Winning in

Emerging-Market Cities
A Guide to the Worlds Largest Growth Opportunity
BLiORT
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Winning in
Emerging-Market Cities
A Guide to the Worlds Largest Growth Opportunity
bcg.com
David Jin
David C. Michael
Paul Foo
Jos Guevara
Ignacio Pea
Andrew Tratz
Sharad Verma
Scptcmbcr 2010
The Boston Consulting Group, Inc. 2010. All rights reserved.
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WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs
Contents
Introduction 4
Emcrging-Markct Citics: Thc Ncw Busincss Impcrativc 5
Reaching Mr. Yang (and a Billion Other New Urban Residents) 6
The Rise of the Cities 8
Emerging-Market-City Segments 8
Creating a Portfolio of Target Cities in Emerging Markets 12
Capturing the Consumer Opportunity 13
Categories of Opportunity 14
Five Imperatives for Consumer Businesses 15
Capturing thc Inlrastructurc Opportunity 18
Housing 18
Water and Sanitation 19
Transportation 19
Electricity 20
How to Tap In to the Infrastructure Opportunity 20
Incubators ol Dynamic Local Compctition 21
Thc Ncw Agcnda lor Emcrging-Markct Growth 22
For Furthcr Bcading 23
Notc to thc Bcadcr 24
( TL BOs1Ou COusuL1IuG GROuI
T
hc singlc largcst commcrcial growth oppor-
tunity globally in thc dccadc ahcad is thc
risc ol citics in cmcrging markcts. And thc
most pivotal dccisions that many compa-
nics will makc in thc ncar luturc arc thosc
rcgarding thcir commitmcnt to winning in thcsc citics
and thcir stratcgics lor doing so.
Yct most global companics arc lailing to rccognizc this
opportunity, its magnitudc, and thc high-stakcs naturc ol
thc choiccs conlronting thcm. Whcn thcy approach thc
cmcrging markcts, most companics think ol countrics,
not citics. And thosc citics that do spring to mind arc a
lcw mcgacitics," rathcr than thc largc numbcr ol othcr,
smaller cities that present the real opportunity. Most cru-
cially, somc companics tcnd to vicw busincss dccisions
rclatcd to citics tactically rathcr than stratcgicallyil, in-
dccd, thcy rccognizc thc nccd lor such dccisions at all.
Thcsc companics arc making a hugc mistakc.
Is your company among thcm? Ask yourscll |ust a lcw
simplc qucstions:
How many cmcrging-markct citics docs your company
scrvc currcntly, and how many docs it plan to scrvc by
2020? Thcrc arc 717 such citics with populations ol
morc than 500,000, and most arc growing at ratcs lar
abovc thc global avcragc.
Docs your cxccutivc tcam undcrstand thc growth op-
portunity? Emcrging-markct citics will account lor 30
pcrccnt ol global privatc consumption by 2015, and
privatc consumption is growing at a ratc ol 11 pcrccnt
pcr ycar. Thc inlrastructurc invcstmcnt in thcsc citics
is lorccast at $30 trillion to $40 trillion cumulativcly
ovcr thc ncxt 20 ycars.
Docs your cxccutivc tcam know which currcnt and up-
and-coming compctitors arc taking thcsc markcts scri-
ously and winning? Global scalc in many industrics
will bc dctcrmincd by thosc that play thcsc citics
wcll.
How many cmcrging-markct citics has your cxccutivc
tcam visitcd? Most cxccutivcs know about thc mcga-
citics, but thosc arc ycstcrday`s growth story. Do you
know thc nccds and habits ol customcrs in thc citics
that will mattcr in thc luturc? Undcrstanding and win-
ning in thc ncw paradigm ol thc many citics"which
mcans dctcrmining which and how many ol thc hun-
drcds ol smallcr citics to cntcr and whcnhas bc-
comc thc ncw impcrativc.
This rcport is onc rcsult ol a ycar-long global rcscarch cl-
lort spanning kcy urban ccntcrs ol thc dcvcloping world,
lcd by our busincss stratcgists in cach location. It is not
an acadcmic trcatisc on urbanization policy or a primcr
lor govcrnmcnts. Instcad, it is a commcrcially locuscd
wakc-up call lor companics undcr prcssurc to grow.
As bcst wc can tcll, it is thc rst handbook that lramcs
thc cmcrging-markct growth opportunity as onc built
upon citics, and that quantics what is at stakc whilc out-
lining a sct ol practical stcps lor cmbarking on a path to
succcss. Its insights and rccommcndations rcprcscnt a
lundamcntally ncw way ol dcning and approaching thc
world`s largcst growth opportunity. Wc hopc that it stirs
dcbatc, rccction, and accclcratcd action within your or-
ganization. Wc look lorward to your lccdback and to cn-
gaging with you dircctly on this vitally important growth
drivcr.
Introduction
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs
O
nc-third ol thc world`s population
2.6 billion pcoplclivc in citics that arc
locatcd in thc cmcrging markcts. By 2030,
thc numbcr ol cmcrging-markct urban
dwcllcrs will incrcasc by anothcr 1.3 bil-
lion. (Scc Exhibit 1.) In contrast, citics in dcvclopcd mar-
kcts will add only 100 million ncw rcsidcnts in thc ncxt
20 ycars.
This massivc growth will lundamcntally changc thc com-
pctitivc landscapc in many ways. Consumcr dcmand
will rapidly incrcasc as thc middlc class in thcsc markcts
cxpands, ncw inlrastructurc will bc rcquircd as citics
grow, and thosc companics that arc bcst positioncd to
capturc thc opportunity will tap into largcr prot pools,
grow lastcr, and usc cmcrging-markct citics as a catalyst
lor innovation.
Emerging-Market Cities
The New Business Imperative
By 2030, another 1.3 billion people will live in emerging-market cities,
more than the total population of todays developed-market cities
0
World population (millions)
Developed-market cities
All rural areas
Emerging-market cities
17 15 13
12 27 37
12
46
12
57
18
18
6,000
4,000
2,000
1.3 billion new
residents, bringing
the total population
of emerging-market
cities to 3.9 billion
100 million new residents
of developed-market cities
Share of world population (%)
Emerging-market cities
Developed-market cities
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Exhibit 1. Rapid Growth Will Further Boost the Population of Emerging-Market Cities
Sources: United Nations, World Urbanization Prospects: The 2009 Revision; Economist Intelligence Unit; Chan, K.W., Fundamentals of Chinas
Urbanization and Policy, China Review 10:1, 2010; Mitra, Arup and Mayumi Murayama, Rural to Urban Migration: A District Level Analysis for India,
IDE Discussion Paper No. 137, 2008; BCG analysis.
6 TL BOs1Ou COusuL1IuG GROuI
]ust considcr: alrcady in 2010, cmcrging-markct citics
drivc morc than 60 pcrccnt ol world GDP growth. By
2015, thcy will account lor 67 pcrccnt ol this growth. (Scc
Exhibit 2.) Thcrc arc alrcady 717 cmcrging-markct citics
with populations ol morc than 500,000, and anothcr 371
such citics will rcach this sizc by 2030. Thcrc arc only 240
citics ol cqual sizc in thc dcvclopcd world today.
Incomc lcvcls in cmcrging-markct citics arc rcaching an
incction point, with thc numbcr ol middlc-class housc-
holds cxpcctcd to risc morc than 70 pcrccnt bctwccn 2010
and 2015. Thc lcap in thc numbcr and sizc ol cmcrging-
markct citics, alongsidc thc burgconing numbcr ol mid-
dlc-class houscholds and thc inlrastructurc nccdcd to sup-
port thcm, is crcating unprcccdcntcd growth opportunitics
lor companicsand signicant complcxitics. Companics
wishing to grow in cmcrging markcts must rapidly in-
crcasc thc numbcr ol citics scrvcd and improvc thcir abil-
ity to win in a rangc ol urban markct scgmcnts. This will
rcquirc that thcy dcvclop ncw busincss modcls and chan-
ncls in ordcr to scrvc thcsc markcts protably. Dramatic
organizational changc may bc rcquircd. A citics stratcgy"
is kcy to growth in cmcrging markcts, and succcsslul com-
panics will bc thosc that cmbracc this challcngc.
Reaching Mr. Yang (and a Billion Other
New Urban Residents)
Bcncath thc hcadlinc gurc ol 1.3 billion ncw rcsidcnts
ol cmcrging-markct citics arc countlcss individual storics
ol changc and mobility. Companics that arc scrious about
pursuing growth in cmcrging markcts must dcvclop
grcatcr insights into thcsc ncw urban rcsidcnts. Mr. Yang
cxcmplics thc uniquc situations in which such consum-
crs nd thcmsclvcs. (Scc thc sidcbar, Thc Pulsc ol thc
City," lor similar storics lrom othcr citics.)
