Preparing for a Demographic Dividend

with Sudhakar Balakrishnan, Thomas Crampton, Shobana Kamineni,

Naresh Malhan, and C.K. Prahalad; moderated by Thomas A. Stewart
from strategy+business issue 59, Summer 2010 reprint number 10205
strategy+business
Reprint
DEMOGR
DIVIDEND
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s+b Roundtable
PREPARING FOR A
APHIC
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At the World Economic Forums fall meeting
in New Delhi, five experts discussed the challenges
and opportunities India faces as its population
becomes increasingly youthful.
with Sudhakar Balakrishnan, Thomas Crampton, Shobana Kamineni,
Naresh Malhan, and C.K. Prahalad Moderated by Thomas A. Stewart
SUDHAKAR
BALAKRISHNAN
is CEO of Adecco India, a
staffing and human resources
services firm based in
Bangalore. He was formerly an
executive at several Indian
companies, including ABC
Consultants and Sify.
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emographics are destiny. Countries
with a large and expanding work-
force and relatively few people of
dependent age (under 15 or over
64) can reap what Harvard School of Public Health
demographer David Bloom has called a demographic
dividend. Young, unencumbered workers spur entre-
preneurship and innovation, enabling significant gains
in productivity, savings, and capital inflows. As fresh
ideas flourish, governments can focus on improving
infrastructure and helping to fund such critical tech-
nologies as intelligent transportation systems, smart
utility grids, and renewable energy. The World Health
Organization (WHO) estimates that the demographic
dividend can increase a countrys GDP growth by as
much as a third.
No country is better poised to take advantage of
the demographic dividend than India. (See Indias
Demographic Moment, by Nandan Nilekani, s+b,
Autumn 2009.) In 2020, the average age in India will be
only 29 years, compared with 37 in China and the
United States, 45 in western Europe, and 48 in Japan.
Moreover, 70 percent of Indians will be of working age
in 2025, up from 61 percent now. Also by 2025, the
proportion of children younger than 15 will fall to 23
percent of Indias total population, from 34 percent
today, while the share of people older than 65 will
remain around just 5 percent. Chinas demographics are
not as rosy as Indias, because the governments policies
to limit population growth will have created an abnor- P
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mally large cohort of people over age 60 by 2040. Other
emerging nations, such as Pakistan, Indonesia, and cer-
tain countries in Latin America and Africa, will produce
much larger workforces in the coming years. But their
demographic dividends may be inhibited by political
and social instability that impedes efforts to put this
young population to productive use; a country with
massive numbers of unemployed young people and no
constructive economic outlet for their dynamism is
headed for trouble.
Although Indias stars are more perfectly aligned, its
success is anything but guaranteed. The value of Indias
demographic dividend will depend in great measure on
whether the public and private sector have the political
will and foresight not only to create jobs but also to train
the new workforce, encourage global trade, improve a
failing education system, provide better housing, lure
capital to support innovation, and implement policies
that engender confidence in the economy. Given Indias
relatively strong democracy, government institutions,
and entrepreneurial sector, its attempts to grapple with
these thorny issues would seem to offer learning oppor-
tunities for other countries that are still a step or two
away from enjoying a demographic bounty. To explore
Indias prospects what the country must do and what
it must avoid; its possible economic weaknesses and how
it can make the best use of its people, businesses, gov-
ernment, and creativity strategy+business teamed with
the World Economic Forum to host a roundtable of ex-
perts on India. (A separate s+b/World Economic Forum
D
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THOMAS CRAMPTON
is the Asia/Pacific social media
strategy director for Ogilvy
Public Relations Worldwide,
part of WPP PLC. Based in
Hong Kong, he was formerly a
columnist and correspondent
with the International Herald
Tribune and the New York
Times.
SHOBANA KAMINENI
is executive director of new ini-
tiatives for the Apollo
Hospitals Group, which oper-
ates 46 hospitals in India and
overseas; neighborhood diag-
nostic clinics; a chain of phar-
macies; and divisions involved
in medical business process
outsourcing, health insurance,
and clinical research.
NARESH MALHAN
is managing director of Indian
operations for the employment
services firm Manpower
Services India Private Ltd.
