Global aging how companies can adapt to the new reality

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Jan Willem Kuenen, Joris van Osselaer, Kilian Berz, Christopher Kaye, Alison Sander, Wouter-Jan Schouten, Miki Tsusaka
December 2011

The world’s population will become increasingly skewed toward retirees and senior citizens in the coming decades, a development that will significantly affect labor dynamics, GDP growth, capital availability, and consumer needs. Companies in all major industries must actively prepare for the demographic shifts to come.

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  • 1. Report Global AgingHow Companies Can Adapt to the New Reality
  • 2. The Boston Consulting Group (BCG) is a global managementconsulting firm and the world’s leading advisor on business strategy.We partner with clients from the private, public, and not-for-profitsectors in all regions to identify their highest-value opportunities,address their most critical challenges, and transform their enterprises.Our customized approach combines deep insight into the dynamics ofcompanies and markets with close collaboration at all levels of theclient organization. This ensures that our clients achieve sustainablecompetitive advantage, build more capable organizations, and securelasting results. Founded in 1963, BCG is a private company with74 offices in 42 countries. For more information, please visit bcg.com.
  • 3. GlobAl AGinGHow companies can adapt to tHe new reality JAN Willem KueNeN JORis vAN OsselAeR KiliAN BeRz CHRisTOpHeR KAye AlisON sANdeR WouTer-Jan SChouTen miKi TsusAKADecember 2011 | The Boston Consulting Group
  • 4. Contents 3 IntRoductIon 4 the Impact of agIng on the global economy 8 laboR: the new peRspectIve A Shifting HR Paradigm Bolstering Workforce Productivity, Capacity, and Talent 12 gRowth: the challenges of an oldeR populatIon Future GDP Growth and the Declining Workforce Capturing Growth in an Aging World 18 capItal: demand, supply, and the RetIRement dIlemma 24 consumeR needs: new oppoRtunItIes In the sIlveR segment Building an Understanding of Older Consumers Adapting Product and Sales Approaches 28 towaRd a new RealIty 31 foR fuRtheR ReadIng 32 note to the ReadeR2 | Global Aging
  • 5. introduCtion T he global economy is in a state of relative turmoil. In most of the developed economies, growth is anemic at best, and the ability of governments to manage both their finances and their debts is being called into question. by contrast, much of the rapidly devel- oping world seems to be powering ahead. meanwhile, global stock markets are volatile, and companies in virtually all industrial sec- tors—especially in the developed markets—are wondering how best to cope with all the uncertainty. amid these challenges, there is a tendency to downplay a phenome- non that has contributed to some of today’s problems and that could exacerbate some of the present risks in the future: the aging of our societies. global aging will put significant pressure not only on corpo- rate growth and productivity but also on national pension, health- care, and welfare programs—as well as overall economic stability. the difficulties it will present are fundamental and far-reaching. compa- nies, governments, and private individuals will therefore have to deal in a structural way with the new reality caused by a global population that is becoming increasingly skewed toward retirees and senior cit- izens. yet there is a critical question: does global aging represent just a risk or also an opportunity? the answer, of course, depends on understanding the trend in depth and reacting effectively. changing demographic patterns present sizable risks to companies, governments, and society as a whole. yet opportunities will also be created across virtually all industries and regions. the first step is simply to recognize that major demographic change is coming and that it needs to be prepared for. In this report, we show how the aging of societies will affect labor dynamics, gdp growth, the availability of capital, and consumer needs—all of which will influence corporate strategies. we also address the steps that companies must take to adapt to the new climate. amid a great deal of macroeconomic and financial market uncertainty, one thing remains clear: only those organizations that proactively prepare for the demographic shifts to come will be able to meet the challenges and capture the opportunities. The Boston Consulting Group | 3
  • 6. the impACt of AGinG onthe GlobAl eConomy In coming decades, many forces will shape our from about 8 in 1950 to 12 in 2010—and will economy and our society, but in all likelihood no further rise to an estimated 25 by 2050. most single factor will have as pervasive an effect as dramatically, in Japan the dependency ratio the aging of our population. will rise from roughly 33 today to 65 by 2050. as a result, the demographic structure that — u.s. federal Reserve chairman has looked like a pyramid for centuries will ben bernanke (october 4, 2006) increasingly look more like a house. (see ex- hibit 1.) T he aging of the world’s population is a megatrend that will shape the global economy and global society for decades to the basic forces behind the demographic shift are simple: people are living longer and come. as the percentage of people aged 65 having fewer children. (see exhibit 2.) In the and over continues to grow and the relative developed countries, the average life expec- proportion of 15-to-64-year-olds shrinks, tancy increased from about 66 years in 1950 companies in virtually all industries will be to roughly 78 years in 2010. over the same forced to react. time period, fertility rates (measured as chil- dren per female) fell from 2.8 to 1.7. given a look at a few major economies provides a that a fertility rate of 2.1 indicates a stable brief illustration of the dynamics in play. In population, it is evident that, excluding the germany today, there are roughly 54 million effects of immigration, populations in the de- people in the 15-to-64-year-old workforce-age veloped world are declining. segment. by 2050, that number is projected to fall to an estimated 41 million. china’s Rapidly developing economies (Rdes) are workforce-age population has grown by more seeing their life expectancies and fertility than 100 percent since 1970. over the next 40 rates approach those in the developed coun- years, it will shrink by about 19 percent. In tries. the life expectancy in many Rdes in the u.s., roughly 41 million people are of 1950 was about 40 to 45 years—roughly retirement age today. that number will soar equivalent to that in the g-7 countries (cana- to some 72 million by 2030, an increase of da, france, germany, Italy, Japan, the u.K., about 1.6 million retirees per year. and the u.s.) in 1900. by 2010 it had in- creased significantly to between 65 and 75 globally, the dependency ratio, which meas- years, while the average family size shrank ures the number of people aged 65 and older sharply. china, for its part, has seen fertility for every 100 people of workforce age, rose rates drop below those of some g-7 countries 4 | Global Aging
  • 7. Exhibit 1 | Global Aging Patterns Are Changing the Demographic Pyramid into a Demographic“House” World population by five-year age groups (millions) 1950 2010 2050 Male Female Male Female Male Female 5 8 16 65 years 61 66 63 15 years 34 27 21 300 200 100 0 100 200 300 300 200 100 0 100 200 300 300 200 100 0 100 200 300 Dependency ratio = 8 Dependency ratio = 12 Dependency ratio = 25 Percentage of the populationSources: united nations, World Population Prospects: The 2010 Revision; BCG analysis.Note: The dependency ratio is the number of people aged 65 and older for every 100 people in the workforce-age segment.Exhibit 2 | Life Expectancy and Fertility Rates Are Driving Global Aging Patterns Life expectancy at Life expectancy at birth, 1950 (years) birth, 2010 (years) 100 100 Replacement rate Replacement rate Japan Canada Germany Italy France 80 United United States 80 United Kingdom Kingdom France United States Germany Canada China India Italy Japan 60 Brazil 60 Russia Russia Brazil China 40 40 India 20 20 0 0 2 4 6 8 2 4 6 8 Fertility rate, 1950 Fertility rate, 2010 (number of children per female) (number of children per female) Population (~150 million) G-7 BRICSources: united nations, World Population Prospects: The 2010 Revision; Gapminder; BCG analysis. The Boston Consulting Group | 5
  • 8. as a consequence of its one-child-per-family the specific reasons why people are living policy, which reduced births by an estimated longer and having fewer children vary 400 million between 1979 (when the law was among countries and societies. they include enacted) and 2010. today, this law is facing better health care, marrying later in life, the increasing challenges. availability of contraception, economic un- certainty, and the fact that more women are postponing motherhood for career rea- Global aging is not just sons. overall, the world’s population is ex- pected to reach a path of very slow growth about the retirement by about 2050. of baby boomers in the ultimately, we are witnessing an unprece- dented fundamental shift in the global demo- U.S. and Europe. graphic structure. global aging is therefore not just about the retirement of baby boom- ers in the u.s. and europe, nor does it repre- sent a temporary bubble. the trends in fertility rates have also dropped in other motion represent the development of a new bRIc nations, with rates in Russia and brazil demographic equilibrium that will have currently about the same as those in the social, political, and economic ramifications. industrialized countries. In India, the fer- the effects on companies in all major tility rate stands at about 2.5—down signifi- industries will be substantial along four core cantly from about 5.0 in 1975. by 2050, dimensions—on both the supply and de- including immigration dynamics, nearly all mand sides. (see exhibit 4.) developed and large developing economies will have populations as old, or nearly so, as • Labor. companies will have to optimize Japan’s is today. (see exhibit 3.) the notable the productivity of an aging workforce exception is India, whose aging trend will and source sufficient new talent from a crest later. narrowing base of job market entrants. Exhibit 3 | By 2050, Populations Around the World Will Be as Old as Japan’s Is Today Population aged 65 and over (%) 40 35.6 32.7 30.9 30 24.9 24.9 25.6 23.6 22.7 23.1 22.5 Japan, 2010 21.2 20.4 20.4 20 16.6 16.8 14.1 13.5 13.1 12.8 10.8 11.4 9.7 10 8.3 7.7 8.1 8.2 7.0 6.2 5.0 4.5 4.9 3.1 3.0 0 United Canada United France Germany Italy Japan China India Brazil Russia States Kingdom G-7 BRIC 2050 2010 1950 Sources: united nations, World Population Prospects: The 2010 Revision; BCG analysis.6 | Global Aging