A lcw ycars ago, Mr. Yang movcd lrom thc Chincsc coun-
trysidc to thc ncarby big city," whcrc hc startcd his own
rcstaurant. Having savcd thcir carnings lrom working at
a small advcrtising company, hc and his wilc took out a
mortgagc on a sparscly lurnishcd onc-room rcstaurant
ncxt to a hospital, with slccping quartcrs in thc back.
Sincc thcn, Mr. Yang has uscd his carnings lrom thc rcs-
taurant to buy a rangc ol middlc class" goods, including
two TV scts, a mobilc phonc, a rclrigcrator, a washing
machinc, an air conditioncr, a DVD playcr, a computcr,
and a small minivan that hc uscs to drivc his daughtcr to
thc city`s bcst privatc kindcrgartcn.
0
Population (millions)
Emerging-market
cities
Emerging-market
rural areas
Developed-market
cities
Emerging-market
cities
Emerging-market
rural areas
Developed-market
cities
2015
7,295
40%
43%
17%
2010
6,907
37%
45%
18%
2005 2015 2010 2005
6,515
35%
47%
19%
Share of world GDP growth (%)
80
60
40
20
100
0
67
4
29
62
4
34
56
4
41
8,000
6,000
4,000
2,000
More than one-third of todays world
population resides in emerging-market cities...
...driving more than 60 percent
of world GDP growth
Exhibit 2. Emerging-Market Cities Will Play an Increasingly Large Role
in the Global Economy
Sources: United Nations, World Urbanization Prospects: The 2009 Revision; Economist Intelligence Unit; BCG analysis.
Note: Rural GDP is the agricultural portion of GDP; city GDP is nonagricultural GDP. Some figures do not add up to 100 because of rounding.
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs ,
The rIse of emergIhg-market cItIes Is afectIhg the lIves of
their residents in profound ways, as changes in the urban
environment shape new habits, needs, and ambitions.
Ahmedabad, India
Take Hitesh, for example. Ten years ago, he moved from a
village in the Indian state of Gujarat to Ahmedabad, a city
of 4.5 million, where he now lives with his mother, wife,
and two daughters in a three-story house in the old part
of town.
HItesh, who Is 31, works as a stockbroker Ih a frm that he
opened with a friend several years ago. He brings in an
annual income of $5,280, placing his family squarely in
the middle of Ahmedabads middle class. His household
spending habits are typical of a middle-class family in
Ahmedabad. Almost half their income goes to food and
housing, although Hitesh and his family also spend a lot
on transportation and entertainment. In the last few
years, his wife, Komal, has begun buying groceries at a
new supermarket instead of from local kiranas, as mom-
and-pop convenience stores are called, and the family
buys electronics from a local showroom or from a friends
electronics shop. They now have $700 in household as-
sets, including a washing machine, a refrigerator, a televi-
sion, a DVD player, and two mobile phonesall of which,
with the exception of the refrigerator, are international
brands. Hitesh also owns a motorcycle, which he bought
for $850. For fun, the family likes to go to the nearest shop-
ping mall.
Hitesh and his family have seen a dramatic upgrade in
the quality of their lives in the last few years, and they
have high hopes for continued improvement. Hitesh ex-
pects hIs Ihcome to double wIthIh the hext fve years, ahd
he and Komal are already planning how their lives will
chahge. TheIr frst focus Is housIhg. The famIly currehtly
live in an old neighborhood with narrow streets and dilap-
idated buildings, and they would prefer a more developed
area. In fact, at the time we interviewed them, they were
closing on a house that had greater investment value and
more living and outdoor space, including a garden and a
parking spot. Hitesh and Komal have decided to buy an
air-conditioning unit for their new home, are aiming to set
up an Internet connection, and are budgeting $4,000 to
$5,000 for hew furhIture. Aher they spruce up theIr house,
they plan to invest in a small car and, eventually, new
omce space for HItesh's frm, Ideally Ih ohe of the
commercial developments that have recently sprouted
up in Ahmedabad. However, the family also expect to
spend more on health care and, as their daughters grow
up, education.
Curitiba, Brazil
In the Brazilian city of Curitiba, a family described experi-
ences and aspirations similar to those of Hiteshs family.
The husband, 38, works as a mechanic, and his wife stays
at home; their total household income is around $8,000 a
year, placing them in the lower ranks of Curitibas middle
class. They moved from the smaller nearby city of Parana-
gua a few years ago in search of better health care, which
is particularly important because the couple has a child
with special needs, as well as two other children.
Their neighborhood, which is nine kilometers from the
cIty cehter, ofers ah example of the urgeht heed for Ihfra-
structure improvements in emerging-market cities. The
roads around the familys home are unpaved and the sew-
ers oheh leak. CurItIba Is much more sprawlIhg thah
many such cities, and the family leases a foreign car to get
around, even though it consumes around one-third of the
household income. Much of the rest of their income is
spent on food and on medical care for their son. They own
a mix of foreign and local branded electronics and appli-
ances, including two TVs, a refrigerator, a freezer, a stove,
a washing machine, and a stereo. For entertainment and
relaxation, they watch TV and talk with friends on the
phone. The family use the Internet only when they visit
the fathers mother, in order to save on the cost of install-
ing it in their own home.
The famIly's meahs have Ihcreased sIghIfcahtly Ih the
last few years. Three years ago, the husband brought
home only around half of what he now earns, and he ex-
pects hIs Ihcome to double agaIh wIthIh the hext fve
years. Aher the car lease Is paId of, Ih about three years,
the couple plan to begin saving for retirement, as well as
for a house in an area with paved roads and better infra-
structure. The wife is looking forward to upgrading their
home appliances and hopes to buy a stainless-steel refrig-
erator, a fat-screeh Tv, ahd a hew stove.
Jakarta, Indonesia
Born and raised in Jakarta, Widodo still lives there with
his wife and two daughters. He makes $6,000 per year
running a construction supply company, a gemstone
business, and a watch repair shop; his wife does not work
outside the home. The family live in a house south of the
city center that they purchased in 1996 for $50,000 and
are stIll payIhg of.
The Pulse of the City
Emerging-Market Consumers
8 TL BOs1Ou COusuL1IuG GROuI
Mr. Yang`s conccrns havc changcd considcrably sincc
opcning his rcstaurant. Hc now worrics about thc rising
cost ol his child`s cducation, whcthcr to buy a ncw car
and a scparatc apartmcnt, thc poor quality ol local hcalth
carc, and what rapid housing and inlrastructurc construc-
tion in thc arca mcan lor his busincss. Mr. Yang has ncvcr
uscd a crcdit card, and although hc has Intcrnct acccss,
hc has ncvcr shoppcd onlinc bccausc ol sccurity con-
ccrns. Hc cxpccts his incomc and spcnding to risc ovcr
thc ncxt lcw ycars.
Onc might assumc that Mr. Yang livcs in a ma|or urban
ccntcr such as Shanghai or Bci|ing. But, in lact, hc rclo-
catcd to Xiaochang, a last-growing city ol around 160,000
pcoplc in landlockcd Hubci provincc approximatcly 700
kilomctcrs wcst ol Shanghai. (Scc Exhibit 3.)
Fcw cxccutivcs arc likcly cvcn awarc ol this city`s cxis-
tcncc. Indccd, thc consumcrs wc spokc with in Xiaochang
owncd only Chincsc brandcd goodswith thc cxccption
ol lorcign mobilc phoncs and a lcw countcrlcit lorcign
products. But givcn that last-growing smallcr citics likc
Xiaochang arc at thc lorclront ol cmcrging-markct-city
growth, companics without a stratcgy lor dctcrmining in
which and in how many ol thcsc citics to compctc risk
ovcrlooking a hugc opportunity. Similarly, thc busincss
modcls and go-to-markct approachcs that companics usc
in othcr markcts may nccd to bc adaptcd to protably
rcach consumcrs likc Mr. Yang.
The Rise of the Cities
Thc samc phcnomcna that crcatcd Xiaochang havc built
up scorcs ol citics likc it in Chinaand hundrcds morc in
othcr cmcrging markctscrcating wcalth bcyond such
mcgacitics as Mcxico City, Mumbai, and Shanghai. Thc
dcvclopmcnt proccss itscll is lamiliar, bcing drivcn by
both rural migration and urban population growth. But
what is dicrcnt in thc cmcrging markcts is thc scalc and
spccd at which it is occurring.
Thc mcgacitics ocn highlightcd in thc mcdia account lor
|ust a lraction ol thc opportunity. In lact, a disproportion-
atc amount ol thc growth is occurring in citics with a
much lowcr prolc on thc global stagc. Citics with lcwcr
than 5 million inhabitants alrcady rcprcscnt S3 pcrccnt ol
thc urban rcsidcnts in cmcrging markcts and arc growing
morc rapidly than thc mcgacitics. (Scc Exhibit 4.) Sincc
many ol thcsc citics havc charactcristics quitc dicrcnt
lrom thc largcr citics, thc stratcgics companics usc whcn
thcy cntcr thcsc markcts must bc rcncd accordingly.
