Research and Markets: The 2009 Report on Aerospace-Type Hydraulic and Pneumatic Assemblies of Hose and Tubing: World Market Segmentation by City

DUBLIN--(Business Wire)--
Research and Markets
(http://www.researchandmarkets.com/research/28f8fd/the_2009_report_on) has
announced the addition of the "The 2009 Report on Aerospace-Type Hydraulic and
Pneumatic Assemblies of Hose and Tubing: World Market Segmentation by City"
report to their offering.

This study covers the world outlook for aerospace-type hydraulic and pneumatic
assemblies of hose and tubing across more than 2000 cities. For the year
reported, estimates are given for the latent demand, or potential industry
earnings (P.I.E.), for the city in question (in millions of U.S. dollars), the
percent share the city is of the region and of the globe. These comparative
benchmarks allow the reader to quickly gauge a city vis-à-vis others. Using
econometric models which project fundamental economic dynamics within each
country and across countries, latent demand estimates are created. This report
does not discuss the specific players in the market serving the latent demand,
nor specific details at the product level. The study also does not consider
short-term cyclicalities that might affect realized sales. The study, therefore,
is strategic in nature, taking an aggregate and long-run view, irrespective of
the players or products involved.

This study does not report actual sales data (which are simply unavailable, in a
comparable or consistent manner in virtually all of the cities of the world).
This study gives, however, the publisher's estimates for the worldwide latent
demand, or the P.I.E. for aerospace-type hydraulic and pneumatic assemblies of
hose and tubing. It also shows how the P.I.E. is divided across the world's
cities. In order to make these estimates, a multi-stage methodology was employed
that is often taught in courses on international strategic planning at graduate
schools of business.

What is Latent Demand and the P.I.E.? The concept of latent demand is rather
subtle. The term latent typically refers to something that is dormant, not
observable, or not yet realized. Demand is the notion of an economic quantity
that a target population or market requires under different assumptions of
price, quality, and distribution, among other factors. Latent demand, therefore,
is commonly defined by economists as the industry earnings of a market when that
market becomes accessible and attractive to serve by competing firms. It is a
measure, therefore, of potential industry earnings (P.I.E.) or total revenues
(not profit) if a market is served in an efficient manner. It is typically
expressed as the total revenues potentially extracted by firms. The "market" is
defined at a given level in the value chain. There can be latent demand at the
retail level, at the wholesale level, the manufacturing level, and the raw
materials level (the P.I.E. of higher levels of the value chain being always
smaller than the P.I.E. of levels at lower levels of the same value chain,
assuming all levels maintain minimum profitability).

The latent demand for aerospace-type hydraulic and pneumatic assemblies of hose
and tubing is not actual or historic sales. Nor is latent demand future sales.
In fact, latent demand can be lower either lower or higher than actual sales if
a market is inefficient (i.e., not representative of relatively competitive
levels). Inefficiencies arise from a number of factors, including the lack of
international openness, cultural barriers to consumption, regulations, and
cartel-like behavior on the part of firms. In general, however, latent demand is
typically larger than actual sales in a city market.

Another reason why sales do not equate to latent demand is exchange rates. In
this report, all figures assume the long-run efficiency of currency markets.
Figures, therefore, equate values based on purchasing power parities across
countries. Short-run distortions in the value of the dollar, therefore, do not
figure into the estimates. Purchasing power parity estimates of country income
were collected from official sources, and extrapolated using standard
econometric models. The report uses the dollar as the currency of comparison,
but not as a measure of transaction volume. The units used in this report are:
US $ mln.

For reasons discussed later, this report does not consider the notion of "unit
quantities", only total latent revenues (i.e., a calculation of price times
quantity is never made, though one is implied). The units used in this report
are U.S. dollars not adjusted for inflation (i.e., the figures incorporate
inflationary trends) and not adjusted for future dynamics in exchange rates
(i.e., the figures reflect average exchange rates over recent history). If
inflation rates or exchange rates vary in a substantial way compared to recent
experience, actually sales can also exceed latent demand (when expressed in U.S.
dollars, not adjusted for inflation). On the other hand, latent demand can be
typically higher than actual sales as there are often distribution
inefficiencies that reduce actual sales below the level of latent demand.

