Tapping small cities: First-mover advantage to help entrepreneurs lead these markets for longer period

The next 400 million internet users will come from Tier II and smaller cities, and it is expected that by 2022 these cities will constitute over 56 per cent of India’s e-commerce market.

  • By Nikhil Arora

The number of internet-connected devices in India today exceeds its population. A recent report by Cisco states that while India’s population is estimated to touch 1.42 billion by 2023, we already use over 1.5 billion connected devices. The same report also indicates that India’s internet users are expected to cross 900 million by 2023, with connected devices touching 2.1 billion by then. Critical to achieving India’s $5 trillion economy dream, digital connectivity is growing rapidly driven by the government’s BharatNet initiative, lower telecom prices, and a boom in smartphone adoption. As digital connectivity rises, it is boosting three important parameters in India:

  • Inclusivity, wherein social benefits are being delivered directly in the hands of billions of people
  • Empowerment, whereby we’re seeing a rise in grassroots innovation, local businesses, women entrepreneurs and social entrepreneurship
  • Economic growth through digitisation of traditional sectors, the emergence of new, digital-first business models, and the rise of a whole new market of digital consumers

Most of this change is taking place in India’s Tier II and III cities, and they are fast emerging as the new business hubs, employment centres, and consumer markets of the country. The next 400 million internet users will come from Tier II and smaller cities, and it is expected that by 2022 these cities will constitute over 56 per cent of India’s e-commerce market. With businesses and marketers refocusing their lens on the Indian market, it’s important to get some on-ground insights into these emerging digital economies. 

Changing Business Landscape

According to the last economic survey, almost half of India’s over 16,000 recognised startups are from Tier II and III cities, growing at a rate of 45 per cent to 50 per cent every year since 2014. The steady spread of co-working spaces from Tier I to Tier II and III cities is a strong indicator of their rising importance as well. Jaipur, Indore, Patna, Surat have all registered economic growth at 40 per cent or higher, driven by the rise of new businesses and startups, as well as multi-national companies opening up bases there. With the improvement in infrastructure, digital connectivity and education levels in non-metro cities, businesses have access to better resources at lower costs than metros.

Also read: From Swiggy, Amazon to Snapdeal, Paytm, e-retailers guard delivery staff, sellers to sustain lockdown

We’re also increasingly seeing the expansion of technology and growth of sector-focused startups from Tier I cities into smaller Tier II and III cities in the country. For example, Kerala is a rapidly developing startup hub, with ventures using deep tech like robotics, machine learning (ML), and artificial intelligence (AI), for the social, medtech, fintech, and hardware sectors.

Indian restaurant aggregator and food delivery startup Zomato has seen a phenomenal response since the very first day of offering their services in smaller cities like Giridih in Jharkhand (population of around 1.5 lakh), and Gudivada in Andhra Pradesh (population of over 1 lakh). Nykaa, an Indian multi-brand luxury beauty retailer, has seen tremendous response from Tier II and III cities, and last year opened their 55th offline store. Last year’s festive online sales saw customers from smaller cities spell success for Amazon and Flipkart.

The rapidly growing digital consumerism, in Tier II and III cities, now has the attention of all marketers. It is estimated that by 2021, 75 per cent of India’s internet users will be vernacular. In response, businesses have undertaken localisation of websites, online marketing campaigns and apps to deepen their reach in Tier II and smaller cities. A recent Entrepreneurship Survey, conducted in mid-2019, found that over 60 per cent of small business websites supported at least one regional language, whereas content and media platforms are finding that brands prefer to monetise regional content for a wider, more authentic reach.

An associated trend is the rising use of voice search in regional languages, and enabling voice assistants like Alexa to support a multi-language mode. With digital technology making it possible for semi-literate users and even children to use smart devices, businesses are looking at voice-based technologies reach a more diverse audience.


Tier-II and III cities are set to experience a hypercycle of growth. And while these markets have lesser competition than the concentrated Tier I cities, businesses are fast realising that being the first mover in these cities can deliver a significant advantage. Businesses that understand the whole context of the opportunity here – in terms of entrepreneurial and consumer aspirations – and position themselves well in the ecosystem, can be positioned for a longer, mutually beneficial run in these markets.

Nikhil Arora is the MD and VP at GoDaddy India. Views expressed are the author’s own.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 02-04-2020 at 11:52 IST