10 Facts About Emerging-Market Consumers

10 Facts about Emerging-market Cities

1. Urban population is soaring. Over 90% of urban growth is taking place in the developing world, where an estimated 70 million new residents migrate to urban areas each year. The rural-urban migration trend that has already occurred in many Latin American countries is now accelerating in other parts of the world. For instance, during the next two decades, the urban population of the world’s Urban population in emerging markets two poorest regions – represents a concentrated opportunity. Cities South Asia and Sub- comprise large markets and can provide an Saharan Africa – is entry point into national markets. expected to double.

Chart 1 - World’s population in emerging-market cities 2010 2030 2. Economic growth is closely linked with urbanization. The population density 33% 46% Emerging- associated with cities is an important factor market Cities Emerging- market Cities for economic success, since large urban areas catalyze innovation and increase economies of scale. Emerging-market cities are following the trend seen in developed markets cities, which became wealthy as they urbanized.

Nearly half of the world’s population will live in 3. Companies can benefit from the emerging-market cities by 2030. Today, one-third of the urbanization trend in emerging markets world’s population, 2.6 billion people, live in emerging- through an ability to target many different market cities. By 2030, emerging-market cities will hold market segments in a smaller geographic 46% of the world’s population, while only 12% will live in area. developed-market cities. Sixteen out of the world’s 25 largest megacities1 are in emerging markets, and the total population of the top 25 emerging-markets cities is roughly the same as that of the United States. Two of the fastest growing megacities in the world - Lagos, A collection of emerging-market megacities Nigeria and Dhaka, Bangladesh - have doubled in size represents a market that rivals the United since 1990. Dhaka will be larger than Mexico City, States or Europe in size. These rapidly Shanghai or New York by 2025. growing cities will increasingly demand a wide variety of goods and services.

1 “Megacities” are defined as cities with a population of more than 10 million in their metropolitan area.

Megacities like Lagos and Dhaka have doubled in size in the past 20 years

4. Consumption in emerging-market cities is on the rise. According to a recent report from the Boston Consulting Group, emerging-market cities will account for 30% of global private consumption by 2015, with private consumption growing at a rate of 11% per year. This growth rate is in part a reflection of increasing disposable income and wealth concentration in emerging-market cities. By 2025, there will As consumers in these cities become more be more urban households in emerging-market cites with influential, multinationals will benefit from understanding and addressing their income above $20,000 than in developed markets. needs with new products and services.

Chart 2 - Top 25 emerging-market cities (map on following page)

Est. GDP in 2010 Est. GDP in 2025 Est. GDP PPP per Est. GDP PPP per Est. Population Est. Population Rank City ($bn at 2005 ($bn at 2005 Capita in 2010 Capita in 2025 2010 (000) 2025 (000) PPPs) PPPs) (at 2005 PPPs) (at 2005 PPPs) 1 Mumbai1 20,072 26,385 236 594 $11,766 $22,513 2 Sao Paulo1 19,582 21,428 421 782 $21,513 $36,494 3 Mexico City1 19,485 21,009 421 745 $21,607 $35,461 4 Delhi1 17,015 22,498 189 482 $11,111 $21,424 5 Shanghai1 15,789 19,412 265 692 $16,769 $35,648 6 Kolkata1 15,577 20,560 118 298 $7,558 $14,494 7 Dhaka1 14,796 22,015 88 215 $5,946 $9,766 8 Buenos Aires1 13,089 13,768 388 651 $29,627 $47,284 9 Karachi1 13,052 19,095 87 193 $6,652 $10,107 10 Cairo1 12,503 15,561 160 330 $12,786 $21,207 11 Rio de Janeiro1 12,171 13,413 218 407 $17,931 $30,344 12 Beijing1 11,741 14,545 189 499 $16,097 $34,307 13 Manila (Metro)1 11,662 14,808 163 325 $14,006 $21,948 14 Lagos1 10,572 15,796 40 101 $3,748 $6,394 15 Istanbul1 10,530 12,102 198 367 $18,766 $30,326 16 Moscow1 10,495 10,526 342 546 $32,575 $51,872 17 Jakarta2 9,703 12,363 102 231 $10,553 $18,685 18 Guangzhou2 9,447 11,835 163 438 $17,266 $37,009 19 Kinshasa2 9,052 16,762 19 48 $2,122 $2,864 20 Lima 8,375 9,600 118 213 $14,077 $22,188 21 Bogota 8,320 9,600 108 192 $12,975 $20,000 22 Tehran 8,221 9,814 138 252 $16,741 $25,678 23 Chennai2 7,559 10,129 75 191 $9,903 $18,857 24 Wuhan 7,542 9,339 56 102 $7,472 $10,922 25 Tianjin 7,468 9,243 84 218 $11,260 $23,585 1Classified as a megacity 2 Will be a megacity by 2025 Source: Vital Wave Consulting

Moscow

Istanbul Beijing Tehran Tianjin Delhi Wuhan Cairo Shanghai Dhaka Karachi Guangzhou Mexico City Mumbai Kolkata Chennai Manila Lagos Bogota

Kinshasa Jakarta Lima

Rio de Janeiro Sao Paulo

Buenos Aires

Nearly half of Top-25 emerging-market cities are in BRIC countries

5. Midsized emerging-market cities should not be overlooked. Over the next 15 years, 400 midsized cities in emerging markets – those with less than 2 million inhabitants – will generate more growth than developed markets and the largest emerging-market megacities – combined. This will amount to over 40 percent of global economic growth. Midsized cities, such as Xi’an, China and Fortaleza, Brazil, Managers who take a closer look at some are often overlooked in favor of better-known cities like of these mid-sized cities might find a diamond in the rough, and discover Shanghai and São Paulo, but they may offer larger market opportunities that give them a opportunities in a less intense competitive environment. competitive edge.

