The 2011 Report on Manufacturing Construction Machinery, Surface Mining Machinery, and Logging Equipment: World Market Segmentation by City

Market Potential Estimation Methodology Overview This study covers the world outlook for manufacturing construction machinery, surface mining machinery, and logging equipment 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, my estimates for the worldwide latent demand, or the P.I.E. for manufacturing construction machinery, surface mining machinery, and logging equipment. 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 manufacturing construction machinery, surface mining machinery, and logging equipment 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 manufacturing construction machinery, surface mining machinery, and logging equipment 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 manufacturing construction machinery, surface mining machinery, and logging equipment on a city-by-city basis, I used a multi-stage approach. Before applying the approach, one needs a basic theory from which such estimates are created. In this case, I heavily rely 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). The average propensity to consume is constant. 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, we are considering the latent demand for manufacturing construction machinery, surface mining machinery, and logging equipment across some 230 countries. The smallest have fewer than 10,000 inhabitants. I assume 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 manufacturing construction machinery, surface mining machinery, and logging equipment. So, latent demand in the long-run has a zero intercept. However, I 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). Given this overriding philosophy, I will now describe the methodology used to create the latent demand estimates for manufacturing construction machinery, surface mining machinery, and logging equipment. Since ICON Group has asked me to apply this methodology to a large number of categories, the rather academic discussion below is general and can be applied to a wide variety of categories, not just manufacturing construction machinery, surface mining machinery, and logging equipment. Step 1. Product Definition and Data Collection Any study of latent demand across countries requires that some standard be established to define “efficiently served”. Having implemented various alternatives and matched these with market outcomes, I have found that the optimal approach is to assume that certain key countries or cities are more likely to be at or near efficiency than others. These are given greater weight than others in the estimation of latent demand compared to others for which no known data are available. Of the many alternatives, I have found the assumption that the world’s highest aggregate income and highest income-per-capita markets reflect the best standards for “efficiency”. High aggregate income alone is not sufficient (i.e., China has high aggregate income, but low income per capita and can not assumed to be efficient). Aggregate income can be operationalized in a number of ways, including gross domestic product (for industrial categories), or total disposable income (for household categories; population times average income per capita, or number of households times average household income per capita). Brunei, Nauru, Kuwait, and Lichtenstein are examples of countries with high income per capita, but not assumed to be efficient, given low aggregate level of income (or gross domestic product); these countries have, however, high incomes per capita but may not benefit from the efficiencies derived from economies of scale associated with large economies. Only countries with high income per capita and large aggregate income are assumed efficient. This greatly restricts the pool of countries to those in the OECD (Organization for Economic Cooperation and Development), like the United States, or the United Kingdom (which were earlier than other large OECD economies to liberalize their markets). The selection of countries is further reduced by the fact that not all countries in the OECD report industry revenues at