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strategy and business
Published: February 23, 2010
 / Spring 2010 / Issue 58

 
 

Facing Up to the Demographic Dilemma

S+B: What about the skills gaps that we see opening in the developed countries where the aging population is currently rising? The demographic forecasts show that the same kinds of gaps will begin to appear in China a decade or two out. What are the challenges and the opportunities for corporations?

HORI: I think there are two main things. One challenge for corporations is losing a market, which is what you see if you look at Japan. There’s a shortage of children; when you look at primary schools, for example, you just don’t need the number that exist. This is a big burden for companies that are serving the younger-generation market. There has to be a big market shift in terms of the corporate sector.

The second challenge is the workforce, because it is going to shrink as well. How should we incorporate such a decline? There are several dimensions: One is the need to increase productivity through approaches like robotics and IT. The second is migrant and immigrant workers, as we discussed. The third is offshoring, shifting the business to either China or India. So I think this is going to be a major challenge as companies adjust to these shifts.

S+B: Your mention of offshoring raises the question of the degree to which companies are going to be able to do demographic arbitrage — locating their headquarters and production in relation to where they can find an employee base or markets for their goods and services.

WANG: For 90 percent of the companies in these countries, there is a labor force issue. Companies that I consult with are offshoring many, many jobs to China and India because of skills issues and the advantage of the youth dividend there.

One of the main costs of running a business is represented by the cost of fixed salaries, because salaries don’t go backward — they keep going upward; the same is true of health-care premiums and pension costs. It costs companies a lot to hire older employees. So rather than fill their skills gaps locally or by hiring older workers, companies go offshore to solve their problems. And until there are good incentives for them to meet the skills shortages in their own countries, that will continue. In many ways, companies can’t stop what they do; at the end of the day their job is to keep producing more profit. Solving this problem would require innovation in financing pensions and health care so the companies aren’t bearing all the costs, as well as retraining and other issues. It will take a shifting — a redistribution — of social resources.

S+B: Is the challenge in filling skills gaps different for service industries, where the services are provided in the home market and the jobs cannot be outsourced?

HORI: Yes, it is different. In Japan, it’s in these industries where we’ve seen foreign workers come in recent years as the workforce has been aging. Many have lost their jobs or have gone back to their home countries because of the economic downturn, and it’s going to be difficult to attract them again. So there will be some needs in the service sector. But the service sector is also where we’re seeing large productivity increases. Fewer and fewer workers are needed, largely because of the Internet. The volume of sales in e-commerce is going up, and the number of retail shops is going down.

MA: I think there’s another side to that, in that companies could change a lot of their mechanisms and procedures and IT systems to cater more to older employees. There are many ways for workers to deliver services and care from their homes, for example. My organization has 1,000 elderly volunteers who spend every weekday at our call centers or at their own home, calling to check up on and chat with other elderly people — who are waiting for the caring and assurance calls — and they enjoy it. Although ours is a free service, we find that there are many people who, when they are out of town, would like to pay for someone to call their parent, to send them a greeting or birthday wishes, or even to visit and talk with them. I think we could develop job redesign processes to equip elderly people with basic skill sets and some IT technology, to do this kind of work from their homes. It’s one way that we can make the best use of the aging resources and help older people take care of one another.

 
 
 
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Resources

  1. David E. Bloom, David Canning, and Jaypee Sevilla, The Demographic Dividend: A New Perspective on the Economic Consequences of Population Change (RAND Corporation, 2003): A review of the effects of demographic change on economic growth.
  2. Chiemi Hayashi et al., “Transforming Pensions and Healthcare in a Rapidly Ageing World: Opportunities and Collaborative Strategies” (World Economic Forum, 2009): A detailed look at the question of aging societies and their implications for health care and pensions.
  3. Florian Kohlbacher and Cornelius Herstatt, eds., The Silver Market Phenomenon: Business Opportunities in an Era of Demographic Change (Springer, 2008): Leading experts examine the business opportunities and implications of aging societies in this collection of 33 essays.
  4. George Magnus, The Age of Aging: How Demographics Are Changing the Global Economy and Our World (Wiley, 2008): How low birthrates and rising life expectancy are leading to rapid aging and a stagnation or fall in the number of people of working age in Western societies.
  5. Nandan Nilekani, “India’s Demographic Moment,” s+b, Autumn 2009: The economic force of a burgeoning population.
  6. Richard Rawlinson and Natasha Kuznetsova, “50-plus: A Market That Marketers Still Miss,” s+b, Spring 2009: Why companies miss out by failing to market to aging baby boomers in the U.S. and western Europe.
  7. For more thought leadership on this topic, see the s+b website at:
    www.strategy-business.com/organizations_and_people.