He was formerly managing
director for marketing and
operations at Xerox India and
president of the consumer
market business unit at Tata
Teleservices.
C.K. PRAHALAD
passed away on April 16, 2010.
He was the Paul and Ruth
McCracken Distinguished
University Professor of Strategy
at the University of Michigans
Stephen M. Ross School of
Business and coauthor of
several significant books,
including The New Age of
Innovation (McGraw-Hill, 2008)
and The Fortune at the Bottom
of the Pyramid (Wharton School
Publishing, 2005).
roundtable addressed a very different subject: the chal-
lenges presented by aging workforces in some regions,
including Europe and Japan. See Facing Up to the
Demographic Dilemma, with Yoshito Hori, Jean-
Pierre Lehmann, Timothy Ma Kam Wah, and Vanessa
Wang, s+b, Spring 2010.) The discussion covered a wide
range of issues, from developing human talent to the
urbanrural divide, and from the effects of innovation
on economies to the desperate need for new neighbor-
hoods, schools, hospitals, roads, and drugstores in
emerging nations.
The discussion, moderated by Booz & Company Chief
Marketing and Knowledge Officer Thomas A. Stewart,
took place on November 9, 2009, at the World Economic
Forums India Economic Summit in New Delhi.
S+B: Theres general agreement that the bene-
fits from Indias demographic dividend will
depend on its ability to better educate its least
wealthy citizens. Two-thirds of Indians still live in
villages and work in agriculture, and many are
illiterate. What is India doing what should
India do to close the gap between limited op-
portunities now and the potential for vast oppor-
tunities in the future?
MALHAN: The kind of training the quality of the
training is more relevant than the sheer quantity of
training. India must determine which specific jobs,
either in India or in other countries, are most in demand
now and will be in the future. And then the educational
effort should be focused on increasing the needed skills
first and foremost. Without this, people may get a little
smarter, but they will not be employable.
BALAKRISHNAN: There is a huge gap between the skills
needed to work in the agriculture sector for low wages
and those needed for health care, plumbing, brick mak-
ing, or other more skilled occupations where the wages
are higher. The national government of India has been
working with state governments to identify the skills
needed and provide them. Already, I think about 400
needed skills have been identified. And while quality of
training, as Naresh said, is a concern, another issue is the
shortage of trainers. So all of this adds up to a training
gap that could become a huge social problem. Its a seri-
ous issue when a person spends money at a training cen-
ter to develop new skills and cannot get a job when he
comes out. In our training efforts, we are focusing on
having quality trainers who could make sure that the
students are not only finishing a particular number of
hours and days of classes, but are learning to perform to
a particular level.
PRAHALAD: I have a more positive view on what may
happen. I am guilty of setting the goal two years ago of
India having 500 million skilled workers by 2022. And
that goal, seemingly far-fetched when I first proposed it,
has now been accepted by the Indian government. But
those numbers must force a totally different way of P
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Take a video game such as Counterstrike, which
pits two teams of three players against each other in
a commando-style raid. Communicating via chat and
voice channels, these players learn to coordinate com-
plex maneuvers under high pressure in teams that are
often composed of teenagers from different continents
and cultures.
First of all, a game like Counterstrike helps build
intercultural communication and leadership skills that
will be key as India and other emerging economies look
to export high-value-added services. Second, contrast
the experience a teenager has moving from the highly
compelling and rich online environment of an immer-
sive video game to a book-based system built on rote
learning. If schools could learn to make mathematics
and composition as compelling as online games, the
generation would enthusiastically educate itself.
S+B: Youre saying that in India, and perhaps in
a smaller way in other developing countries, the
sheer numbers of people the vast scale of the
demographics will force a radical rethinking
of the types of things that ultimately improve a
nations ability to teach and learn.
PRAHALAD: Precisely. In other words, if you use the
lens fromthe West to look at India, it looks like a bloody
mess. But if you start looking at India from the inside,
there is a different quality, a vitality thats not surfacing
yet, but is bubbling underneath.
S+B: Whats the role of entrepreneurship? Is it
important? If so, how do you make sure that en-
trepreneurs flourish? What policies, social archi-
tecture, and business architecture are needed?