the category level. Countries that typically have ample data at the aggregate level that meet the efficiency criteria include the United States, the United Kingdom and in some cases France and Germany. Latent demand is therefore estimated using data collected for relatively efficient markets from independent data sources (e.g. Euromonitor, Mintel, Thomson Financial Services, the U.S. Industrial Outlook, the World Resources Institute, the Organization for Economic Cooperation and Development, various agencies from the United Nations, industry trade associations, the International Monetary Fund, and the World Bank). Depending on original data sources used, the definition of “manufacturing construction machinery, surface mining machinery, and logging equipment” is established. In the case of this report, the data were reported at the aggregate level, with no further breakdown or definition. In other words, any potential product or service that might be incorporated within manufacturing construction machinery, surface mining machinery, and logging equipment falls under this category. Public sources rarely report data at the disaggregated level in order to protect private information from individual firms that might dominate a specific product-market. These sources will therefore aggregate across components of a category and report only the aggregate to the public. While private data are certainly available, this report only relies on public data at the aggregate level without reliance on the summation of various category components. In other words, this report does not aggregate a number of components to arrive at the “whole”. Rather, it starts with the “whole”, and estimates the whole for all cities and the world at large (without needing to know the specific parts that went into the whole in the first place). Given this caveat, this study covers “manufacturing construction machinery, surface mining machinery, and logging equipment” as defined by the North American Industrial Classification system or NAICS (pronounced “nakes”). manufacturing construction machinery, surface mining machinery, and logging equipment The NAICS code for manufacturing construction machinery, surface mining machinery, and logging equipment is 333120. It is for this definition of manufacturing construction machinery, surface mining machinery, and logging equipment that the aggregate latent demand estimates are derived. “Manufacturing construction machinery, surface mining machinery, and logging equipment” is specifically defined as follows: 333120 This industry comprises establishments primarily engaged in manufacturing construction machinery, surface mining machinery, and logging equipment.  3331201 Power cranes, dozers, tractors, off-hwy trucks, mixers, pavers, backhoes, etc.  33312011 Power cranes, draglines, shovels (including surface mining equip.)(exc parts)  3331201110 Power cranes, draglines, and shovels (excavators) (including surface mining equipment and attachments) (excluding parts)  3331201111 Excavators, hydraulic operated, crawler_mounted, rated size not more than 24 metric tons  3331201114 Excavators, hydraulic operated, crawler_mounted, rated size more than 24 metric tons  3331201117 Excavators, hydraulic operated, crawler_mounted, rated size more than 40 metric tons  3331201129 Excavators, hydraulic operated, wheel (rubber) mounted, all sizes  3331201132 Cranes, lattice boom, crawler_mounted, maximum working load not more than 110 metric tons (121.25 short tons)  3331201134 Cranes, lattice boom, crawler_mounted, maximum working load more than 110 metric tons  3331201145 Cranes, lattice boom, wheel (rubber) mounted, all sizes  3331201152 Cranes, hydraulic_operated, telescopic boom, wheel (integral), multiple control stations, rubber_mounted, maximum working load of not more than 18 metric tons (19.84 short tons)  3331201154 Cranes, hydraulic_operated, telescopic boom, wheel (integral), multiple control stations, rubber_mounted, maximum working load of more than 18 but not more than 27 metric tons (29.76 short tons)  3331201156 Cranes, hydraulic_operated, telescopic boom, wheel (integral), multiple control stations, rubber_mounted, maximum working