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Siemens makes the most of the move to megacities.

Siemens makes the most of the move to megacities

More than half of the world's 6.9 billion people live in cities. By 2050, this is likely to reach 70%, or 6.2 billion people. Almost all the growth will be in the emerging markets of Asia, Africa and Latin America. The United Nations estimates that by 2100, Europe's share of the world's population will halve to 6%, while Africa's will double to 25%.

In the May 2011 issue of Forbes Fisher et al. describe this transformation in worldwide demographics and examine how industrial conglomerate Siemens - which makes products ranging from electrical transformers and computer-operated trains to $100 million water-treatment systems - is set to benefit.

In Brazil, for example, the authors report that 70% of power is already from Siemens generators, but it will take 50 years more to bring the country's infrastructure up to the demands placed upon it. Siemens is also a key player in China's major high-speed rail project. And in India the company has set up five research centres to design low-cost infrastructure products that can kick-start the local market.

According to Fisher et al., Siemens has established a new division, named Infrastructure & Cities, to sell electrical equipment, building technology and other products that target urban areas. It already has 81,000 employees and $24 billion in revenue and looks likely to grow much, much more - despite strong competition from the likes of Sweden's ABB, France's Alstom and the USA's General Electric.

The opportunities in Africa alone are enormous. In the May 2011 issue of the Harvard Business Review Chironga et al. report that the continent's collective gross domestic product equals that of Brazil and Russia. Africans spend almost $900 billion on goods and services - far more than Indians do. In the last decade alone, telecommunication companies have added 316 million subscribers in Africa - which is more than the entire population of the USA.

Many companies have had reservations about Africa because of its political instability and poverty, but they can afford to do so no longer. Chironga et al. advise firms to consider Africa not as one economy but four - diversified, oil-exporting, transition and penetration. Each presents its own challenges and opportunities and executives should develop their strategies accordingly.

In emerging and developed markets alike, executives need to base their decisions on analysis rather than emotion. In their case study of Starbucks' joint venture in Israel in the May 2011 issue of the Cornell Hospitality Quarterly Kalnins and Strook highlight the consequences of failing to do so.

The authors report that the coffee house did not appear to conduct serious market research before it began to work with gas-station and convenience-store operator Delek Israel Fuel Company to expand into Israel. Once it became known that the two firms were negotiating a deal, it became increasingly difficult for either one to back off. And finally, say Kalnins and Strook, the two firms exhibited overconfidence because both were successful and Starbucks had successfully opened a chain of stores in Arab Middle Eastern nations.

The authors draw three key lessons for companies planning expansion: choose your partners carefully; be willing to quit partnerships that appear problematic; and never substitute emotion for market analysis.

These lessons will become more and more important as increasing numbers of Western firms seek out growth opportunities geographically and culturally distant from their traditional markets.