanese Consumers: A case study
Perera & Hewege (2007) in their paper, “An analysis of the controlling function of national
culture in product choice preference of Japanese consumers”, talks about how product preferences
relating to foreign products can be regulated and controlled by changing core values of national culture.
They rightly pointed out that consumer behavior changes with socioeconomic conditions. When there is
rapid economic growth, Japanese consumers care about product differentiation and are prepared to pay
extra for subtle improvements in product features. In 1970s (oil crisis) or 1990s, recessions led to major
income reductions in terms of yearly bonuses and also due to high inflation. As such, consumers became
more price conscious and ignored product differentiation (repeated advertising and store differentiation).
The paper observes that the erosion of real value of money due to inflation dilutes brand and product
loyalty. This was evidenced in the increase of convenience stores out-running the supermarkets,
department store and discount store firms. As more and more people lead a lifestyle of overtime work
and long hours, convenience stores that are uniform in their product offer becomes preferred.
In the past, Japanese usually absorbed new fashions or values that were consistent with their
fundamental beliefs and discarded the rest. They maintain their homogeneity and core values while
adapting to a dynamic environment. In recent years, Japanese have appeared to embrace many new
fashions, tastes, products, beliefs and values etc. from the West. For example, 20-24 and 25-29 age
groups taken together form the second largest group of females in the work force (Social Indicators,
Global Convergence and Divergence in Consumption Pattern
4
1997 ) and that younger consumer tend to be less nationalistic (Shimp & Sharma, 1987). Itochuo
Fashion Systems Co (1998) characterized 24-29 years old as contributors for Japanese economic growth,
exposure to US-style consumption (mass consumption) and affluent silver (grey) market. They tend to
influence greatly their family purchase decisions.
Japanese advertising industry played a key role in westernizing Japanese consumers.
International marketers devise strategies to change the way of thinking, values, and beliefs of consumers
and the change in the culture affects product choice behavior. With the increase in connectivity in both
physical travels and Internet communications, there is increase in similarity between teens in different
countries compared to between teens and older persons in the same country (Anderson & Hee, 1998).
Globally, there is a convergence of teen values such as independence, self-expression, openness to new
ideas and cultures, flexibility, mobility, and enjoyment of life (Meredith & Schewe, 2002). Foreign
investors enter into Japanese market with competitive marketing strategies that target baby busters and
Japanese yuppies who have not experienced the war or struggling economy. It has been observed that
teenagers value fashion perhaps more than any other group (Koester & May, 1985). They also value the
Internet, mobiles and satellite television (Meredith & Schewe, 2002).
The young Japanese workers lost their expectations due to unfavorable economy plus the burden
of an aging population coupled with high taxes in the name of protection of social systems. The
Japanese society began showing the characteristics of Western culture: disappearance of extended
families, people living in limited space apartment houses, and perceiving themselves as independent
individuals; working women are now more independent and enjoy the freedom and equality. The influx
of American popular culture with mega performing stars and their songs create craze in the minds of the
young. The controlling function of culture is evident in this scenario: popular culture of USA has
infiltrated the minds of the younger generation, creating gradual change in the core Japanese cultural
values. Some believe that this is a conscious process and that Western marketing strategists attempt to
regulate culture to control purchasing habits of people in a way that the Japanese have learned to
welcome Western products.
A General Framework for Cultural Impact on Consumer Behavior
De Mooij and Hofstede (2002) provide a system whereby cultural variables explain differences
in consumer behavior. They showed that there is macro-level and micro-level evidence of divergence in
developed countries, specifically Europe. By looking at worldwide coefficient of variations, they
conclude convergence in only three product categories (with a CV below the 0.20 threshold for
convergence) namely ownership per 1000 of TV sets, telephone main lines and cars. However, within
these categories, there was a divergence on a micro level in the pattern, type and distribution of
ownership across the population.