load of more than 27 but not more than 50 metric tons (55.12 short tons)  3331201158 Cranes, hydraulic_operated, telescopic boom, wheel (integral), multiple control stations, rubber_mounted, maximum working load of more than 50 metric tons  3331201167 Cranes, hydraulic_operated, telescopic boom, pinned_on type, telescopic and articulated  3331201171 Cranes, hydraulic_operated, telescopic boom, wheel, one control station, self_propelled, rubber_mounted, maximum working load of not more than 16 metric tons (17.64 short tons)  3331201174 Cranes, hydraulic_operated, telescopic boom, wheel, one control station, self_propelled, rubber_mounted, maximum working load of more than 16 but not more than 22.7 metric tons (25.02 short tons)  3331201177 Cranes, hydraulic_operated, telescopic boom, wheel, one control station, self_propelled, rubber_mounted, maximum working load of more than 22.7 metric tons  3331201182 Cranes, hydraulic_operated, telescopic boom, all_terrain, maximum working loads of not more than 20 metric tons (22.05 short tons)  3331201184 Cranes, hydraulic_operated, telescopic boom, all_terrain, maximum working loads more than 20 metric tons but not more than 35 metric tons (38.58 short tons)  3331201186 Cranes, hydraulic_operated, telescopic boom, all_terrain, maximum working loads more than 35 metric tons but not more than 110 metric tons (121.25 short tons)  3331201188 Cranes, hydraulic_operated, telescopic boom, all_terrain, maximum working loads more than 110 metric tons  3331201194 Pedestal or shipmounted marine cranes  3331201199 All other cranes (including locomotive wrecking, cable_operated excavators, and draglines)  33312011A4 Attachments (sold separately) for power cranes, draglines, and excavators, hoes  33312011A5 Attachments (sold separately) for power cranes, draglines, and excavators, dragline buckets, all sizes  33312011A7 Attachments (sold separately) for power cranes, draglines, and excavators, clamshells/grapples  33312011AA Attachments (sold separately) for power cranes, draglines, and excavators, all other  33312012 Mixers, pavers, and related equipment (excluding parts)  3331201220 Mixers, pavers, and related equipment (excluding parts)  3331201222 Concrete mixers (except plaster and mortar), portable, all sizes (truck_ mixer, agitator, etc.)  3331201231 Plaster and mortar mixers, all sizes  3331201233 Slipform concrete paving machines (including multipurpose, automated curb and gutter, and concrete slipform pavers up to and including 34 ft wide)  3331201239 Concrete trowels  3331201241 Concrete vibrators (electric motor, gasoline engine, structural high_cycle, pneumatic, etc.)  3331201244 Concrete screeds, hand_propelled or winch type  3331201247 Concrete batching plants, bin and batch (for concrete aggregate only and bulk cement)  3331201251 Concrete pumps, mobile  3331201256 Other concrete, plaster, and mortar mixing and paving machinery  3331201266 Bituminous distributors  3331201271 Bituminous pavers, self_propelled, 21,999 lb gross weight and under (basic unit)  3331201275 Bituminous pavers, self_propelled, 22,000 lb gross weight and over (basic unit)  3331201282 Asphalt plants (including cold mix central plants), less than 7,500 lb (239 tons per hour)  3331201284 Asphalt plants (including cold mix central plants), 7,500 lb and over (240 tons per hour and over)  3331201286 Bituminous stabilization mixing equipment, including central mixing plants and mix_in_place  3331201289 Bituminous cold planers/milling machines (self_propelled)  3331201291 Other asphalt and bituminous mixing and paving machinery  3331201295 Other mixers, pavers, and related equipment  33312013 Off-highway trucks, haulers, truck-type tractor chassis, trailers, excl. parts  3331201330 Off_highway trucks, coal haulers, truck_type tractor chassis, trailers and wagons (excluding parts)  3331201371 Off_highway rear dump haulers  3331201376 Off_highway trucks, coal haulers, truck_type tractor chassis, trailers, and wagons  33312014 Tractor shovel loaders (skid steer, wheel, crawler, & integral design backhoe)  3331201440 Tractor shovel loaders (skid steer, wheel, and crawler, and integral_design loader_backhoes)  3331201460 Skid