Monday, February 25, 2013

Emerging cities: Future economic centers of the world

McKinsey Quarterly has an interesting analysis about the future economic centers of gravity in the world, i.e. cities. It also ranks emerging cities based on population, GDP, floor space, municipal water and containers.

It estimates that by 2025, emerging cities will create over 4 billion “consumer class” with a total demand potential of $25 trillion. Here is a link to an illustrative chart on emerging global cities. Unfortunately, none of the cities in Nepal feature in the list. But, the emerging cities with high-income consumers are mostly from China and India, the two countries that share borders with Nepal.

Excerpts from the report:

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 (Exhibit 1). 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 for new thrusts.

Companies that adopt such a strategic approach may gain early-mover benefits. For some, developing better insights into demographic and income trends—such as an understanding of the urban areas where the population of older, wealthier consumers is growing most rapidly—will be sufficient. Others may need to dig deeper, learning the market dynamics of specific products in target cities. To illustrate the different panoramas of opportunity that appear when companies use a city-specific lens, we looked at five business sectors, each with different demand profiles. We then ranked cities with the highest growth potential for each of the sectors. Among the takeaways:

  • Companies marketing health care products to seniors would find Shanghai and Beijing topping the list of cities with growing populations of older consumers whose incomes are sufficiently high (above $20,000 on a purchasing-power-parity basis) to afford these products. Tokyo and Osaka are the only developed-world cities among the top ten—a sign that well-off, aging consumers no longer are found exclusively in developed markets.
  • Baby food is at the other end of the age spectrum. Combining income and demographic data—in particular, the numbers of households with young children—we found that cities in Africa offer great potential. More than half of the top ten cities enjoying rapid growth in the number of children who live in households with incomes from $7,500 to $20,000 (on a purchasing-power-parity basis) are in Africa.
  • São Paulo, Beijing, Rio de Janeiro, and Shanghai rank highest in a targeted analysis of market growth for laundry products. In fact, over the next decade, São Paulo will experience more growth in the sale of detergents and related cleaning products than the national markets of France or Malaysia will. That’s just a small shard in the global-consumption mosaic for emerging cities. We project that urban consumers in developing countries will spend an additional $14 trillion annually by 2025.
  • By 2025, cities worldwide will need to spend at least $10 trillion more per year on physical capital—everything from office towers to new port facilities—than they do today. In building construction, the new floor space required will be equivalent to 85 percent of today’s entire residential and commercial building stock; 40 percent of that growth will be in Chinese cities.
  • Urban water-related infrastructure, another pressing need, will require $480 billion in global investment by 2025, with 80 percent of that flowing to emerging-market cities. Mumbai and Delhi will be the leaders in that spending.

Read more here.