New Delhi: Business in fast growing markets like India has become a priority for multinational firms, as the developing world is expected to produce nearly one billion households with earning more than $20,000 in next 15 years.
According to global management consultancy McKinsey & Co, “creating a powerful emerging-market strategy” has moved to the top of the growth agendas of many multinational companies.
The reason behind this shift in focus is seven emerging economies — China, India, Brazil, Mexico, Russia, Turkey and Indonesia— that are expected to contribute about 45% of global GDP growth in the coming decade, McKinsey said.
“The diversity and dynamism of China, India, and Brazil defy any one-size-fits-all approach. But by targeting city clusters within them, companies can seize growth opportunities,” said the report.
But while chalking out their expansion strategy in the emerging markets, multinationals should develop a country - level strategy and move beyond the large cities to register faster growth, it adds.
The report cites the example of India’s financial hub Mumbai, which by 2030 is expected to grow larger than the economy of Malaysia.
Even then, the city would only represent 5% of the country’s total output, with 14 largest cities in the subcontinent accounting for 24% growth, while the rest would come from smaller cities and towns.
“Understanding such variability can help companies invest more shrewdly and ahead of the competition rather than following others into the fiercest battlefields,” it said.
As developing economies become increasingly diverse and competitive, multinationals will need strategic approaches to understand such variance within countries and to concentrate resources on the most promising sub-markets, it added.
Often, the challenges of accessing consumption growth cost effectively are greater in India than in China because India is less urbanised and at an earlier stage of its economic development.
Companies would need to reach up to 3,500 towns and 334,000 villages, for example, to pursue opportunities in the 10 (of 28) Indian states that by 2030 would account for 73% of the country’s GDP and 62% of the urban population.
Some companies will be well served by focusing on 12 clusters around India’s 14 largest cities. These clusters would provide access to as much as 60% of India’s urban GDP by 2030, when the 14 largest cities are likely to account for 24% of GDP.
Still, India’s major clusters won’t cover as much of the economy as those in China, where they will encompass 92% of urban GDP by 2015.
“Yet a hub-and-spoke approach in India should provide similar opportunities to optimise supply chains, as well as sales and marketing networks,” the report said.