China demographics continue to present new challenges and opportunities for American businesses.
There has been heated debate recently about whether China has passed the Lewis turning point and moved from a period of unlimited supply to a new era of labor shortage.
The doom-and-gloom prognosticators of most economists tend to focus on higher wages as some sort of economic Armageddon. But is this always the case? In the United States, as we emerged from World War II, our wartime production capabilities were unleashed on consumers around the world.
Returning GI’s found jobs, rising wages and higher standards of living. Their efforts fueled the economic expansion which defined the golden years of U.S. power and influence.
Today, China may be in a similar position. The factories which served the export markets are being re-tasked to cater to its rapidly growing domestic market. It would seem natural to suppose that Beijing is hoping that consumer growth will replace lost export growth, and continue the expansion of the economy by providing higher wages and living standards.
So what does this mean for a company based in Milwaukee?
A recent story in The Economist talked about a retirement community, Le Amor, outside of Beijing, which was created with a $10 million investment and seems to be drawing an all-star cast of clients. For those who can afford it, it offers a nice location on the outskirts of Beijing far enough to escape the smog, but still within reach of family and friends. Residents can opt for a suite of rooms and a personal attendant or a more traditional room and use the facilities staff.
It is one of a small number of retirement communities which have cropped up recently offering services beyond the rather grim institutional settings that were previously the norm. It also illustrates how China’s past policies and even successes are starting to have social consequences.
Traditionally, the eldest son was responsible for the well-being of his parents, but with longer lives, the one-child policy, the economic burden of one supporting two parents and possibly four grandparents, the high cost of real estate and the need to work to where work is available, this tradition, by necessity, is rapidly falling by the wayside.
This is not an isolated example. Changing realities, necessities and attitudes towards them are going to be more visible as China tries to reshape itself. Each one of these changes creates opportunities.
In 2010, the number of people over age 60 in China was 12.5 percent of the population. By 2020 it will be 20 percent and by 2030 the total number of people in the age group will be around 178 million.
It represents a rapidly growing new market that is looking for solutions. If you understand the needs of the elderly and are willing to understand how this applies to China, the opportunities will be enormous. Everything from providing facilities, which includes design, financing, construction and maintenance; to staffing, which includes aides, case handlers, nurses, doctors, physical therapists, cooks, cleaners etc.
Training will become important as facilities compete in terms of amenities, efficiency and price, in an environment where the pool of total workers is in decline.
Ironically, as we debate the elderly issue, China is in the midst of a baby boom, fueled by people’s feeling about the year of the dragon. Baby formula prices are on the rise, and that market is consolidating. Nestlé’s acquisition of Wyeth’s baby formula business has put it at the top of the heap where it can use its distribution channels to great effect. Post-merger, the five biggest foreign brands will hold about 85 percent of the Chinese infant formula market.
Could this also be an opportunity for a Dairy State whose milk fractioning business supplies the critical components of infant formula to these large players to get directly involved?
Do the current fears, and sometimes realities, of the Chinese food market, which are currently driving foreign-branded food products in China, also open doors to Midwest American farmers, agricultural consortiums and food manufacturers?
McDonald’s announced in May that it intends to roughly double its Chinese workforce from 80,000 to 150,000 people this year as part of their expansion plan. In addition to the sheer training effort, there are going to be significant logistical issues, construction, supplies, etc. Does this sound like an opportunity?
So the next time you are looking at the China market, look at the trends but do not miss the fine points, because opportunities are everywhere.