Global Convergence and Divergence in Consumption Pattern
5
The Hofstede model (De Mooij, 2010) of national culture explains the divergence in
consumption pattern. This model distinguishes culture according to five dimensions: power distance,
individualism/collectivism, masculinity/femininity, uncertainty avoidance and long/short term
orientation1. The mode has a scale from 0 to 100 for each dimension from which an index is created for
76 countries.
A selection of their results that inform differences in consumption behavior include: the
percentage of consumption dedicated to food is negatively correlated with individualism (in collectivist
cultures, food has an important social function in providing food for the home and for guests);
uncertainty avoidance and the need for being well groomed (percentage expenditure on clothing and
footwear) has a positive relationship; leisure expenditure diverges and has a negative relationship with
cultures of large power distance; collectivism and strong uncertainty avoidance where free time is spent
with family and relatives compared to individualistic cultures with a small power distance and weak
uncertainty avoidance where people spend more on organized leisure activities.
Their findings suggest that after countries converge with respect to national income, cultural
variables explain the differences in consumer behavior better. This can be referred to as a trigger point
when income is at a level such that consumers have satisfied their basic needs and so can spend their
discretionary income on what best fits their value systems, determined chiefly by culture.
Case Study on Chinese Diet
(Del Giudice, et al., 2012) conducted an initial study on the propensity for food innovation in
China. The study selected 500 urban participants randomly from six reference cities, covering a large
geographical space. An initial survey of consumption data reveals the differences between urban and
rural area food consumption preferences. From the data provided by ISMEA (2008), the paper observes
that the rural areas diet consists of mainly homegrown products such as cereals and vegetables. The
main source of proteins in the rural areas is from eating fish that are raised in ponds, which are part of
family run farms. The rural diet consists little of pork, since this is an important source of income for the
farmers. As the income among Chinese increases, there is an increasing demand for safe, innovative and
high-quality food products (Arora & Vamvakidis, 2010).
As a point of convergence with the consumption patterns of western world, there is increasing
interest in issues related to animal welfare, organic products and the use of (Zanoli & Naspetti, 2002).
This interest seems to come from the conviction that every production process has a corresponding
1
Power distance refers to “the extent to which less powerful members of a society accept and expect that power is distributed
unequally”. Contrast individualism/collectivism refers to “people looking after themselves and their immediate family only,
versus people belonging to in-groups that look after them in exchange for loyalty”. Masculinity/femininity refers to “The
dominant values in a masculine society are achievement and success; whereas the dominant values in a feminine society are
caring for others and quality in life. Uncertainty avoidance refers to “the extent to which people feel threatened by
uncertainty and ambiguity and try to avoid these situations”. Long vs. short term orientation refers to “extent to which a
society exhibits a pragmatic future-orientated perspective rather than a conventional historic or short-term point of view”.
Global Convergence and Divergence in Consumption Pattern
6
different end product quality both as regards intrinsic attributes and those of an ethical and
environmental type (Grunert, 2005). The tendency to consider the production process important has
major effects not only on aggregate consumer demand but also on production and society.
The survey results first showed that traditional values, as expected, have negative influence on
the propensity to consume innovative food. For traditionalists, the preference for organic food, attention
to the taste of food, attention to the healthiness and willingness to spend time in preparing food are all
negatively related to propensity to consume. This means that they are more likely to prefer distinctly
national foods and consider these more tasty and safe as well as deserving time and attention in the act
of preparation of the recipe (Del Giudice, et al., 2012). Furthermore, age is a significant factor for the
survey results. It can be observed that the younger the participant, the more open and more willing to
adopt innovations in the food. Finally, geographical locations play a role as well: cities of Chengdu and
Nanjing are those in which there is a greater propensity for innovation. Chengdu has been known as the
“Paris” of China since the cultural attitudes there are generally more relaxed and people are proud of
their local food culture. This living environment can help spur curiosity and willingness to accept more
innovative food. Nanjing is located on the east coast and is characterized by a high density of foreigners
in the city.
