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Multinational Companies Target Developing Cities for Increased Profits
Favelas in Brazil rely on grids by Siemens to expand entreprenurial opportunities. Photo by Daniel Castanho.

Favelas in Brazil rely on electric grids by Siemens to expand entrepreneurial opportunities. Photo by Daniel Castanho.

A recent article in Forbes highlighted the role that multinational companies play in improving quality of life for the lowest-income neighborhoods of developing countries. The rapid growth of cities and the expanding informal housing sections have proven to be a lucrative opportunity for companies like General Electric, Sweden’s ABB, France’s Alstom and Schneider Electric, and finally, Siemens, the German engineering conglomerate.

“Mass migrations from rural to urban areas worldwide are creating unparalleled opportunity. Staggering numbers tell the tale: Already 51% of the world’s 6.9 billion people—3.5 billion souls—live in cities; by 2050 demographers think it will be 70%, or 6.2 billion people,” Forbes reports.  The article also explains that almost all of this urban growth will be in emerging markets like Asia, Africa and Latin America. Furthermore, according to United Nations estimates, Europe’s share of the world will reduce to 6 percent, whereas Africa’s will increase to 25 percent by 2100.

Forbes reports that 70 percent of Siemens’ current sales reside in developed nations. The reduction in share of these markets and the emergence of newer markets in developing nations have encouraged Siemens to target its products to better suit the needs of the latter group. “Already a mighty unit, with 81,000 employees and $24 billion in revenue, [Siemens] will sell electrical equipment, building technology and other products aimed at urban areas.” The effort will be under Siemens’ new division, “Infrastructure & Cities,” and will help the company achieve higher sales.

Siemens economists estimate a $2.8 trillion per year market in urban infrastructure, of which $423 billion comes from products that Siemens already sells. In 2011, Siemens estimated to earn revenues of $109 billion. Chief Executive at Siemens, Peter Löscher, aims to reach a new goal of $149 billion in sales.

According to Roland Busch, head of strategy at Siemens, 50 percent of the world’s GDP is generated in the 645 cities with populations above 750,000. Among these, the largest 40 cities represent 20 percent of global GDP. “The momentum is firmly in emerging markets,” Forbes reports. “While Germany has 3 cities with a population over 1 million, India has 46 and China has 160.”

The article also claims that the products targeted to lower-income neighborhoods in developing cities create entrepreneurial opportunities that elevate individuals out of poverty. One example is the city of São Paulo, Brazil. “São Paulo is a voracious consumer of electricity, railway gear, manufacturing equipment and everything else Siemens sells,” Forbes reports. “Brazil’s richest 5% of the population have grown wealthier with the country’s economic boom, but so have its poorest citizens. In recent years at least 25 million people have moved up two or more steps from staggering poverty to the aspiring working class.”

One aspect that threatens the health of these growing cities is traffic. According to Forbes, Siemens commissioned a study surveying 500 city managers, municipal employees and private company executives from around the world to discover that transportation is rated as the highest priority investment in alleviating the stress on growing cities.

In addition to identifying the problem, Siemens has also been working to resolve issues of congestion and transportation. In Wuhan, China, Siemens operates automated systems to smooth traffic, Forbes reports. The company also recently won a subway contract in Wuhan, adding public transportation options to the city’s growing mobility needs. Siemens was also involved in building Beijing’s subway lines and the company is adamant on bidding on similar projects in the region.

Siemens’s subway ambitions have also spread to São Paulo. The company won the bid for a $200 million project to construct 14 six-car trains, electrical equipment and a computerized control room for the city’s Via Quatro, a driverless electric subway train that can carry 900,000 commuters in one hour. The system is already operating on a three-mile path and will extend to eight miles by 2014, Forbes reports. The article adds that this extension will cut down the commute time to 17 minutes, a significant reduction in time to rush-hour commute by car or bus.

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  • A lot of multinationals have come into India but failed – not because
    their products were not good, but because they failed to understand
    India’s culture. Globalisation has been the new trend, but
    ‘standardisation’ will not work always. As a marketer, you need to be
    sensitive to each culture’s identities and its unique regional
    preferences and customise your product offerings.

  • Multinational corporations, GDP, voracious users of electricity, urbanization, the Jeffrey Sachs model of erasing world poverty by making them city dwellers/consumers–these are all ideas and constructs that have proven bankrupt, and will only make it more difficult for the world to face climate change and the peaking of our natural resources. It’s a myth that by driving people off the countryside and into the city we will solve the world’s problems. This is one of the most depressing posts I’ve read on City Fix.

  • andrew

    900,000/hour must be a typo…