steer loaders, 4_wheel drive skid steer, all sizes  3331201471 Wheel loaders, rear engine mount, integral design, 4_wheel drive, non_skid steer, under 79 net engine horsepower (NEHP)  3331201475 Wheel loaders, rear engine mount, integral design, 4_wheel drive, non_skid steer, 80 to 149 NEHP  3331201479 Wheel loaders, rear engine mount, integral design, 4_wheel drive, non_skid steer, 150 to 249 NEHP  3331201483 Wheel loaders, rear engine mount, integral design, 4_wheel drive, non_skid steer, 250 NEHP and over  3331201488 Crawler loaders  3331201495 Integral_design tractor shovel loaders/backhoes (wheel tractor_chassis shipped as part of front engine mount contractor tractor)  33312015 Construction wheel & crawler tractors, dozers, & self-propelled log skidders  3331201550 Construction wheel and crawler tractors, dozers, and self_propelled log skidders  3331201577 Wheeled log skidders, self_propelled  3331201599 Crawler tractors (except crawler loaders) and tracklaying and other contractors’ off_highway_type wheel tractors and dozers  33312016 Graders , rollers & compactors, forklifts, scrapers, trenchers, excl parts  3331201660 Motor graders and light maintainers, including rollers and compactors, rough_ terrain forklifts, scraper bowls, and self_propelled continuous ditchers and trenchers (except parts)  3331201661 Motor graders and light maintainers, under 144 net engine horsepower (NEHP)  3331201667 Motor graders and light maintainers, 145 NEHP and over  3331201671 Rollers and compactors, static smooth steel wheel rollers, tandem, under 3 metric tons (3.31 short tons)  3331201673 Rollers and compactors, static smooth steel wheel rollers, tandem, at least 3 metric tons but less than 5.5 metric tons (6.06 short tons)  3331201676 Rollers and compactors, static smooth steel wheel rollers, tandem, 5.5 metric tons and over  3331201682 Rollers and compactors, pneumatic tire rollers  3331201687 Rollers and compactors, vibratory single drum with 1 or 2 drive wheels, under 5 metric tons (5.51 short tons)  3331201689 Rollers and compactors, vibratory single drum with 1 or 2 drive wheels, at least 5 metric tons but less than 8 metric tons (8.82 short tons)  3331201692 Rollers and compactors, vibratory single drum with 1 or 2 drive wheels, 8 metric tons and over  3331201696 Rollers and compactors, vibratory double drum, two drums vibrating, under 5 metric tons (5.51 short tons)  3331201699 Rollers and compactors, vibratory double drum, two drums vibrating, at least 5 metric tons but less than 8 metric tons (8.82 short tons)  33312016A2 Rollers and compactors, vibratory double drum, two drums vibrating, 8 metric tons and over  33312016A6 All other compaction equipment (including embankment and landfill compactors, towed roller and double drum compactors with one drum vibrating), except handheld  33312016D1 Rough_terrain forklifts (integral units only), vertical mast, 2_wheel drive  33312016D3 Rough_terrain forklifts (integral units only), vertical mast, 4_wheel drive  33312016D5 Rough_terrain forklifts (integral units only), telescopic handlers, 2_ and 4_ wheel drive  33312016E5 Scraper bowls  33312016J3 Ditchers and trenchers, self_propelled (integral units only), ladder_type digging element, under 2,000 lb gross weight  33312016J5 Ditchers and trenchers, self_propelled (integral units only), ladder_type digging element, 2,000 to 4,999 lb gross weight  33312016J7 Ditchers and trenchers, self_propelled (integral units only), ladder_type digging element, 5,000 lb gross weight and over  33312016JJ Ditchers and trenchers, self_propelled (integral units only), wheel_type digging element  33312017 Attach. for tractors & other equip. (exc parts, winches, snow clearing attach.)  