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The 2011 Report on Office Furniture: World Market Segmentation by City
ICON Group International, Jan 2011, Pages: 338
Market Potential Estimation Methodology
Overview
This study covers the world outlook for office furniture 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 office furniture. 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 office furniture 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 office furniture 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 office furniture 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 office furniture 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 office furniture. 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 office furniture. 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 office furniture.
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 “office furniture” 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 office furniture 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 “office furniture” as defined by the North American Industrial Classification system or NAICS (pronounced “nakes”). office furniture The NAICS code for office furniture is 3372. It is for this definition of office furniture that the aggregate latent demand estimates are derived. “Office furniture” is specifically defined as follows:
3372
Office Furniture (including Fixtures) Manufacturing
33721
This industry comprises establishments primarily engaged in manufacturing office furniture and/or office and store fixtures. The furniture may be made on a stock or custom basis and may be assembled or unassembled (i.e., knockdown).
337211
This U.S. industry comprises establishments primarily engaged in manufacturing wood office-type furniture. The furniture may be made on a stock or custom basis and may be assembled or unassembled (i.e., knockdown).
3372111
WOOD OFFICE SEATING, INCLUDING UPHOLSTERED SEATING
33721111
Wood office seating, including upholstered seating
3372111111
Wood office seating, including upholstered, secretarial chairs
3372111115
Wood task and general office chairs, including upholstered task and general office chairs
3372111121
Wood office seating, including upholstered, general office and desk chairs
3372111131
Wood arm and side chairs, including upholstered side and arm chairs
3372111141
Wood lounge seating, including upholstered lounge seating
3372111151
Wood office seating, including upholstered, stacking chairs
3372111161
Wood office seating, including upholstered, all other office~type seating
3372111171
Other wood office seating, including stacking chairs and other upholstered chairs
337211313
Wood office seating
337211331
Desks and extensions
337211341
Wood storage units, files and tables
337211351
Wood systems furniture and all other office furniture
3372114
WOOD OFFICE DESKS AND EXTENSIONS
33721141
Wood office desks and extensions
3372114111
Wood office desks
3372114121
Wood office desk extensions
3372117
WOOD OFFICE FILES, STORAGE UNITS, AND TABLES
33721171
Wood office credenzas
3372117111
Wood office credenzas
33721172
Wood office bookcases and other storage units, excluding credenzas and files
3372117211
Wood office bookcases and other storage units, excluding credenzas and files
33721173
Wood office files and tables, including wood equipment support tables
3372117311
Wood vertical legal_size and letter_size office files
3372117321
Wood horizontal_lateral legal_size and letter_size office files
3372117331
Wood office files, all other
3372117341
Wood office conference and work tables
3372117351
Wood office equipment support tables
3372117361
Other wood office tables, except work, conference, and equipment supporting
3372117371
Other wood office files and tables, including wood equipment support tables
337211A
WOOD OFFICE FURNITURE PANEL SYSTEMS, DESKING SYSTEMS, AND OTHER WOOD OFFICE FURNITURE
337211A1
Wood office furniture panel systems, desking systems, and other wood office furniture
337211A111
Wood panel systems and components
337211A115
Wood office furniture panel systems, including accessories and components
337211A121
Wood modular systems and accessories
337211A131
Wood desking systems and accessories
337211A135
Wood office furniture desking systems, including accessories and components
337211A141
Other wood office furniture
337211M
Miscellaneous receipts
337211P
Primary products
337211S
Secondary products
337211SM
Secondary products and miscellaneous receipts
337212
This U.S. industry comprises establishments primarily engaged in manufacturing custom designed interiors consisting of architectural woodwork and fixtures utilizing wood, wood products, and plastics laminates. All of the industry output is made to individual order on a job shop basis and requires skilled craftsmen as a labor input. A job might include custom manufacturing of display fixtures, gondolas, wall shelving units, entrance and window architectural detail, sales and reception counters, wall paneling, and matching furniture.