6. Passenger travel through airports in emerging-market cities is skyrocketing. In 2000, there were no emerging-market airports on the list of the world’s 20 busiest airports. Today, emerging- market airports claim five positions on this list, whereas the US has lost seven spots. Beijing’s international airport, which was not even among the 30 busiest in 2000, jumped to the number 2 position by 2010. All of the emerging-market airports in the top 20, including Bangkok and Jakarta, are These major shifts over a relatively short time span indicate that emerging-market located in Asia. Moreover, in terms of total passengers, cities are rapidly becoming hubs of the city-to-city air connections of Beijing-Shanghai, São commerce. Paulo-Rio de Janeiro, and Mumbai-Delhi are among the ten busiest in the world.

World's Busiest Airports 2000 2010 1 Atlanta Hartsfield-Jackson 1 Atlanta Hartsfield-Jackson 2 Chicago O'Hare 2 Beijing Capital 3 Los Angeles International 3 Chicago O'Hare 4 London Heathrow 4 London Heathrow 5 Dallas-Fort Worth 5 Tokyo International 6 Tokyo International 6 Los Angeles International 7 Frankfurt 7 Paris Charles de Gaulle 8 Paris Charles de Gaulle 8 Dallas-Fort Worth 9 San Francisco International 9 Frankfurt 10 Amsterdam Schiphol 10 Denver International 11 Denver International 11 Hong Kong International 12 Las Vegas McCarran 12 Madrid-Barajas 13 Minneapolis-Saint Paul 13 Dubai International 14 Seoul Gimpo 14 New York JFK 15 Phoenix Sky Harbor 15 Amsterdam Schiphol 16 Detroit 16 Jakarta Soekarno-Hatta 17 Houston George Bush 17 Bangkok Suvarnabhumi 18 Newark Liberty 18 Singapore Changi 19 Miami International 19 Guangzhou Baiyun 20 Madrid-Barajas 20 Shanghai Pudong

Developed-market airports Emerging-market airports

7. China dominates rankings of emerging-market cities on IT connectivity. The top 10 emerging-market cities ranked by IT connectivity and education are all Chinese. This result comes in part from high nationwide standards for education and very high numbers of broadband and mobile phone subscribers throughout the country. In China and elsewhere, forward-thinking municipal governments are seeing access to broadband as a key driver of economic growth and have invested heavily in their broadband infrastructure. For instance, ambitious broadband infrastructure projects While emerging-markets cities are engines of are currently in the works in Johannesburg, Rio de regional growth, their potential is shaped by Janeiro and Bogota – attempts to transform these the market environments of the countries in which they are located. locations into “digital cities.”

10 Facts About Emerging-market Cities 4 Copyright 2012 8. Emerging-market cities are economically diverse. Cities in Latin America and sub-Saharan African have some of the highest rates of urban inequality in the world. Conversely, cities in Asia have comparatively lower rates of urban inequality, with There is not a “one-size-fits-all” strategy for Beijing boasting the lowest rate of urban inequality in emerging-market cities. Understanding distinct the world. This contrast illustrates the fact that not all customer segments within cities helps to open emerging market cities are created equal. Each city’s up new opportunities, such as increasing BoP demographic characteristics are unique, and consumers marketing in cities with high levels of inequality. within those environments differ from city to city.

9. Emerging-market cities represent market opportunities and risks. Shanghai was the only emerging-market city to make the list of the top 40 cities designated as worldwide center of commerce in a recent study by MasterCard Worldwide. The Worldwide Centers of Commerce Index, which ranks cities by economic, social and political indicators, suggests that managers should still tread with caution when dealing with emerging-market cities. Although emerging-market cities are experiencing high rates of population and economic growth, they might lack the legal and political framework or economic stability In many emerging-market cities, such as in Rio de that make more established markets so attractive for Janeiro, poverty and wealth coexist in close proximity conducting business.

While there are tremendous growth 10. Booming infrastructure investment in opportunities in emerging-market cities, there emerging-market cities signals growth. The are hazards as well that need to be mitigated, such as ease of doing business and livability. infrastructure investment in emerging-market cities is forecast at $30 trillion to $40 trillion cumulatively over the next 20 years. Investment in infrastructure is also a main driver of population growth, especially in Asia and Africa. This investment feeds economic growth, since, not surprisingly, the construction and maintenance of transport systems Infrastructure is key to growth. Cities determine whether or not cities will that are investing in different types of infrastructure may represent more succeed economically. In many cities favorable growth environments for infrastructure is not keeping up with multinational companies. population growth and this represents one of the biggest challenges to doing business in these markets. In Latin America, investment in information technology is the most important driver for population growth. ■

Emerging markets will account for over half of the total infrastructure spending in the next two decades

Vital Wave Consulting engages multinational organizations to increase revenues and maximize value at the global, regional and local levels in emerging markets.

As a world leader in emerging-market business growth, the company has executed projects across a broad range of high-growth industries and customer segments, including small and medium business (SMB), enterprise, public sector, and consumer segments. Drawing on decades of direct experience in developing countries, proven research and analytical methods, and best-in-class global and local partnerships, Vital Wave Consulting helps its clients to achieve scale and growth in emerging markets.

Call 650-964-1316 or visit vitalwaveconsulting.com to learn more.

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