Emerging-Market-City Segments
Onc ol thc rst stcps in making thc dccision about whcth-
cr or not to bccomc activc in an cmcrging-markct city and
in dcvcloping an appropriatc stratcgy is to undcrstand thc
naturc ol thc various citics involvcd by scgmcnting thcm
Widodos household assets total $15,000. The familys in-
ventory of electronics, appliances, and vehicles is large:
three cell phones, a TV, a washing machine, a refrigerator,
a desktop PC, a DVD player, a car, and a motorcycle, all in-
ternational brands. When Widodo and his family want to
buy electronics, they compare prices and shop at Giant or
Carrefour; for groceries, however, Widodos wife prefers
the traditional markets. Their home does not have an In-
ternet connection, but Widodos wife uses her mobile
phone to access Facebook, which is extremely popular in
Indonesia.
Widodos life has changed a great deal in the last few
years. As his businesses have thrived, his total expendi-
tures have doubled, allowing him to purchase a car along
with other, more expensive items, such as the PC his
daughters use for school.
In the past, Widodo had three credit cards, but he closed
the accounts to control his costs, and when he travels
the family likes to vacation in Semarang or Hong Kong
he carries travelers checks or cash. Even though he saves
nearly one-quarter of his income each year, he uses the
bank only for cash deposits and withdrawals, and he does
not invest in stocks. As for the familys consumption hab-
its, housing, education, and transportation currently dom-
inate their expenditures. In the future, Widodo plans to
spend even more on health care and on his daughters ed-
ucation. He will also upgrade the households electronics
ahd applIahces Ih the hext fve years, IhcludIhg the mobIle
phohes, PC, ahd washIhg machIhebut hIs frst prIorIty Is
an air-conditioning unit. Widodos openness to technolo-
gy is changing as wellhe is considering getting his own
e-mail account and creating a website for his business.
The Pulse of the City (continued)
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs
Xiaochang
Population:
0.16 million
Multistory
residential
buildings
Xiaochang ve years ago Xiaochang today
Old single-
story homes
Mom-and-
pop stores
along the
street
Major
shopping
center and
supermarket
Exhibit 3. Emerging-Market Cities Are Changing Beyond Recognition
Source: BCG research.
>10
<0.5
77
Brazil
19
Urban population, 2010 (millions)
Turkey
11
13
4
27
Mexico
21
14
31
Indonesia
9
12
5
32
6
46
8
80
India
58
32
62
34
178
China
27
38
136
84
274
50
11
22
6
11
558 364 173 103 86 55
Total urban
population,
2010 (millions)
Share of
total urban
population
(%)
City
population
(millions)
0.51
15
510
Exhibit 4. Most Urban Residents in Emerging Markets Live Outside the Largest Cities
Source: United Nations, World Urbanization Prospects: The 2009 Revision.
Note: Some figures do not add up to the totals shown because of rounding.
1u TL BOs1Ou COusuL1IuG GROuI
into distinct groups. This can providc a lcns lor prioritiza-
tion as wcll as highlight thc nccd lor dicrcnt go-to-mar-
kct approachcs to addrcss dicrcnt typcs ol citics. Whilc
no scgmcntation ol cmcrging-markct citics can bc univcr-
sally applicablc, thcrc arc lour ma|or groups that arc rcl-
cvant lor ncarly all busincsscs. (Scc Exhibit 5.)
Megacities. Mcgacitics arc dcncd hcrc as thosc with
populations ol 10 million or morc. Thcy arc critical mar-
kcts now and will rcmain important lor dccadcs to comc.
Thcir rolc as nancial and tradc capitals allows thcm to
act as intcrnational gatcways lor thcir countrics or rc-
gions. Thcy arc charactcrizcd by high population dcnsity,
which lowcrs thc barricr to rcaching consumcrs, and thcy
arc kcy markcts lor highcr-cnd ocrings such as complcx
nancial products and luxury goods. Thc mcgacitics havc
a sccond important rolc lor consumcr-oricntcd busincss-
cs. Bccausc thcy ocn rcprcscnt thc lcading cdgc lor con-
sumption habits and high-cnd brands within a country,
thcy can bc important stcpping stoncs lor companics to
rcach dccpcr into national markcts. Pcrhaps most impor-
tant, mcgacitics tcnd to attract pools ol top talcnt in thcir
rcgions owing to thc inux ol young, highly motivatcd in-
dividuals who ock to thcsc citics in thc hopc ol a bcttcr
cducation and a bcttcr luturc.
Yct thcsc markcts arc almost always challcnging. As thc
rst cntry point lor many multinational companics and
Argentina
Buehos AIres
Brazil
RIo de ]aheIro
5o Paulo
China
BeIjIhg
5hahghaI
Egypt
CaIro
India
DelhI
MumbaI
Indonesia
]akarta
Mexico
MexIco CIty
Philippines
Metro MahIla
Russia
Moscow
Turkey
Istahbul
China
Chahgsha
DaqIhg
Dohgguah
Fuzhou
GuIyahg
Hahdah
Lahzhou
LIuzhou
Luoyahg
NahhIhg
5hahtou
5hIjIazhuahg
5uzhou
TIahjIh
Zhehgzhou
India
Bhavhagar
KochI
KozhIkode
MaduraI
Mahgalore
Mysore
PohdIcherry
RaIpur
Rajkot
vadodara
vIjayawada
vIsakhapatham
Warahgal
Brazil
Aracaju
Belem
BraslIa
Campo Grahde
CuIaba
]oIhvIlle
LohdrIha
RIbeIro Preto
5alvador
5o Lus
TeresIha
Mexico
CulIacah
Guadalajara
HermosIllo
Leoh
MerIda
5ah LuIs Potos
TIjuaha
Tuxtla GutIerrez
veracruz
Russia
NovosIbIrsk
5t. Petersburg
YekaterIhburg
NIzhhy
Novgorod
China
Ahyahg
Bozhou
Chahgde
Chehgdu
HuaIbeI
HuaIhah
HuIzhou
Lu'ah
5hahgqIu
5uIzhou
5uqIah
WehlIhg
Wuhu
XIhxIahg
Yahchehg
Yohgzhou
India
Ahmedabad
AmrItsar
Bahgalore
Bhopal
CoImbatore
FarIdabad
Hyderabad
Ihdore
]aIpur
]alahdhar
Kahpur
Kolkata
Nagpur
Puhe
5urat

Brazil
Belo HorIzohte
CampIhas
CurItIba
Fortaleza
GoIhIa
Mahaus
Porto Alegre
RecIfe
Mexico
AguascalIehtes
Campeche
Cahcuh
Los Cabos
Mohterrey
Queretaro
Russia
Kazah
5ochI
Kaluga

China
BaIyu
Daochehg
GahzI
Hehgshah
HuIlI
]Ihchuah
LeIbo
Muchuah
Puge
XIaochahg
XIhjIh
YajIahg
YIhchuah
YuexI
Zhaojue
ZhohgjIahg
India
BarI
ChhIbramau
Chomu
KahdI
Kohch
Kuchamah CIty
LumdIhg
Moradabad
Narwaha
NuzvId
PItapuram
Rampurhat
TuhI
Brazil
AaIlhdIa
Araguaha
CaxIas
Codo
ImperatrIz
Macapa
Pao do
LumIar
Palmas
Parauapebas
Parhaba
5ahtarem
5o ]ose de
RIbamar
TImoh
Mexico
Abasolo
Allehde
Calakmul
CalkIh
Cahdela
CahdelarIa
Cuatro
CIehegas
Lscarcega
Lscobedo
Hecelchakah
Hopelcheh
PalIzada
Tehabo
Megacities Cluster capitals Specialist hubs Horizon towns
Exhibit 5. Emerging-Market Cities Can Be Grouped into Four Major Segments
Selected Sample
Source: BCG research.
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs 11
thc prizc hunting ground lor thc strongcst local playcrs,
mcgacitics arc intcnscly compctitivc, making succcss
thcrc no casy task.
Takc ]akarta. It is thc largcst city in Indoncsia by a hugc
margin. Surabaya, thc ncxt largcst, has only around onc-
third ol ]akarta`s 10 million rcsidcnts. ]akarta is by lar thc
most compctitivc city in Indoncsia, and
although othcr citics arc growing cxtrcmc-
ly lastit is still thc country`s kcy markct.
Establishing a prcscncc in ]akarta is im-
portant bccausc ol its sizc but also bc-
causc othcr Indoncsian citics lack cntcr-
tainmcnt and shopping options. As a
rcsult, middlc-class and wcalthicr rcsi-
dcnts ol smallcr citics ocn hcad to ]akarta on wcckcnds.
For cxamplc, wc spokc with a rcsidcnt ol Mcdan, a mid-
sizc city in North Sumatra, who runs a snacks and provi-
sions shop and makcs around $10,000 a ycar; hc rcgular-
ly takcs his wilc and son to ]akarta lor shopping and
entertainment.