In summary, based on the estimates, the Chinese consumer willing to innovate in food
consumption habits is mainly young, resident in the city culturally and economically vital and dynamic,
and he is characterized by not being sensitive to tradition, preferring a life rich of new stimuli, without
considering the national food as the only one capable of ensuring health and taste.
Lessons for International Branding and Positioning
Ismail, Masood, & Tawab (2012) examined consumer preference in Pakistan among the youth,
using questionnaires to identify which factors mattered most when deciding to purchase an international
good over a domestic one. The results of this questionnaire given to 200 consumers were: given the
same prices, the international good is heavily favored (76%); country of origin is generally a nonfactor;
quality of the product is very important (87.5%); the status symbol attached with global products is quite
important (75%); current fashion trends are hugely important (85%); and the input of family and friends
is relatively unimportant (64.5%). The percentage quoted shows the percentage of people answering Yes
to if the factor is important in decision making during purchase.
In another paper, Li (2012) analyzed the significance of foreign brands to Chinese consumers. It
pointed out that while foreign brands were previously highly sought after, domestic brands are now
competing much more strongly. The initial popularity of foreign brands was both cultural and
pragmatism. When China opened up its economy to Western influences, its consumers were met with an
unprecedented level of choice. These goods were generally more expensive, and of higher quality. As a
result, non-local brands were viewed as symbols of prestige.
Global Convergence and Divergence in Consumption Pattern
7
Another reason why Chinese consumers prefer international brands to domestic ones is because
of the “orientation of modernity”. Essentially, this means that international goods are used to emphasize
an individual’s success, wealth, and modernity of consumption. Chinese consumers generally preferred
goods produced in developed nations to those produced in developing nations. This shows that country
of origin effect is more prominent in China than in Pakistan, as investigated by Ismail, Masood, &
Tawab (2012).
The main conclusion to be drawn from Li’s finding is probably that preference of international
goods is largely cultural. If this conclusion can be generalized to all developing countries, it would
indicate convergence in the goods chosen for consumption. However, given that there has been domestic
brands are seeing resurgence in the Chinese economy, it is difficult to say if international brands will
maintain their strong position in the Chinese economy. Therefore, it is difficult to say with any sort of
certainty if the Chinese economies (and generally, all developing countries) will fully converge in their
choice of consumption with developed economies. However, we can say that when a country is exposed
to international brands, there will usually be some convergence in their choice of consumption.
Global Convergence and Divergence in Consumption Pattern
8
Some insights from Oxford Economics macro-level data
Following the Atlas method2 used by World Bank to classify countries according to high, uppermiddle, lower-middle and low income countries, we generated some cross section statistics to introduce
some preliminary insights into how consumption patterns differ between countries with varying income
levels. We identify United States, United Kingdom, Japan and Australia as high-income countries.
Turkey and Kazakhstan as upper-middle income countries. Russia and China as lower-middle income
countries. Pakistan and Nigeria as low-income countries.
High-income Countries (Proportion of GDP by consumer spending products)
2
Refer to Atlas Method, World Bank: http://data.worldbank.org/about/country-classifications/world-bank-atlas-method
Global Convergence and Divergence in Consumption Pattern
9
Global Convergence and Divergence in Consumption Pattern
Middle-upper income countries (Proportion of GDP by consumer spending products)
10
Global Convergence and Divergence in Consumption Pattern
Middle-lower income countries (Proportion of GDP by consumer spending products)
11
Global Convergence and Divergence in Consumption Pattern
Low-income countries (Proportion of GDP by consumer spending products)
12
Global Convergence and Divergence in Consumption Pattern
13
Observations from Oxford Economics data:
• High income group tends to have high proportions of housing costs or fairly balanced among all
activities
• Upper-middle income group: Food takes up a large part of expenses. Income is spread fairly
evenly among others. Transport, healthcare & recreational activities have slightly bigger shares
among the rest but still fairly balanced.
• Lower-middle income group tends to have a large part of income for food; the second largest
expenditure is housing costs.
• Low-income group tends to spend a very large part of their income on food (even >50%). Very
little is spent on other things such as recreational goods.
