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Published: May 25, 2010
 / Summer 2010 / Issue 59

 
 

Preparing for a Demographic Dividend

Second, a certain audacity that comes with low capital intensity. The growth of generic drugs in India is an example. Generics may represent only 5 or 6 percent of the world market value, but they fundamentally changed the pharma industry. The Pfizers and Mercks, which used to complain about generics, are now coming to India to buy them. Pharmaceutical companies in India have phenomenal valuations. The same is true of IT, in business process management. And it is true in the auto industry, increasingly in auto components. So, in other words, it takes a certain audacity to say, “I may be small. I may remain small compared to global companies. But I have the ability to distort the global industry structure.”

Third, the willingness to challenge the status quo, to create different business models. For instance, in pharma again: Western companies go from lab to mice to men and to market, a US$1 billion process. Indian pharmacology is exactly the opposite. The companies look for medicines that already work on people: 3,000- or 4,000-year-old treatments like Ayurveda [the Indian system of herbal- and yoga-based alternative medicine]. They figure out in the lab why it works, replicate that knowledge in clinical trials, and launch it, all for $50 million. This is called “reverse pharmacology.”

KAMINENI: We do open-heart surgery for $2,000; in the U.S. it would cost $40,000. And one of the basic reasons is that 98 percent of our surgeries are done on beating hearts, where we use the “octopus hand” [a medical device that allows the heart to continue to pump blood during an operation, potentially reducing the risk of a stroke]. In the U.S., you do this only 30 percent of the time. We take this approach because we can actually reuse the octopus 20 times, so it brings down the cost of the consumables. In the U.S., prices are not as big a concern because there’s a third party paying for that consumable. So the surgeon isn’t incentivized to be skilled in using the octopus hand. Also, we need to send the patient back home in four days because there’s pressure to make beds available. So we must use our creativity and entrepreneurial spirit to come up with solutions that keep costs down. This is both a manifestation of, and a precursor to, success in India.

S+B: Let’s change the focus to urbanization. I saw figures that 275 million people will be moving into cities in India in the next 25 years. London, Paris, New York, Tokyo — that’s maybe 30 million people. India will be creating cities with nine times that population in an extremely short period of time. Cities are engines of wealth, and they’re engines of change, engines of disruption, engines of danger, and seedbeds of crime. What opportunities and tensions does it create?

CRAMPTON: Urbanization will bring about tremendous transformations because suddenly you have hundreds of millions of people with access to broadband and mobile Internet. You have people who are able to use all these platforms for the first time. It brings them into a whole new way of being able to interact with others.

S+B: What happens as a result?

CRAMPTON: Suddenly they start doing things in very different ways, and you get these very disruptive models appearing out of nowhere. For example, in China a group of people known as Gold Farmers earn a living from winning points in the video game World of Warcraft that they sell to people in the West who want to build up their point levels.

 
 
 
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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. Thierry Geiger and Sushant Palakurthi Rao, The India Competitiveness Review 2009 (PDF) (World Economic Forum, 2009): An in-depth analysis of India’s current and future ability to compete in the global commercial landscape.
  3. Yoshito Hori, Jean-Pierre Lehmann, Timothy Ma Kam Wah, and Vanessa Wang, “Facing Up to the Demographic Dilemma,” s+b, Spring 2010: At the World Economic Forum’s summer meeting in Dalian, China, four experts discussed the challenges and opportunities that aging populations present to business in emerging Asian countries.
  4. Nandan Nilekani, “India’s Demographic Moment,” s+b, Autumn 2009: The economic force of a burgeoning population.
  5. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: Explores innovation in India’s health-care sector as a model for commercial creativity in all industries and all economies.
  6. World Bank Group’s End Poverty in South Asia blog: A blog devoted to exchanging ideas on ending poverty and dealing with demographic trends and issues in South Asia.
  7. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/organizations_and_people