Many companics choosc to cntcr thc mcgacitics bclorc
cxpanding bcyond. This stratcgy has mcrit in tcrms ol cs-
tablishing a prcscncc and brand rccognition, and it can
yicld thc quickcst rcturns. But companics should not bc
lullcd into a lalsc scnsc ol sccurity lrom doublc-digit
growth in thcsc citics. Thcy rcprcscnt only a lraction ol
thc opportunityand a shrinking onc at that, as smallcr
citics continuc to cxpcricncc highcr growth ratcs.
Cluster Capitals (and Satellite Cities). Cluster capitals
arc tradc hubs that arc surroundcd by smallcr satcllitc
citics. Thcrc arc ncarly 150 clustcr capitals (with popula-
tions ol 5 to 10 million), including Changsha (China), ]o-
invillc (Brazil), and Vcracruz (Mcxico). Clustcr capitals arc
largc, ol coursc, but anothcr rcason lor thcir stratcgic im-
portancc is thcir proximity to a signicant numbcr ol
ncarby satcllitc citics (ol which thcrc arc 500 to 1,000). As
a rcsult, clustcr citics can lunction as rcgional hubs with-
in a country, and thcir stratcgic importancc should not bc
undcrcstimatcd.
Many multinational companics havc cstablishcd a prcs-
cncc in clustcr capitals, but many havc not uscd thcsc cit-
ics as platlorms to branch out into thc satcllitcsa po-
tcntial sourcc ol additional growth. In somc cascs, this is
bccausc thcy havc applicd thc samc go-to-markct modcl
that has workcd in thc mcgacitics, lailing to rccognizc thc
uniquc advantagcs that clustcr citics prcscnt.
Givcn thc largc numbcr ol clustcr capitals in thc cmcrging
markcts, a unilorm cxpansion stratcgy is likcly unwisc.
Analysis is rcquircd to idcntily thc most attractivc clustcrs
and to prioritizc lootprint cxpansion into thcsc citics.
Specialist Hubs. Thcrc arc alrcady morc
than 100 spccialist hubsmidsizc citics
(with populations ol 1 to 5 million) whosc
growth is ocn closcly linkcd to thc dcvcl-
opmcnt ol local natural rcsourccs or in-
dustrial hubs. Thcsc citics arc cxpcricnc-
ing highcr growth ratcs than othcrs in thc
cmcrging markcts, with rcal GDP growth
ol morc than 3 pcrccnt. Examplcs includc Aguascalicntcs
(Mcxico), Ahmcdabad (India), Hydcrabad (India), Bccilc
(Brazil), and Wcnling (China).
Spccialist hubs arc ovcrlookcd by many multinational
compctitors bccausc thcy arc smallcr and morc gco-
graphically isolatcd than mcgacitics or cvcn clustcr capi-
tals, and thcy havc a lowcr GDP pcr capita than thcir
largcr pccrs. Howcvcr, thc middlc-class and amucnt pop-
ulations in thcsc citics arc rapidly cxpanding and driving
signicant changcs in thc consumption mix.
Companics sccking to movc into thc spccialist hubs will
nccd to carclully cvaluatc thcir covcragc modcls and go-
to-markct approachcs, cspccially givcn thc gcographic
dispcrsion ol many ol thcsc citics and thc rcsulting high
costs ol rcaching thcm.
Horizon Towns. Thcrc arc hundrcds ol small, gcograph-
ically dispcrscd cmcrging-markct citics that wc call hori-
zon towns. Thcsc citics arc ocn charactcrizcd by lcss-
dcvclopcd inlrastructurc and lowcr GDP-pcr-capita
growth than othcr cmcrging-markct citics. Examplcs in-
cludc Calkin (Mcxico), Macapa (Brazil), Moradabad (In-
dia), and Yinchuan (China).
Horizon towns tcnd to bc thc most challcnging citics
to addrcss in a comprchcnsivc way bccausc ol thcir
small sizc and gcographic dispcrsion. Howcvcr, busincss
modcls capablc ol rcaching dccp into thcsc citics
will nd many ripc markct opportunitics. Although con-
sumcrs thcrc usually havc morc basic nccds than thosc
ol thcir countcrparts in othcr cmcrging-markct citics,
Megacities represent a
shrinking opportunity
as smaller cities
continue to experience
higher growth rates.
12 TL BOs1Ou COusuL1IuG GROuI
thcy also havc a strong willingncss to sclcctivcly
tradc up.
Most multinational companics havc not invcstcd hcavily
in covcring horizon towns, which arc conscqucntly dom-
inatcd by local compctitors. Our rcscarch has shown that
countcrlcit goods occupy a signicant sharc in thcsc mar-
kcts owing to thc abscncc ol many ol thc prcstigious lor-
cign brands. As a rcsult, companics that vcnturc into
thcsc citics will bc conlrontcd by a vastly dicrcnt sct ol
consumcr nccds and compctitivc bchaviors, and thcy will
nccd to adapt accordingly.
Creating a Portfolio of Target Cities in
Emerging Markets
Companics that dccidc to cntcr thc cmcrging markcts ol-
ten start by targeting the megacities. These large cities
arc an obvious rst choicc, but thcy arc quickly bccoming
saturatcd. Thc qucst lor growth and scalc now compcls
companics to movc bcyond thc mcgacitics to thc many
citics."
Thcsc smallcr cmcrging-markct citics arc charactcrizcd
by lragmcntcd distribution channcls, grcat local variation
in consumcr habits and incomc lcvcls, and complcx logis-
tics, all ol which will rcquirc companics to scriously con-
sidcr which and how many ol thcsc citics to scrvc, whcn
to cntcr thcm, and what go-to-markct modcls to usc. Long-
tcrm protablc growth will rcquirc a portlolio ol targct cit-
ics and busincss modcls. In addition, it will rcquirc signil-
icant innovation in how companics approach thcsc
various markcts.
Wc havc lound that thc companics that havc bccn most
succcsslul in scrving cmcrging-markct citics typically
adopt no morc than thrcc or lour distinct go-to-markct
modcls to scrvc dicrcnt city typcs. Thc lollowing ap-
proach can guidc companics in dcvcloping thcir targct
portlolios within kcy cmcrging markcts.
First, asscss how markct dcmand will unlold across thc
citics ol thc targct country, sctting cxpansion prioritics
lrom a propcr lact basc. This rcquircs an undcrstanding
ol thc shapc ol dcmand within and across citics
that is, how many and which citics account lor a givcn
pcrccntagc ol thc ovcrall addrcssablc markct, now and in
thc luturc. (This is not a trivial cxcrcisc, and it rcquircs
thc support ol truc local cxpcrtsthcrc arc no o-thc-
shcll insights lor many ol thcsc markcts.) On thc basis ol
thc asscssmcnt rcsults, scgmcnt and prioritizc your targct
citics, and cvaluatc your ovcrall growth plans in ordcr to
undcrstand how much markct sharc is rcquircd in how
many ol thcm.
Sccond, dcvclop and tcst a small numbcr ol go-to-markct
modcls to scrvc dicrcnt typcs ol citics. Thcsc modcls
could addrcss your approach to salcs lorccs, distribution
rclationships, local partncr managcmcnt, logistics, cus-
tomcr scrvicc, local markcting, and thc organization ol
thcsc activitics. Dcvcloping thc modcls will involvc tailor-
ing thc tradcos among cost, covcragc, and control in or-
dcr to cconomically scrvc dicrcnt city cnvironmcnts.
Thc modcls will dicr according to city sizc, spcnding lcv-
cls, proximity to othcr markcts, lragmcntation ol thc local
rctail cnvironmcnt, and othcr lactors. Thinking in tcrms
ol clustcrs ol citics, rathcr than individual citics, is an cs-
scntial part ol thc dcsign proccss.
Third, implcmcnt and rcnc thcsc modcls, whilc cxplor-
ing how to push thc boundarics. Emcrging-markct citics
arc changing so last that it`s csscntial lor companics to
rcgularly rcnc thcir approach. For cxamplc, as incomc
lcvcls risc, morc and morc marginal citics may bccomc
attractivc targcts.
Companics that pursuc such an approach to dcvcloping
and implcmcnting a city portlolio stratcgy will undoubt-
cdly idcntily ncw opportunitics lor growth and hiddcn
risks to bc addrcsscd; lor somc, it can spark a lundamcn-
tal rcthinking ol thcir approach to thc cmcrging markcts.
Companics that lail to scriously tacklc thc portlolio ap-
proach will likcly scc many rst-movcr opportunitics in
thc most attractivc city clustcrs bc takcn up by thc com-
petition.
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs 1
N
ot only is thc population ol cmcrging-
markct citics incrcasing, but growing
numbcrs ol rcsidcnts arc sccing thcir in-
comcs risc markcdly. By 2015, 125 mil-
lion houscholds rcprcscnting 460 million
rcsidcnts ol citics in Brazil, China, India, Indoncsia, Mcx-
ico, Bussia, South Alrica, and Turkcy will havc graduat-
cd to thc middlc class. (Scc Exhibit 6.)