  • 9. Exhibit 4 | Global Aging Patterns Will Have an Impact Across Four Core Dimensions Supply side Demand side Labor Growth • What is the impact • How will aging affect of aging on the GDP growth and availability and demand by country quality of labor? and by age segment? Capital Consumer needs • What is the impact • How will the consumer of aging on the age mix change, and availability and what are the needs of price of capital? the elderly? Source: BCG analysis.• Growth. aging, through lower workforce • Consumer Needs. companies will be under growth, will have a profound impact on increasing pressure to develop products gdp growth. many developed countries and services to meet the specific needs of will face long-term gdp growth rates of the 55-and-over “silver segment,” which between 1 and 2 percent. yet gdp growth will account for more than half the will remain strong in many Rdes, and the consumer-spending growth in developed “two-speed world” will become even more markets over the coming decades. pronounced. dealing with these challenges requires com-• Capital. global aging will affect global panies to forge a robust strategy now. In the capital markets in terms of both the following sections, we will examine each of demand for capital (the level of invest- the above core dimensions in greater detail, ment required to fund gdp growth) and exploring the steps that companies should the supply of capital (savings rates). take to successfully navigate the upheavals companies should be prepared for that global aging will present—as well as fundamental changes in the decades capture the opportunities that will arise. to come. The Boston Consulting Group | 7
  • 10. lAbortHe new perspective T he growth rate of the workforce-age segment in the u.s., the u.K., france, and canada has slowed significantly. In the other the company’s engineers are already age 50 and older. g-7 countries—Japan, germany, and Italy— at the same time, companies will have to the size of the workforce-age segment has deal with increasing attrition. although the actually started to shrink. china’s workforce annual number of people reaching working will likely start to decline around 2015, age globally will remain roughly constant brazil’s in 2030, and India’s in 2050. Russia’s until 2050, the number of people reaching workforce began to shrink in 2010. retirement age is set to more than double. this global trend is most evident today in the g-7 countries. Tapping the full potential of older workers will A shifting hr paradigm become critical. older workforces and scarcer labor will lead to two principal challenges: maintaining high productivity and ensuring sufficient labor availability. what is more, the composition of this work- force is starting to change substantially. on a tapping the full potential of older workers global level, the proportion of people in the will become increasingly critical. companies working-age population who are 50 years of must find ways to make the workplace “age age or older will grow from 20 percent in friendly” (especially with regard to physically 2010 to 30 percent by 2050. (see exhibit 5.) demanding jobs), promote fitness and health In addition, since fewer people may be able consciousness in order to minimize absentee- to retire early, the participation rate of this ism, and maintain motivation as people segment will increase. the trend toward an advance in their careers. older workforce can already be observed at many companies. for example, the german obviously, any notion that some older work- automaker bmw expects that about 40 per- ers are better paid but less productive than cent of its workforce will be over age 50 by younger, lower-salaried staff is controversial 2020, compared with only 22 percent in from a social, political, and economic stand- 2010. at boeing, more than 55 percent of point. Indeed, in many countries, older work-8 | Global Aging
  • 11. Exhibit 5 | The Trend Is Toward an Older Workforce and Higher Attrition The proportion of older workers will Outflow from the workforce will more than increase by 50 percent double, while inflow will stay constant World working-age Inflow and outflow population (%) 20% 30% of workforce (millions) 100 160 0.0x 80 80 Inflow (age 15) 60 0 40 Outflow (age 65) –80 20 2.5x 0 –160 1970 1980 1990 2000 2010 2020 2030 2040 2050 1970 1990 2010 2030 2050 15–24 50–64 1 25–49 Retirement age Sources: united nations, World Population Prospects: The 2010 Revision; press searches; BCG analysis. 1 assumes an increase in the retirement age of one year by 2030 and two years by 2050.ers are sometimes coerced into retiring when ultimately, the combination of a generally they become “too expensive.” and while there older workforce and disproportionate lev- is clear evidence that productivity can decline els of retirements will require material in physically demanding jobs (such as manu- changes in corporate human-resources facturing) and even in service sector jobs, it is paradigms. crucial to note that older workers can actually be more productive than their younger coun- In terms of productivity, changes from the terparts owing to their deep experience. tak- norms of today will include the following:ing advantage of their skill set will require that companies figure out how to position old- • today, older workers’ productivity is er workers in jobs that keep them engaged generally assumed to decline. In the and that make the most of their talents. future, retaining older workers and investing to maintain their productivity—as for the labor capacity challenge, outflows through new training, workplace adapta-from the workforce will both increase the tion, and internal transfers—will become competition for talent and raise the impor- a source of competitive advantage.tance of knowledge transfer. globally, in 2010, there were roughly 0.3 people retiring for • today, job mobility is typically upward in each person entering the workforce; by 2050, direction. In the future, careers will be that number will be 0.7. for g-7 countries, the more likely to progress horizontally—for numbers are more worrying—increasing from example, to an advisory position—or 0.8 retirees in 2010 for each person entering downward to a less demanding post with the workforce to an expected 1.0 by 2050. a lower salary.this unprecedented outflow of human capital will require significant capacity planning and • today, salaries generally increase with age transfers of expertise on a massive scale. (seniority), potentially making older especially challenging will be the transfer workers less attractive for employers. In of “intangible” know-how, the day-to-day the future, performance-based compensa-resourcefulness that can come only with tion independent of age will become more years of experience. common. The Boston Consulting Group | 9
  • 12. similarly, in terms of workforce capacity, tion for older employees may be an issue, changes will include the following: and rethink the career paths that are offered. doing so can enable them to retain valuable, • today, there is an adequate supply of highly experienced employees who are still qualified employees for most job catego- doing good work and can impart their knowl- ries. In the future, qualified employees for edge to younger colleagues. (see the sidebar many positions will become scarcer, “addressing productivity and workforce- intensifying the competition for top talent capacity Issues.”) and increasing labor costs. of course, older workers will retire eventual- • today, older workers are offered early- ly, and this outflow must be planned for and retirement incentives so that cheaper strategically managed. the expertise that will labor can be hired in their place. In the be “walking out the door” can be extremely future, companies will do their best to difficult to replace, making it essential to take retain older workers through a variety of concrete steps to prevent gaps in workforce incentives, including jobs with more time capacity. flexibility and new advisory positions. • In the future, qualified today, hR requirements generally cannot be accurately estimated more than two to employees for many three years in advance. In the future, hR requirements will have to be planned five positions will be scarcer, to ten years in advance and will have to be carried out on a detailed level of “job intensifying the competi- families” and required skills. tion for talent. companies that approach productivity and capacity issues as an opportunity—for exam- ple, to get the most out of older workers’ know-how and experience—will be best positioned in a market where labor is one effective and proven method is to define increasingly scarce. skill “clusters” based on employee capabili- ties and past experience. simulations can then be run for both the number of employ- bolstering Workforce productivity, ees demanded (on the basis of the overall