HP Innovation Journal Issue 12: Summer 2019 | Page 22

$3.74, and in Indonesia it was $2.19. 12 For practical pur-
poses, this means an Indonesian visitor to the U.S. would
find a Big Mac to be more than twice as expensive as in
their home country. For this reason, the PPP index is a
useful tool for comparing the purchasing power of people
earning different incomes in different currencies around
the world, providing us with an apples-to-apples view of
what their money can buy, and how much that spending
power varies across different markets. Put another way,
what amounts to low income in a developed market may
actually have much greater purchase power in an emerg-
ing market, making “low-income” households in these
emerging markets actually more akin to middle-class
spenders in developed markets.
THE ECONOMIST:
BIG MAC INDEX
INDONESIA / $2.19
S. AFRICA / $2.32
INDIA / $2.50
CHINA / $3.10
JAPAN / $3.51
POLAND / $3.74
BRITAIN / $4.23
SINGAPORE / $4.28
A NEW SET OF STAND-ALONE MARKETS
BRAZIL / $4.40
AUSTRALIA / $4.52
GERMANY / $4.74
USA / $5.51
SWEDEN / $5.58
SWITZERLAND / $6.54
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Source: Statista
THE BIG MAC ATTACK
Another real-world example of PPP in action is called the
Big Mac Index, which is published by The Economist every
year. The iconic Big Mac hamburger from McDonalds can
be found throughout the world and symbolizes globaliza-
tion and standardization.
A common perception is that
standardized products like
Big Macs cost about the same
no matter where you are in the
world, but from a purchase power
perspective, that is simply not true.
The Big Mac Index shows the price of a McDonald’s Big
Mac, in U.S. PPP dollars, if purchased in different parts
of the world using local currencies. For example, in the
2018 Big Mac Index, the average price in U.S. PPP dollars
of a Big Mac in the U.S. was $5.51. In Poland, the price was
20
HP Innovation Journal Issue 12
One key effect of the rise of urbanization is that cities
will start becoming markets in and of themselves. Cities
in many emerging economies will increasingly start to
look like cities in developed economies. This is particu-
larly true in Asia, where personal income has been rising
dramatically and continues its growth trajectory. A good
example of this trend is Ujung Pandang (also called
Makassar), the eighth-largest city in Indonesia, with 1.3
million people. While far smaller than its big brother
Jakarta, which has more than 10 million people, Ujung
Pandang’s average personal income, measured on a PPP
basis, is expected to rise to the level of much larger cities
in developed markets, such as Chicago and Kansas City,
in just the next 15 years. Meanwhile, the markets of many
cities around the world will start to equal and eclipse
those of entire countries. By 2030, Jakarta will have a
GDP comparable to Ireland’s, and New York City will have
a very similar-sized economy to all of Italy. 13
Instead of considering countries
or regions as markets, businesses
should consider looking at individual
cities as markets. When viewed as
standalone markets, many cities may
require different products and ser-
vices than their larger sibling cities.
In addition, many individual city markets may have
similar product and service needs, even when located in
different countries, creating opportunities for non-geo-
graphically based economies of scale.