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Corporate Strategy: A Glimpse of Asia's Futures

by Cesar Bacani, 11 July 2010

topics:
Management Risk Management

tags:
child dependency ratio demographics elderly dependency ratio labour force education mid-young ratio net migraiton rate prime savers ratio

At a lunch last month for some of the world’s high-powered movers and shakers, Indonesian Trade Minister Mari Pangestu suddenly interrupted Gita Wirjawan, chairman of the Indonesia Investment Coordinating Board, who was beginning his ‘Why Invest in Indonesia’ spiel. “Excuse me, I’m sorry, I forgot to say something,” said the trade minister. “I forgot to tell you about our demographic dividend.”

More than half of Indonesia’s 240 million people are younger than 29, she explained, and that means a lot of free-spending consumers interested in fashion, entertainment, smart phones, cars, homes, computers and the Internet – Indonesians are apparently now the biggest users of Facebook in Asia and the world’s fourth largest after the U.S., U.K., and Turkey. Investing in Indonesia, whose sovereign credit rating is now just one notch below investment-grade, means investing in the future.

I was reminded of that lunch with the release on June 29 of Merrill Lynch’s demographic chartbook for the Asia Pacific. In “Youth Shall Set You Free,” the investment bank looked at the region from the demographic angle – and the trends are eye-opening for Asia’s companies and their CFOs, who are key players in corporate strategic planning.

As it happens, Indonesia emerges as a winner along with India and the Philippines in the Merrill Lynch analysis. China and Thailand “will get old before they get rich,” the report warns, while in Japan, “there will be less than two people in the working age [group] to support an elder . . . after 2025.” Populations in Australia, Hong Kong, Korea, Singapore and Taiwan are growing old fast, but they are expected to remain among the wealthiest in the world.

This does not mean that everyone should rush to Indonesia and shun Hong Kong and Singapore. A company should be able to survive and thrive in any business environment so long as it is in the right industry and its business model, finances, product mix, marketing and other systems and processes are designed and calibrated for that particular environment. But that happy congruence can be accomplished only with careful planning – and planning requires a reasonably accurate view of the shape of things to come.

Big Winners

Merrill Lynch examined data from the United Nations, World Bank, IMF, World Health Organisation, U.S. Census Bureau, Bloomberg, DataStream and a variety of other sources to put together a picture of demographic trends in the next two decades. It then ranked countries according to the following measures:

mid-young ratio (age 40-to-49 group divided by age 20-to-29 group)
prime savers to the rest of the population ratio (age 40-to-64 divided by total population)
elderly dependency ratio (older than 64 divided by 15-to-64)
child dependency ratio (below 15 divided by 15-to-64)
per capita GDP growth in purchasing power parity (PPP) dollars
net migration rate (number of immigrants minus number of emigrants divided by per thousand persons of total population)
labour force education (literacy rate; percent of workers with tertiary education)

India (population: 1.1 billion) scores positively on four of these seven measures: prime savers ratio (28% of total population are aged 40 to 64), elderly dependency ratio (65% and older group less than 10% of those aged 15 to 64), child dependency ratio (Indians younger than 15 are less than half of those aged 15 to 64) and per capita GDP (4,804 PPP dollars in 2015 from 400 PPP dollars in 1980). However, India scores especially low on net migration (more Indians leave their country than foreigners settling there) and labour force education (only half of women are literate).

Indonesia (population: 240 million) gets positive scores on three of the seven measures: prime savers ratio (33% of the population are aged 40 to 64), elderly dependency ratio (65 and older group is only 10% of the 15-to-64 group) and child dependency ratio (children under 15 are less than 40% of the 15-to-64 group). But tThe country scores low on net emigration (more Indonesians leave the country than foreigners settling there) and education (only 7% of the labour force have a tertiary education).

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