Demography has spoken

Supply chain managers might think that demographics and consumer dynamics matter only to economists, marketers, and government policymakers. But in fact these factors have a tremendous impact on international trade patterns and distribution logistics. That's why the answers to questions like, Where are the consumers? Who are they? and What are they buying? are critically important to supply chain managers.

Several global demographic trends have productivity and supply chain implications. This article will focus on two that deserve particular attention: urbanization and aging.

Article Figures

[Figure 1] Comparison of urbanization rates Enlarge this image

[Figure 2] Regional world population growth Enlarge this image

The immediate impact of these trends is noticeable, albeit not sizable, yet the implications for both the medium and the long term are considerable. As the consumer base broadens and diversifies across many countries due to the rise of emerging markets' purchasing power, the impact of these global demographic trends will become more evident.

Going urban
Urbanization rates (or the percentage of the population that resides in an urban setting) had stabilized in most developed countries by the 1900s. The U.S. urbanization rate did not surpass the 50 percent mark until 1920, and by the 1990s three out four Americans lived in an urban area. Strong drivers of "going urban" are industrialization, higher agriculture productivity, immigration, and the attraction of the "bright lights" of the city.

But the United States isn't the only country where this is happening. The world's urbanization rate surpassed the 50 percent mark sometime between the year 2000 and 2004. According to the United Nations, China and India had roughly the same urbanization rates in 1990 (around 25 percent). India currently is in the low 30 percent zone, while China is expected to surpass the 50 percent mark by 2015. By 2025, China's urbanization rate is projected to be around 60 percent, India is likely to reach 36 percent, and the United States will be slightly shy of 90 percent. (See Figure 1.)

Urbanization holds important implications for supply chains. The increasing levels of urbanization and the concurrent development of "megacities" worldwide will place greater pressure on supply chain managers to ship goods via parcel delivery to consumers, to better manage intracity and intercity logistics, and to further increase productivity in the food supply chain.

Lower fertility and longer lives
In the late 1970s and early 1980s, many demographers and economists were asking whether it would be possible to prevent the world's population from reaching 25 billion by the end of the 21st century. Instead, as shown in Figure 2, population growth has been slowing. According to most recent projections, world population is expected to reach 10 billion by 2050 and then level off.

The reason for that change is the falling fertility rate. Women and families are choosing to have fewer children than in the past. Approximately 70 percent of all nations have child-bearing rates below or approaching the replacement level of 2.1 children per woman of child-bearing age. Several Asian developing economies, including India, Vietnam, and Thailand, have lower fertility rates than do many Western European countries. Key drivers of falling fertility rates include increased family planning, higher levels of educational attainment for women, more women entering the work force, and, in general, the changing role of women in society.

Declining fertility rates are having a remarkable impact on age distribution in both emerging and developed economies. The traditional "population pyramid," where a large percentage of the population is in the younger age cohorts and a smaller percentage is in the elderly age cohorts, is being turned on its head.

In many countries, populations are noticeably aging due to falling fertility rates. In China, for example, the one-child policy has taken its toll. (The country's increased levels of urbanization and industrialization also contribute to declining fertility rates—there is less need for families to have multiple offspring who can work the family farm.)

Together with lower fertility rates, longer lifespans due to improved work conditions, health care, and sanitary conditions are contributing to an aging population and a smaller labor force. The net result is that many emerging and developed economies will have a smaller percentage of their populations supporting those who are too young or too old to work. Most notably, Japan's working-age population has started to shrink, and the number of deaths outnumbered births in 2006. In Germany, the decline in population statistics in the first decade of this century has been termed "schrumpfende Gesellschaft" (shrinking society).

In line with this trend, population growth has been stagnant in emerging European countries. Even though these countries are predicted to see population growth this decade that is three times faster than in the previous decade, demographers foresee a major deterioration for the period 2020 to 2030. That's because the collapse of the Soviet Union left the economies of the former Soviet republics in shambles, and birth rates and life expectancies in the region are being dragged down by slow economic improvements and a deteriorating environment.

The population is aging even in sub-Saharan Africa, which has experienced a dramatic reduction in poverty rates since 2000 due to aid from the developed world. Improvements in healthcare, education, and sanitation, meanwhile, have led to more children surviving beyond the age of five. The lower death rate is coupled with the byproduct of the fight against AIDS: Since contraception was introduced, the fertility rate has declined.

The consumer of the future
What will the consumer of the future look like? In most developed and emerging markets, citizens will be older and a smaller percentage of the population will be working. However, several regions (most notably less-developed areas of the world) that are not considered emerging market economies will still have higher population growth rates and a younger age-cohort profile.

The difference in population growth rates in developing countries compared to those in the advanced economies, together with the growth of the emerging middle class in developing nations, will rebalance global trade patterns and impact supply chain dynamics. Increasing levels of urbanization and aging populations are likely to have a dramatic impact on the demand for many products and thus, on what types of products are produced.

In short, the world will need fewer diapers and more health care, hospital services, and food productivity in the coming years. In many emerging-market economies, innovations in food supply chain efficiencies will be paramount, since connecting the food supply to the centers of food demand (urban areas) has been a difficult problem. Supply chain managers will be forced to consider the distribution and logistics issues associated with meeting these changing demands, and they will have to respond accordingly to both the challenges and opportunities they present.