In an increasingly interconnected and evolving world, understanding the nuances of global development has never been more crucial, especially when developing market entry strategies. The McKinsey Global Institute’s groundbreaking report, “Pixels of Progress,” offers a unique perspective on how we view and analyze global growth and market opportunities. By breaking down the world into more than 40,000 microregions, this report provides a level of granularity that is 230 times more detailed than traditional country-level analyses. This approach not only reshapes our understanding of global progress but also offers invaluable insights for urban planners, policymakers, and SME and multinationals seeking to capitalize on emerging market opportunities. In this blog post, we revisit the 2022 report and share additional thoughts and insights on the relevance of adopting this analytic framework in a post-COVID, climate-challenged, and emerging multipolar world. We also highlight opportunities in understanding cross-border opportunities for SMEs seeking to develop strategies to enter new markets. Be sure to follow us on LinkedIn. Now let’s get started.
Understanding Your Market is Crucial
For market research and business teams, understanding your market is crucial. As we look at global growth over the past 20 years, can we spot the market opportunities? Since 2000, global growth has been strong. By 2019, nearly half of the world’s population achieved greater prosperity (USD 8,300 GDP/Capita). Health outcomes also improved ( life expectancy >72.5 years) compared to just 21% of the population two decades prior. As expected, China remained the breakout story, generating half of the growth. The other half of the growth was spread over 75 countries, including Columbia, Egypt, Türkiye, Morocco, the Philippines, Vietnam, etc.
The Power of Granular Analysis
The importance of adopting a granular approach when evaluating market opportunities across different regions cannot be overstated. Traditional country-level analyses often mask significant variations within nations, leading to potentially misguided strategies and missed opportunities. The “Pixels of Progress” report demonstrates that a country’s GDP per capita growth rate only explains 20% of the variation in microregional growth rates within that country. This finding underscores the limitations of relying solely on national averages and highlights the need for a more nuanced understanding of local dynamics. Unfortunately, the granular approach is one that most businesses small and large fail to adopt, leading to failed market entry strategies or missed opportunities.
Robust Data Modeling For Unique Insights
Harmonizing data for comparative purposes, particularly at the microregional level, is a complex undertaking. For business strategists and economic development specialists, the data collection and modeling offer insights to inform more robust market entry models. The report integrates country-specific data sets and those from multilateral institutions, e.g., the World Bank. In instances where economic data is not available or reliable, the researchers utilize nighttime luminosity to estimate GDP. Additionally, they utilize machine learning to estimate performance and close data gaps. While the data is pre-Covid, the information available provides one of the most in-depth analyses not available in other circles.
ASEAN Disparities
Consider the example of Cambodia and Laos. At the national level, their average life expectancies in 2019 were 69.8 years and 67.9 years, respectively, a difference of roughly two years. However, when examined at the microregional level, life spans within these countries differed by more than ten years, ranging from 61.4 to 74.6 years. This stark contrast between nations emphasizes the significance of granular analysis in identifying both difficulties and opportunities that national averages might hide.
Bridging the Gap: Developed and Developing Markets
One of the most striking revelations from the report is the increasing overlap between developed and developing markets at the microregional level. This convergence challenges traditional notions of a clear divide between the Global North and South, revealing a more complex and nuanced reality.
Urban Prosperity in Unsual Places
For instance, the report highlights that by 2019, 194 Chinese prefectures, home to 228 million people, and 14 Indian regions, home to 4 million people, were in the ninth and tenth deciles of global GDP per capita. This puts them on par with many regions in developed countries. Specifically, Bao’an, a district of Shenzhen in China, had a GDP per capita comparable to Queens, New York. Similarly, Karaikal in the Union Territory of Puducherry, India, had a GDP per capita equivalent to that of Pasco, Florida.
These examples illustrate a critical point for urban planners and businesses: opportunities for growth and development are not confined to traditional geographic or economic boundaries. Instead, there are pockets of prosperity all over the world that offer growth opportunities but which conventional analysis may overlook. A comprehensive view of these economic dynamics offers business key advantages.
Wroclaw, a major city in Poland, saw its GDP per capita grow by 4.6 percent annually, reaching $55,000 by 2019. The city’s life expectancy also increased to 79.5 years, making it comparable to Providence, Rhode Island, in terms of living standards.
- Finding New Markets: A microregional view can highlight potential new markets for businesses by revealing pockets of prosperity that national averages had previously hidden. For example, while India’s average GDP per capita may appear low, certain microregions exhibit income levels comparable to developed countries, offering attractive opportunities for consumer goods, financial services, and other industries
- Tailoring Product Mixes: Understanding income disparities within countries allows businesses to tailor their product mixes to specific microregions. Offering a range of products at varying price points can cater to diverse consumer segments, maximizing market reach and profitability
- Optimizing Operations and Supply Chains: The microregional lens can help businesses identify strategic locations for operations and optimize supply chains based on factors like labor availability, skill levels, infrastructure, and proximity to suppliers and customers
The Convergence Phenomenon
The report reveals a remarkable trend of global convergence in both health outcomes and economic prosperity. Between 2000 and 2019, life expectancy increased more rapidly in microregions with lower initial life expectancy, narrowing the gap between the top and bottom 5% of the global population from 30 years to 23 years. Similarly, in terms of economic growth, microregions that were poorer in 2000 generally experienced higher GDP per capita growth rates than richer ones.