3372120
CUSTOM ARCHITECTURAL WOODWORK, MILLWORK, AND FIXTURES
33721201
Custom architectural woodwork, millwork, and fixtures, including custom wood and plastics laminated wood fixture tops (except kitchen cabinet tops and bathroom vanity tops)
3372120100
Custom architectural woodwork, millwork, and fixtures
3372120111
Custom architectural woodwork, millwork, and fixtures, including custom wood and plastics laminated wood fixture tops (except kitchen cabinet tops and bathroom vanity tops)
3372121
Custom architectural woodwork, millwork
337212M
Miscellaneous receipts
337212P
Primary products
337212S
Secondary products
337212SM
Secondary products and miscellaneous receipts
337214
This U.S. industry comprises establishments primarily engaged in manufacturing nonwood office-type furniture. The furniture may be made on a stock or custom basis and may be assembled or unassembled (i.e., knockdown).
3372141
Office seating
33721411
Chairs
3372141111
Office seating, including upholstered, nonwood, secretarial chairs
3372141115
Nonwood task and general office chairs, including upholstered task and general office chairs
337214112
Side and arm chairs
3372141121
Office seating, including upholstered, nonwood, general office and desk chairs
337214113
Stacking and folding chairs
337214114
General office and desk chairs, except secretarial
337214115
Other chairs
33721412
Other nonwood office seating, including upholstered seating
3372141211
Nonwood arm and side chairs, including upholstered side and arm chairs
3372141221
Office seating, including upholstered, nonwood, lounge seating
3372141231
Nonwood office stacking chairs, including upholstered stacking chairs
3372141241
All other office seating, including upholstered, nonwood
3372141251
Other nonwood office seating, including lounge seating and other upholstered seating
337214129
All other seating, excluding chairs
3372142
Desks and extensions
337214224
Desks
337214236
Desk extensions
3372144
NONWOOD OFFICE DESKS AND EXTENSIONS
33721441
Nonwood office desks and extensions
3372144111
Nonwood office desks
3372144121
Nonwood office desk extensions
3372145
Storage units, files and tables
33721451
Storage units
337214511
Credenzas
337214512
Bookcases and other storage units
33721452
Filing cabinets and cases
337214521
Vertical files, letter and legal
337214522
Horizontal or lateral files, letter and legal
337214523
Motorized, visible and insulated files
337214524
All other files
33721453
Tables
337214531
Work or conference tables
337214532
All other tables
3372146
Other nonwood office furniture
33721461
Systems furniture
337214611
Modular systems furniture
337214612
Panel systems furniture
337214621
Miscellaneous, nonwood office furniture
3372147
NONWOOD OFFICE FILES, STORAGE UNITS, AND TABLES
33721471
Nonwood vertical legal_size and letter_size office files
3372147111
Nonwood vertical legal_size and letter_size office files
33721472
Nonwood horizontal_lateral legal_size and letter_size office files
3372147211
Nonwood horizontal_lateral legal_size and letter_size office files
33721473
Other nonwood office files
3372147311
Other nonwood office files
33721474
Nonwood office storage units and tables
3372147411
Office storage credenzas, nonwood
3372147421
Office bookcases and other storage units, except credenzas, nonwood
3372147422
Nonwood office storage units, including bookcases and credenzas
3372147431
Nonwood office conference and work tables
3372147441
Nonwood office equipment supporting tables
3372147451
Other nonwood office tables
337214A
NONWOOD OFFICE FURNITURE PANEL SYSTEMS, DESKING SYSTEMS, AND OTHER NONWOOD OFFICE FURNITURE
337214A1
Office panel systems and components, nonwood
337214A111
Office panel systems and components, nonwood
337214A2
Nonwood office furniture desking systems (including accessories and components), and other nonwood office furniture
337214A211
Office modular systems and accessories, nonwood
337214A221
Office desking systems and accessories, nonwood
337214A225
Nonwood office furniture desking systems, including accessories and components
337214A231
Other nonwood office furniture
337214A3
Nonwood office furniture panel systems, including accessories and components
337214A315
Nonwood office furniture panel systems, including accessories and components
337214M
Miscellaneous receipts
337214P
Primary products
337214S
Secondary products
337214SM
Secondary products and miscellaneous receipts
337215
This U.S. industry comprises establishments primarily engaged in manufacturing wood and nonwood office and store fixtures, shelving, lockers, frames, partitions, and related fabricated products of wood and nonwood materials, including plastics laminated fixture tops. The products are made on a stock basis and may be assembled or unassembled (i.e., knockdown). Establishments exclusively making furniture parts (e.g., frames) are included in this industry.
