If you are in the proces of deciding which countries to export to, then of course you have a look at the biggest economies in the world. But how have these been doing in het last 5 years? We compared World Bank data from 2011 and 2016, and looked at the results in various ways.
Population versus spending power
If you want to find a sizeable market, a big population helps. On the other hand, there also needs to be spending power. A good proxy is GDP PPP per capita, so that means the added value within the country, divided over the population, and corrected for the price level in the country. That is what PPP stands for, Purchasing Power Parity.
What we see is that China and India stand out in terms of population, but that spending power in India certainly is still low. Please note that spending power in China has gone up from around 10,000 USD to 17,000 USD in the last 5 years, surpassing Brazil. In Europe and the US spending power has also gone up, but less in percentages, and this is without correction for inflation.
What these data don’t show is income distribution. For example in Delhi you may find many millionaires, and in Shanghai the spending power is on average also much higher than in the rest of China. But especially when you sell a product through stores, and with a better quality than the bare minimum, you may want to stick to economies with higher spending power.
Spending power versus price level
The correction from normal GDP to GDP PPP gives us also information on average price levels. Price levels in the USA are taken as the basis. In most countries life is cheaper, except for Iceland, Denmark and Australia. Even Japan, that is known for it expensive cost of living, is now in 2016 under the level of the USA.
Price levels are important for exporters. Especially when a product can also be produced locally, and the price level in that country is lower, it may be hard to compete.
What we see is that there seems to be a correlation between spending power and price level. That means that part of the effect of a growing economy, and therefore more personal spending power, is being undone by higher prices.
Almost all arrows indicate a decline in price levels, except for the USA. Most probably prices in the USA have gone up strongly in the last 5 years, and there may also be dollar exchange rate effects.
The trend on import
What is the percentage of the GDP spent on import of goods and services? This is an important feature, since it also shows the willingness to have your export products.
The four economies with the biggest populations, the USA, China, India and Indonesia, all show a strong decline in imports. For the last three probably because their own economies start producing more. Japan moves up a bit, perhaps because the population is ageing, Mexico most likely is in a phase where the country can afford more import.
Big is not always beautiful
We had a look now at the 12 biggest economies in the world. From an export perspective, it can be useful to target big markets, since translations, import regulations and distribution structures need to be sorted out only once. On the other hand, somewhat smaller countries may have more interesting characteristics for your specific product.
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