Global demographic shifts are changing the size of national markets, impacting consumer behavior and affecting investment decisions worldwide. How are they affecting your markets?

Connecting the Dots

Increasing consumer income in a national market, for example, quickly translates into greater demand for goods and services there. In turn, that country is likely to attract more foreign direct investment. These are but a few of the changes caused by shifting demographics.

A rising median age, for example, affects consumer needs, preferences and tastes, and also impacts demand. As this occurs, companies need to continuously monitor where their markets—or moving targets—are growing and shrinking. In response, many companies are relocating production and service facilities closer to the expanding markets in order to better serve them.

Decisions Resulting from Growing World Population

According to the U.S. Census Bureau, the world’s total population surpassed 6.4 billion in January 2005 and is anticipated to exceed 7 billion by 2013. Where these people live will influence decisions by American companies as to where to build their future production facilities.

For example, companies sometimes choose to produce goods and services in the foreign country in order to eliminate ocean transportation costs, tariff barriers and other costs. Plus, proximity often enables companies to gather better intelligence on changing market conditions so they can quickly adjust. This is why foreign-owned multinationals operate in the United States. And according to Insourcing Jobs: Making the Global Economy Work for America, by Professor Matthew J. Slaughter of the Dartmouth College Tuck School of Business, these foreign companies employed 5.4 million Americans with a U.S. payroll of $307 billion in 2002.

Following long-established geographic and cultural patterns, almost all the net population growth—the difference between births and deaths—will occur in developing countries located in Asia, Latin America and Africa. For example, by 2013, China’s population is expected to reach almost 1.4 billion, followed by India’s, projected at 1.2 billion. Indonesia follows at 268 million, Brazil at 201 million, Pakistan at 190 million, and Bangladesh at 169 million.

Per Capita Income Figures Can Be Misleading

Average per capita income in developing countries is understandably low as compared to developed countries. In 2005, for example, GDP per capita or income is estimated at approximately $41,700 for each American, according to the International Monetary Fund. On the other hand, per capita income is approximately $6,500 in Mexico, $1,340 in China and only $620 in India. Based on these figures, international mangers sometimes conclude that consumers in these countries cannot afford American products or services.

Should U.S. companies subscribe to this logic, they will be at a loss. In terms of buying power, general per capita income figures can be misleading. For instance, India is estimated to have a middle class of more than 200 million people with the same purchasing power as the U.S. middle class. And according to Robert Wu, a consultant who works with Chinese and American firms, “China has 200 to 300 million people living in urban areas with considerable consumption capacity.” For just about all U.S. exporters and investors, a new and relatively affluent market of 200 to 300 million plus consumers is well worth pursuing.

Consumers Are Living Longer

The average life span continues to rise and is projected to increase from 64 years in 2002 to 69 years by 2025, and to 77 years by 2050, according to the U.S. Census Bureau. This increased longevity has contributed to global population growth and is leading to a shifting age demographic characterized by higher proportions of the elderly. As a result, over the next two decades the age structure of world population will continue to shift, with older age groups making up an increasingly larger share of the total. In fact, the number of people age 65 and over is estimated to more than double. The greatest relative increase will occur in developing countries, while the largest absolute change will take place in Asia. The bottom line: by 2020, two-thirds of the world’s elderly will live in developing countries.

As this age shift occurs, the elderly population in the United States and the rest of the developed world will increase by more than 50 percent. Concurrently, demand for products and services designed to satisfy the needs of this group will increase.

For example, Americans over the age of 50 tend to use significantly more pharmaceutical products than any other segment of the population. As the world’s population continues to age in both developed and developing countries, the demand for health-related products, as well as home care, is anticipated to skyrocket. In response, many U.S. companies that produce health related products and services are likely to relocate facilities in proximity to this expanding market.

Rise in Median Age Impacts Consumer Buying Decisions

As the elderly population grows in numbers, the median age of the world’s people will continue to rise as well. Not to be confused with average age, the median means half of the population will be above and half below the age cited. In 1998, the median age was 24 in less developed nations, and 37 in more developed countries. However, by 2025, the median ages will rise to 30 and 43, respectively. Keep in mind: these people will grow up in an increasingly sophisticated age in terms of technology, communications and consumer products. Many of these age groups will be influenced by American culture; as youngsters they will listen to American music, watch American movies and wear American blue jeans. This also is a generation that will be better educated and enjoy a more affluent lifestyle.

What implications does this have for consumer spending? According to Harry S. Dent, Jr., author of The Roaring 2000s Investor, on average, Americans enter the workforce at age 19, get married at age 25.5 (27 for men and 24 for women), bear their first children two years later, and purchase their first homes at age 33 or 34. They trade up to the largest homes they’ll own by 44, and fully furnish them by age 46.5 or 47. Interestingly, the average American also reaches peak spending at about 46, the same time the kids leave home. Dent observes that empty-nest couples then spend more on vacation homes, travel and leisure. They also become prospects for investment services and products as they approach retirement age.

Spending patterns in other developed nations are similar to those in the United States. As a result, it’s reasonable to assume that as the median age rises and life expectancy increases in developed countries, from 76 years in 2002 to 80 years by 2025 according to the U.S. Census Bureau, consumer spending also will rise. Depending on a company’s products or services, relocating facilities within close reach of these growing markets may be recognized as a sound strategic decision in the business community, but may be labeled as anti-American in the political community.

Incorporate Demographic Data in Your Global Strategic Plans

By studying shifts in world demographics, a company can pinpoint where tomorrow’s major populations will live, identify the fastest-growing age groups (an important indicator of tastes and needs) and predict, based on similar demographics elsewhere, demand for certain products or services. In turn, this will influence where a company’s next factories or service centers will be built.

This article appeared in Impact Analysis, November-December 2005.
Share

John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, competitive strategies and the latest economic trends. He also is founder of the ManzellaReport.com and Chief Strategy Officer of Ignition Life Solutions. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




More Articles | Speaker Programs | Speaker Demo | Videos | Latest Book


Talkback

  • No comments found

Leave your comments

0

Quick Search

Stock Watch

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!