As mentioned earlier, this study is strategic in nature, taking an aggregate and
long-run view, irrespective of the players or products involved. If fact, all
the current products or services on the market can cease to exist in their
present form (i.e., at a brand-, R&D specification, or corporate-image level)
and all the players can be replaced by other firms (i.e., via exits, entries,
mergers, bankruptcies, etc.), and there will still be an international latent
demand for aerospace-type hydraulic and pneumatic assemblies of hose and tubing
at the aggregate level. Product and service offering details, and the actual
identity of the players involved, while important for certain issues, are
relatively unimportant for estimates of latent demand.

The Methodology

In order to estimate the latent demand for aerospace-type hydraulic and
pneumatic assemblies of hose and tubing on a city-by-city basis, the publisher
used a multi-stage approach. Before applying the approach, one needs a basic
theory from which such estimates are created. In this case, the publisher
heavily relies on the use of certain basic economic assumptions. In particular,
there is an assumption governing the shape and type of aggregate latent demand
functions. Latent demand functions relate the income of a country, city, state,
household, or individual to realized consumption. Latent demand (often realized
as consumption when an industry is efficient), at any level of the value chain,
takes place if an equilibrium in realized. For firms to serve a market, they
must perceive a latent demand and be able to serve that demand at a minimal
return. The single most important variable determining consumption, assuming
latent demand exists, is income (or other financial resources at higher levels
of the value chain). Other factors that can pivot or shape demand curves include
external or exogenous shocks (i.e., business cycles), and or changes in utility
for the product in question.

Ignoring, for the moment, exogenous shocks and variations in utility across
countries, the aggregate relation between income and consumption has been a
central theme in economics. The figure below concisely summarizes one aspect of
problem. In the 1930s, John Meynard Keynes conjectured that as incomes rise, the
average propensity to consume would fall. The average propensity to consume is
the level of consumption divided by the level of income, or the slope of the
line from the origin to the consumption function. He estimated this relationship
empirically and found it to be true in the short-run (mostly based on
cross-sectional data). The higher the income, the lower the average propensity
to consume. This type of consumption function is labeled "A" in the figure below
(note the rather flat slope of the curve). In the 1940s, another macroeconomist,
Simon Kuznets, estimated long-run consumption functions which indicated that the
marginal propensity to consume was rather constant (using time series data
across countries). This type of consumption function is show as "B" in the
figure below (note the higher slope and zero-zero intercept)

Is it declining or is it constant? A number of other economists, notably Franco
Modigliani and Milton Friedman, in the 1950s (and Irving Fisher earlier),
explained why the two functions were different using various assumptions on
intertemporal budget constraints, savings, and wealth. The shorter the time
horizon, the more consumption can depend on wealth (earned in previous years)
and business cycles. In the long-run, however, the propensity to consume is more
constant. Similarly, in the long run, households, industries or countries with
no income eventually have no consumption (wealth is depleted). While the debate
surrounding beliefs about how income and consumption are related and
interesting, in this study a very particular school of thought is adopted. In
particular, the report considers the latent demand for aerospace-type hydraulic
and pneumatic assemblies of hose and tubing across some 230 countries. The
smallest have fewer than 10,000 inhabitants. The publisher assumes that all of
these counties fall along a "long-run" aggregate consumption function. This
long-run function applies despite some of these countries having wealth, current
income dominates the latent demand for aerospace-type hydraulic and pneumatic
assemblies of hose and tubing. So, latent demand in the long-run has a zero
intercept. However, the publisher allow firms to have different propensities to
consume (including being on consumption functions with differing slopes, which
can account for differences in industrial organization, and end-user
preferences).

Key Topics Covered:

* INTRODUCTION & METHODOLOGY
* USING THE DATA
* CITY SEGMENTS RANKED BY MARKET SIZE
* CITY SEGMENTS IN ALPHABETICAL ORDER
* CITY SEGMENTS RANKED BY COUNTRY
* DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS

For more information visit
http://www.researchandmarkets.com/research/28f8fd/the_2009_report_on

Laura Wood
Senior Manager
press@researchandmarkets.com
Fax from USA: 646-607-1907
Fax from rest of the world: +353-1-481-1716

Copyright Business Wire 2009