In their search for growth in emerging markets, most multinational companies have followed a well-worn path—one leading straight to a chosen subset of countries and mega cities. The next phase of growth will take place on a different stage: cities with populations of 5 million or less that are spread across the developing world. To make the most of this opportunity, companies are beginning to look beyond tier 1 and tier 2 cities. Starbucks, for example, has announced plans to triple the number of stores in China, with smaller cities playing a pivotal role in the expansion.
Simon Targett, BCG’s editor-in-chief, spoke with David Michael—the leader of the firm’s Global Advantage practice—about the unique challenges and opportunities of the next chapter in emerging-market growth.
Can you tell us about emerging-market cities and the growth opportunity they present?
The high-growth emerging markets of the world are building new cities where residents, companies, universities, and opportunities for prosperity are creating attractive new markets that are unfamiliar to many companies. The number of cities that are arising in emerging markets is staggering. Today there are nearly 700 emerging-market cities with populations of more than half a million—and there are only 240 such cities in the West. In the next 20 years, there will be more new cities created in emerging markets than exist today in the West. Every week, 1.2 million people move to these cities. That’s 1.4 billion in the next 20 years. These cities are for real. And it’s an amazing set of complexities for companies to navigate.
What types of approaches can companies take to leverage opportunities in these cities?
One Example: We worked with one company that wanted to take advantage of the specific growth opportunities in Africa, so we helped the organization build and integrate a plan for how and where it could win. The plan was based on five key cities in Africa that would serve as “hubs,” along with a growth strategy built out from those cities. We looked at all aspects of where the market opportunity was, where the company would be best-off selling, how to build the right organization, and how to build a go-to-market plan.
By the time the project was finished, the client realized that the Africa opportunity was five times larger than it had originally estimated. So doing this work led to a complete rethinking of the opportunity and a strategy based on those key cities.