This changc in incomc lcvcls is currcntly rcaching an in-
cction point, with many products prcviously unattain-
ablc by avcragc rcsidcnts starting to bccomc ncccssitics.
Oncc houscholds cntcr thc middlc class, consumption ol
catcgorics such as luxury goods and homc dccor incrcas-
cs rapidly. (Scc Exhibit 7.) Thc car markct providcs a prc-
vicw ol what will occur in many othcr catcgorics. In 2000,
cmcrging-markct citics accountcd lor S pcrccnt ol total
Capturing the Consumer
Opportunity
Middle-class and above-middle-class households (millions)
Mexico
1
Indonesia
2
Turkey
1
Brazil
1
Russia
1
India
2
2015 2010
46
0
40
60
80
100
52
98
35
69
35
49
13
27
14
20
10
14
8
11
5 6
34 14 6 2 4 14 2
Approximately 125 million households in emerging-market cities will enter the
middle class between 2010 and 2015, an increase of more than 70 percent
Increase in middle-
class households,
20102015 (millions)
Approximately 50 households join the middle class every minute
China
1
South
Africa
1
20
Exhibit 6. The Middle-Class Population of Emerging-Market Cities Is Burgeoning
Sources: Economist Intelligence Unit; Brazilian Institute of Geography and Statistics (IBGE); Instituto Nacional de Estadistica y Geografa (INEGI); BCG
China population and income forecast database, 2010; The Great Indian Middle Class, National Council of Applied Economic Research (NCAER),
2004; BCG analysis.
1
Middle-class households are those with annual income exceeding $10,000.
2
Middle-class households are those with annual income exceeding $5,000.
1( TL BOs1Ou COusuL1IuG GROuI
car salcs. Today, morc than 37 pcrccnt ol thc world`s cars
arc purchascd in thcsc markcts, including a signicant
sharc ol luxury cars. In thc rst hall ol 2010, BMW sold
morc cars in China than in thc Unitcd Kingdom, and Mcr-
ccdcs-Bcnz rcportcd a 120 pcrccnt salcs incrcasc in Chi-
na ovcr thc samc pcriod.
Categories of Opportunity
Basic consumcr products may bc cxpcricncing this in-
crcascd dcmand ahcad ol othcr goods and scrviccs, but
rapid growth will undoubtcdly bc sccn in othcr catcgo-
rics as wcll.
Consumer Products. By 2015, cmcrging-markct citics
will account lor around 30 pcrccntor $2.6 trillion
ol thc total global consumption ol clothing and housc-
hold itcms. And thcsc citics arc alrcady somc ol thc
lastcst-growing markcts lor luxury goods in thc
world.
Education. Education is a high priorityin somc cascs,
cvcn thc singlc largcst cxpcnditurclor many cmcrg-
ing-markct city dwcllcrs. Somc rcsidcnts wc intcr-
vicwcd said thcy had optcd lor morc cxpcnsivc privatc
schools, and thc vicw that cducation is an invcstmcnt
in thcir childrcn`s luturc was a rccurring thcmc. For
instancc, a middlc-class couplc wc spokc with in In-
dorc, India, spcnd hall ol thcir annual incomc ol
$S,200 on cducation lor thcir two childrcn. What`s
morc, thc bulk ol thcir savings is carmarkcd lor luturc
cducational nccds.
Health Care. Many ol thc cmcrging-markct urban rcsi-
dcnts wc spokc with idcnticd improvcd hcalth carc
0
5
10
15
20
Apparel and footwear Personal care
Prestige and luxury goods
Skin care and cosmetics Health care and nutrition
Food and beverages
Home dcor
Consumer electronics
Travel and entertainment
HousehoId
annuaI income
($thousands)
Household appliances
Household care
Consumption index
Auent MiddIe cIass Emerging
middIe cIass
Aspiring
middIe cIass
Poor
>20
ExampIe: China
Expanding needs
Homogeneous needs
Cars
25
<4
45
56
67
78
89
910
1012
1214
1416
1618
1820
Exhibit 7. Consumption Patterns Change Radically as the Middle-Class Population Grows
Sources: BCG China consumer behavior quantitative research (n = 2,594 in 12 cities, 2007); BCG analysis.
Note: Index is based on mean percentage of category spending; weighted-average income was used for the poor category and midpoint income was
used for the other income groups; $1 = RMB 6.8.
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs 1
as a priority lor luturc cxpcnditurcs. Scvcral alrcady
subscribc to privatc hcalth scrviccs or hcalth insur-
ancc systcms bccausc thcy arc dissatiscd with pub-
licly availablc options in thcir arca. A chcl wc spokc
with in Wcnling, China, commcntcd on thc poor qual-
ity ol hcalth carc covcragc lor migrant workcrs in his
city, and many othcrs had similar conccrns. It is likcly
that in thc ncar luturc, as scdcntary
work bccomcs incrcasingly availablc in
thc citics, along with low-cost high-lat
and high-sugar-contcnt loods, a risc in
hcalth problcms such as diabctcs, hcart
discasc, strokc, and obcsity will spur in-
crcascd dcmand not only lor mcdical
carc but also lor goods and scrviccs
such as organic loods and hcalth clubs.
Consumer Financial Services. Although thcir avcragc in-
comc lcvcls arc much lowcr than thosc ol thcir coun-
tcrparts in dcvclopcd markcts, most ol thc rcsidcnts ol
cmcrging-markct citics wc intcrvicwcd wcrc saving a
vcry signicant portion ol thcir incomcs lor thc luturc.
In somc citics, howcvcr, rcsidcnts cxprcsscd lrustra-
tion rcgarding a lack ol consumcr nancial scrviccs.
Thc busincss owncr in Mcdan, Indoncsia, rclcrrcd to
carlicr, complaincd about thc dimculty ol gctting a
loan to cxpand his busincss. And a migrant workcr wc
spokc with said that hc would likc to opcn a savings
account, but thc ncarcst bank branch was too lar away
lrom whcrc hc livcd. Noncthclcss, consumcr nancc
in cmcrging-markct citics is cxpcctcd to rcach $10 tril-
lion by 2030. Citics with populations ol lcss than 5 mil-
lion will account lor a signicant sharc ol this growth,
including thc ma|ority ol mortgagc and auto loans and
slightly lcss than hall ol pcrsonal loans.
Five Imperatives for Consumer
Businesses
Thc risc ol thc cmcrging-markct citics has many parallcls
with thc risc ol citics in thc dcvclopcd cconomics. But
vc kcy dicrcnccsand thc uniquc impcrativcs that
thcy implyarc ol critical importancc lor companics
sccking to scrvc consumcrs in thcsc markcts.
The scale and speed of the rise of these cities is un-
precedented. Through 2030, thc growth in ncw city rcsi-
dcnts in thc dcvclopcd cconomics will bc outpaccd by
that ol ncw rcsidcnts in cmcrging-markct citics by a lac-
tor ol tcn.
Imperative: To serve these consumers, companies will
need to move quickly. Many consumers in emerging-
markct citics arc at thc carly stagc ol lorming
brand prclcrcnccs as thcy movc up thc incomc
laddcr, and thosc companics with thc
strongcst prcscncc and thc most attrac-
tivc product ocrings will bc wcll posi-
tioncd to win in thcsc markcts. Thc
shccr volumc ol growth potcntial that
thcsc citics rcprcscnt could tip thc
scalc in lavor ol nimblc compctitors ca-
pablc ol taking advantagc ol this un-
prcccdcntcd opportunity.
Capturing consumer demand in these markets
will necessitate dealing with an extremely large
number of individual cities. By 2030, thcrc will
bc morc than lour timcs thc numbcr ol citics with pop-
ulations in cxccss ol 500,000 in thc cmcrging markcts
than in thc dcvclopcd cconomicsmorc than 1,000
such cities.
Imperative: Companies will need to align their city
coverage with the most attractive opportunities and
adapt their business models to reach further and deep-
er into these markets. In 2005, a company had to bc
in 60 citics in China in ordcr to rcach S0 pcrccnt ol
that country`s middlc class. In 2020, a company
wishing to rcach thc samc sharc ol thc middlc
class will havc to bc in 212 Chincsc citics. (Scc Ex-
hibit S.) Clcarly, many companics nccd to bc ask-
ing somc dimcult qucstions about thcir covcragc
lcvcls and go-to-markct approachcs in cmcrging-
markct citics. Chicl among thcm: How many citics
do wc nccd to bc covcring? And how can wc scrvc
thcsc markcts protably?
The local living environmentsuch as the type of
housing typical of a particular areashapes lifestyles
and thcrcforc inucnccs purchasing bchavior and
consumption patterns. Whilc somc lactors, such as
dcnsc populations, arc charactcristic ol many cmcrging-
markct citics, othcrs vary signicantly lrom placc to placc,
including crimc, pollution, lood salcty, and thc quality
and availability ol local housing, schools, and hcalth-carc
lacilitics.
By 2030, there will be
more than 1,000 cities
in emerging markets
with populations in
excess of 500,000.
