TIANJIN, CHINA--(Marketwire - September 14, 2010) - The 717 emerging-market cities that currently have populations of more than 500,000, and the additional 371 cities that will reach this size by 2030, will constitute the biggest commercial opportunity in the world in the coming decades, according to a new report by The Boston Consulting Group (BCG). The report, titled "Winning in Emerging-Market Cities: A Guide to the World's Largest Growth Opportunity," is being released today.
The result of an unprecedented global research effort spanning key urban centers in the developing world, the report illustrates how the leap in the number and size of emerging-market cities, alongside the burgeoning middle-class households within them, is creating both new opportunities and challenges for companies. In many ways a handbook as much as a report, it frames the emerging-market growth opportunity as one built upon cities, quantifying what is at stake while outlining a set of practical steps for embarking on a path to success -- and avoiding costly mistakes.
"Executives tend to focus on the 'megacities' of emerging markets, when they need to be shifting their attention to the 'many cities' -- the large number of smaller cities that constitute the bulk of future urban-market demand across the emerging markets," said David Michael, a BCG senior partner based in Beijing and one of the authors of the report. He noted that "companies need to track and manage the number of cities in which they have a strong presence, not simply the number of countries."
Spending Power in Emerging-Market Cities Is Rising Rapidly
One-third of the world's population -- 2.6 billion people -- live in emerging-market cities, and by 2030, that number will increase by an additional 1.3 billion. In contrast, cities in developed markets will add only 100 million new residents in the next 20 years.
Beneath these headline figures lie dramatic improvements in the lives of emerging-market urban residents. Already, income levels in emerging-market cities are reaching an inflection point, with their middle-class population expected to rise 70 percent between 2010 and 2015 -- affecting everything from where these individuals live to how they consume.
As disposable incomes rise, many products previously unattainable by average urban residents are becoming necessities. Today, more than 37 percent of the world's cars are purchased in emerging-market cities, and sales of luxury autos already rival sales in Germany, Japan, and the United States. This same trend in spending will cause emerging-market cities to account for 30 percent of global private consumption by 2015.
As Sharad Verma, a New Delhi-based BCG partner and another report author, observed, "Consumers in emerging-market cities have specific needs and shopping patterns that differ dramatically from those of consumers in developed markets -- the result of the confluence of unique city environments, income levels, and cultures. Global companies risk irrelevance in these markets if they do not develop products and services based on deep insights into local consumers."
Growth in Emerging-Market Cities to Spur Massive Demand for Infrastructure
Emerging-market cities will need better housing and infrastructure -- most urgently, transportation, water, sanitation, and electricity. Meeting these needs will require an estimated $30 trillion to $40 trillion by 2030 -- the equivalent of 60 to 70 percent of the total global investment in infrastructure. The strongest driver of infrastructure demand will be population growth, and emerging markets will require an estimated $13.8 trillion in housing investment from 2010 to 2030, with a huge portion of the demand coming from Brazil, China, India, and Mexico.
"The massive infrastructure-development needs across so many emerging-market cities dwarf anything that the world has seen before," said David Jin, a Shanghai-based BCG partner and another coauthor. "A diverse set of global industries are being fundamentally reshaped by the demand that is now arising from this build-out, and many developed-market companies are missing out."
The same vibrant environment that is driving consumption in emerging-market cities is giving rise to formidable local competitors. These companies have honed their strategies by tailoring their products and services to the unique opportunities found in emerging-market cities.
The local players that are mastering the "many cities" and the local needs of emerging markets are very well positioned to move into other developing countries in pursuit of growth. "This will dramatically raise the competitive intensity in these markets, as more companies fight for growth. Some new champion companies will emerge as a result," noted Michael.
This massive growth in the size and number of emerging-market cities will fundamentally change the competitive landscape in many industries, as companies that are best positioned to capture the opportunity tap in to larger profit pools, grow faster, and use the emerging-market cities as catalysts for innovation. Capturing the tremendous growth opportunity presented by the emerging-market cities will require a new management agenda for the emerging markets -- one that makes cities its focal point.
About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 69 offices in 40 countries. For more information, please visit www.bcg.com.