3331201770 Construction machinery for mounting on tractors and other prime movers (excluding parts, winches, and snow clearing attachments)  3331201782 Backhoes for mounting on tractors, trucks, and other prime movers (either shipped separately or already mounted on integral units)  3331201799 Other construction machinery for mounting (sidebrooms, pipehandlers, dozers, front_end loaders, shovel loaders, logging arches, etc.), except winches and materials_handling equipment  3331208 Other construction machinery and equipment (excluding parts)  33312081 Other construction machinery and equipment (excluding parts)  3331208110 Portable crushing plants, screening plants, washing plants, and combination plants (excluding parts)  3331208111 Portable crushing plants, gyratory (cone)  3331208112 Portable crushing plants, impact  3331208113 Portable crushing plants, jaw  3331208114 Portable crushing plants, roll  3331208115 Snow clearing attachments for mounting on tractors or trucks (except rotary snow blowers), including snow plows, etc. (excluding parts)  3331208116 Portable screening, washing, and combination plants  3331208126 Commercial brush, limb, and log chippers for waste wood reduction (excluding parts)  3331208127 Log splitters (excluding parts)  3331208135 Dredging machinery, hydraulic and other types (excluding parts)  3331208144 Digger_derricks (excluding parts)  3331208148 Vertical earth augers and power posthole diggers, excluding water well and blasthole drills (excluding parts)  3331208152 Horizontal earth boring machines and accessories (excluding parts)  3331208156 Pile driving equipment (including air, steam, and diesel pile hammers and impact pile and vibratory driver extractors) (excluding parts)  3331208199 All other construction machinery and equipment, complete units  3331209 Parts for construction machinery and equipment, sold separately  33312091 Parts for power cranes, draglines, and shovels (excavators) (including surface mining equipment) (sold separately)  3331209111 Parts for power cranes, draglines, and shovels (excavators) (including surface mining equipment) (sold separately)  33312092 Parts for contractors’ off_highway wheel tractors, crawler tractors, and tractor shovel loaders (sold separately)  3331209245 Parts for contractors’ off_highway wheel tractors, crawler tractors, and tractor shovel loaders (sold separately)  33312093 Parts for other construction machinery  3331209352 Parts for mixers, pavers, and related equipment (sold separately)  3331209353 Parts for off_highway trucks, coal haulers, truck_type tractor chassis, trailers and wagons (sold separately)  3331209366 Parts for motor graders and light maintainers, rollers and compactors, rough_ terrain forklifts, scraper bowls, and self_propelled continuous ditchers and trenchers (sold separately)  3331209377 Parts for construction machinery (except winches) for mounting on tractors and other prime movers (sold separately)  3331209388 Parts for other construction machinery and equipment (except winches, hoists, and railroad rolling stock) (sold separately)  333120M Miscellaneous receipts  333120P Primary products  333120S Secondary products  333120SM Secondary products and miscellaneous receipts   Furthermore, the definition of NAICS code 333120 includes the following: Aggregate spreaders manufacturing Asphalt roofing construction machinery manufacturing Augers (except mining-type) manufacturing Backhoes manufacturing Bits, rock drill, construction and surface mining-type, manufacturing Blades for graders, scrapers, bulldozers, and snowplows manufacturing Bucket and scarifier teeth manufacturing Buckets, excavating (e.g., clamshell, concrete, drag scraper, dragline, shovel), Bulldozers manufacturing Cabs for construction machinery manufacturing Chippers, portable, commercial (e.g., brush, limb, log), manufacturing Concrete finishing machinery manufacturing Concrete gunning equipment manufacturing Concrete mixing machinery, portable, manufacturing Construction machinery manufacturing Construction-type tractors and attachments manufacturing Cranes, construction-type, manufacturing Crushing machinery, portable, manufacturing Crushing, pulverizing, and screening machinery, portable, manufacturing Ditchers and trenchers, self-propelled, manufacturing Draglines, crawler, manufacturing Drags, road construction and road maintenance equipment, manufacturing Dredging machinery manufacturing Excavators (e.g., power shovels) manufacturing Extractors, piling, manufacturing Grader attachments manufacturing Graders, road, manufacturing Hammer mill machinery (i.e., rock and ore crushing machines), portable, manufactu Highway line marking