Capacity, and talent business strategy and objectives) and the sup- ply of employees (on the basis of retirement addressing the productivity challenge begins and attrition forecasts), allowing future gaps with determining exactly where productivity for each job function or job family to be read- is falling short and analyzing the causes. ily identified. companies can then adopt ap- companies need to take steps to truly under- propriate measures such as targeted recruit- stand the factors that can potentially limit the ing, internal transfers, training initiatives, and performance of older workers, and then outsourcing or insourcing programs. develop appropriate solutions. companies also need to introduce talent one key step in avoiding lower performance management initiatives to cope with the com- levels is to identify jobs that may be difficult ing scarcity in qualified labor in many indus- for some older people, such as those involv- trial and service sectors. competition for top ing rigorous physical activity. companies can talent will become ever fiercer, and, with con- then take palliative measures through such tinuing corporate internationalization, in- means as ergonomics, tandem jobs, or simply creasingly global. It is therefore critical for finding a related but less physically demand- companies to adopt a global mindset and ing position within the company. companies take a strategic approach to talent planning can also identify job classes in which motiva- and management—rigorously evaluating 10 | Global Aging
  • 13. ADDReSSING PRODUCTIVITy AND WORkFORCe- CAPACITy ISSUeS Although many large enterprises around • Development of special stretching the world have yet to fully grasp the impact exercises to compensate for physical of aging patterns on their labor forces, strain during work hours some companies, including those men- tioned below, have been early movers both With only a minimal investment by the in understanding the issues and in taking company, the results were impressive. The action. Some are even becoming known for “older” production line maintained the their aging-related initiatives. In the U.S., same level of productivity as other lines for example, AARP (formerly the American and achieved even better quality than Association of Retired Persons) hosts a comparable lines. Absenteeism was not website highlighting companies that have significantly higher. Similar pilot projects modified their workplaces and HR policies have followed under the slogan “Today for to attract the over-50 demographic. Tomorrow.” at BMW, Designing Production Lines to When setting up a new production facility Facilitate healthy and Productive aging. The in the Dingolfing plant in February 2011—a German automaker BMW was determined €20 million investment—BMW integrated to proactively face the challenges of an the findings from the pilot projects. This aging workforce. In order to identify initiative made the new facility the first in potential difficulties and devise ways to the automotive industry that was designed mitigate them, the company set up a pilot from the start to address the issue of aging project—staffing a production line in its workforces. BMW’s aim is to facilitate good Dingolfing plant with a group of workers health and optimal working conditions for whose average age was 47, which was the all employees, both younger and older. forecast average age for the plant’s workers in 2017 (eight years older than the average at CVS Caremark, Leveraging Warm Weath- age in 2007). er to retain older Workers. In an effort to ease the working atmosphere for older As part of the project, the company’s workers, leading U.S. pharmacy chain CVS ergonomic specialists, human-resources Caremark has a “snowbirds” program that personnel, and physicians collaborated enables employees to transfer to warmer, with employees, who had been asked by sunnier climates during the winter months. managers to suggest ways to improve The initiative has been a clear success. working conditions. Most of the proposed Stores in warmer states such as Florida changes were quickly adopted. They have the capacity to take on extra staff included the following: during the winter months because business is typically stronger at this time of year. • New equipment such as special Hiring older people to work in these stores ergonomic chairs, magnifying lenses, also makes good business sense, CVS has and wooden flooring said, because they often have an excellent work ethic and, just as important, they can • Job rotations across workstations to relate better to CVS’s older customers. minimize fatiguetheir talent-management strategy, tapping ing and promoting on the basis of merit rath-new channels and regions, identifying and er than seniority, and making the investment assessing currently employed talent, groom- necessary to keep their best people. The Boston Consulting Group | 11
  • 14. GroWthThE ChAllEnGES of An olDEr PoPUlATIon M any observers argue that Japan, with gdp growth of just over 1 percent from 1990 through 2008 (largely preceding at annual rates of between 1.4 and 1.8 per- cent. (see exhibit 6.) Indeed, the most com- petitive large economy in the world, the u.s., the global financial crisis), experienced two has seen extremely stable productivity “lost decades” because it could not find its growth in this range since as far back as 1960. footing following the market crash that it the u.s. productivity level, which has ad- experienced in 1989. low gdp growth in vanced steadily as technology has developed, recent years in europe (compared with that largely represents what is known as the tech- in the u.s.) is often attributed to more rigid nological frontier. market dynamics in europe. economies that are below this productivity however, when we separate the overall level can expand gdp faster as they move growth of gdp into the growth of the work- toward the technological frontier. Japan did ing-age population—a function of aging pat- so until the mid-1970s, when it reached the terns—on the one hand, and productivity same productivity level as that in the u.s. growth on the other, the picture changes. since then, Japan’s productivity growth has been roughly the same as u.s. productivity growth. The U.S. has seen of course, Rdes can enjoy high productivity extremely stable pro- increases until they reach a certain gdp per capita, and many have done so. china, in ductivity growth since particular, has registered huge productivity gains, and as a result its overall gdp growth as far back as 1960. has dwarfed that of not only the g-7 coun- tries but also other Rdes. (see exhibit 7.) In future decades, Rdes will continue to fuel the u.s. and canada experienced significant the engine of global growth as they try to nar- growth in their working-age populations from row the productivity gap with mature econo- 1990 through 2008, whereas europe’s work- mies. but both developed and developing force barely expanded—and Japan’s even economies will be hit by the demographic shrank. yet productivity growth has been dynamics that will negatively affect work- remarkably similar across the three regions, force growth. 12 | Global Aging
  • 15. Exhibit 6 | In the G-7 Countries, Differences in Workforce Growth Drive Differences in GDP Growth Growth rates among the G-7 countries Workforce growth versus productivity growth 2 Annual GDP growth, Annual growth in productivity, 1990–2008 (%) 1990–2008 (%) 5 3 4 2 3 Japan United States Europe 1 Canada 2 0% 1% 2% 1 GD GD GD P P P gr gr gr 1 ow ow ow th th th 0 0 United Canada Europe1 Japan –1.5 –1.0 –0.5 0.0 0.5 1.0 1.5 2.0 2.5 States Annual growth in the workforce- age segment, 1990–2008 (%) 2008 GDP3 (~US$5 trillion)Sources: united nations, World Population Prospects: The 2010 Revision; World Bank; BCG analysis.1 France, Germany, Italy, and the united Kingdom.2 We define productivity as GDP divided by the size of the 15-to-64-year-old workforce-age segment.3 Measured in constant (2000) u.S. dollars.Exhibit 7 | China’s GDP Growth Has Been Driven Mainly by Productivity Growth China grew much faster than the other BRIC countries from 1990 to 2008... ...thanks to huge gains in productivity 1 Annual GDP growth, Annual growth in productivity, 1990–2008 (%) 1990–2008 (%) 15 10 China 8 6% G DP gr owth 10 6 4% G DP gr owth 4 2% G 5 DP gr India owth Europe 2 United 2 Japan States Brazil Russia Canada 0 0 China India Brazil Russia –1.5 –1.0 –0.5 0.0 0.5 1.0 1.5 2.0 2.5 Annual growth in the workforce- age segment, 1990–2008 (%) BRIC G-7 2008 GDP3 (~US$5 trillion)Sources: united nations, World Population Prospects: The 2010 Revision; World Bank; BCG analysis.1 We define productivity as GDP divided by the size of the 15-to-64-year-old workforce-age segment.2 France, Germany, Italy, and the united Kingdom.3 Measured in constant (2000) u.S. dollars. The Boston Consulting Group | 13
