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strategy and business
 / Summer 2010 / Issue 59(originally published by Booz & Company)


Preparing for a Demographic Dividend

The importance of these games to culture and the economy can be seen in the conflict going on between two ministries in China over World of Warcraft. The Ministry of Culture and the General Administration of Press and Publication both claim to control the video game market. Because video games were formerly distributed on CDs, the press administration says it’s publishing. The culture ministry, however, says it’s culture, digital life, so they should have control over it. These two ministries have broken out into warfare against one another, appealing publicly to the state council. Such open battle is unheard of in China, and it’s all over an online game. When people get into World of Warcraft and other online games, it creates this whole new dynamic, this whole new economy and new politics.

The one thing to remember, though, is that India is not like China. China has an incredible broadband infrastructure. India does not. But India is moving ahead in a big way into mobile-based Internet. It will be interesting to compare the progress and innovation of India’s mobile phone culture with Indonesia’s at the less-developed end and Japan’s at the more-developed end.

MALHAN: For urbanization to succeed, businesses will have to move into Tier Two and Tier Three cities and not get concentrated in the main metropolitan areas. This is already happening. We see a lot of infrastructure being built in new campuses in new cities that are just emerging. There is too much crowding in the big metropolitan areas like Bangalore and too much traffic. We also have a huge housing problem in most metro areas. We really need to shift business into Tier Two cities like Chandigarh, Jaipur, Lucknow, Vizag, and Mysore, and Tier Three cities like Kota, Udaipur, Jodhpur, Ambala, and Mangalore.

BALAKRISHNAN: Cellular infrastructure can move into Tier Two or Tier Three cities much faster than manufacturing. It’s easier to build out — not like an auto factory, which is less fungible. And with the cellular infrastructure, you can develop businesses in IT, financial services, mobile applications, and so on.

PRAHALAD: But I think there is still a migration problem in India: Three hundred people are moving every minute away from villages.

CRAMPTON: And many of these villages had only 300 people. So a village disappears.

PRAHALAD: Three hundred people every minute is a lot of people. India ultimately has to build between 300 and 400 new cities. It doesn’t matter how you cut it, whether it’s Tier One or Tier Two, you’re going to have 45 percent of people living in slums in totally unacceptable physical and sanitary conditions.

And the debate about the need for new cities has started only recently. People are seeing that the infrastructure in existing metro areas is already strained and cannot take the load. The story of the development of Bangalore is very illustrative. We can see its evolution in multiple, discernible steps.

Before India’s independence, Bangalore consisted of two distinct parts. One was called the cantonment, which contained the British military establishment. This was separated from Bangalore City, a self-contained civilian area. Only a few roads connected the two.

Stage two of the development of Bangalore began with the arrival of public-sector firms, especially in the areas of electronics, defense, and aeronautics. Each public-sector unit built a new self-contained township for its employees — not just factories but housing, schools, and hospitals. There was minimal traffic between the public-sector complex and the distinct parts of the main city. The public sector bore the costs of all of the “social infrastructure.”

Stage three was the arrival of private-sector high-tech industry. These firms located their facilities in a new group of special zones but did not want to pay the costs of building a social infrastructure. Consequently, employees had to find places to live that were not part of the high-tech zones. What was the result? Suddenly the patterns of traffic between the main city and all of the various zones became quite unpredictable, congested, and crazy.

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  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:
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