What’s in a market size?

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What's in a market size
What’s in a market size

I believe that the actual market sizes in emerging markets are often a lot larger than they might seem.

When you look at a market size you often start with a quick Google search. As you read reports and estimates from consultancies the numbers are always a lot smaller than more economically developed peers but might they also appear systematically smaller than they actually are?

Often the true market sizes are more significant than what is reported. Traditional market size and growth estimates don’t account for three main factors.

Formalization of the economy

First, in many emerging markets, including countries like Pakistan, a large part of the digitization of a sector includes formalization – or in other words, the process of documenting an informal economy.

This has two impacts.

First, it means the size of the market is a lot bigger than it initially looked, and second, it means that the growth rate for businesses in the market will benefit both from the sector growth rate and the digitization rate. 

Driving new consumer behaviors

Second, while the serviceable obtainable market might seem small, it is likely that new ventures in emerging markets are creating genuinely new consumer behaviors in their geographies. 

For example, users may never have used an app to order their groceries before. Therefore, the initial growth these categories might see in the digitization phase is likely higher than in other markets.

Ecosystem development

Third, industry growth rates can benefit from the infrastructure ecosystem.

For example, while payments in Pakistan might not be as advanced as in peer markets, the push for POS terminals amongst banks and disrupters alike is likely to help strengthen the acceptance network and have an outsized impact on the number of payments.

Ultimately, while market sizes and growth rates might seem low, it’s essential to keep in mind the role of formalization of the economy, the counterintuitive impact of new consumer behaviors, and the broader impact of developing an ecosystem.

Original post. Reposted with permission.

Recovering strategy consultant writing about tech and venture across emerging markets – especially Pakistan.
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