  • 16. future Gdp Growth and the looking ahead, china should continue to declining Workforce lead most other countries in terms of produc- tivity growth (at 4.8 percent per year through lower growth in the 15-to-64-year-old work- 2050), but it is not likely to maintain the soar- force-age segment in the future will have a ing levels of recent decades. If china’s pro- negative impact on gdp growth around the ductivity were indeed to grow at this 4.8 per- world, with significant consequences for com- cent rate in the four or so decades to come, it panies in all industries. In the g-7 countries, would take the path that south Korea’s pro- declines of as much as 0.8 percentage point ductivity followed in the four or so decades in the annual rate of workforce growth, rela- past. this is an interesting comparison given tive to the annual rate of workforce growth that south Korea had a wealth level (defined from 1990 through 2008, will dampen esti- as real gdp per capita) in 1970 roughly equal mated gdp growth from 2010 through 2050. to china’s today. south Korea was the clear this forecast includes the potential impact of global leader in productivity growth from such factors as expected increases of two 1970 to 2010 for economies at its level of years in the average retirement age, more wealth. working women postponing families, and immigration dynamics. ultimately, with total gdp growth a function of both workforce growth and productivity In the Rdes, the effect will be even more pro- growth, it is evident that the trend of eco- nounced: the annual rate of growth in the nomic polarization—the two-speed world— workforce-age segment will drop by 1.7 per- will become even more pronounced. growth centage points in china and brazil and 1.3 rates in many developed countries will likely percentage points in India. remain low, while those in many Rdes should remain at relatively high levels. (see exhibit 8.) with the high-growth countries constitut- The trend of economic ing an ever-growing share of the global econ- omy, overall global gdp growth will likely polarization—the continue to be about 3 percent, slightly high- er than in recent years, despite the negative two-speed world— demographic effect. will become even exactly what would be needed to offset the effect of these demographic shifts? unfortu- more pronounced. nately, there is no silver bullet. as an exam- ple, take germany, a country in which aging has already had a large impact on growth over the period 1990 to 2008. In order for clearly, potential increases in productivity— germany to maintain its current gdp growth through technological advancements, process rates through 2050, at least one of the follow- optimization, efficiency improvements, and ing would need to take place: the like—can help offset negative demo- graphic effects. this is true in both mature • A Higher Fertility Rate. germany’s fertility and developing markets, although Rdes gen- rate would have to increase from 1.4 erally have a greater potential for these types births per female today to 2.9 by 2020. of gains because they are farther away from the impact on gdp growth would not the technological frontier. to assess future begin to materialize until after 2030. productivity growth in either Rdes or more mature markets, it’s necessary to gauge their • Higher Immigration Rates. about 300,000 distance from this frontier—those with lower net immigrants per year would be re- productivity levels can in theory grow fast- quired for the next 40 years (compared er—and then to consider the competitiveness with just 13,000 in 2009). of course, these level of each country, because more competi- immigrants would also retire at some tive economies can expand faster as well. point.14 | Global Aging
  • 17. Exhibit 8 | RDE Growth Will Continue to Outpace G-7 Growth Projected real GDP growth, 2010–2050 (%) 6 G-7 4 2.3 2.2 2.0 1.8 2 1.2 1.1 1.1 Global growth will be about 3.0%, very much in line with 0 historical growth of 2.9% United Canada United France Germany Italy Japan States Kingdom • Lower global workforce growth Projected real GDP growth, • Larger global share of 2010–2050 (%) high-growth RDEs 5.8 6 4.4 3.9 3.9 4 3.0 RDEs 2 0 2 China Brazil India Russia Next 11 Productivity growth1 Workforce growth Real GDP growth Sources: united nations, World Population Prospects: The 2010 Revision; World Bank; World economic Forum; economist Intelligence unit; BCG analysis. Note: assumes constant exchange rates; projected growth rates are in line with the “consensus” (Goldman Sachs, hSBC, and Standard & Poor’s). 1 We define productivity as GDP divided by the size of the 15-to-64-year-old workforce-age segment. 2 Bangladesh, egypt, Indonesia, Iran, Mexico, nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam.• A Higher Retirement Age. the retirement Rdes, where challenges such as infrastructure threshold would have to increase to 79 quality, a fragmented retail environment, and years of age by 2050, with no decline in highly diversified consumer tastes and de- productivity levels. mands can be daunting. (see exhibit 9.) • Higher Productivity Growth. productivity Market strategies that growth would have to increase to 2.3 percent per year, significantly higher than work at home will have the 1.8 percent average annual growth of the past decades and requiring a shift in to be adapted to the the technological frontier. Capturing Growth in an Aging World nuances of rDEs.among the many actions that companies can take to seize growth opportunities in an aging a second priority is to search for pockets of world, perhaps the most important is to en- growth in mature economies. overall growth hance their presence in high-growth coun- rates in the developed markets may decline, tries. but market strategies that work at home but it is possible to find consumer segments will have to be adapted to the nuances of in these markets that are growing more rapid- The Boston Consulting Group | 15
  • 18. Exhibit 9 | Market Strategies Must Be Adapted to the Diversified Challenges of RDEs Heterogeneity Large variation and diversity Rapid growth in affordability of population Commercial strategy, objectives, and goals Customer segmentation Consumer Fragmented Infrastructure Product portfolio and alignment interactions retail challenges Trade spending environment Pricing and commercial terms and effectiveness Branding and marketing communications of promotions Channel management Execution at retail Sales force effectiveness Account relationship management Aer-sales support Logistics management Organizational and process enablers Lack of High volatility transparency and risk and data Lack of Different labor/ trained talent capital tradeoff Source: BCG’s Go-to-Market advantage program. ly or that are underserved. the most obvious last, given that aging patterns will hinder is the 55-and-over “silver segment,” which we growth and put pressure on financial perfor- will address later in this report. others also mance in mature markets, companies will exist. In Japan, for instance, some companies need to move toward leaner business models. have started to target the growing segment of this should be an ongoing initiative that will young, single, working women. also, certain require companies to continually find new industries, such as health care, will be poised ways to reinforce margins, maintain competi- for strong growth as populations age. (see the tiveness, cut costs, optimize processes in or- sidebar “addressing growth opportunities in der to raise quality, deliver value less expen- an aging world.”) sively to customers, and enhance flexibility. 16 | Global Aging
  • 19. ADDReSSING GROWTH OPPORTUNITIeS IN AN AGINGWORlDCompanies such as those below have taken at allianz, Investing Demographically.measures to seize the opportunities that Allianz, the German insurer and financial-an aging world presents in terms of services company, has launched an equityeconomic growth. fund that seeks to benefit from long-term demographic patterns. Recognizing theat Philips, Paying attention to Megatrends. differences between low-growth markets inSome ten years ago, Philips set out to which the population is heavily skewedmanage its growth profile by explicitly toward older people and some high-growthprioritizing megatrends such as the rise of markets in which the population may beRDes as professional and consumer somewhat younger, the fund seeks to investmarkets, the need for energy efficiency, and in companies that are best positioned fromthe growth in demand for health care. a demographic standpoint.Since then, Philips has divested many of For example, in markets with a high propor-its noncore businesses, such as semicon- tion of senior citizens, the fund targetsductors and electronic components, and investments in health care, certain types ofhas made a series of acquisitions in health cosmetics, and financial services gearedcare, including some targeted acquisitions toward retirees. In markets where the popu-aimed at the elderly age group. This lation is slightly younger, investments arestrategy has paid off, with the company’s skewed toward companies catering to thosehealth-care sector showing resilience in a age brackets. The fund takes the perspec-tough market, posting higher revenues tive that “future investment and consumerand healthy margins. In addition, the trends of countries and regions can becompany has vigorously pursued sales predicted with a fair degree of accuracy ongrowth in the developing world. The the basis of current birth rates and advanc-proportion of total sales originating in es in life expectancy.”RDes stands at about 33 percent (as ofthe second quarter of 2011). The Boston Consulting Group | 17