This convergence has profound implications for urban planning and development strategies. It suggests that investments in health infrastructure and economic development in less developed regions can yield significant returns, potentially accelerating the catch-up process. Urban planners and policymakers should take note of this trend and consider how they can facilitate and capitalize on this convergence in their own regions.
Case Studies in Microregional Development
The report provides several compelling case studies that illustrate the power of a granular approach to understanding development:
- Kaysone Phomvihane, Laos: This microregion serves as a crossroads of trade and transportation in Southeast Asia. Between 2000 and 2019, its GDP per capita increased from about $1,500 to $10,000, growing at about 10% annually. Life expectancy also improved significantly, from 54.1 years to 65.8 years. This progress was driven by infrastructure investments, including a bridge across the Mekong River completed in 2006, which reinvigorated old trade routes.
- Dibër, Albania: This mountainous microregion in the Albanian Alps saw its GDP per capita increase by $6,900 to reach $10,200 in 2019. Life expectancy also improved from 74.1 years to 78.3 years. The region’s progress was partly driven by efforts to develop its tourism industry, capitalizing on its natural beauty and thermal springs.
- Busan, South Korea: This port city exemplifies how even relatively developed areas can experience rapid progress. From 2000 to 2019, life expectancy in Busan increased by 7.3 years, while GDP per capita more than doubled from $17,800 to $37,350. The city’s success is attributed to its diversification beyond port activities into areas such as tourism and film production.
These case studies show that various factors—including infrastructure investments and industry diversification—can drive progress in a variety of contexts. The examples underscore the importance of tailoring development strategies to local conditions and opportunities.
The Decline of Extreme Poverty
One of the most encouraging findings from the “Pixels of Progress” report is the significant reduction in the number of people living in microregions with very low living standards. In 2000, 1.1 billion people lived in “orange” microregions, where GDP per capita was below $2,400 and life expectancy was less than 65.6 years. By 2019, this number had dropped dramatically to 405 million, representing a decrease from 19% to 5% of the world’s population.
The progress in reducing poverty was particularly notable in sub-Saharan Africa. Despite the region’s population growing from 663 million to 1.1 billion over the 20-year period, the absolute number of people living in poor conditions fell from 410 million to 386 million. This represents a decrease from more than 60% to 35% of the overall population.
These findings have significant implications for urban planners and development specialists. They suggest that targeted interventions can yield substantial results, even in regions traditionally considered challenging for development. Moreover, they indicate that the goal of eradicating extreme poverty is achievable with continued focused efforts.
Challenges and Opportunities
While the overall trend is one of progress, the report also highlights areas of concern. For instance, 70 million people lived in microregions that experienced declining life expectancy from 2000 to 2019. Additionally, 6,300 microregions across 100 countries, home to 574 million people, saw declines in GDP per capita.
Interestingly, population growth outpaced positive GDP growth for 80% of the people whose GDP per capita was declining, rather than overall economic decline. This finding underscores the importance of managing population growth and ensuring that economic development keeps pace with demographic changes.
The report also reveals surprising pockets of decline in otherwise prosperous countries. For example, in France, about seven million people lived in microregions, mostly in the north, where economic prosperity declined, despite overall positive growth at the national level. Such findings highlight the need for targeted interventions even within developed economies.
Implications for Urban Planning and Development
The insights from the “Pixels of Progress” report have several key implications for urban planning and development:
- Localized Strategies: The high degree of variation within countries underscores the need for highly localized development strategies. One-size-fits-all approaches are likely to be ineffective given the diversity of conditions, even within small geographic areas.
- Opportunity Identification: The granular approach allows for more accurate identification of growth opportunities. Areas that might be overlooked in country-level analyses could prove to be promising investment targets when examined at the microregional level.
- Resource Allocation: Understanding the specific needs and potentials of different microregions can help in more efficient allocation of resources. Areas with high potential but low current development might be prioritized for investment.
- Cross-border Collaboration: The blurring of national boundaries in terms of development levels suggests opportunities for cross-border collaboration in urban planning and development initiatives.
- Targeted Interventions: The success in reducing extreme poverty demonstrates the effectiveness of targeted interventions. Urban planners should focus on identifying and addressing the specific barriers to progress in each microregion.
A Deeper Dive for Market Growth
The McKinsey Global Institute’s “Pixels of Progress” report offers a unique and well-informed perspective on global development, challenging traditional notions and providing a more nuanced understanding of progress around the world. By adopting a granular approach, urban planners, policymakers, and businesses can gain invaluable insights into market opportunities and development challenges. More importantly, the challenges brought forward by geopolitics and climate change continue to rapidly reshape these microregions and their competitive advantage. It’s an analysis that remains useful two years on.
A convergence of living standards is underway across many parts of the world. The rapid progress in reducing extreme poverty and the identification of prosperity pockets in unexpected places all point to a world of opportunity. However, the persistence of declined areas and the challenges of population growth outpacing economic development in some regions also highlight the ongoing need for targeted, thoughtful interventions.
As we move forward, embracing this granular perspective will be crucial for effective urban planning, economic development, and marketing. By understanding the world in “pixels” rather than broad strokes, we can work towards a future where progress is not just widespread but truly global, reaching every microregion and improving lives in even the most overlooked corners of our planet.
