Leadership Catalyst Blog
BRIC Countries Might Fall Short on Their Vision for Economic Growth
All Blog Posts, Business, Change, Human Capital, Strategy / 05.05.2014
In my last post, I summarized a great presentation from Vistage Speaker Herb Meyer about the dramatic global drop in birthrates and the implications for businesses in this country. In this post, I will be summarizing Herb’s comments and will add my own conclusions on the “BRIC” countries (Brazil, Russia, India, and China) that have often been cited as the emerging markets that will drive the global economy.
Brazil –Brazil is a real bright spot amongst the BRICs in that the country has a healthy birthrate of over 2.1, modernization is accelerating, and the middle class is growing by 10 to 20 million people per year. While you need Portuguese speaking resources to do business in Brazil, it is a great market to go after with existing US products and services tailored to the specific market preferences.
Russia – Russia is in trouble with a low birthrate of 1.4 and a rapidly aging population that lacks young people to replace the economic output of the baby boomers. The average Russian woman has had 6 abortions, which further reduces fertility rates. A couple of years ago, one of Russia’s provinces attempted to address the birth rate problem by declaring September 12th as “The Day of Conception” — closing its businesses at noon so workers could go home and “make another patriot” for Russia. A few years later, September 12th was proclaimed a national holiday called “The Day of Marital Contact. ” So far we haven’t seen a big spike in June birthrates. Russia has a lot of wealth coming from the energy sector, but their overall economy is not particularly diverse. Russia does not have a large growing middle class to whom U.S. products and services can be marketed.
India – India is the country to watch out for. India’s birthrate is 2.8 and significant portions of the population are well educated and speak English. Herb thinks India will blow past China in terms of economic growth because the country has a gigantic middle class society and the next generation will be even larger while China’s will be getting smaller.
India is not without problems. India has a terrible power grid, the roads are bad, and other facets of the country’s infrastructure are poor. India (and China) also has a huge gender imbalance because of their culture’s strong preference for boys. Statistically, on a global basis, the ratio of boy babies to girl babies is 1.03. In India and China, with the ability to now determine gender in the womb, that ratio is 1.18. In some provinces it is as high as 1.3. This means is that there are 100 million boys growing up in India and China that will never find wives. Both countries have now made it a crime for an obstetrician to disclose the sex of an unborn child, and they are closing down the sonogram clinics that have proliferated in local strip malls.
These actions have not eradicated the problem in India. Mohammad Hamid Ansari (the former President of India) recently disclosed that since making it a crime to disclose the sex of an unborn child, over 7,000 newborn girls are being murdered by their own parents every day. India has set up a network of refuges where parents can now drop off their newborn daughters rather than killing them in hopes of addressing this problem.
China – What China has done in the last couple of decades to bring its people out of poverty is nothing short of amazing, but the country has hit an economic wall. The value proposition that has driven China’s growth is twofold: China makes things happen and they provide cheap labor.
Before, China could put up a new factory in 6 months whereas in the U.S. it could take 5 years to do an environmental impact statement. China simply relocated the peasants who were in the way. It is more difficult to do that to the educated middle class. The level of unrest and protest in China today is greater than it was in the Soviet Union just before the fall of the Iron Curtain. China can’t make things happen nearly as quickly as they used to.
Cheap labor is also going away. China has had a 1 child per couple policy for decades and consequently its birth rate is at 1.1 and it is the most rapidly aging large country on earth. For the first time in history, the Chinese workforce declined last year, and scarcer labor is dramatically increasing labor costs. American countries are taking their manufacturing to cheaper labor sources such as South Vietnam, Bangladesh, and Burma, or even bringing it back to the US.
Affluent Chinese are starting to buy up real estate from Seattle to San Diego as a place to go if the situation in China deteriorates beyond their comfort. Herb feels another part of China’s contingency plan is to send their kids to American schools so that if they need to leave China, they can come into the US under their kids’ student visas. This partially accounts for the large increase in Chinese students in American universities and even high schools.
In China, the gender gap because of the cultural preference for boys is expected to be about 200 million men by 2015. An entire industry is springing up to take planeloads of Chinese men to Ho Chi Min City, Rangoon and other Asian cities to meet potential wives. Aging parents are driving this trend because in most Asian cultures, it is the daughters and daughter-in-laws who look after the elderly. In China there are 165 million elderly people with no pensions, no health insurance and no daughters. By 2025 there will be 250 million old people in China. This is why China is changing the one child per family law, but it will take decades to see a difference. China, in Herb’s opinion, will not be taking over the world.
2010 BRIC Summit – The global excitement about the BRIC economic growth potential has faded since the summit.
Bottom line: Brazil and India, with their healthy birthrates and burgeoning middle class populations, will be fantastic markets for American products for decades to come. Continue to market to China’s enormous middle class, but recognize that it will be shrinking. Demand for products and services to accommodate the needs of its rapidly aging population will be exploding, if they can find a way to pay for it. Russia does not appear to be a great new market for American countries given its low birth rate and rapidly aging population.