  • 20. CApitAlDEMAnD, SUPPly, AnD ThE rETIrEMEnT DIlEMMA A s we have shown, the impact of global aging on workforce and gdp growth is relatively clear in terms of direction. the argued that global aging will lead to reduced savings rates as the percentage of retirees (dissavers) increases and the percentage of impact of aging on capital, another scarce workers (savers) declines. yet this assessment resource for companies, is less certain be- ignores the likelihood that a meaningful por- cause so many factors influence capital tion of global society will adjust to the new demand and supply and thus the equilibrium reality—particularly with regard to retire- interest rates that underpin capital costs for ment and health-care benefits—and increase companies. still, the impact of aging could their personal savings either of their own turn out to be a strong long-term driver of volition or in response to government incen- capital demand and supply—albeit one that tives to prepare for the future. is difficult to predict. as a result, all compa- nies, especially those in the financial services overall, a well-documented storm is brewing industry, should prepare themselves for concerning retirement and health-care bene- various scenarios that global aging could fits for people 65 and over. Indeed, in many help precipitate. countries in the developed world, social secu- rity systems were set up in the 1950s on the the impact of aging on the demand for capi- basis of the demographic pyramid of that era. tal—the amount of capital that households, current workers paid for current retirees. companies, and governments require for in- these so-called pay-as-you-go (payg) systems, vestment—is fairly clear-cut. owing to slower which covered both retirement and health- population growth in the developed world, care costs, worked well in a time of low the demand for new houses and infrastruc- dependency ratios. but with much higher ture will decline, and with it the demand for dependency ratios anticipated in the future, capital. also, as gdp growth slows, lower they will not be sustainable. levels of investment will be required, and capital demand as a percentage of gdp will very broadly, there are three scenarios for fall.1 (see exhibit 10.) dealing with the increasing cost of old age and health care, the key question being the impact of aging on the supply of capi- “who will pay the bill?” In the first, “our tal—basically, the money available for children”—the offspring of current workers— investment, represented by the savings of will contribute heavily to our retirement. In households, companies, and governments— the second, the burden will be passed to our is more ambiguous. some observers have grandchildren through government borrow-18 | Global Aging
  • 21. Exhibit 10 | Aging Lowers the Demand for Capital Through Lower GDP Growth Lower GDP growth oen means a lower level of net investment Real GDP growth, 1990–2008 (%) 15 China 10 .5 of 2 atio utp ut r al-to-o C apit India 2 5 United States Russia Brazil United Kingdom Canada France Italy Japan Germany 0 5 10 15 20 25 30 1 Sources: oeCD; World Bank; BCG analysis. Net investment (% of GDP) 1 Investment net of replacement investment (proxied by the consumption of fixed capital). 2 Because of data unavailability, data for russia are for the period 1995–2008.ing. In the third, we ourselves (current work- tions into private health-care and pension sys-ers) will have to bear more responsibility tems. (see exhibit 11.) labor participation for funding our retirement than did past gen- might even decline as the benefit of working erations. becomes far less attractive. let’s look at each scenario more closely. our grandchildren pay. existing payg pen- sion systems would remain intact, but they our children pay. existing payg pension would be funded largely by government systems stay intact, current benefit levels are borrowing, thereby deferring the problem maintained, and the next generation makes and leaving the bill to be paid by our grand-far steeper contributions to our retirement children.and health-care benefits than we did for our parents. this scenario seems as unlikely as the first, for the principal reason that net government debt would have to rise to unmanageable lev-At today’s benefit levels, els. assuming constant benefit levels, some estimates show that government debt could government debt could rise to between 300 and 500 percent of gdp in some g-7 countries by 2050. Indeed, rating rise as high as 500 per- agencies and international policymakers are already urging countries to rein in debt. stan-cent of GDP by 2050. dard & poor’s has estimated that more than 50 percent of sovereign debt globally will eventually be rated at speculative grades if current health-care and pension benefits are this scenario seems unrealistic because the maintained.2 the downgrade by standard & contributions of the next generation into poor’s in august 2011 of long-term u.s. debt national social-security systems would be illustrated the depth of the uncertainty about truly burdensome—between 40 and 75 per- whether large governments can effectively cent of their wages, not counting contribu- manage their finances. The Boston Consulting Group | 19
  • 22. Exhibit 11 | Making Our Children Fund Our Retirement Will Not Work Contributions per worker 1 would have to increase to very high levels Contribution rate (% of wages ) 80 72 66 60 59 57 43 45 45 43 40 39 39 32 25 28 22 20 0 2008 2050 2008 2050 2008 2050 2008 2050 2008 2050 2008 2050 2008 2050 United Canada United France Germany Italy Japan States Kingdom Pension costs Health care costs Sources: oeCD; World Bank; Standard & Poor’s; Center on Budget and Policy Priorities; u.S. Congressional Budget office; european Commission, The 2009 Ageing Report; BCG analysis. Note: assumes that current payout levels will be maintained. 1 Contribution rate into public systems only. assumes an increase of two to four years in the retirement age; contributions include employer’s part of social expenditures. We ourselves pay. If neither of the first two the u.K., for instance, the national employ- scenarios is sustainable, that leaves only one ment savings trust (nest)—a pension more choice: placing the burden on the scheme into which all workers 21 years of age current generation of workers. this will be and older without an existing pension plan the dominant scenario. true, our children will be automatically enrolled—is to be estab- may pay somewhat more than we have lished by 2012. In australia, employers are into national retirement schemes. and currently obliged to contribute an additional governments may resort to extra borrowing 9 percent of employee salaries and wages into to shift part of the burden to our grandchil- a superannuation fund. and canada is pursu- dren (as many are doing today). but the ing federal and provincial pension reform to current generation of workers will likely have create a pooled retirement plan that would to make the biggest adjustment, which can offer a retirement savings option for individu- essentially be done in three ways: working als without employer coverage. longer, saving more, and potentially accept- ing a lower standard of living in retirement. all of the above factors lead to the conclusion the likely outcome will be a combination of that in the developed world, we could ulti- these approaches—with the result that mately see a decrease in investment demand middle-to-high-income people will start to accompanied by an increase in the willing- save more, and many low-income people ness to save at any given interest rate.3 In the unable to save more will be forced to work new equilibrium, interest rates would likely longer and accept a somewhat lower stan- be lower. (see exhibit 12.) dard of living. although no two situations are identical, it many governments are already in discussions is worthwhile to compare this scenario with about raising retirement ages, and some are what happened in Japan two decades ago also weighing incentives and mandates to when its workforce started to shrink. Real bolster private savings. australia, canada, interest rates declined substantially, accompa- germany, the u.K., the u.s., and many others nied by a reduction in capital demand (invest- have either taken steps in this direction or at ment). capital supply (savings) also declined least announced their intention to do so. In as real interest rates fell, but by less than 20 | Global Aging
  • 23. Exhibit 12 | We May See a Decrease in Investment Demand and an Increase in the Willingness to Save Intersection of desired savings and investment demand curves determines real interest rates Real interest rate r Desired savings r1 r2 Investment demand Savings, investment Source: BCG analysis.the decline in investment because capital was of course, the question is not only what will also exported to other countries. happen to real interest rates but also what will happen to nominal rates. the answer today, however, abundant capital from the requires a view on inflation. clearly, aging developed world is unlikely to be exported to patterns and resulting higher government Rdes, which are already net exporters of cap- debt could prompt governments and central ital (with savings levels even higher than banks to increase the money supply, poten-their substantial investment levels). If Rdes tially creating high inflation. but this scenario maintain a savings surplus (as a percentage is far from certain given varying governmen-of gdp) equal to current levels, they would tal approaches on monetary policy and other further add to any relatively large global cap- factors. Indeed, a wide range of outcomes is ital supply. possible. we can therefore picture a scenario of rela- ultimately, companies in all sectors must tive abundance of capital in the developed plan for a continuation of today’s low-real- world—an increase in capital availability of interest-rate environment as well as a poten-1 to 2 percent of gdp annually between 2010 tial high-inflation scenario. more broadly, and 2020—with Rdes unlikely to absorb the they must prepare for a capital environment excess. that is constantly evolving in many different ways. (see the sidebars “living with an un-one result of such conditions—with so much certain capital climate” and “addressing money looking for a “place to sit” or chasing capital Issues.”) too few attractive assets—might be market volatility and speculative bubbles. the types of assets most likely to be affected would be real estate, commodities, “growth” compa- notesnies, and other assets not valued on the basis 1. the gdp projections described earlier correspond to of current cash flows as a good reference reductions in the demand for capital as a proportion of gdp of about 1 percentage point—technically, a point for their value. downward shift in the demand curve of 1 percent of gdp at any given interest rate. In the u.s., for example, but the most significant result of such a sce- the reduction in capital demand would amount to nario would be prolonged low real interest about $150 billion annually over the next ten years, compared with the level of recent decades.rates. The Boston Consulting Group | 21