16 TL BOs1Ou COusuL1IuG GROuI
Imperative: Products and services for emerging-mar-
ket cities need to be driven by deep insights into how
city living shapes the needs of targeted consumers. Lo-
cal charactcristics must bc takcn into account
whcn tailoring products and scrviccs lor thcsc
markcts, which rcquircs thc dcvclopmcnt ol com-
prchcnsivc consumcr insights in a company`s tar-
gct citics. Many multinational companics havc un-
dcrinvcstcd in this cllort, rcgarding it as too
dimcult or timc-consuming. Howcvcr, givcn thc di-
vcrsc nccds ol thc many cmcrging-markct citics
and thc spccd at which consumcr prclcrcnccs arc
changing, a dccp undcrstanding ol consumcrs is
vital lor succcss in thcsc markcts.
Takc today`s high-cnd urban kitchcn in China, lor
cxamplc. In such a kitchcn, thcrc probably will
not bc a cappuccino makcr, but an cxpcnsivc
soymilk machinc is likclyor will at lcast bc as-
pircd to. Thcrc probably will not bc a lood proccs-
sor, but a high-cnd ricc cookcr is likcly. And thcrc
will probably bc ncithcr an ovcn nor an automat-
ic dishwashcr, but a modcrn gas rangc with a so-
phisticatcd vcntilation hoodand possibly a
built-in drinking-watcr ltration systcmis likcly.
Thcsc clcmcnts ol thc modcrn Chincsc kitchcn
rcllcct a combination ol local cuisinc (ricc,
soymilk, and lricd rathcr than bakcd loods), local
cconomics (a low-cost maid is likcly to bc morc al-
lordablc than thc spacc nccdcd lor a dishwashcr),
and local cnvironmcntal conccrns (watcr purica-
tion is a must). Companics wanting to win con-
sumcrs in thcsc markcts must go to markct with
solutions bascd on thcsc vcry spccic typcs ol
insights.
MobiIity dicrcnccs wiII acct shopping bchavior.
Narrow or poorly pavcd roads in largc citics causc tramc
congcstion that scvcrcly limits mobilityand shopping.
I ocn go to thc ncarby kirana to buy basic items be-
causc I hatc waiting in tramc to gct to thc supcrmarkct,"
said a rcsidcnt ol Ahmcdabad, India, with an annual
houschold incomc ol $12,000. Such constraints havc a
strong inucncc on thc daily routincs and shopping bc-
haviors ol houscholds in many citics.
Imperative: Companies must shape their go-to-market
approaches in light of the local retail mix. The retail
landscapc is changing rapidly in cmcrging-markct
citics, but it dicrs signicantly dcpcnding on city
sizc and local culturc. Smallcr citics tcnd to havc
a mix ol traditional tradcsuch as mom-and-pop
storcsand modcrn tradc, including chain storcs
or lranchiscs.
In gcncral, pcoplc in dcnsc citics prclcr ncighbor-
hood storcs and morc lrcqucnt shopping trips.
Wc usually do groccry shopping at thc ncarby
groccry storc," said an Istanbul rcsidcnt who livcs
with his lamily in thc downtown arca. Most daily
trips arc local and donc by public transport." In
cmcrging-markct citics charactcrizcd by urban
sprawl, howcvcr, rcsidcnts prclcr hypcrmarkcts
and tcnd to makc wcckly shopping trips. Wc go
shopping oncc a wcck at Carrclour or Wal-Mart,"
a So Paulo lathcr and husband told us. Cars, not
surprisingly, arc a crucial part ol suburban living.
Wc can`t livc without our car hcrc in thc sub-
urbs," said Mrs. Gonzalcz, an uppcr-middlc-class
houscwilc in Mcxico City. My husband spcnds
hours commuting by car to work, and [thc car is
ncccssary] lor gctting our wcckly groccrics lrom
thc hypcrmarkct."
0
Cumulative middle-class and
above-middle-class population (%)
650 600 550 500 50 450 400 350 300 250 200 150 100 0
2020 2010 2005
1
5
5

c
i
t
i
e
s
2
1
2

c
i
t
i
e
s
6
0

c
i
t
i
e
s
Example: China
The number of cities
required to reach 80
percent of the middle
class is rapidly increasing
100
80
60
40
20
Exhibit 8. Rapid Expansion in City
Coverage Will Be Required to Keep Up
with Middle-Class Growth
Sources: BCG China population and income forecast database,
2010; BCG analysis.
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs 1,
The residents of emerging-market cities are getting
wired far more rapidly than many executives
imagine. Alrcady, 610 million rcsidcnts ol Brazil, China,
India, Indoncsia, and Bussia usc thc Intcrnct rcgularly,
and this numbcr will risc to 1.2 billion by 2015. Incrcas-
ing conncctivity is occurring in parallcl with thc risc ol
cmcrging-markct citics, and thc conucncc ol thcsc two
trcnds has thc potcntial to lundamcntally altcr consumcr
bchavior.
lmcratiuc. Comauics must uudcrstaud tnc c[cct oj
digital shopping channels on consumers in emerging-
market cities. Intcrnct acccss is lcading to incrcascd
consumcr sophistication in thcsc markcts. An cn-
trcprcncur in Mcdan, Indoncsia, rcscarchcs prod-
ucts on thc Intcrnct bccausc hc distrusts salcspco-
plc. A middlc-school tcachcr in Wcnling, China,
shops lor his childrcn onlinc bccausc hc can nd
bcttcr dcals thcrc. Consumcrs in most mcgacitics
and clustcr capitals arc alrcady opcn to shopping
onlinc, and thcir willingncss is growing with im-
proving tcchnology. For cxamplc, onlinc shopping
is popular in China`s largc coastal citics, and morc
than hall thc rcsidcnts ol Shanghai and Bci|ing
makc purchascs onlinc. In smallcr citics such as
Chcngdu and Luoyang, howcvcr, consumcrs still
tcnd to bc lcss opcn to onlinc shopping.
Digital shopping prcscnts both opportunitics and
challcngcs. On thc onc hand, thc usc ol onlinc
channcls may allow somc companics to partici-
patc in cmcrging-markct citics whcrc a physical
prcscncc is not cconomically viablc. On thc othcr
hand, it raiscs thc risk ol valuc chain disruption by
purc onlinc playcrs in industrics traditionally
dominatcd by brick-and-mortar chains.
18 TL BOs1Ou COusuL1IuG GROuI
E
mcrging-markct citics will nccd bcttcr hous-
ing and inlrastructurcincluding transpor-
tation, watcr, sanitation, and clcctricity.
Mccting thcsc nccds will rcquirc an cstimat-
cd cumulativc cxpcnditurc ol $30 trillion to
$40 trillion by 2030thc cquivalcnt ol 60 to 70 pcrccnt
ol thc total global invcstmcnt in inlrastructurc. (Scc Ex-
hibit 9.) Thc strongcst drivcr ol inlrastructurc dcmand
will bc population growth. Thus, thc ma|ority ol housing
and inlrastructurc invcstmcnt will bc in smallcr citics
rathcr than in thc mcgacitics. In Mcxico, lor cxamplc, cit-
ics with populations ol lcss than 500,000 arc consuming
ncarly hall thc country`s ccmcnt output. As to China, thc
satcllitc imagcs in Exhibit 10 show thc massivc inlrastruc-
turc dcvclopmcnt that has takcn placc in Tian|in, a clus-
tcr capital not lar lrom Bci|ing, sincc 2000.
Housing
Emcrging markcts will rcquirc an cstimatcd $13.S trillion
in housing invcstmcnt lrom 2010 to 2030, with a hugc
portion ol thc dcmand coming lrom Brazil, China, India,
and Mcxico. Thcsc invcstmcnts will rcsult in thc addition
ol somc 10.7 trillion squarc mctcrs ol housing in China,
whilc India will add 5.2 trillion squarc mctcrs. At thc
samc timc, urban dwcllcrs in China and India will in-
crcasc by 270 million and 230 million, rcspcctivcly.
Thc acutc dcmand lor housing in cmcrging-markct citics
mcans that alrcady-high population dcnsitics will in-
crcasc lurthcr, particularly in China and India. Thc nccd
to ovcrcomc spacc limitations is likcly to drivc up dc-
mand lor multilamily rcsidcntial housing. Shanghai may
bc somcthing ol a lcading indicator on this lrontthc
numbcr ol storics and thc oor arca ol high-risc buildings
thcrc havc incrcascd thrcclold sincc 2000 along with pop-
ulation dcnsity. Thc housing construction boom mcans
that virtually all construction-rclatcd industrics arc bcing
drivcn and translormcd by thc cmcrging markcts. Takc
clcvators, lor cxamplc. Ncarly 70 pcrccnt ol ncw clcvator
dcmand globally now comcs lrom thc cmcrging mar-
kctsChina alonc accounts lor ncarly 50 pcrccnt ol glob-
al dcmand. In this cnvironmcnt, ncw companics bascd in
cmcrging markcts arc bccoming lormidablc last. China-
bascd Ningbo Shcnling Elcvator Acccssorics Company is
now thc world`s sccond-largcst makcr ol clcvator doors
Capturing the Infrastructure
Opportunity
Total
Other
3
Transportation
Electricity
Water
2
Housing
1
Infrastructure
$trillions
4
Cumulative investment requirement, 20102030
3040 ~2
~5
~5
~12
~14
Housing
Exhibit 9. Emerging-Market Cities Will
Require More Than $30 Trillion in
Infrastructure and Housing Investment
Sources: OECD, Infrastructure to 2030, 2006; Morgan Stanley; CLSA;
National Bureau of Statistics of China; BCG analysis.