The macro-economic data seems to confirm Engel’s law: The poorer the individual, a family, or a
people, the greater must be the percentage of the income necessary for the maintenance of physical
sustenance, and again of this a greater portion must be allowed for food. It is however, more difficult to
observe a distinct pattern for other categories of consumption goods.
We also performed a cross-country estimate of income elasticity of demand of goods and the results
are tabulated below:
Global Convergence and Divergence in Consumption Pattern
Consumption goods category
Income elasticity
Alcoholic beverages, tobacco and narcotics
0.878083
Clothing and footwear
0.952533
Communication goods and services
Education
Food and non-alcoholic beverages
Health goods and services
Household furnishings, household equipment and other
housing expenditure
Housing, water, electricity, gas and other fuels
14
1.002870
0.899775
0.780123
1.048313
0.952533
1.010344
Recreational and cultural goods and services
1.120199
Restaurants and hotels
Transport services and vehicle purchases
Other goods and services
1.103176
1.035580
1.124266
Alcoholic beverages, tobacco and narcotics, clothing and footwear, education, food and beverages,
household furnishings have income elasticity less than 1. They are generally considered as necessities
and a 1% increase in income would generate less than 1% increase in demand for the good. Goods with
income elasticity greater than 1 are luxury goods and the demand for these goods rises more than
proportionately with an increase in income.
Global Convergence and Divergence in Consumption Pattern
15
Bibliography
Anderson, P., & Hee, X. (1998). Price influence of age segments of Beijing consumers. Journal of
Consumer Marketing, 152-69.
Arora, V., & Vamvakidis. (2010). China’s economic growth: International Spillovers. IMF Working
Paper.
De Mooij, M. (2010). The Hofstede model. International Journal of Advertising.
De Mooij, M., & Hofstede, G. (2002). Convergence and divergence in consumer behavior: implications
for international retailing. Journal of retailing, 61-69.
Del Giudice, T., Caracciolo, F., Cicia, G., Grunert, K., Krystallis, A., & Zhou, Y. (2012). New Trends in
Chinese Diet: Cultural Influences on Consumer Behavior. Proceedings in Food System
Dynamics, 280-291.
Grunert, K. G. (2005). Food quality and safety: Consumer perception and demand. European Review of
Agricultural Economics, 369-391.
Ismail, Z., Masood, S., & Tawab, Z. M. (2012). Factors Affecting Consumer Preference of International
Brands over Local Brands. 2nd International Conference on Social Science and Humanity.
IPEDR.
ISMEA. (2008). nuovi protagonisti nel mercato mondiale: Brasile, Cina e India. Le sfide per il sistema
agroalimentare italiano. Retrieved from http://www.ismea.it
Itochuo Fashion Systems Co. (1998). Heisei New Family Shouhi Ron (Heisei New Family Consumption
Theory). Tokyo: Diamond Publishing.
Koester, A., & May, J. (1985). Profiles of adolescents’ clothing practices: purchase, daily selection and
care. Adolescense, 97-113.
Levitt, T. (1983). The Globalization of Markets. Harvard Business Review, 92-102.
LI, C. (2012). Brand culture and consumption: Chinese consumers and the foreign brands. Université
d’Aix- Marseille III .
Meredith, G., & Schewe, C. (2002). Defining Markets, Defining movements: America’s Seven
Generational Cohorts, Their Shared Experiences, and why Business Should Care. John Wiley &
Sons.
Perera, L. C., & Hewege, C. R. (2007). An Analysis of the Controlling Function of National Culture in
Product Choice Preferences of Japanese Consumers. Contemporary Management Research.
Shimp, T. A., & Sharma, S. (1987). Consumer Ethnocentrism; construction & . Journal of Marketing
Research, 12,317-326.
Social Indicators. (1997 ). Statistics Bureau Management and coordination Agency. Tokyo.
Zanoli, R., & Naspetti, S. (2002). Consumer motivations in the purchase of organic food. British Food
Journal, 643-653.