  • 24. 2. see “global aging: an Irreversible truth,” Standard & point (if savings behavior is not affected at all) and Poor’s Quarterly, spring 2011. an increase of 2 percentage points (if many more 3. although it is difficult to predict the ultimate impact people start to save). for our analysis, we have assumed of decisions by governments and individuals on the a middle scenario of an increase of 0.5 percentage overall capital supply as a proportion of gdp, the most points in the capital supply—technically, a shift in the likely outcomes, according to rudimentary calculations, capital supply curve of 0.5 percent of gdp at any given will range between a decline of up to 1 percentage interest rate. lIVING WITH AN UNCeRTAIN CAPITAl ClIMATe A period of prolonged low interest rates— For their in-force books, insurers can take while benefiting many industries by making steps to mitigate the negative effects of a borrowing cheaper—could have a serious prolonged low-real-interest-rate environ- impact on insurance companies, banks, ment, potential asset bubbles, and infla- and other types of organizations that invest tion uncertainty. They can invest more in either on their own behalf or on the behalf asset classes such as infrastructure that of others. Insurers and banks should are less vulnerable to speculative bubbles therefore consider how to navigate through and can provide some inflation protection. such a period successfully, adapting to the And they can use financial instruments low-rate environment and even using it to such as swaps and hedges to protect gain an edge over rivals. At the same time, against downside macroeconomic risks. they should prepare for high inflation combined with low real interest rates—a To keep new business sales robust, insurers scenario that could occur in some markets. may have to rely more on their core activity: managing major risks for customers. Ob- Insurers. low nominal interest rates can viously, all products—such as those in- cause huge difficulties for life insurers (and, volving mortality risk (early death), longevity similarly, for pension funds and asset risk (outliving assets), and investment risk managers). First, there can be serious (low or negative returns)—need to be problems with high-guarantee products designed on the basis of various macroeco- sold in the past (when rates were higher) nomic scenarios that could unfold. that have not yet matured. Insurers could struggle to match these guarantees in what Products with inflation-linked guarantees they call their “in-force books.” Japan had could become particularly attractive this experience in the 1990s, resulting in because they provide customers a guaran- the failure of eight insurers between 1997 tee on buying power, which is critical in and 2001. Ten million policies, representing times of high inflation. At the same time, about 10 percent of Japan’s life-insurance these products protect insurers against market, were affected, and the sector as a periods of deflation. whole lost $11 billion in 2001 alone. Banks. When interest rates are low, banks When real returns are low and inflation is generally have very low margins on plain- higher, guarantees are easier to meet. But vanilla savings products, so the challenge there is still an issue for clients who receive becomes one of making higher returns on the nominal returns promised to them but the asset side of their balance sheets— not the commensurate buying power. their loan books. Moreover, it is a major challenge to sell Today, as some banks are deleveraging, new products when guaranteed rates of high interest rates can still be charged for return are extremely low, with many loans in many markets. However, if the consumers preferring more flexible invest- demand for mortgages and loans is less ments such as savings products from than the capital supply in the future, banks that offer the ability to reinvest when competition for a shrinking lending market market conditions warrant. may well heat up again. Additionally, large22 | Global Aging
  • 25. corporations may bypass banks and go light of so much uncertainty about interestdirectly to the capital markets to meet rates, banks should assess areas of vulner-their funding needs less expensively. ability, particularly with regard to any mismatches in the duration of their assetsIn a competitive lending environment, and liabilities—and they should considersophisticated risk-management tools trying to shift their business model frombecome a crucial element of success. one built on spreads to one in which feesIdentifying high-risk customers will help play a more prominent role.differentiate the winners from the losers. InADDReSSING CAPITAl ISSUeSSome companies, such as those described monopolies. They are generally permittedbelow, have taken steps to deal with a by regulators to adjust their tariffs forchanging capital environment. inflation annually. APG has also made infla- tion-linked debt available to infrastructureat aPG, Searching for Stability. APG Asset projects, including greenfield investments,Management—the world’s largest fiduciary that offer acceptable real returns. Overall,manager, with more than €270 billion in APG has provided inflation-linked debt toassets under management—has embarked more than a dozen companies.on a search for long-term, stable-cash-flowinvestments that could provide its clients— Given the sizable capital-expenditure pro-Dutch pension funds—a natural hedge grams in progress across europe in regu-against inflation and asset bubbles. lated electricity networks and gas grids—as well as in toll roads—it is clear that thereA few years ago, APG began investing will be a huge funding need. This need, inequity in infrastructure projects such as turn, will offer excellent opportunities forwater companies in the United kingdom long-term, stable-cash-flow investments.and toll roads in France. Also, in 2010, APGannounced an equity participation, on at Skanska and Innisfree, Teaming up with abehalf of a client, in a fund that invests in County Government. Skanska, the Swedishmodern fiber networks and radio masts for construction company, and Innisfree, themobile communications. This fund, the British infrastructure-investment group,Communication Infrastructure Fund (CIF), have teamed up with Stockholm County foraims to own a modern fiber network within a long-term health-care investment.ten years that would enable it to offerservices to telecommunications companies. In a further example of a public-privateAPG is currently looking for new infrastruc- partnership—which can help investorsture projects and is offering to invest equity looking for long-term, stable investments toin tunnels, toll roads, and wind parks. obtain reliable returns, as well as help public entities spread their costs over timeMoreover, APG has started to provide and avoid having to make large invest-utilities and utility-like companies in ments—Skanska and Innisfree are buildingeurope with long-term, euro-denominated, the New karolinska Solna Universityinflation-linked debt. Such companies Hospital in cooperation with Stockholmqualify for this debt category because they County. The arrangement includes financ-own long-lived, tangible, fixed networks that ing, construction, maintenance, andprovide them with domestic or regional operations. The Boston Consulting Group | 23
  • 26. Consumer needsnEw oPPorTUnITIES In ThE SIlvEr SEGMEnT O ver the next 20 years, the 55-and-over segment of the population—sometimes referred to as the silver segment—is expected the silver segment of today. for example, to- day’s seniors are generally less active online than tomorrow’s will likely be. at the same to account for a significant share of the time, companies need to take into account growth in consumer spending. (see exhibit the fact that aging typically brings increased 13.) this dynamic will be seen all over the physical limitations—and adjust their prod- developed world, and will be particularly uct offerings accordingly. strong in germany (an estimated 86 percent of spending growth), Japan (67 percent), and The very notion of what the united states (50 percent). it means to be “old” is to serve the growing 55-and-over segment properly, companies need to build a deep un- no longer a static one. derstanding of this heterogeneous age group, adapting their product portfolios and sales approaches to meet the segment’s evolving needs. broadly speaking, people in the silver seg- ment have different priorities than younger building an understanding of older age segments, owing to fundamental changes Consumers in preferences as they age. for example, pro- prietary bcg research indicates that older the very notion of what it means to be “old” women are often more interested in peace, is no longer static but dynamic. In the coming ease, and stability than in further achieve- years, many people in their sixties and seven- ment and recognition. other research indi- ties may be perceived as still in their prime cates that people in the silver segment are years—continuing to pursue their education, usually less driven by material possessions working in new careers, and maintaining an than at earlier periods in their lives—and overall activity level not previously associated more interested in new experiences, such as with those age brackets. companies need to further study or travel to new places. they consider this when targeting older consumers. are also more content with their lives. companies also need to realize that the silver In addition, silver-segment consumers gener- segment of tomorrow will be different from ally look for products that are functional, sim-24 | Global Aging
