Traditional first-tier cities are increasingly challenged by the growth of emerging second-tier cities, which offer more flexible and dynamic markets, according to a Euromonitor International webinar hosted by analysts Kasparas Adomaitis and Ugne Saltenyte.

The Uncovering Business Opportunities in Second-Tier Cities educational talk explained how international companies often target the largest metropolises – such as Tokyo, Moscow, Dubai and London – when establishing themselves in external markets.

Key characteristics of a city are used to determine whether it falls within the first, second or third tier. These factors include its economic development, provincial GDP, advanced transportation systems and infrastructure, as well as its historical and cultural significance.

Euromonitor’s analysts, Adomaitis and Saltenyte, stressed that doing business in first-tier cities can prevent growth, due to intense competition and diverse populations.

Second-tier cities – such as New Orleans in the US, Shantou in China and Bremen in Germany – can provide unexploited opportunities for generating extra revenue, according to Euromonitor. The analysts said that many smaller cities are growing more quickly than first-tier cities – both in production and consumption.

Business costs are lower in second-tier cities, as is the level of market saturation and competition.

While first-tier cities have larger populations, second-tier locations have better growth perspectives because expanding consumer markets lead to the spread of growing prosperity, which makes the area attractive to investors.

The analysts also predict 32 new second-tier cities in developing countries by 2020.

According to Euromonitor, second-tier cities are catching up with first-tier cities in China and Brazil. The speed of growth of second-tier cities’ development is lower, yet still substantial, in Russia, Turkey, India and Mexico.