PRAHALAD: Entrepreneurship is absolutely fundamen-
tal to Indias growth. If you look at the people on this
panel, theyre all entrepreneurs to one degree or another.
Apollo Hospitals Group, where Shobana works, started
37 years ago as one hospital. Now theyre adding 10 hos-
pitals per year. India is an entrepreneurial story. India
will have to continue this entrepreneurial journey to
take advantage of its demographic dividend.
There are three kinds of requirements for entrepre-
neurs in India. First, very low capital intensity compared
to the United States and Europe, but with extraordinary
impact. Even now capital is not easily available to entre-
preneurs. So what do you do? You start small. You make
thinking about training. In other words, you cannot
start by saying, We need to build more schools. My
answer to that is, You have 250,000 public schools
in the country. What do they do after four oclock?
Nothing. So you dont have to build more schools. You
just have to utilize them better and differently. You
have to use them to teach workers world-class skills,
monetizable skills, and also maybe language skills. If you
can do that, you will get an extremely mobile, employ-
able workforce.
The second thing that is becoming obvious and that
is important is you dont have to train people in every
field. There are 400 needed skills identified, according
to Sudhakar. I would say then that maybe 200 of these
fields should be emphasized.
The third point I would stress is that you need to
focus a lot more on the capacity to do things than on
credentials. For example, to read an echocardiogram,
you have to be an M.D. in the United States. But in
India, people with a bachelor of science degree can read
them. All the successful hospital groups in India have
trained people without M.D.s to be more skilled than
M.D.s in certain areas. And its not because theyre
smarter. Its because thats all they do. In other words, an
M.D. in the United States may see 10 echocardiograms
per week in a small general hospital, but here, one para-
medic sees 25 of them every day. Thats all they do. So
the learning curve is steeper.
The last thing I would say is that India is not going
to build skills by having people sitting in chairs in front
of teachers. That is not the right way to develop more
practical skills in individuals. If we can train people to
fly an aircraft with simulators, we can certainly teach
people how to drive a forklift truck. We totally under-
estimate the ability to use modern technology to both
reduce the cost of training and dramatically alter peo-
ples skills. Why cant forklift driving be taught as a video
game? And what I think is becoming obvious in India is
that we must fundamentally innovate, develop new ped-
agogical tools, and apply technology in ways that it has
not been applied anywhere else in the world.
S+B: Youve just been given a great segue, Tom.
CRAMPTON: Picking up on that, the problem I see in
trying to develop skills is a new form of discrimination:
age discrimination. Few people are willing to tap the
true potential of the digital world, in which teenagers
live, as a teaching platform.
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money on every project. You reinvest the money.
Second, a certain audacity that comes with low cap-
ital intensity. The growth of generic drugs in India is
an example. Generics may represent only 5 or 6 percent
of the world market value, but they fundamentally
changed the pharma industry. The Pfizers and Mercks,
which used to complain about generics, are now coming
to India to buy them. Pharmaceutical companies in
India have phenomenal valuations. The same is true
of IT, in business process management. And it is true in
the auto industry, increasingly in auto components. So,
in other words, it takes a certain audacity to say, I may
be small. I may remain small compared to global com-
panies. But I have the ability to distort the global indus-
try structure.
Third, the willingness to challenge the status quo,
to create different business models. For instance, in
pharma again: Western companies go from lab to mice
to men and to market, a US$1 billion process. Indian
pharmacology is exactly the opposite. The companies
look for medicines that already work on people: 3,000-
or 4,000-year-old treatments like Ayurveda [the Indian
system of herbal- and yoga-based alternative medicine].
They figure out in the lab why it works, replicate that
knowledge in clinical trials, and launch it, all for $50
million. This is called reverse pharmacology.
KAMINENI: We do open-heart surgery for $2,000; in
the U.S. it would cost $40,000. And one of the basic
reasons is that 98 percent of our surgeries are done on
Even now capital is not easily available
to entrepreneurs. What do you do? You
start small. You make money on every
project. You reinvest the money.
