You work for a consumer products company that is proud of its global footprint. The company, for instance, has established a strong presence in São Paolo. What about Curitiba, the largest city in southern Brazil? Your company has Mumbai and Shanghai covered. How about Ahmedabad, a dynamic metropolis of 4.5 million in India's Gujarat state? Or Wenling, a rapidly growing Chinese city of 510,000 in landlocked Zhejiang province?
If the answer is "not yet but someday," your company isn't nearly as global as it thinks it is—or probably needs to be. In fact, it is likely missing out on the greatest growth opportunity in the global economy. Just as the most important strategic battles for the world's rising consumer class are being waged in hundreds of burgeoning emerging market cities that rarely command world headlines, most multinationals aren't even in the fight. That is because they still equate going global with being in certain countries and megacities with populations of 10 million or more.
The next stage of global growth is playing out in 717 cities with populations that exceed 500,000. These cities are spread across the developing world. They hold one-third of the world's population and are growing explosively, according to a new Boston Consulting Group analysis. They boast a middle class that will swell by 70 percent in five years, accounting for 30 percent of global private consumption, and they will require up to $40 trillion worth of infrastructure by 2030.
The fastest growth and biggest untapped markets are in cities with populations of 5 million or less, where 83 percent of urban dwellers reside. There will be an additional 371 such cities by 2030. They will add 1.3 billion inhabitants—compared to an increase of just 100 million city dwellers in developed nations.
Needed: More On-the-Ground Presence
Capturing such a mammoth market is a challenge of daunting complexity, even for the most sophisticated multinationals. The tastes, needs, aspirations, and buying habits of consumers and companies in smaller population zones can differ markedly from those in the same country's megacities—as can their living environments, competitive landscapes, distribution channels, and risks.
A "many city" global growth strategy will almost certainly require radical organizational change. It certainly requires intimate knowledge of many discrete micromarkets and new business models for penetrating them. It also requires a larger on-the-ground presence: In 2000, it was possible to reach 80 percent of China's middle class by having a presence in 60 cities, for example. To do that in 2020, a company will have to be in 212 Chinese cities.
Few companies will have the bandwidth to compete successfully in more than 1,000 cities simultaneously. The first step of a many city global strategy is to identify priorities. We suggest that companies target a portfolio of cities that fit their strategic growth needs. Our analysis breaks cities into four major categories: megacities, cluster capitals, specialist hubs, and horizon cities. Successful companies tend to develop three or four basic business models for each of these city types, then tailor them accordingly.
Megacities remain important as beachheads for brands and for working with national policymakers. The next tier consists of 150 or so cluster capitals—trade hubs such as China's Changsha, Brazil's Joinville, and Mexico's Veracruz. They are strategically important because they can faction as platforms for branching out to nearby satellite cities—an opportunity many multinationals fail to seize.
Horizon Cities Challenge and Reward
Specialist hubs, which have populations of 1 million to 5 million and whose growth is often linked to certain industries or local natural resources, are often overlooked by multinationals because they can be remote and have lower per-capita incomes. They happen to have some of the world's fastest-growing middle classes. They include Ahmedabad in India, Aguascalientes in Mexico, Recife in Brazil, and Wenling in China.
The hundreds of small, geographically dispersed horizon cities are the most challenging to address in a comprehensive way. Examples are Calikini, Mexico; Macapá, Brazil; and Moradabad, India. Distribution channels tend to be fragmented, consumer habits and income levels highly varied, and logistics complex. Yet because they are virtually virgin markets for multinationals, they can be hugely rewarding.
The small Chinese city of Xiaochang, in central Hubei province, offers a glimpse of the potential. This fast-growing horizon city is filled with ambitious and newly prosperous recent émigrés from the countryside. Apart from cell phones and a few counterfeit foreign products, consumers we interviewed own only Chinese-branded products. A man named Yang, who owns a sparsely furnished, one-room restaurant, is not uncommon. Since moving to the "big city" a few years ago, Yang told us, he and his wife have earned enough to buy a refrigerator, cell phone, washing machine, DVD player, computer, two TVs, and a small minivan he uses to drive his daughter to the city's best private kindergarten. He hopes to keep earning enough to pay for a new car, better housing and health care, and more education.
Reaching Yang and billions of consumers like him in the far corners of the world will require innovative business models, vision, serious investment, and an appetite for risk. It also must be done quickly, because the huge consumer class of the future is forming brand preferences now. To ignore these people would be a tragic mistake. As corporations stick to the more familiar environs of the megacities, their local and multinational competitors are building the scale and breadth that will determine the global winners and losers in the decades ahead.