What’s Your Strategic Plan for a Low Birthrate World? – by Graham Kenny

In May, Italy hit the panic button when the Pope joined the country’s Prime Minister in calling for Italians to have more babies. The country’s low birthrate is now threatening Italy’s economic future. It’s not the only country facing a population crisis.

Birthrates around the world are in a state of deep decline. In most cases they’re well below the required replacement rate of 2.1 children per woman. The U.S. birthrate, for example, is 1.64 and falling, likewise the U.K.’s is 1.56. China’s is 1.28 – the country that implemented the harsh one-child policy has now reached its population peak.

And if you thought that this trend isn’t happening in developing countries, think again. Look no further than Muslim Iran with a birthrate of 1.71, while Hindu India sits at 2.05. This is a decline from 6.00 in 60 years.

The surprising aspect of this is that many CEOs and business leaders seem blithely unaware of these results and their possible impacts. They’re preoccupied by another global phenomenon, climate change. The result is that their strategic planning assumes a world much the same as the one they see today – a globe on an unending growth path.

As an early heads-up, I here consider the consequences of low global birthrates on countries and companies. Depending on the population policies of your government, this may include an aging, or even disappearing, market, changing patterns of consumption, a decreasing taxation base, the risk of deflation, and an overhaul of the composition of the workforce. Maybe your company is in the firing line.

An Inexorable Trend

There was a time about two generations ago when it was standard for married women, in the West at least, to marry, leave the workforce and have children. This pattern was taken for granted. Families with four to six children were not uncommon.

This began to change with the “women’s liberation” movement of the sixties. Women stayed in the workforce after marriage, completed higher education, and became professionals and managers in greater numbers. The result today is that it’s rare to find a woman engaged in full-time child rearing. The world has changed, and large families are almost out of the question. 

Because paid employment has become so important to women not only from an economic point of view but also in terms of identity and culture, it’s difficult to see this shift reversing. This means more economic decision-making power is in the hands of women, both as consumers and as decision-makers in the workforce.

Two Countries and Their Companies

Japan and Australia provide informative contrasts when it comes to the impact of low birthrates on a nation, and that nation’s companies.

Japan’s birthrate at 1.34 means that the country’s population is projected to drop from its current 125 million to 88 million by 2065. However, the country steadfastly refuses to include migrants as part of its national plan. This means that Japan faces a declining labour force; a relatively aging population with more than 20 percent of Japan’s population over 65 years old, the highest proportion in the world; a decreasing taxation base; and the prospects of deflation – asset prices falling over time.

The impact on certain Japanese companies has arrived with more to follow. For instance, if your business is in the baby products industry, pre-school education or daycare services for children then you will have already witnessed a decline in demand. As this low birthrate works its way through the economic system it will impact the requirement for many other goods and services, including housing. If your company is producing building materials the prospect of the population falling from 125 million to 88 million must be concerning. Japan is already experiencing a “glut of homes” with a 13.6 per cent vacancy rate.

Australia’s birthrate is 1.58 and falling. But the nation stands in sharp contrast to Japan’s for the simple reason that it’s topping up its population shortfall via large-scale migration. Last year alone Australia took in 400,000 migrants in net terms on a population of 26 million. This has an impact on the country and its companies.

Companies in the building industry, for example, are experiencing a boom in demand as Australia is amid a “housing crisis.” So, any business in the building and associated industries has great prospects.

Other companies are being impacted in different ways – by changes in the ethnic mix of the population, for instance.

The largest group of migrants to Australia comes from India followed by China and then England. Australia’s health system would simply not operate without migrants and companies in the aged-care sector recruit directly from countries like Nepal. These arrivals to Australia are changing the composition of suburbs, the mix of retail stores in shopping centres and the marketing and distribution patterns of producers.

To take a specific example consider one of Australia’s oldest luxury fashion companies. Its main product is leather bags for women but recently launched a ready-to-wear apparel line.  The company has found that its products are very popular among women in the Muslim community. But this customer segment prefers to buy through DFO stores (direct factory outlets) – unlike its traditional buyers who buy from normal retail shops. This has required the company to alter its strategic plan to incorporate a different product range incorporating changed marketing and distribution channels.

Looking Down Your Strategy Telescope

How a declining birthrate affects your company will depend on the country you’re in and your industry. Birthrate changes may have an immediate effect on your company, or they may unfold more slowly.

Either way it’s important that you take a genuine interest your government’s population policy. There’s no point burying your head in the sand on this issue. It won’t go away and it’s not about to reverse. It’s time for your executive team to sit up and pay attention to this trend by incorporating population demographics into your strategic planning.

Change is upon you, and it can’t be ignored.  

About the author

Graham Kenny is CEO of Strategic Factors and author of the book Strategy Discovery.  He is a recognized expert in strategy and performance measurement who helps managers, executives, and boards create successful organizations in the private, public, and not-for-profit sectors. He is a regular author in the Harvard Business Review and has been a professor of management in universities in the U.S., and Canada. You can connect to or follow him on LinkedIn.