Do Business Opportunities Exist Outside the Largest Cities in BRIC Countries?

Over the last decade, the role of megacities has been rising in BRIC countries. Shanghai, Moscow and Delhi hosted larger shares of their respective countries’ populations in 2013 than they did in 2005. Such growth did not go unnoticed by international companies, which often target the largest metropolises when aiming to establish themselves in BRIC countries. Yet, these countries still possess a number of unexploited opportunities outside their traditional urban markets in emerging smaller (second-tier) cities.

Average Household Income in BRIC Cities, US$ Per Household in 2013

Source: Euromonitor International

Note: The largest cities refer to the most populous cities within the respective country, as of 2013. The most affluent cities refer to cities with the highest average household annual disposable income in the respective country, as of 2013

 

Income Levels in Some Smaller BRIC Cities Exceed those in the Largest Metropolises

In most cases, BRIC megacities have seen exponential economic growth, better living standards and higher consumer spending compared to the rest of their respective countries. For companies, this has led to increasing business costs, intense competition and growing market saturation. This is putting pressure on businesses to look for new markets with lower production costs, more attractive tax incentives and less competitive environment overall.

In search for new profitable growth opportunities, they are increasingly eyeing lesser known but rapidly growing second-tier cities in BRIC countries. At the same time, the rising disposable incomes of consumers in second-tier cities are making them find many Western brands increasingly accessible:

  • While several times smaller in population than São Paulo or Rio de Janeiro, a considerable number of Brazilian second-tier cities registered similar household income levels as the two aforementioned cities in 2013. Over 80% of households in such cities as Brasilia, Ribeirão Preto, Campinas, São José dos Campos and Sorocaba had disposable incomes higher than US$10,000.
  • Moscow is the most notable cauldron of economic activity in Russia, exceeding the country’s second largest city St Petersburg three times in population terms and by nearly 60% in average household income terms. Yet, there were a few second-tier cities in Russia with household income levels similar to St Petersburg’s in 2013. Tyumen, Yekaterinburg and Khabarovsk also had relatively high shares (70% or more) of households with per household incomes over US$10,000.
  • Despite ongoing investment, Indian second-tier cities (with the exception of Bangalore) are heavily outperformed by Delhi and Mumbai in terms of average household income. While this suggests there are persisting production and outsourcing opportunities in smaller cities, it also pinpoints the unequal development of India. The only two second-tier cities in the country which registered at least 60% of their households having incomes above US$10,000 in 2013 were Bangalore and Patna.
  • Unlike India, China presents a number of sizeable affluent consumer markets outside the largest cities. Nanjing, Guangzhou, Shenzhen, and Foshan; each featured average household income levels similar to Beijing’s in 2013. At the same time, they offered relatively large consumer pools (above seven million people each), more than 60% of which consisted of households with incomes above US$10,000.

Will second-tier cities grow faster than large cities?

Although smaller in size, second-tier BRIC cities are generally expected to present better growth opportunities over 2013-2020 than first-tier cities. A great number of second-tier cities in BRIC countries are projected to grow by 30-50% between 2013 and 2020 in terms of average real household income. This significantly exceeds the respective growth rates expected to be achieved by mature cities like New York City and Tokyo, but also those of first-tier BRIC cities like Rio de Janeiro, Moscow, Mumbai and Shanghai.

Average Household Income Growth in BRIC Cities, Real % Change over 2013-2020

Source: Euromonitor International

Note: The largest cities refer to the most populous cities within the respective country, as of 2013. The most affluent cities refer to cities with the highest average household annual disposable income in the respective country, as of 2013

Consumer goods companies are able to capitalise on these developments by intensifying their efforts to expand to second-tier BRIC cities, which offer noteworthy shares of middle-class consumers who are increasingly ready to embrace convenience and new concepts, brands and services. At the same time, second-tier cities provide marketers with unexploited opportunities for generating extra sales as they tend to be less saturated than first-tier cities and feature sizeable growth potential.