machinery manufacturing Jack hammers manufacturing Land preparation machinery, construction, manufacturing Loaders, shovel, manufacturing Log debarking machinery, portable, manufacturing Log splitters, portable, manufacturing Mixers, concrete, portable, manufacturing Mortar mixers, portable, manufacturing Off-highway trucks manufacturing Paving machinery manufacturing Pile-driving equipment manufacturing Planers, bituminous, manufacturing Plows, construction (e.g., excavating, grading), manufacturing Post hole diggers, powered, manufacturing Rock crushing machinery, portable, manufacturing Rock drills, construction and surface mining-type, manufacturing Rollers, road construction and maintenance machinery, manufacturing Sand mixers manufacturing Scarifiers, road, manufacturing Scrapers, construction-type, manufacturing Screening machinery, portable, manufacturing Shovel loaders manufacturing Shovels, power, manufacturing Slag mixers, portable, manufacturing Snow plow attachments (except lawn, garden-type) manufacturing Surface mining machinery (except drilling) manufacturing Tampers, powered, manufacturing Tractors and attachments, construction-type, manufacturing Tractors, crawler, manufacturing Trenching machines manufacturing Trucks, off-highway, manufacturing Vibrators, concrete, manufacturing. Step 2. Filtering and Smoothing Based on the aggregate view of manufacturing construction machinery, surface mining machinery, and logging equipment as defined above, data were then collected for as many similar countries and cities as possible for that same definition, at the same level of the value chain. This generates a convenience sample from which comparable figures are available. If the series in question do not reflect the same accounting period, then adjustments are made. In order to eliminate short-term effects of business cycles, the series are smoothed using an 2 year moving average weighting scheme (longer weighting schemes do not substantially change the results). If data are available for a country, but these reflect short-run aberrations due to exogenous shocks (such as would be the case of beef sales in a country stricken with foot and mouth disease), these observations were dropped or "filtered" from the analysis. Step 3. Filling in Missing Values In some cases, data are available for countries or cities on a sporadic basis. In other cases, data may be available for only one year. From a Bayesian perspective, these observations should be given greatest weight in estimating missing years. Assuming that other factors are held constant, the missing years are extrapolated using changes and growth in aggregate national income. Based on the overriding philosophy of a long-run consumption function (defined earlier), cities which have missing data for any given year, are estimated based on historical dynamics of aggregate income for that country. Step 4. Varying Parameter, Non-linear Estimation Given the data available from the first three steps, the latent demand is estimated using a “varying-parameter cross-sectionally pooled time series model”. Simply stated, the effect of income on latent demand is assumed to be constant across cities unless there is empirical evidence to suggest that this effect varies (i.e., the

1 INTRODUCTION & METHODOLOGY 1.1 Overview and Definitions 1.2 Market Potential Estimation Methodology 1.2.1 Overview 1.2.2 What is Latent Demand and the P.I.E.? 1.2.3 The Methodology 1.2.3.1 Step 1. Product Definition and Data Collection 1.2.3.2 Step 2. Filtering and Smoothing 1.2.3.3 Step 3. Filling in Missing Values 1.2.3.4 Step 4. Varying Parameter, Non-linear Estimation 1.2.3.5 Step 5. Fixed-Parameter Linear Estimation 1.2.3.6 Step 6. Aggregation and Benchmarking 2 USING THE DATA 3 CITY SEGMENTS RANKED BY MARKET SIZE 3.1 Top 15 Markets 3.2 Markets 16 to 30 3.3 Remaining Cities by Market Rank 4 CITY SEGMENTS IN ALPHABETICAL ORDER 4.1 A: from Aalborg to Az Zawiyah 4.2 B: from Bacolod to Bydgoszcz 4.3 C: from Caaguazu to Cyangugu 4.4 D: from Da Nang to Dzhizak 4.5 E: from East London to Esteli 4.6 F: from Fagatogo to Funchal 4.7 G: from Gabes to Gyumri 4.8 H: from Hachinohe to Hyderabad 4.9 I: from Iasi to Izmir 