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9
beating hearts, where we use the octopus hand [a med-
ical device that allows the heart to continue to pump
blood during an operation, potentially reducing the risk
of a stroke]. In the U.S., you do this only 30 percent of
the time. We take this approach because we can actually
reuse the octopus 20 times, so it brings down the cost
of the consumables. In the U.S., prices are not as big a
concern because theres a third party paying for that con-
sumable. So the surgeon isnt incentivized to be skilled
in using the octopus hand. Also, we need to send the
patient back home in four days because theres pressure
to make beds available. So we must use our creativity
and entrepreneurial spirit to come up with solutions
that keep costs down. This is both a manifestation of,
and a precursor to, success in India.
S+B: Lets change the focus to urbanization. I
saw figures that 275 million people will be mov-
ing into cities in India in the next 25 years. Lon-
don, Paris, New York, Tokyo thats maybe 30
million people. India will be creating cities with
nine times that population in an extremely short
period of time. Cities are engines of wealth, and
theyre engines of change, engines of disruption,
engines of danger, and seedbeds of crime. What
opportunities and tensions does it create?
CRAMPTON: Urbanization will bring about tremen-
dous transformations because suddenly you have hun-
dreds of millions of people with access to broadband
and mobile Internet. You have people who are able
to use all these platforms for the first time. It brings
them into a whole new way of being able to interact
with others.
S+B: What happens as a result?
CRAMPTON: Suddenly they start doing things in very
different ways, and you get these very disruptive models
appearing out of nowhere. For example, in China a
group of people known as Gold Farmers earn a living
from winning points in the video game World of
Warcraft that they sell to people in the West who want
to build up their point levels.
The importance of these games to culture and the
economy can be seen in the conflict going on between
two ministries in China over World of Warcraft. The
Ministry of Culture and the General Administration of
Press and Publication both claim to control the video
game market. Because video games were formerly dis-
tributed on CDs, the press administration says its pub-
lishing. The culture ministry, however, says its culture,
digital life, so they should have control over it. These
two ministries have broken out into warfare against one
another, appealing publicly to the state council. Such
open battle is unheard of in China, and its all over an
online game. When people get into World of Warcraft
and other online games, it creates this whole new
dynamic, this whole new economy and new politics.
The one thing to remember, though, is that India
is not like China. China has an incredible broadband
infrastructure. India does not. But India is moving
ahead in a big way into mobile-based Internet. It will be
interesting to compare the progress and innovation of
Indias mobile phone culture with Indonesias at the less-
developed end and Japans at the more-developed end.
MALHAN: For urbanization to succeed, businesses will
have to move into Tier Two and Tier Three cities and
not get concentrated in the main metropolitan areas.
This is already happening. We see a lot of infrastructure
being built in new campuses in new cities that are just
emerging. There is too much crowding in the big met-
ropolitan areas like Bangalore and too much traffic. We
also have a huge housing problem in most metro areas.
We really need to shift business into Tier Two cities like
Chandigarh, Jaipur, Lucknow, Vizag, and Mysore, and
Tier Three cities like Kota, Udaipur, Jodhpur, Ambala,
and Mangalore.
BALAKRISHNAN: Cellular infrastructure can move into
Tier Two or Tier Three cities much faster than manu-
facturing. Its easier to build out not like an auto
factory, which is less fungible. And with the cellular
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infrastructure, you can develop businesses in IT, finan-
cial services, mobile applications, and so on.
PRAHALAD: But I think there is still a migration prob-
lem in India: Three hundred people are moving every
minute away from villages.
CRAMPTON: And many of these villages had only 300
people. So a village disappears.
PRAHALAD: Three hundred people every minute is a
lot of people. India ultimately has to build between 300
and 400 new cities. It doesnt matter how you cut it,
whether its Tier One or Tier Two, youre going to have
45 percent of people living in slums in totally unaccept-
able physical and sanitary conditions.
And the debate about the need for new cities has
started only recently. People are seeing that the infra-
structure in existing metro areas is already strained and
cannot take the load. The story of the development of
Bangalore is very illustrative. We can see its evolution in
multiple, discernible steps.
Before Indias independence, Bangalore consisted of
two distinct parts. One was called the cantonment,
which contained the British military establishment. This
was separated from Bangalore City, a self-contained ci-
vilian area. Only a few roads connected the two.
