The world’s largest cities often dominate the headlines, but much of
the next wave of growth is happening outside these behemoths. There are numerous cities that
fall outside the top 100 Commercial Hubs in our index that are growing rapidly because of
new industries, affordable housing, and other factors.
The challenge for companies is identifying and prioritizing these
communities. In North America alone, there are over 95 cities with populations exceeding
250,000. The number is even larger in other regions: Europe has 240, Africa 414, and Latin
America 236. Asia stands out with an impressive 1,190 such cities. Companies that engage
with cities early in their development will have a competitive edge over those that enter
later, when competition is fierce.
Cities in emerging markets benefit from supply chain and
logistics shifts
Emerging markets offer scale and fast-growing midsize cities.
China’s experience over the past two decades is instructive, with infrastructure and
manufacturing investments driving demand across smaller cities, such as Changde or Weifang,
and companies ranging from construction to retail benefiting as a result. During the next
five years, the emerging market’s midsize and larger cities are expected to add $7 trillion
to global consumption, a material figure for global companies, although not all cities will
grow robustly.
To prioritize these options, companies should map cities by
underlying growth drivers. For example, supply chain shifts are driving industrial growth in
Vietnam’s Da Nang, India’s Surat, and Turkey’s Bursa, and lifting household spending in
turn. National growth policies aimed at developing non-oil sectors, such as logistics and
manufacturing, are expanding in Saudi Arabia’s Dammam and Azerbaijan’s Baku. New business
process outsourcing (BPO) centers are driving demand in cities such as Cebu and Hyderabad.
The most successful midsize cities have a common set of drivers.
Strong international or domestic connectivity is key, as such cities tend to be hubs for
regional activity. Some 45% of cities ranked below 250 in our commercial index have flight
connections to at least 10 other destinations. Many are located among a cluster of other
cities or near a major national capital, such as the UAE’s Sharjah or Indonesia’s Batam.
Large workforce populations are important for manufacturing, such as Mexico’s Saltillo, and
universities can foster the growth of BPO centers, like in India’s Gurgaon.
Countries leading in medium-sized cities
Number of cities with population between 250,000 and
1 million, by country
Source: United Nations
Population Division; Oliver Wyman Forum analysis
Midsize cities in developed countries surge on industrial
shifts and lower costs
The developed world’s urbanization rates, by contrast, have been
high for many decades, and urban population growth there is usually not as rapid compared
with emerging peers. Nevertheless, midsize cities continue to grow. The developed world’s
100 largest cities have added an extra 69 million people since the 2000s. But other cities
with populations greater than 50,000 saw their populations rise by a still sizeable 48
million, with many offering economic opportunities, lower housing costs, and an attractive
quality of life. New winners will emerge in the coming years as they tap into supply chain
shifts, technological change, or cost of living concerns.
Population growth in many midsize American cities has accelerated
rapidly, with some, like Brownsville and Spartanburg, expanding by over 10% in the last five
years — outpacing larger metropolitan areas. Lower living costs and competitive income taxes
are contributors. Columbus, is attracting industrial investments across a range of advanced
manufacturing sectors, while Indianapolis is enjoying strong growth in the biopharma
industries. Targeting of public-private sectors, such as aerospace, is another driver,
exemplified by Long Beach’s emergence as a national aerospace hub.
European cities have not experienced such dramatic population
shifts, and in some older cities, aging populations have further constrained the workforce
supply. But there are bright spots as industries develop and attract younger workers. Defense spending in Europe, for example, will help drive growth
across cities such as Bristol and Lyon, with their companies supplying precision components
to military vehicles and aircraft, as well as Hamburg, with its large naval vessel and
aerospace industries, or Hanover, with its defense-adjacent industries. Biopharma and
biotech clusters in Cambridge and Eindhoven are likewise driving growth.
A shift in jobs and industries is not the only driver. Demographic shifts are
also key in the developed world, where the median age is 42 years compared with 30 in
developing nations. Retirees are driving population growth in cities such as Myrtle Beach in
the United States, Valencia in Spain, and the Sunshine Coast in Australia, as older
populations migrate for lifestyle and affordability. Such shifts also create employment
across healthcare, retail, and hospitality sectors, albeit with wages often at the lower
end.
Investment horizons expand to include midsize cities
Midsize cities also have a long history of nurturing future
champions, from Bentonville to Hangzhou. But as technologies advance, a different set of
cities are becoming home to a new wave of companies across industries, such as electric
vehicles, healthcare, and artificial intelligence. For private capital and other investors,
these cities offer new hunting grounds beyond the usual set of candidates, but that means a
more nuanced view of what’s driving growth in these geographies.
Data on venture capital, unicorns, and the presence of industrial
and technology leaders all show a fast-changing picture. Munich and Paris are already
well-known VC hubs, but Hamburg and Manchester are also attracting startup capital,
technology talent, and global tech giants across fintech, AI, and climate tech. In the
United States, Austin and Denver have emerged in the last decade as innovation hubs. The
former is home to 22 unicorns and hosts operations of many tech giants.
Leading cities by venture capital investment
Ranked by total capital raised
Source: Oliver Wyman Forum
analysis
In the rest of the world, investors also will have to search for
opportunities across a wider range of locations. Hefei has transformed into China’s electric
vehicle capital, Hangzhou is home to Chinese tech giants Alibaba and DeepSeek, and Suzhou is
a growing biopharma hub. India’s Bengaluru ranks high globally for unicorns, venture
capital, and multinational presence. Riyadh has seen a significant influx of VC funds and is
supported by a strong government vision. Bogotá and São Paulo lead the charge on enterprise
creation in Latin America.
Governments have a role to play. Hefei invested in local startups,
prioritizing the electric vehicle value chain, and reinvested the returns from the sale of
these startup investments to build industrial parks and other supporting infrastructure. Austin, meanwhile, anchored its talent strategy around the University of
Texas, offered targeted incentives, and actively recruited major multinationals over
a multidecade period. Each had a long-term vision and understood the importance of building
a supporting ecosystem over the years.
