Archive for category Trends

CE#445: Demographics Are Not Destiny (Strategy+Business)

Even as the world’s population reaches 7 billion, the rate of growth is slowing and workforces are aging. Companies and countries can prosper by preparing for the changes to come.

Most people generally recognize the role that demographic trends play in shaping societies, mature economies, emerging markets, and the environment. China and India, for example, have become immense economic engines in part because each has more than a billion people. A bulge in the youth population has been a major factor in the recent unrest in the Middle East: Young people are compelled to protest because they feel they deserve opportunities and a voice in society that reflects the strength of their numbers. Europe and Japan, conversely, are known to be suffering economically because of their aging workforces: The proportion of people who are retired, and thus dependent on others to support them, is rapidly increasing.

The conventional wisdom says that there’s nothing one can do about these kinds of demographic trends, that every country must live with its demographic destiny. But that isn’t true. Political and business leaders can do a great deal, if they are willing to take a precise approach to prediction; past and present demographic trends, as well as those expected for the near future, can help them calculate socioeconomic trajectories. In the public sector, the first step is to pinpoint a country’s development trajectory and demographic profile; next, plot the potential for social, economic, and environmental progress; then, look for challenges and opportunities; finally, develop policies and actions to improve the country’s trajectory. Companies can use a similar approach to take advantage of demographic trends in countries where they hope to find new sources of talent or potential consumers.

This proactive approach to demographics is underpinned by two analytical concepts. The dependency curve shows the relationship between a country’s working and nonworking populations over time. The arc of growth shows the pattern of momentum as a country’s prosperity increases while its population ages. With a better understanding of the dependency curve and the arc of growth, and with strategies attuned to their stage of demographic development, country leaders can determine the rate at which their workforce is aging and prepare accordingly: creating a self-sustaining future, avoiding long-term insolvency, and improving quality of life for generations to come. The strictures of demographics don’t have to be destiny.

Full article here

Leave a comment

CE#329: Wages are rising in China, heralding the possible end of an era of cheap goods (WSJ).

HONG KONG—Wages are rising in China, heralding the possible end of an era of cheap goods.

For the past 30 years, customers would ask William Fung, the managing director of one of the world’s biggest manufacturing-outsourcing companies, to make his products—whether T-shirts, jeans or dishes—cheaper. Thanks to China’s seemingly limitless labor force, he usually could.

Now, the head of Li & Fung Ltd. says the times are changing. Wages for the tens of thousands of workers his Hong Kong-based firm indirectly employs are surging: He predicts overall, China’s wages will increase 80% over the next five years. That means prices for Li & Fung’s goods will have to rise, too.

“What we will have for the next 30 years is inflation,” Mr. Fung said. “A lot of Western managers have never coped with inflation.”

The issue is likely to hover behind talks Monday, between Chinese and U.S. leaders in Washington at their annual Strategic Economic Dialogue. Currency and debt issues are expected to dominate the agenda. But there are signs that the low labor costs—and cheap currency—that led to China’s huge trade surplus with the U.S. could be reaching a tipping point. This comes amid pressure from rising wages as China’s working-age population begins to decline.

For decades, plentiful Chinese labor kept down costs of a range of goods bought by Americans. Even as politicians in Washington accused China of hollowing out the American manufacturing sector, cheap DVD players, sweaters and barbecue sets were a silver lining for consumers who grew accustomed to ever-lower prices. China also kept down the value of its currency, giving domestic exporters a competitive edge.

“Inflation has been damped pretty dramatically in the U.S. because it exported work to China and other places at 20% or 30% of the cost,” said Hal Sirkin, a consultant at Boston Consulting Group. The years of dramatic reductions in costs are over, the firm says.

Full article

Leave a comment