  • 27. Exhibit 13 | The 55+ Market Will Account for a Significant Share of Consumer Spending Growth Germany1 Japan2 United States Consumer spending Consumer spending Consumer spending ($trillions) ($trillions) ($trillions) 3 3 15 4.0 10.1 2 2 0.6 1.8 10 67% 50% 2.0 86% 0.4 1.6 0.4 4.0 0.3 1.3 0.2 2.0 1.2 1.0 6.1 0.1 0.9 1 0.6 1 0.7 5 2.0 6.1 0.7 0.7 0.8 4.1 0.6 0 0 0 2007 Growth, 2030 2008 Growth, 2030 2008 Growth, 2030 2007–2030 2008–2030 2008–2030 Proportion of spending growth attributable Age 55 and older Below age 55 to consumers age 55 and over Sources: u.S. Bureau of Labor Statistics, Consumer expenditure Survey 2008; Japan Statistics Bureau; Statistisches Bundesamt; BCG analysis. Note: Spending power is forecast on the basis of its historical correlation with GDP, not corrected for potential higher relative savings. 1 Because of data availability, data for Germany reflect 2007 numbers. 2 Because of data availability, data for Japan exclude expenditures by single-person households.ple, accessible, and convenient. they also with younger people (such as the 45-to-55 age have a lower propensity to change brands.4 group) in order to develop value propositions and although they do not want to be patron- for the future silver segment. ized in any way because of their age, they want their special needs to be acknowledged. A simple repackagingcompanies can do this in a way that empha-sizes the positive rather than the negative will not be enough toaspects of aging. attract older consumers.In fact, the silver segment represents more than just one market or opportunity. there are large differences, for example, between the buying tendencies of people in the 55-to-65 age bracket (many of whom are still work- Adapting product and salesing) and those in the 65-to-75 and 75-to-85 Approachesbrackets. and segmentation is a matter of not just age but also financial resources, educa- armed with fresh information about the pref-tion, mobility, location, attitude, and overall erences of the burgeoning 55-and-over age health, among many other elements. segment, companies need to review their product portfolios. some current offerings companies wishing to find ways to serve the may be ill suited to this segment, and a sim-rapidly growing silver segment should under- ple repackaging will not be enough to attract take comprehensive, qualitative consumer older consumers. a new-product-develop-research in order to identify the forces that ment process that is efficient and age appro-motivate these consumers, formulate ways to priate can help companies bring innovative meet their evolving needs, and set a goal to products and services to the market that are fully capture the opportunity that demo- designed specifically for older buyers. graphic shifts present. and focusing on the silver segment is only part of the task; the moreover, companies should review their other part is carrying out similar research channel strategies to ensure that they are The Boston Consulting Group | 25
  • 28. ADDReSSING CONSUMeR NeeDS Although many large companies have not phone offered. Finally, the company yet taken steps to adapt their portfolios of collaborated on mobile Internet service products and services to the needs of the products with organizations that are heavily burgeoning silver segment, some compa- involved with the silver segment—such as nies, such as those mentioned below, have those in the health care and insurance undertaken meaningful initiatives. industries. NTT DoCoMo’s innovative thinking and crisp execution offer a vivid at nTT DoCoMo, Designing Phones for illustration of the ways in which companies Seniors. In Japan, NTT DoCoMo introduced can capture the opportunities that the a new mobile phone for seniors by using burgeoning silver segment presents. multiple new-product-development, marketing, and sales levers. First, the at Ford, exploring Physical Limitations with company developed a partnership with a a “Third-age Suit.” In an attempt to better handset manufacturer to design and understand the physical limitations of older produce a senior-friendly phone with larger drivers, as well as learn how to design number and letter keys, a larger display automobiles that are both more comfort- screen, and voice-activated features. NTT able and more functional, Ford Motor DoCoMo then extensively researched the Company developed a jumpsuit for car content that was most in demand by the designers to wear that simulates the effects silver segment and worked with providers of aging. The outfit adds up to 30 years to to furnish that content. the wearer’s age by stiffening the move- ment of the knees, elbows, ankles, and NTT DoCoMo also researched the most wrists. The suit also simulates a thicker opportune moment to introduce potential midsection by adding material around the customers to the new offering—finding waist. Finally, thick gloves reduce the sense that an excellent time to explain things was of touch, and scratched, yellow-tinted on bus tours catering to seniors. goggles simulate eye cataracts. later, in order to help seniors learn how to Ford says that the suit has helped the use the phone, NTT DoCoMo implemented company design automobiles that are in-store classes in which trained personnel easier to get into and out of and more instructed customers on the ins and outs of comfortable in general to operate, and the most widely used applications that the whose controls are easier to read and compatible with the needs of the silver seg- ation of products and services to handle chal- ment. where do these consumers spend their lenges related to housing, health care, every- time? what percentage are Internet savvy? day purchases and activities, and other do they prefer face-to-face advice, or are they domains. (see exhibit 14.) In the u.s. alone, happier with the stay-at-home ease of an the market opportunity for people aged 65 online channel? are they comfortable taking and older has been estimated at $1.4 trillion advice and counsel from people in their for companies in diverse industries, and twenties or thirties or do they require cus- many of the new offerings are truly innova- tomer service personnel to be of a certain tive. (see the sidebar “addressing consumer age? what exactly are they looking for in needs.”) their shopping experience? It is important to note that future members of the silver segment may not accept solu- note tions that worked for their parents. there is 4. “why do older consumers buy older brands?” thus a real need to create a whole new gener- Journal of Marketing, vol. 74 ( July 2010).26 | Global Aging
  • 29. reach. “With the third-age suit,” the signs and labels, and emergency call company has said, “we believe we have buttons. The company says that targeting an advantage in knowing what that large older consumers has been successful, as demographic group [older drivers] de- reflected by 30 percent higher revenues mands.” Similar suits are now being used and greater customer satisfaction. Other by other automobile manufacturers—and chains, such as lawson convenience stores also by other industries. kimberly-Clark, for in Japan, have made similar efforts. lawson example, has started to use such a suit to has lowered shelves, enlarged price tags, train retailers to assess the experience of and added tables where older customers older customers in shopping for their can sit, chat with others, and take a break products. from shopping. at Kaiser’s Supermarkets, Making Shopping at unilever, emphasizing the Beauty of easier. kaiser’s, one of Berlin’s largest aging. Dove, a personal-care brand of supermarket chains and part of the Unilever, started a “Beauty Has No Age Tengelmann Group, has developed stores limit” campaign that emphasized different designed specifically for senior citizens. types of beauty and self-acceptance. The Some of the special features include overall message was that “age is part of brighter lighting, shelves fitted with steps, what makes women beautiful, not an aisles that are extra wide, and nonslip imperfection that needs to be corrected.” floors. The stores are also equipped with Through this campaign, Dove increased its lighter and easier-to-push trolleys, magnify- market share in all five of its major beauty ing glasses on shelves and trolleys, larger categories.Exhibit 14 | People 65 and Older Will Need Innovative New Products Needs and related spending Potential opportunities Safety/Security n ases Ho fficie E tio rch New housing Housekeeping Specialized ula pu us in n er g forms robot educational videos um Co stim cy /C Co Mortgage on l ns tua ns ve Food u g llec nie Tra m sin es er v Inte tou el a nce u om Ho go ris nd h ing o m cial services rs ds Mana Personal Nursing Behavior monitoring geme Nu histories robot system and service nt fee ti ent on as s Consumer al inpa sets Hospit spending, Financial s debt n sh ip age 65+ Prescri st on pti Intere Me ons Finan l d ica (offi ical panio ed ce ser m m o lu t r ba vic o Ho he ro se es Ot Com d) me Artificial Integrated Simple Anti-aging cy io n outpatie Hospita t Dental n muscle medical records phone cream he ge s er alt Em h n l As ist an are ons s th c oluti ce for p hy H eal c ys sica gen l decline E m er Hearing Financial Electric Commu- aids planning vehicle/ nication mobility service robotSource: BCG analysis. The Boston Consulting Group | 27