1
Includes demand only from increased urban population and
expanding average living space per capita, calculated on a yearly
basis; does not take into account excess inventory.
2
Includes water supply, wastewater, and sanitation services.
3
Includes airports/seaports ($600 billion) and telecommunications
($1.1 trillion).
4
Constant 2010 prices.
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs 1
and is growing rapidly. Othcr busincsscs involvcd in hous-
ing construction (makcrs ol building control systcms, air
conditioncrs, lighting, and window glass, lor cxamplc) arc
similarly undcrgoing dramatic translormation.
Water and Sanitation
Pcrhaps thc most scrious inlrastructurc dccits in many
cmcrging-markct citics arc in watcr and basic sanitation.
Acccss to salc drinking watcr is inadcquatc in many citics
in thc cmcrging markctscvcn in somc mcgaciticsand
growing watcr scarcity will only cxaccrbatc thc problcm.
Watcr thcrclorc promiscs to bc onc ol thc biggcst invcst-
mcnt targcts in cmcrging-markct citics. In somc arcas,
watcr shortagcs arc alrcady driving thc adoption ol dc-
salination and advanccd watcr-rcusc and rccycling
schcmcs. Thc winning tcchnologics stand to gain lrom
signicant dcmand in othcr citics lacing acutc shortagcs,
cspccially in China and India.
Transportation
Thc nccd lor bcttcr links among cmcrging-markct citics
will intcnsily thc dcmand lor improvcd transportation.
Mahy hew hIgh-rIse
resIdehtIal areas;
razIhg of older
resIdehtIal areas
Lxpahded traIh
statIoh wIth bullet-
traIh termIhus
AddItIohal major
roads, hIghways,
ahd brIdges
Tianjin in 2000
Tianjin in 2009
Exhibit 10. Infrastructure Development in Tianjin, China, Has Soared in the Past Ten Years
Sources: GeoEye; DigitalGlobe.
2u TL BOs1Ou COusuL1IuG GROuI
Tramc is currcntly a ma|or bottlcncck, both within and bc-
twccn citics. In addition to invcstmcnts in roads and high-
ways, invcstmcnts in public transportation arc gaining
momcntum. For cxamplc, Dclhi opcncd its rst subway
linc, with 21 stations, in 2002. Now, a mcrc cight ycars lat-
cr, a total ol vc lincs with morc than 100 stations arc in
opcration. In China, 110,000 kilomctcrs ol rail lincs will bc
built by 2012ncarly 50 pcrccnt morc
track than thc lcngth ol thc cntirc U.S. In-
tcrstatc Highway Systcm. This will includc
13,000 kilomctcrs ol high-spccd railmorc
than anywhcrc clsc in thc world.
Transportation inlrastructurc will contin-
uc to prcscnt companics with signicant
commcrcial opportunitics. Dcmand growth
in citics with populations ol lcss than 5 million will bc
particularly notablc as thcsc citics upgradc thcir inlra-
structurc in ordcr to dcvclop thc local cconomy.
Electricity
Wc anticipatc that cmcrging markcts will nccd $5.3 tril-
lion worth ol invcstmcnt in clcctricity inlrastructurc lrom
2010 to 2030. Approximatcly 60 pcrccnt ol thc global gcn-
crating capacity addcd through 2030 will bc built in
cmcrging markcts.
Elcctricity consumption pcr capita in cmcrging-markct
citics is signicantly lowcr than in dcvclopcd markcts but
is likcly to incrcasc rapidly in tandcm with rising incomc
lcvcls. This trcnd undcrscorcs thc nccd lor invcstmcnts
in cncrgy cmcicncy in thcsc markcts.
How to Tap In to the Infrastructure
Opportunity
Thcrc arc many ways lor companics to play a rolc in
mccting thc inlrastructurc nccds ol cmcrging-markct cit-
ics: through city planning, nancing and invcstmcnt, thc
construction and managcmcnt ol ncw inlrastructurc, thc
opcration and maintcnancc ol cxisting inlrastructurc, or
thc supply ol raw matcrials, componcnts, and innovativc
technologies.
In addition, cnvironmcntal challcngcs arising lrom rapid
cconomic dcvclopmcnt will spur dcmand lor innovativc
clcaning and grccning" solutions. Emcrging-markct cit-
ics sucr lrom scvcrc air pollution: thc 30 most pollutcd
citics in thc world arc all in cmcrging markcts. Bcncw-
ablc cncrgy, zcro-cmission vchiclcs, and urban grccning
arc |ust a lcw cxamplcs ol thc tcchnologics and practiccs
that cmcrging-markct citics will nccd to intcgratc into
thcir inlrastructurc-planning proccsscs in thc coming dc-
cadcs, as incrcasing numbcrs ol amucnt
and middlc-class rcsidcnts dcmand a bct-
tcr living cnvironmcnt. In addition, cx-
pandcd wastc-trcatmcnt capacity will bc
nccdcd to handlc highcr population lcvcls
in these cities.
Thc shortlall bctwccn nccdcd inlrastruc-
turc in cmcrging-markct citics and avail-
ablc public lunds is cstimatcd to bc in thc ncighborhood
ol $11 trillion to $14 trillion through 2030. This crcatcs an
opportunity lor privatc invcstors to hclp govcrnmcnts
raisc lunds to bridgc thc nancing gap or lor privatc con-
struction rms and assct managcrs to takc a nancial
stakc in thcir contracts. Although thc cmcrging markcts
havc dicrcnt nancing capabilitics and dicrcnt dcgrccs
ol opcnncss to privatization, thc shccr sizc ol this gap has
cncouragcd many govcrnmcnts to cmbracc privatc -
nancing in thc lorm ol public-privatc partncrships (PPPs).
Thc amount invcstcd in grccncld pro|ccts involving pri-
vatc participation was $62 billion in 2007 lor thc six larg-
cst cmcrging-markct countrics, comparcd with $25 bil-
lion in 2003.
Scvcral PPP modcls havc bccn succcsslul in cmcrging-
markct citics, including onc in Indorc, whcrc India`s rst
Bus Bapid Transit Systcm was dcploycd in 2006. An in-
novativc arrangcmcnt allowcd thc city to build a modcrn
transit systcm with dcdicatcd busways, a computcrizcd
tickct-vcnding systcm, and continuous GPS monitoring.
Thc company crcatcd lor this PPP has bccn protablc
sincc its rst ycar in opcration.
Many capabilitics will nccd to bc lostcrcd in ordcr to win
in thc inlrastructurc markcts ol cmcrging-markct citics,
and companics that rcalizc thc trcmcndous potcntial ol
thcsc markcts will nccd to act last. Ncw or adaptcd busi-
ncss modcls will bc rcquircd to rcalizc thc lull potcntial
ol thc opportunity, and ncw challcngcs and complcxitics
around issucs such as organization, talcnt managcmcnt,
risk managcmcnt, and city portlolio stratcgy will ccrtain-
ly nccd to bc addrcsscd.
Realizing the potential
of the infrastructure
opportunity will
require new or adapted
business models.
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs 21
T
hc samc vibrant cnvironmcnt that is shap-
ing consumption in cmcrging-markct citics
is giving risc to innovativc local compcti-
tors that arc tailoring thcir products and
scrviccs to thc uniquc opportunitics thcsc
citics aord. Companics that opcratc in cmcrging-mar-
kct citics arc likcly to cncountcr ncw compctitivc chal-
lcngcs, and thc ability to undcrstand and adapt to thcm
is crucial.
Onc cxamplc ol local innovation is Mumbai`s dabbawalas,
as thc city`s box-lunch catcrcrs arc callcd. Mumbai is In-
dia`s most dcnscly populatcd city, and tramc congcstion
thcrc is rampant. As a rcsult, it is cxcruciatingly timc-con-
suming lor omcc workcrs, many ol whom livc outsidc thc
city ccntcr, to rcturn homc lor lunch. Thc dabbawalas pro-
vidc thcsc workcrs with hot mcals at low cost. Thcir sup-
ply chain is carclully dcsigncd to prcvcnt dclays and dis-
ruptions in dclivcry.