3372151
Wood partitions (assembled or knock-down) and wood shelving and lockers, except
33721511
Wood lockers, partitions, and shelving (except custom)
3372151111
Wood partitions, prefabricated, assembled and knocked_down (except custom)
3372151121
Wood shelving (except custom)
3372151131
Wood lockers (except custom)
3372154
Wood fixtures for stores, banks, and offices, and other misc. fixtures
33721541
Wood fixtures for stores, banks, and offices, and other miscellaneous fixtures, except custom
3372154111
Wood walls and wall fixtures, manufacturers’ standard, for retail stores
3372154121
Wood center floor tables and gondolas, manufacturers’ standard, for retail stores
3372154131
Other wood fixtures and displays, manufacturers’ standard, for retail stores
3372154141
Other wood show and display cases, including wall types, and tables, nec, except custom
3372154151
Wood cabinets, floor or wall types, for stores, banks, and offices, except custom
3372154161
Wood counters, excluding bank counters, except custom
3372154171
Wood bank fixtures, including bank counters, except custom
3372154181
Other wood fixtures, including backs, telephone booths, cashier stands, miscellaneous display fixtures, etc., except custom
3372155
WOOD BANK, OFFICE, STORE, AND RELATED FIXTURES (EXCEPT CUSTOM)
33721551
Wood bank, office, store, and related fixtures (except custom)
3372155111
Wood retail store walls and wall fixtures (except custom)
3372155121
Wood retail store center floor tables and gondolas (except custom)
3372155131
Other wood retail store fixtures, including display cases (except custom)
3372155141
Other wood bank, office, store, and related table and display fixtures (except custom)
3372155151
Wood bank, office, store, and related cabinets (except custom), including floor and wall cabinets
3372155164
Wood office, store, and related counters (except custom)
3372155183
Other wood bank, office, store, and related wood fixtures (except custom), including cashier stands and wood and plastics laminated wood stock line fixture tops
3372157
Prefabricated partitions, assembled or knock-down, nonwood
33721571
Nonwood partitions, prefabricated, assembled and knock_down
3372157111
Nonwood prefabricated toilet partitions, assembled and knocked_down
3372157121
Nonwood prefabricated movable partitions, assembled and knocked_down, excluding freestanding partitions
3372157131
Other nonwood prefabricated partitions, assembled and knocked_down, excluding accordion and folding door partitions
337215A
Shelving and lockers, nonwood
337215A1
Nonwood commercial shelving
337215A111
Nonwood commercial shelving
337215A2
Nonwood bookstacks and other nonwood shelving
337215A211
Nonwood bookstacks
337215A221
Other nonwood shelving, including computer tape and disk, correspondence, and microfilm shelving
337215A231
Nonwood lockers
337215E
Storage racks and accessories, nonwood
337215E1
Nonwood storage racks and accessories
337215E111
Nonwood drive_in, drive_through, and gravity conveyor storage racks
337215E121
Nonwood cantilever storage racks
337215E131
Nonwood portable stacking racks and frames
337215E141
Nonwood stacker racks
337215E151
Other racks, including conventional pallet racks and accessories, nonwood
337215E161
Nonwood storage racks and accessories for trucks and vans
337215E171
Other nonwood storage racks and accessories, including conventional pallet racks and accessories
337215G
NONWOOD BANK, OFFICE, STORE, AND RELATED FIXTURES
337215G1
Nonwood custom retail store fixtures
337215G111
Nonwood custom retail store fixtures
337215G2
Nonwood manufacturers’ standard retail store fixtures
337215G211
Nonwood manufacturers’ standard retail store fixtures
337215G3
Other nonwood bank, office, store, and related fixtures
337215G311
Other nonwood bank, office, store, and related table and display fixtures
337215G321
Nonwood bank, office, store, and related cabinets, including floor and wall cabinets
337215G333