  • 30. toWArd A neW reAlity I t is clear that global aging will pose significant risks for companies in virtually all major industries. yet myriad opportunities risks. yet the same survey showed that, for any given business function, fewer than 50 percent of companies are taking global aging will also arise. consider a scenario in which into account in their strategic planning. financial capital will be broadly available and can be used at relatively low cost to invest in this survey is consistent with our view that the most important scarce resource: human although many organizations are aware that capital. this human capital might be willing they will face challenges related to global (or even prefer) to continue working in later aging in the coming years, they either do not stages of life as long as suitable jobs and perceive the potential magnitude of the prob- compensation were being offered by employ- lem or are too consumed by shorter-term ers. under such a scenario, would it not be imperatives to act. as a result, far too few possible to achieve annual productivity companies are taking sufficient steps to pre- growth in the developed world that is higher pare for the impact of demographic realities. than the historical 1.8 percent level—and even higher in Rdes—thereby bolstering Companies either do not gdp and helping to fund the growing group of retirees? the bottom line is that the major perceive the magnitude demographic shifts to come do not call for gloom and doom but simply for a different, of global aging or are too fresh, and fully informed perspective. (see exhibit 15.) Recent research by the economist Intelli- consumed by shorter- term imperatives to act. gence unit shows that most company execu- tives are aware of the demographic dynamics currently in play. (see exhibit 16.) more than 80 percent believe that the changes to come are very significant. nearly 40 percent per- to be sure, whether global aging patterns tru- ceive global aging as mainly a business op- ly represent a risk or an opportunity has a lot portunity, while only 11 percent see it as to do with how soon companies recognize the mainly a challenge or risk, with about 32 per- changes to come and take steps to mitigate cent of surveyed companies saying that glob- potentially negative consequences. the most al aging presents both opportunities and proactive companies have grasped the situa-28 | Global Aging
  • 31. Exhibit 15 | Global Aging Offers Opportunities to Companies That Can Adapt Supply side Demand side Labor The need and opportunity to invest Growth In the developed world, the GDP in people is greater than ever impact of aging can be offset if before annual productivity growth • Educate and retrain older workers increases from ~1.8% to ~2.4% instead of “getting rid of them” early • Cheap capital and scarce labor will • Create appropriate jobs for older create unprecedented opportunities workers (lower time and energy commitment) In RDEs, the opportunity to catch up with the developed world is greater than ever • The free flow of knowledge and the large capital supply will accelerate growth Capital Capital may be cheap in real terms Consumer In all markets, there is a huge (even though inflation could be needs opportunity to adapt to the needs high) of the older consumer • Companies should focus more on • Capital can be used to invest in the functionality and less on “image” most scarce resource: people • Serving this segment well will be a crucial element of growth in the futureSource: BCG analysis.Exhibit 16 | Most Companies Are Aware of the Demographic Dynamics—but Not Enough Are ActivelyPlanning for Them More than 80 percent of companies ...but less than 50 percent see increased longevity as a factor increased longevity business opportunity or risk... into their strategic planning If your company has thought about the implications of increased average longevity, does it view this change as mainly In which of following business functions, if any, does an opportunity or mainly a challenge for the business over your company take increased longevity into account? the next five years? Select all that apply. Mainly an opportunity 39% Human resources 45% Overall strategy 42% Mainly a challenge 11% 82% Product development/R&D 38% Both opportunities and risks 32% Sales and marketing 31% Neither opportunity nor risk 6% Other 3% Not considered 13% None 14%Source: economist Intelligence unit, A Silver Opportunity? Rising Longevity and Its Implications for Business, 2011. The Boston Consulting Group | 29
  • 32. tion and are taking appropriate steps: rebal- reinventing itself at different life stages. It ancing their portfolios by region to leverage may now reinvent what being older means— areas of growth, understanding and modify- at least in comparison with previous genera- ing pension liabilities, completing workforce tions. companies in most industries will have productivity and capacity analyses, and act- the task of coming up with new concepts and ing to ensure that their strategies will succeed solutions. in (and benefit from) a potentially low real- interest-rate environment. ultimately, despite the risks and pitfalls that global aging will present, there are many moreover, some companies have accurately opportunities to be seized as well. with the perceived demographic shifts as a rare oppor- right perspective and a willingness to take tunity to drive innovation by creating new action, the potential negative consequences sets of products and services that will meet of demographic patterns can be turned into the needs of a rapidly growing consumer positive outcomes. companies that recognize group—one that may maintain a relatively the magnitude of the changes to come—and high degree of vitality for decades to come. that take the necessary steps not just to cope Indeed, it has been said that the baby boom but to benefit—will best adapt to and profit generation has shown itself to be capable of from the new reality. 30 | Global Aging
  • 33. for further reAdinGThe Boston Consulting Group publish- Seven Ideas for Closing the Talent Creating People Advantage 2010:es other reports and articles that may Gap How Companies Can Adapt Theirbe of interest to senior executives. re- an article by The Boston Consulting Group, HR Practices for Volatile Timescent examples are listed here. august 2011 A report by The Boston Consulting Group and the World Federation of People Turning the Challenge of an Management associations, September Older Workforce into a Managed 2010 Opportunity a report by The Boston Consulting Group, Megatrends: Tailwinds for Growth august 2011 in a Low-Growth Environment a Focus by The Boston Consulting Group, Building on Success: Global Asset May 2010 Management 2011 a report by The Boston Consulting Group, Stimulating Economies Through July 2011 Fostering Talent Mobility a report by the World economic Forum in Navigating the New Consumer collaboration with The Boston Consulting Realities: Consumer Sentiment Group, March 2010 2011 a report by The Boston Consulting Group, Strategic IT Workforce June 2011 Management: Building Tomorrow’s Key Capabilities Today Shaping a New Tomorrow: Global an article by The Boston Consulting Group, Wealth 2011 March 2010 a report by The Boston Consulting Group, May 2011 Social Media: The Opportunities for Insurers an article by The Boston Consulting Group, May 2011 Making Your Company Inflation Ready a Focus by The Boston Consulting Group, March 2011 Operational Excellence in Retail Banking: How to Become an All- Star a Focus by The Boston Consulting Group, February 2011 Winning After the Storm: Global Payments 2011 a report by The Boston Consulting Group, February 2011 The Road to Excellence: Global Retail Banking 2010/2011 a report by The Boston Consulting Group, December 2010 The Boston Consulting Group | 31
  • 34. note to the reAderAbout the Authors For Further Contact Asia-PacificJan Willem Kuenen is a partner and if you would like to discuss with The Christopher Kayemanaging director in the Amsterdam Boston Consulting Group the challeng- BCG Hong Kongoffice of The Boston Consulting Group. es and opportunities that global aging +852 2506 2111Joris van Osselaer is a principal in presents for your company, please con-the firm’s amsterdam office. Kilian tact one of the authors of this report. kaye.chris@bcg.comBerz is a partner and managing direc-tor in BCG’s Toronto office. Christo- Europe Miki Tsusakapher Kaye is a partner and managing BCG Tokyo Jan Willem Kuenendirector in the firm’s hong Kong office. +81 3 5211 0300Alison Sander is the director of BCG AmsterdamBCG’s Center for Sensing & Mining +31 20 548 4000 tsusaka.miki@bcg.comthe Future in the firm’s Boston office. kuenen.janwillem@bcg.comWouter-Jan Schouten is a partnerand managing director in BCG’s Joris van Osselaeramsterdam office. Miki Tsusaka is a BCG Amsterdamsenior partner and managing directorin the firm’s Tokyo office. +31 20 548 4000 vanosselaer.joris@bcg.comAcknowledgmentsWithin The Boston Consulting Group, Wouter-Jan Schoutenfor their valuable contributions in the BCG Amsterdamconception and development of this +31 20 548 4000report, our special thanks go to Koen schouten.wouter-jan@bcg.comalfrink, Martin Danoesastro, BertjanDavelaar, andrea hurtado, VincentKrudde, rink Kraakman, huib The AmericasKurstjens, John Luijs, Sebastiano Kilian BerzMacchi, Joost Matthijssen, esther BCG TorontoPolak, Shira raber, David rhodes, +1 416 955 4200Daniel Stelter, Stijn Vlemmix, andMaite Zubiaurre. berz.kilian@bcg.comWe would also like to thank the follow- Alison Sandering people outside BCG for their con- BCG Bostontributions: Yvonne adema, Lans +1 617 973 1200Bovenberg, Frank van der Duyn sander.alison@bcg.comSchouten, Jan nijssen, and Sweder vanWijnbergen.Finally, grateful thanks go to PhilipCrawford for his editorial direction, aswell as to other members of the edito-rial and production team, includingKatherine andrews, Gary Callahan,Kim Friedman, and Janice Willett.32 | Global Aging
  • 35. © The Boston Consulting Group, Inc. 2011. all rights reserved.For information or permission to reprint, please contact BCG at:e-mail: bcg-info@bcg.comFax: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon street Boston, Ma 02108 usATo find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.Follow bcg.perspectives on Facebook and Twitter.12/11 The Boston Consulting Group | C
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