Sunday, August 9, 2009

Building Roads and Opportunities in Rural Consumer Markets

Efforts to strengthen national road networks got a boost recently with announcements on new highway construction in China and India. These developments highlight attempts to ease transportation bottlenecks and spread the fruits of economic growth to areas that have not always benefited from it. In India's case, the expansion of highways is aimed at alleviating the congestion that many observers say is holding it back from reaching its potential. In China, the activity is part of a massive economic stimulus as well as a way to tie outlying (and restive) areas more firmly to the economic heartland.

Infrastructure improvements- in roads, rails, ports and airports- across rural areas of the developing world are increasingly providing access to more than 3 billion rural consumers. National highways, such as China's "Mother Road" and India's "Golden Quadrilateral", are opening new markets and spurring the development of small towns along their length. Some countries, such as South Africa, already have good roads in rural areas because of the legacy of colonialism and resource extraction. While income differences between rural and urban areas are significant (in China, rural income is estimated at about a fifth of the urban incomes), many rural consumers benefit from remittances sent by urban-dwelling relatives and are hungry for consumer goods and services. And, as accessibility to rural areas increases, so will rural income.

Many MNCs focus on consumer markets in cities, rather than rural areas, of the developing world because of urban wealth and accessibility. But, it is also worthwhile to track the physical infrastructure- both planned and existing- in developing countries as an early indicator of new and untapped markets. Since setting up business in these areas takes time, making concrete strategies for moving into rural markets sooner rather than later can give forward-thinking firms a first-mover advantage.

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