Somc local compctitors havc succccdcd in disrupting val-
uc chains in thcir industrics. Thc cmcrgcncc ol Yonghui
as a lcading supcrmarkct chain in Chongqing is a good
cxamplc. Thc company buys producc dircctly lrom indi-
vidual larmcrs rathcr than lrom traditional intcrmcdiar-
ics. This supply-chain modcl allows Yonghui to stock pro-
ducc as lrcsh as that lound in larmcrs` markcts and to scll
it at lowcr priccs than thosc ol its multinational compct-
itors. In Chongqing alonc, Yonghui`s succcss has allowcd
it to cxpand lrom 9 supcrmarkcts in 2007 to 44 in 2009
lar cxcccding thc growth ol intcrnational hypcrmarkcts
during thc samc pcriod. At thc samc timc, thc company
has managcd to maintain a rclativcly at managcmcnt
structurc, kccping ovcrhcad low and cnabling rapid dcci-
sion-making.
It is |ust a mattcr ol timc bclorc local compctitors such as
thcsc sct thcir sights on global cxpansion and challcngc
incumbcnts lor lcadcrship in thcir homc markcts. This is
alrcady occurring in thc inlrastructurc markct, whcrc
Chincsc statc-owncd construction companics, such as
China Communications Construction Company and Chi-
na Statc Construction Enginccring Corporation, havc
rackcd up billions in intcrnational rcvcnuc. Thc winncrs
in thc cmcrging-markct citics will bc poiscd to cmcrgc as
lormidablc compctitors on thc global stagc. This is a risk
that ocn rcccivcs littlc noticc lrom cstablishcd multina-
tional companics and dcscrvcs additional stratcgic con-
sidcration.
Incubators of Dynamic Local
Competition
22 TL BOs1Ou COusuL1IuG GROuI
C
apturing thc trcmcndous growth opportuni-
ty prcscntcd by thc cmcrging-markct citics
will rcquirc a ncw managcmcnt agcnda lor
thc cmcrging markcts, with citics as its local
point. Pursuing this agcnda will cnsurc that
companics locus on thc right stratcgic issucs in ordcr to
build a succcsslul position in thcsc markcts. It rcquircs
cxccutivcs to tacklc thc lollowing impcrativcs:
cjuc routn laus ou tnc oasis oj sccijc tarct citics
the portfolio of emerging-market cities to be served now
and in the future. It is no longcr sumcicnt to plan on thc
basis ol countrics or looscly dcncd rcgions within
countrics. Planning must includc an cxplicit cvalua-
tion ol thc costs and bcncts ol scrving dicrcnt citics.
Most companics will nd that thcy arc scrving lar lcw-
cr citics than thcy should bc, and that thcy nccd to bc
much morc ambitious and spccic.
Sccijy tnc ucccssary o-to-mar/ct modcls to cuaolc rojt-
able expansion into more and smaller cities. Multiple go-
to-markct modcls arc impcrativc. Thc modcls rcquircd
lor smallcr citics will bc lundamcntally dicrcnt lrom
thosc rcquircd lor mcgacitics. And thc right modcl`s
payo can bc hugca modcl that cnablcs smallcr cit-
ics to bc scrvcd protably can opcn up vast ncw mar-
kcts. Most companics will nd that thcy havc not dc-
votcd sumcicnt cort to dcvcloping such modcls.
Develop true expertise and insight regarding consumer
needs across a range of city environments in emerging
markets. Consumcrs in cmcrging-markct citics havc a
grcat varicty ol uniquc nccds and bchaviors. Most
companics lail to invcst propcrly in gaining dircct in-
sights into thcsc consumcrs and translating thosc in-
sights into products and scrviccs.
Iorc a amc lau to rojt jrom tnc iujrastructurc ooom.
Inlrastructurc-rclatcd companics nccd to grasp thc
magnitudc and spccd ol thc inlrastructurc growth tak-
ing placc in cmcrging-markct citics. Whilc ncw local
champions arc rising up on thc crcst ol this wavc, many
companics in dcvclopcd markcts arc missing out.
Develop talent and organization plans at a city-by-city lev-
cl oucr a juc-to-tcu-ycar timc jramc. As thc numbcr ol
commcrcially important citics skyrockcts, thc nccd lor
companics to havc talcnt bascd in all thcsc locations
also grows. But most companics arc still dcvcloping
thcir plans lor talcnt and organization only at thc na-
tional lcvcl. Thcy havc lailcd to clcarly dcnc whcrc
thcir luturc talcnt nccds will arisc, and thcy arc ovcr-
looking important local talcnt pools. Taking citics scri-
ously rcquircs a lundamcntal shi in talcnt planning.
Upgrade capabilities for managing complexity and risk.
As dcmand unlolds across a massivc numbcr ol cmcrg-
ing-markct citics, cvcry company that takcs this growth
challcngc scriously will cxpcricncc a highcr lcvcl ol
complcxity and risk. Companics must bcgin planning
lor this now.
Thc risc ol cmcrging-markct citics rcprcscnts thc world`s
singlc largcst commcrcial growth opportunity lor dccadcs
to comc. Whilc thc promisc is vast, thc complcxitics arc
also daunting. Ncvcr bclorc in history havc companics
bccn laccd with thc challcngc ol doing busincss simulta-
ncously in thousands ol citics around thc globc. Growth
lor many companics rcquircs taking up this challcngc.
Thosc that do so and succccd will bccomc truc global
winncrs.
The New Agenda for
Emerging-Market Growth
WIuuIuG Iu LmLRGIuG-MARKL1 CI1ILs 2
For Further Reading
The Boston Consulting Group pub-
lishcs othcr rcports and articlcs that
may bc ol intcrcst to rcadcrs ol this
rcport. Bcccnt cxamplcs includc thc
lollowing:
The Global Infrastructure
Challenge: Top Priorities for the
Public and Private Sectors
A Whitc Papcr by Thc Boston Consulting
Group, ]uly 2010
The Keys to the Kingdom:
Unlocking Chinas Consumer
Power
A rcport by Thc Boston Consulting
Group, March 2010
Chinas Luxury Market in a Post-
Land-Rush Era
A Whitc Papcr by Thc Boston Consulting
Group, Scptcmbcr 2009
From Crisis to Opportunity: How
Global Challenger Companies Are
Seeking Industry Leadership in
the Postcrisis World
A Whitc Papcr by Thc Boston Consulting
Group, Scptcmbcr 2009
Lucky 8: Understanding and
Capturing Chinas New Growth
A Whitc Papcr by Thc Boston Consulting
Group, ]uly 2009
The 2009 BCG 100 New Global
Challengers: How Companies from
Rapidly Developing Economies
Are Contending for Global
Leadership
A rcport by Thc Boston Consulting
Group, ]anuary 2009
Wealth Markets in China: The
Beginning of the Race for Chinas
Rich
A Focus by Thc Boston Consulting Group,
Octobcr 200S
2( TL BOs1Ou COusuL1IuG GROuI
Note to the Reader
Acknowledgments
Wc would likc to acknowlcdgc thc
lollowing mcmbcrs ol thc BCG tcam
lor thcir support in prcparing and
writing this rcport: Bawiah Ismail
Abdullah, Danicl Alanis, Pu|a
Bho|nagarwala, Yogcsh Budhira|a,
Marccla Burgos, Gonzalo Caillaux,
Christian Ccbrian, Edwina Chan, Sil-
mara Costa, Hcidi Huang, Chcn ]ic,
Lizzy Li, Elvio Lupo, Luo Ying, Mar-
tin Ma, David Nazarcth, Prashant
Shindc, Evclyn Tan, David Thian,
Tian ]ing, Alcxcy Tyunyacv, Wu Li-
ang, Lco Xu, and ]crry Zhou.
Wc would also likc to thank Gwynn
Guillord and thc mcmbcrs ol thc
cditorial and production tcam,
including Kathcrinc Andrcws, Gary
Callahan, Kim Fricdman, Gina
Goldstcin, Monica Pctrc, and Simon
Targett.
For Further Contact
Il you would likc to discuss our ob-
scrvations and conclusions, plcasc
contact onc ol thc authors:
David Jin
Partner and Managing Director
BCG Shanghai
S6 21 2306 4000
|in.davidgbcg.com
David C. Michael
Senior Partner and Managing Director
Global Leader, Global Advantage
Practice
BCG Bci|ing
S6 10 S527 9000
michacl.davidgbcg.com
Paul Foo
Project Leader
BCG Shanghai
S6 21 2306 4000
loo.paulgbcg.com
Jos Guevara
Partner and Managing Director
BCG Monterrey
52 S1 S36S 6200
gucvara.|oscgbcg.com
Ignacio Pea
Partner and Managing Director
BCG So Paulo
55 11 3046 3533
pcna.ignaciogbcg.com
Andrew Tratz
Global Manager, Global Advantage
Practice
BCG Bci|ing
S6 10 S527 9000
tratz.andrcwgbcg.com
Sharad Verma
Partner and Managing Director
BCG Ncw Dclhi
91 124 459 7000
vcrma.sharadgbcg.com
For a complete list of BCG publications and information about how to obtain copies, please visit our website at
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