Demographic changes and international trade
Demography is the study of the structure of human populations – their size, age composition, gender mix, growth and so on. Changes in the population, age and gender mix of the world’s major economies suggests that major changes are predicted for the world economy.
Owing to better health care, education and hygiene, major world economies now face the challenge of an ageing population (increase in the number of people aged 60 years and above). The population of major economic powers like USA, Germany, South Korea and Japan are predicted to get smaller and older over the next few years. According to the organization for Economic Cooperation and Development (OECD), the old-age dependency ration will rise dramatically over the next few years. The old-age dependency ratio is the ratio of the number of people aged 65 and above to the number of people between the ages of 20 and 64.
The implications of these demographic changes for countries and companies are serious. For many companies, when retirees leave, a lifetime of experience and knowledge can be lost when they leave. Japan is one of the first major economy to face an ageing and shrinking population and Japanese companies are at the forefront of responding to these changes. For example, Toyota has adapted its workstations to make it more comfortable for the older workforce.
The reality is that countries operating in countries with shrinking population are likely to face higher wage and salary costs as the supply of labour shrinks. In countries with ageing population, companies are likely to face higher taxes as governments struggle to find revenues to support and care for older citizens. Moreover, an increasing portion of the population will be employed to care for the retirees, shrinking the availability of labour for other sectors of the economy.
Consumption patterns will also change as older people need different things compared to younger people. For example, older people will need more healthcare products, medical services, different insurance packages, more leisure activities while younger people will be buying more consumer products like electrical equipment, educational services, household goods.
Japanese companies appear to be at the forefront of adapting new technologies to meet these demographic challenges. A Nagoya based supplier of cable television and local area network technology has developed a system to allow the elderly to self-administer basic medical measurements which can be transmitted to their doctors via the internet. Other manufacturers are developing service robots to help the elderly in daily living.
Analyse the effect of the demographic changes on the competitiveness of countries engaged in international business. (50 marks)
Discuss the possible products or services that companies engaged in international business can offer to countries with an ageing population. (50 marks)
Answers to Above Questions on International Business
Answer 1: Demographic changes within the population are witnessed across the majority of the superpowers across the world. Majority of their population are getting old, and with these changes in demographic, there is significant change identified with respect to the behaviour and social pattern, consumption habit, and other economic factors such as taxation patterns across the countries. When it comes to the competitiveness of these countries, it would highly be affected because of all these demographic changes, as the older population would not be competitive enough to carry out all the practices as compared to younger generations.
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