Other nonwood bank, office, store, and related fixtures, including cashier stands
337215H
Fixtures for stores, banks, and offices, and miscellaneous fixtures, nonwood
337215H1
Custom store fixtures, retail, except retail food stores, nonwood
337215H111
Custom store fixtures for retail stores, nonwood
337215H2
Manufacturers’ standard store fixtures, retail, nonwood
337215H211
Manufacturers’ standard store fixtures, retail, nonwood
337215H3
Other show and display cases, cabinets, and other fixtures, nec, nonwood
337215H311
Other show and display cases (including wall types) and tables, nec, nonwood
337215H321
Cabinets (floor or wall types), nec, for stores, banks, and offices, nonwood
337215H331
Other fixtures (counters, window backs, telephone booths, miscellaneous display fixtures, cashier stands, etc.), nec, nonwood
337215H341
Metal furniture parts, household
337215H351
Metal furniture parts, office
337215J
WOOD FURNITURE FRAMES
337215J1
Wood furniture frames
337215J111
Wood furniture frames for household seating furniture
337215J131
Other wood furniture frames
337215K
Wood furniture frames for household furniture, incl. frames for upholstered furn
337215K1
Wood furniture frames for household furniture, including frames for upholstered furniture
337215K111
Wood furniture frames for household seating
337215K121
Wood furniture frames for other household furniture
337215L
HARDWOOD AND SOFTWOOD FURNITURE DIMENSION FULLY MACHINED READY FOR ASSEMBLY
337215L1
Hardwood and softwood furniture dimension fully machined ready for assembly
337215L121
Hardwood furniture dimension fully machined ready for assembly, for cabinets
337215L131
Hardwood furniture dimension fully machined ready for assembly, not for cabinets
337215L141
Softwood fully machined furniture dimension
337215L151
Finished plastics furniture parts, including plastics furniture frames
337215L161
Other metal furniture parts for household furniture (including metal household furniture frames, metal box spring frames, and metal sleeper mechanisms), excluding metal furniture hardware
337215L171
Other metal furniture parts (including other metal furniture frames), excluding metal furniture hardware
337215M
Miscellaneous receipts
337215P
Primary products
337215S
Secondary products
337215SM
Secondary products and miscellaneous receipts
Step 2. Filtering and Smoothing
Based on the aggregate view of office furniture 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 slope of the income effect is not necessarily same for all countries). This assumption applies across cities along the aggregate consumption function, but also over time (i.e., not all cities are perceived to have the same income growth prospects over time and this effect can vary from city to city as well). Another way of looking at this is to say that latent demand for office furniture is more likely to be similar across cities that have similar characteristics in terms of economic development (i.e., African cities will have similar latent demand structures controlling for the income variation across the pool of African cities).
This approach is useful across cities for which some notion of non-linearity exists in the aggregate consumption function. For some categories, however, the reader must realize that the numbers will reflect a city’s contribution to global latent demand and may never be realized in the form of local sales. For certain category combinations this will result in what at first glance will be odd results. For example, the latent demand for the category “space vehicles” will exist for cities in “Togo” even though they have no space program. The assumption is that if the economies in these countries did not exist, the world aggregate for these categories would be lower. The share attributed to these cities is based on a proportion of their income (however small) being used to consume the category in ques
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