Why second-tier cities are the next tech hotspots

ABOUT

With most large cities getting highly urbanized and densely populated, a lot of people have started to look at living or investing in second-tier cities. After all, they can get the best of both worlds, with good infrastructure, job security, and work-life balance.

What makes tier-two cities in Asia unique, however, is how they’re growing faster than any other regions in the world.

The top 10 fastest-growing cities in the world in terms of gross domestic product (GDP) will all be in India between 2019 and 2035, according to research firm Oxford Economics. Seven of these cities are in Tier 2.

The classification of city tiers in each country may be different. In China, for example, second-tier cities have a GDP of US$68 billion to US$299 billion and a population of 3 million to 15 million.

According to the Word Economic Forum, the growth of Asian cities was mainly driven by a rapid rural-to-urban migration or the reclassification of rural areas into urban ones.

In Southeast Asia, this trend was most evident in Indonesia, accounting for 67% of the archipelago’s urban growth. Moreover, one analysis finds that urbanization in the country could rise to 71%, covering about 209 million of the total population, by 2030.

Spending power

According to McKinsey & Company, China is seeing shifting trends in consumer spending. Young and tech-savvy consumers who live in lower-tier cities tend to spend more on lifestyle-related purchases. These areas are often characterized by a growing middle-class population and lower cost of living. People also tend to have more free time.

Morgan Stanley predicts that higher household income and a population boom will triple consumer spending to US$6.9 trillion by 2030 from US$2.3 trillion in 2017. 

The middle class also seems to be drawn to more expensive products. In 2018, luxury goods consumption in China increased 7% year on year, accounting for 42% of the total global luxury goods market. Interestingly, 56% came from Tier 1 and Tier 2 cities.

In India, luxury spending in second-tier cities was 30 times bigger than in first-tier cities in 2018. The share of luxury retail spend in cities such as Chandigarh, Ahmedabad, Jaipur, and Udaipur rose from 9% to 59% between 2013 and 2018.

Indonesia, one of the fastest-growing consumer markets in the world, is predicted to have a consuming class of 170 million by 2030, up from 85 million this year.

WHY IT MATTERS

SOURCES