Comparing Export Markets - extrapolating potential

Ed Marsh | Jan 29, 2011

Even the Experts

Felix Zulauf, head of Zulauf Asset Management in Zug, Switzerland was quoted in Barron's24 Jan, 2011 speaking about potential investment opportunities and trends in agricultural commodity consumption as saying "In the US, annual consumption of meat is 130kg per capita.  In the EU it is about 100kg.  In China it is 55kg, and it was 39kg 10 years ago.  In India it is at only seven kilos, so there is a long way to go."

Zulauf's investing creds are beyond reproach, yet his "logic" above demonstrates the blind spot that even intelligent, globally experienced (his firm is in Switzerland and he has broad experience) can have when assessing market potential.

Causation vs. Correlation

Stipulating for a moment that neither cost nor availability would impinge on the implicit extrapolation of the potential growth for agricultural commodities to support increased meat consumption in India, let's consider some other possible variables.  The Muslim population in India (approx 150 million) will generally avoid pork.  The traditional Hindu population of India (a large percentage of approx 850 million) will generally avoid beef. The conservative Hindu population of India (a not insignificant portion of the 850 million) will avoid all meat entirely.  In the end, the fact that India has a population similar to China is entirely irrelevant.  It has a potential meat eating market roughly equivalent to perhaps something between Germany (80 million) and Mexico (110 million.)  Both are substantial markets for sure, but nothing approaching the population of India.
causation vs correlation understanding key metrics in selecting export markets
And yet we routinely hear justifications for export market approaches (not only global allocation of resources and forecasting - even domestic) which extrapolate anticipated results predicated on correlations between attributes which are presumed to be determining factors.  The challenge in producing such analysis, and importantly in vetting it as a senior manager or owner, is to identify, question and rigorously test the assumptions (often not even recognized by the person preparing an analysis based on their ingrained set of habits and outlook) upon which the analysis is predicated.

And for further validation they must be reviewed with people familiar (not just a visit or two, but either ex-pat or experienced business person of substantial tenure) with a given area & culture.

As logical fallacy of statistics warns, correlation does not imply causation - a fact which bears recognition in analyzing international business development opportunities for resource allocation decisions.

Want to discuss how Consilium Global Business Advisors can help you empirically analyze market opportunities and select optimal targets?  Contact us.  And download our free eBook Where To Go First for more on picking the right markets!

Click me