Next Wave of International Business Investing: Emerging Market Cities

Emerging Market Cities and their Growth Potential

Studies have shown that the number of cities in emerging markets is growing. Now, there are nearly 700 emerging market cities with populations of more than half a million and this number is expected to grow in the years ahead. The proliferation of Tier II cities alongside the megacities is perhaps the biggest noticeable trend in recent years. It has been estimated that nearly 1.2 million people move to the cities every week. This means that over the next twenty years, there would be a net migration of around 1.4 Billion to the cities in the emerging markets.

Since the megacities would not be able to hold all these people, most of the growth would come from the next rung of cities or the Tier II cities where the rapidly urbanizing populations would aspire to western standards of living and hence, their consumption patterns would be lucrative for multinationals and international businesses seeking to enter these markets.

Challenges Specific to Emerging Market Cities

It has been estimated that about 125 Million Households would enter the middle class in emerging market cities between 2010 and 2025. This means that international businesses ought to be prepared to deal with these consumers. As a recent book put it, the $10 Trillion Prize that is up for grabs in the emerging markets means that the opportunities are there for the asking for international businesses. However, the challenge before international businesses is that they would have to completely redraw their business models and rework their strategies because of the complexity of the consumer base that is emerging in these markets. For instance, a recent survey has revealed that only 13 percent of international businesses are ready for the growth in the emerging market cities whereas a large number of them (around 73 percent) say that they are cognizant of the growth potential in these emerging markets.

Localization as a Driver of Strategy

Companies like Yum! Foods which is the owner of the KFC and Pizza Hut Brands has adapted itself to the Chinese market and has tripled its market share by targeting the local consumers and offering them menu choices that are more palatable to their tastes. Further, international businesses must be cognizant of the logistical and distributional challenges that are peculiar to emerging markets apart from their branding and marketing activities. Apart from this, the international businesses have to contend with smaller players who are nimble and agile and what are known as “mom and pop” stores. For instance, the Chinese and the Indian markets are dominated by the Kirana and the local groceries and international businesses should price their products and reorient their strategies accordingly. The point here is that the hybrid consumer and business landscape ought to be targeted accordingly and the complexity of the strategy must reflect this aspect.

In conclusion, emerging markets represent an opportunity that is there for the taking and hence, the international businesses must seize this chance to expand their operations and grab a share of the large pie that is available.


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International Business