4.10 J: from Jaboatao to Jyvaskyla 4.11 K: from Kabul to Kzyl-Orda 4.12 L: from La Ceiba to Lyon 4.13 M: from Macae to Mzuzu 4.14 N: from Nacala to Nzerekore 4.15 O: from Oaklahoma City to Oyem 4.16 Ö: from Örebro to Örebro 4.17 P: from Pago Pago to Pyuthan 4.18 Q: from Qandahar to Quito 4.19 R: from Rabat to Rustavi 4.20 S: from S. Luis Potosi to Szombathely 4.21 T: from Tabligbo to Tyre 4.22 U: from Uberaba to Utulei 4.23 V: from Vacoas-Phoenix to Vukovar 4.24 W: from Wadi Medani to Wuhan 4.25 X: from Xalapa to Xi'an 4.26 Y: from Yamagata to Yungkang 4.27 Z: from Zadar to Zvishavane 5 CITY SEGMENTS RANKED BY COUNTRY 5.1 Afghanistan 5.2 Albania 5.3 Algeria 5.4 American Samoa 5.5 Andorra 5.6 Angola 5.7 Antigua and Barbuda 5.8 Argentina 5.9 Armenia 5.10 Aruba 5.11 Australia 5.12 Austria 5.13 Azerbaijan 5.14 Bahrain 5.15 Bangladesh 5.16 Barbados 5.17 Belarus 5.18 Belgium 5.19 Belize 5.20 Benin 5.21 Bermuda 5.22 Bhutan 5.23 Bolivia 5.24 Bosnia and Herzegovina 5.25 Botswana 5.26 Brazil 5.27 Brunei 5.28 Bulgaria 5.29 Burkina Faso 5.30 Burma 5.31 Burundi 5.32 Cambodia 5.33 Cameroon 5.34 Canada 5.35 Cape Verde 5.36 Central African Republic 5.37 Chad 5.38 Chile 5.39 China 5.40 Christmas Island 5.41 Colombia 5.42 Comoros 5.43 Congo (formerly Zaire) 5.44 Cook Islands 5.45 Costa Rica 5.46 Cote d'Ivoire 5.47 Croatia 5.48 Cuba 5.49 Cyprus 5.50 Czech Republic 5.51 Denmark 5.52 Djibouti 5.53 Dominica 5.54 Dominican Republic 5.55 Ecuador 5.56 Egypt 5.57 El Salvador 5.58 Equatorial Guinea 5.59 Estonia 5.60 Ethiopia 5.61 Fiji 5.62 Finland 5.63 France 5.64 French Guiana 5.65 French Polynesia 5.66 Gabon 5.67 Georgia 5.68 Germany 5.69 Ghana 5.70 Greece 5.71 Greenland 5.72 Grenada 5.73 Guadeloupe 5.74 Guam 5.75 Guatemala 5.76 Guinea 5.77 Guinea-Bissau 5.78 Guyana 5.79 Haiti 5.80 Honduras 5.81 Hong Kong 5.82 Hungary 5.83 Iceland 5.84 India 5.85 Indonesia 5.86 Iran 5.87 Iraq 5.88 Ireland 5.89 Israel 5.90 Italy 5.91 Jamaica 5.92 Japan 5.93 Jordan 5.94 Kazakhstan 5.95 Kenya 5.96 Kiribati 5.97 Kuwait 5.98 Kyrgyzstan 5.99 Laos 5.100 Latvia 5.101 Lebanon 5.102 Lesotho 5.103 Liberia 5.104 Libya 5.105 Liechtenstein 5.106 Lithuania 5.107 Luxembourg 5.108 Macau 5.109 Madagascar 5.110 Malawi 5.111 Malaysia 5.112 Maldives 5.113 Mali 5.114 Malta 5.115 Marshall Islands 5.116 Martinique 5.117 Mauritania 5.118 Mauritius 5.119 Mexico 5.120 Micronesia Federation 5.121 Moldova 5.122 Monaco 5.123 Mongolia 5.124 Morocco 5.125 Mozambique 5.126 Namibia 5.127 Nauru 5.128 Nepal 5.129 New Caledonia 5.130 New Zealand 5.131 Nicaragua 5.132 Niger 5.133 Nigeria 5.134 Niue 5.135 Norfolk Island 5.136 North Korea 5.137 Norway 5.138 Oman 5.139 Pakistan 5.140 Palau 5.141 Palestine 5.142 Panama 5.143 Papua New Guinea 5.144 Paraguay 5.145 Peru 5.146 Philippines 5.147 Poland 5.148 Portugal 5.149 Puerto Rico 5.150 Qatar 5.151 Republic of Congo 5.152 Reunion 5.153 Romania 5.154 Russia 5.155 Rwanda 5.156 San Marino 5.157 Sao Tome E Principe 5.158 Saudi Arabia 5.159 Senegal 5.160 Seychelles 5.161 Sierra Leone 5.162 Singapore 5.163 Slovakia 5.164 Slovenia 5.165 Solomon Islands 5.166 Somalia 5.167 South Africa 5.168 South Korea 5.169 Spain 5.170 Sri Lanka 5.171 St. Kitts and Nevis 5.172 St. Lucia 5.173 St. Vincent and the Grenadines 5.174 Sudan 5.175 Suriname 5.176 Swaziland 5.177 Sweden 5.178 Switzerland 5.179 Syrian Arab Republic 5.180 Taiwan 5.181 Tajikistan 5.182 Tanzania 5.183 Thailand 5.184 The Bahamas 5.185 The British Virgin Islands 5.186 The Cayman Islands 5.187 The Falkland Islands 5.188 The Gambia 5.189 The Netherlands 5.190 The Netherlands Antilles 5.191 The Northern Mariana Island 5.192 The U.S. Virgin Islands 5.193 The United Arab Emirates 5.194 The United Kingdom 5.195 The United States 5.196 Togo 5.197 Tokelau 5.198 Tonga 5.199 Trinidad and Tobago 5.200 Tunisia 5.201 Turkey 5.202 Turkmenistan 5.203 Tuvalu 5.204 Uganda 5.205 Ukraine 5.206 Uruguay 5.207 Uzbekistan 5.208 Vanuatu 5.209 Venezuela 5.210 Vietnam 5.211 Wallis and Futuna 5.212 Western Sahara 5.213 Western Samoa 5.214 Yemen 5.215 Zambia 5.216 Zimbabwe 6 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 6.1 Disclaimers & Safe Harbor 6.2 ICON Group International, Inc. 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