Stage two of the development of Bangalore began
with the arrival of public-sector firms, especially in
the areas of electronics, defense, and aeronautics. Each
public-sector unit built a new self-contained township
for its employees not just factories but housing,
schools, and hospitals. There was minimal traffic be-
tween the public-sector complex and the distinct parts
of the main city. The public sector bore the costs of all
of the social infrastructure.
Stage three was the arrival of private-sector high-
tech industry. These firms located their facilities in a
new group of special zones but did not want to pay the
costs of building a social infrastructure. Consequently,
employees had to find places to live that were not part
of the high-tech zones. What was the result? Suddenly
the patterns of traffic between the main city and all
of the various zones became quite unpredictable, con-
gested, and crazy.
The fourth stage of development was the emergence
of small software companies and startups well over
3,000 of them. These companies could not afford for-
mal office space. They were typical garage startups.
They sprang up all over the city and again altered the
patterns of traffic.
And today, Bangalore is a complex interplay of large
and small businesses and supporting ecosystems, slums,
and residential areas, commingled and inseparable. It
is impossible to untangle the city. Roads cover more
than 25 percent of the land, but still, getting around is
a nightmare.
What Im saying is that due to the unplanned
nature of its evolution, Bangalore has become an
extremely difficult political problem to solve. Therefore,
the solution is not necessarily only to improve existing
cities (which we have to do, politically difficult as it is).
The solution is to build corridors that connect pairs of
new smaller cities with highways and high-speed rail so
people can move in and out and so the communities
are linked to global markets.
S+B: Wealth and ideas and progress and innova-
tion are created in clusters. Its Silicon Valley.
Its Northern Italy for fashion and design. It hap-
pens when people get together and generate
ideas. It seems to me that you can best take
advantage of a demographic dividend when you
can create energy around something of value in
cities or in groups.
PRAHALAD: Yes, but how do clusters evolve? Rec-
ognizing a cluster after it has become a cluster is no big
deal. In India, clusters are going to evolve because of
entrepreneurship, and its no different from the United
States. The auto industry evolved in Detroit because
Henry Ford happened to be in the Detroit area.
Nothing about Detroit logically dictated placing the
auto industry there, except the entrepreneur was there.
We think about clusters as some government-created
entity, but not everything in India that works was
created by the government. If you look at the auto clus-
ters, in Noida, Pune, and Chennai, the government had
nothing to do with them. The same is true in areas
where software development activity is high or where
high-volume electronics and manufacturing are preva-
lent. The emergence of these areas says more about
where entrepreneurs live than where the government
wants a cluster to be.
S+B: Where will the next wave of opportunity
come from in India? If you were to offer one or
two investment opportunities, or things that India
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must do to maximize its returns on its demo-
graphic opportunity, what would they be?
KAMINENI: Power generation is a big opportunity be-
cause the government offers a lot of financial help. You
only have to invest 20 percent in a power plant and you
can borrow 80 percent, tax-free for 10 years. And you
get a 30 percent return on your investment. So thats a
no-brainer, because energy security still remains a great
challenge. This is the case for most infrastructure proj-
ects in India for the next two decades.
But in terms of employability, scaling up, and long-
term gains, health care is a great investment in India. We
need 100,000 more hospital beds annually, and educa-
tion facilities for doctors, nurses, paramedics, and so on.
Health insurance is just emerging in India. With respect
to pharmaceuticals, Glaxo, for example, sells more drugs
in India than anywhere else, but the revenue is low
because our prices are one-twentieth what they are in the
West. When Indian prices start moving closer to those
of Europe and the U.S., the health-care industry is going
to explode.
S+B: So as Indias middle class, the largest in
the world, starts paying prices that are closer to
those in the West, particularly as peoples wages
rise, the consumer market in India is going to be
one of the biggest opportunities in the world. And
that would suggest investing in consumer infra-
structure and retail.
When Indian pharmaceutical prices
start moving closer to those of Europe
and the U.S., the health-care industry
is going to explode.