Many thanks to Herb Meyer for sharing his knowledge with my Minnesota Vistage Groups. Herb’s opinions are based on statistics from the World Health Organization and backed by a decorated career within the US Intelligence community. I believe they are very relevant to any company considering doing business in BRIC countries.
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Global Macro Economic Trends that will Impact your Twin Cities Business
All Blog Posts, Business, Change, Strategy / 02.04.2014
Vistage Chairs bring in a wide range of experts to address our CEO and Executive Peer Groups in Minneapolis every month. Our goal as Vistage Chairs is to increase the effectiveness of CEOs, and one way we do this is by bringing in a speaker on a very specific topic such as how to attract and hire top talent. We will also, bring in speakers who will help our Vistage members take a longer, big picture view of their businesses. In these instances, we encourage executives to look up and scan the radar for what they will be facing in the years to come in addition to focusing on the short-term turbulence they are experiencing.
Herb Meyer, the former senior CIA executive in the Reagan Administration was one such speaker. Since leaving The Agency, Herb has applied his intelligence gathering skills to collecting important data on economic, social, political, and population trends that will dramatically impact our businesses.
Herb presented three megatrends to watch out for and their implications for growing your business.
1. The world is becoming modernized. Technology is sweeping the planet at an amazing rate. Cell phones, the internet, social media, TV, and satellites are connecting people to what is happening throughout the world. Young people throughout the world now have cell phones, and Ipads and can download books, movies, TV shows, and on-line courses from anywhere. Agricultural breakthroughs mean that for the first time in world history, very few people are starving in the “Modern World”, and a major problem for poor people in these countries is obesity.
2. The world is becoming rich. Not only are Millionaires multiplying all over the globe, 50 – 100 million people are coming out of poverty every year. (Non-poverty is defined as having enough to eat, children being inoculated, at least 1 parent working, and having some disposable income.) This means the creation of a large middle class, with 50 – 100 million new customers every year who want the modern conveniences they see on TV and online. The emerging middle class may not be located where we would like them to be, so our challenge is to innovate clever, inexpensive, and green products to serve them.
3. The modern world is becoming old. Populations throughout the world are aging at an alarming rate at the same time as birth rates are plunging. Let’s look at the statistics:
A birthrate of 2.1 births per female is needed to sustain a population, and when birthrates dip consistently below 1.3, a population is on a suicide trajectory. In Europe, the average birthrate is 1.5, and the modern countries that are aging the fastest are Germany, Italy and Spain, all of which have birthrates at or below the 1.3 threshold. In Germany, 30% of all women and 40% of all college educated women are childless. If nothing changes, by 2040, 61% of their population will be over the age of 55. In Italy and Spain the birthrate is at 1.2 and heading for 1.1, and in 20 years they will lose 20% of their workforce. The story is the same in many Asian countries, including Japan, China, and Singapore. In Japan the birthrate is also 1.3, but the population is aging faster. In 20 years, 1 of 5 of their people will be over 70 years old, and in 30 years, the Japanese population will shrink by 60-70 million.. The population is literally dying out, and the people will not tolerate immigration to replace their young people.
In North America, the U.S birthrate is 2.1, (the Anglo birth rate is 1.8 and the Hispanic birthrate is 3.2) and in Canada the birthrate is at 1.5. Finally the birthrate in Mexico is slowing but it is still a healthy 2.6 – 2.7, which means a huge emerging middle class.
By far, the fastest growing populations are in the Muslim world, where birthrates range from 2.6 to 6.8. Two notable exceptions are Turkey and Iran, where birthrates are plummeting.
The implication is that there is a huge growing market for products and services for an aging population with fewer and fewer young people to support them. In Japan, for the first time in history, adult diapers are outselling baby diapers, and a company has invented a robot for bathing people. In Germany, BMW has built a new plant designed for older workers – brighter lighting, non-slip floors and new tooling that requires less physical strength. In Canada, homes are being retrofitted with colored strips across steps and shower ledges to help the elderly with failing depth perception see them and avoid debilitating falls in the home that often result in broken hips.
One of my Minneapolis Vistage members, who manufacturers high pressure hoses for filling industrial gas and oxygen bottles, is seeing a huge increase in demand in the home oxygen tank market. There is huge growth ahead for businesses that figure out how to better serve the wealthy aging population with their existing and new products and services.
So what are these huge business growth opportunities?
1. Look for better ways to meet the needs of an aging world population with fewer young people to take care of them.
2. Adapt your products and services to meet the needs of the 50 – 100 million new customers in the emerging global middle class through the prism of clever, inexpensive and green.
3. As one billion people cross the poverty line in the next couple of decades, there will be tremendous opportunity in the areas of energy, food (especially protein), infrastructure, education, and entertainment. Coincidentally, these are 6 industries in which the U.S. leads the world.
So what about Brazil, Russia, India, and China? Next week’s post will outline the unique challenges and opportunities facing these countries, and why China and Russia are hitting the wall.
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