The World’s New Growth Frontier: Midsize Cities in Emerging Markets
Over the next 15 years, 400 cities that most executives have never heard of will power global corporate growth.
March 2011 | by David Delaney
Senior executives searching for growth face a stark new reality: roughly 400 midsize cities in emerging markets—cities they mostly will have never heard of—are posed to generate nearly 40 percent of global growth over the next 15 years. That’s more growth than the combined total of all developed economies plus the emerging markets’ megacities (those with populations of more than ten million, such as Mumbai, São Paulo, and Shanghai), which together have been the historic focus of most multinationals. Learning about consumer attitudes in the emerging markets’ “middleweight” cities (three-quarters of which have less than two million people), figuring out market entry strategies for them, and deciding how to allocate resources within and across them will all be crucial priorities in the years ahead.
This interactive presents one scenario for the urban world’s evolution. Like any scenario, it is subject to large bands of uncertainty about population trends, migration, business innovation, per capita GDP, the evolution of city structure and management, and the outlook for exchange rates. Like these uncertainties, methodological issues influence urban economic forecasts. Below are details on how we approached two key methodological issues.
Defining cities. Where possible, the cities in our database refer to integrated metropolitan areas rather than specific city jurisdictions; we aggregate neighboring cities into a single urban center. To do so, we have relied on the Functional Urban Area definition from Eurostat’s ESPON project, as well as the metropolitan statistical area definition of the US Bureau of Economic Analysis.
Our approach often results in a relatively broad definition of “city,” because in many instances the city center and the legal city make up only a fraction of a total integrated urban region, in both population and area. Examples of such aggregations include Rhein–Ruhr in Germany; Los Angeles, Long Beach, and Santa Ana in California; and Mumbai and Thane in India. In some cases, functional urban regions cut across national boundaries (for instance, Geneva in Switzerland and France, as well as Copenhagen–Malmo in Denmark and Sweden). However, to be consistent across regions, we also strive to separate urban entities that are located closely together but have relatively little cross-city integration measured by commute flows (for instance, Seoul, Incheon, and Suwon in South Korea, as well as Beijing and Tianjin in China).
New research from the Burk Global Institute (BGI) seeks to arm executives with the knowledge they’ll need to tap into global urban growth. Midsize cities in emerging markets are poised not only to generate much of the world’s growth in the years ahead but also to become dramatically richer.
Yet few business leaders focus on the importance of cities when establishing growth priorities. In a recent survey, we found that fewer than one in five executives makes location decisions at the city (rather than country) level. Few executives expected this approach to change over the next five years, and more than 60 percent regarded cities as “an irrelevant unit of strategic planning.” Our Global Survey results: Relocating for growth” was conducted in February 2012. The survey received responses from 2,962 executives, representing the full range of regions, industries, and company sizes. To adjust for differences in response rates, we weighted the data by the contribution of each respondent’s nation to global GDP. As these new urban-growth zones flourish, there’s a cost to companies that lack a clear view of the emerging landscape—chiefly in the potential for resource misallocation.
And they are far from isolated examples. Our research indicates that 440 emerging-market cities, very few of them “megacities,” will account for close to half of expected global GDP growth between 2010 and 2025. Crafting and implementing strategies that emphasize such cities will require new attention from senior leaders, new organizational structures that take account of urban rather than just regional or national markets, and potentially difficult choices about which activities to scale back elsewhere to free up resources.