PRAHALAD: Indias success or growth is going to
depend on 800 million ordinary people, not a village. In
other words, the bottom of the economic pyramid is a
fundamental source of innovation. The final point I
want to make is that connectivity, sustainability, envi-
ronmental stewardship, inclusive growth from the bot-
tom to the top of the pyramid, and globalization are all
joined at the hip, yet few people are looking at all of
them together. They tend to be viewed as independent
pieces, as unique problems that can be addressed sepa-
rately. But that is not the case. Its a tall order, but all of
them will have to be addressed simultaneously and in a
coordinated fashion for India to take advantage of its
demographic opportunity. +
Reprint No. 10205
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KAMINENI: Apollo has 1,000 retail pharmacies. We
opened them all in 1,000 days; a drugstore a day. We
know retail is going to be a huge opportunity.
I want to give you one last thought that we havent
touched on. One of the best things about India, cultur-
ally, is that were very environmentally sensitive, and
were very frugal. So, whenever we talk about urbaniza-
tion and its problems, you have to remember that we
know about recycling and conserving energy use. So you
cant apply the same factors that would exist in a city in
the West to Indias cities.
MALHAN: I think smart money will be invested in inclu-
sive growth. Investors should look at where their money
can have a multiplicative effect. In our current situation
that means investing in education, vocational training,
and entrepreneurship.
The starting point is educational training and it
has to be training that involves the eye, the hand, and
the mind. It must also take place across various sectors
of the economy, including agriculture.
CRAMPTON: Id put connectivity as the top priority.
With connectivity, youre going to suddenly find all
these scalable solutions that were never available before.
The difference between somebody who can get online
only a little and someone who cannot get online at all is
massive. If you can make it an objective to provide peo-
ple with connectivity, they will find ways to solve prob-
lems before they become big. Solutions will arise that
would otherwise have been totally unavailable. Some
skill problems may start to solve themselves, as Professor
Sugata Mitra of NIIT [an Indian IT training company]
in Delhi found after placing a computer in the wall of
the institute. Children from the adjoining impoverished
neighborhood began teaching themselves how to use
computers, and unsupervised computer learning was
born. Youll also find online universities growing to fill a
huge portion of the training agenda.
BALAKRISHNAN: If you look at Indian pay rates, they
are among the lowest in the world; 30 or 40 rupees [64
to 85 cents] a day, a little more in some sectors. If you
can add skills and educate people, they can start earning
more and buying more products. Consumerism would
encourage more commercial growth and, with domestic
demand being so high already almost 65 percent of
our GDP it would bring a lot of wealth into the bot-
tom of the pyramid.
Resources
David E. Bloom, David Canning, and Jaypee Sevilla, The Demographic
Dividend: A New Perspective on the Economic Consequences of Population
Change (RAND Corporation, 2003): A review of the effects of demo-
graphic change on economic growth.
Thierry Geiger and Sushant Palakurthi Rao, The India Competitiveness
Review 2009 (World Economic Forum, 2009), www.weforum.org/
pdf/ICR2009.pdf: An in-depth analysis of Indias current and future
ability to compete in the global commercial landscape.
Yoshito Hori, Jean-Pierre Lehmann, Timothy Ma Kam Wah, and Vanessa
Wang, Facing Up to the Demographic Dilemma, s+b, Spring 2010,
www.strategy-business.com/article/10105: At the World Economic
Forums summer meeting in Dalian, China, four experts discussed the
challenges and opportunities that aging populations present to business in
emerging Asian countries.
Nandan Nilekani, Indias Demographic Moment, s+b, Autumn 2009,
www.strategy-business.com/article/09305: The economic force of a
burgeoning population.
C.K. Prahalad, The Innovation Sandbox, s+b, Autumn 2006,
www.strategy-business.com/article/06306: Explores innovation in Indias
health-care sector as a model for commercial creativity in all industries
and all economies.
World Bank Groups End Poverty in South Asia blog, http://blogs
.worldbank.org/endpovertyinsouthasia/india%E2%80%99s-turn: A blog
devoted to exchanging ideas on ending poverty and dealing with demo-
graphic trends and issues in South Asia.
For more thought leadership on this topic, see the s+b website at:
www.strategy-business.com/organizations_and_people.
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