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

 
 

Preparing for a Demographic Dividend

The fourth stage of development was the emergence of small software companies and startups — well over 3,000 of them. These companies could not afford formal office space. They were typical “garage startups.” They sprang up all over the city and again altered the patterns of traffic.

And today, Bangalore is a complex interplay of large and small businesses and supporting ecosystems, slums, and residential areas, commingled and inseparable. It is impossible to untangle the city. Roads cover more than 25 percent of the land, but still, getting around is a nightmare.

What I’m saying is that due to the unplanned nature of its evolution, Bangalore has become an extremely difficult political problem to solve. Therefore, the solution is not necessarily only to improve existing cities (which we have to do, politically difficult as it is). The solution is to build corridors that connect pairs of new smaller cities with highways and high-speed rail so people can move in and out — and so the communities are linked to global markets.

S+B: Wealth and ideas and progress and innovation are created in clusters. It’s Silicon Valley. It’s Northern Italy for fashion and design. It happens when people get together and generate ideas. It seems to me that you can best take advantage of a demographic dividend when you can create energy around something of value in cities or in groups.

PRAHALAD: Yes, but how do clusters evolve? Recognizing a cluster after it has become a cluster is no big deal. In India, clusters are going to evolve because of entrepreneurship, and it’s no different from the United States. The auto industry evolved in Detroit because Henry Ford happened to be in the Detroit area. Nothing about Detroit logically dictated placing the auto industry there, except the entrepreneur was there. We think about clusters as some government-created entity, but not everything in India that works was created by the government. If you look at the auto clusters, in Noida, Pune, and Chennai, the government had nothing to do with them. The same is true in areas where software development activity is high or where high-volume electronics and manufacturing are prevalent. The emergence of these areas says more about where entrepreneurs live than where the government wants a cluster to be.

S+B: Where will the next wave of opportunity come from in India? If you were to offer one or two investment opportunities, or things that India must do to maximize its returns on its demographic opportunity, what would they be?

KAMINENI: Power generation is a big opportunity because the government offers a lot of financial help. You only have to invest 20 percent in a power plant and you can borrow 80 percent, tax-free for 10 years. And you get a 30 percent return on your investment. So that’s a no-brainer, because energy security still remains a great challenge. This is the case for most infrastructure projects in India for the next two decades.

But in terms of employability, scaling up, and long-term gains, health care is a great investment in India. We need 100,000 more hospital beds annually, and education facilities for doctors, nurses, paramedics, and so on. Health insurance is just emerging in India. With respect to pharmaceuticals, Glaxo, for example, sells more drugs in India than anywhere else, but the revenue is low because our prices are one-twentieth what they are in the West. When Indian prices start moving closer to those of Europe and the U.S., the health-care industry is going to explode.

 
 
 
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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
 
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