Global trends in population can derail international business

June 02, 2003

University Park, Pa. -- A Penn State expert on global business issues urges the international business community to pay attention to four major issues with regard to global trends in population if it wishes to operate on the world stage: population growth, aging, immigration and urbanization.

"The world population distribution has been, and will continue, to shift more toward the less-developed nations of the world, while the more-developed nations will continue to see their populations increasingly marginalized in comparison to the rest of the world," said Fariborz Ghadar, director of the Center for Global Business Studies at Penn State. "While the rate at which humanity is growing has been dropping over the last four decades, and is expected to continue into the foreseeable future, the world is still growing at an astonishing rate due mainly to the sheer number of people inhabiting the earth."

At present the world stands at about 6.2 billion people, growing at a rate of about 1.2 percent, which means an annual growth of about 77 million people, or about 147 people per

"But this growth isn't even close to being evenly spread out over the globe. More than half the world's population lives in Asia, with China and India accounting for nearly 2 of every 5 people on Earth," said Ghadar, who specializes in global corporate strategy and implementation, international finance and banking, and global economic assessment.

He predicts that Asia will retain its dominant position as the holder of the largest shares of world population with its relative occupancy remaining constant. Sub-Saharan Africa, specifically Nigeria, will see even higher levels of expansion and become the world's fastest growing region. The Near East, the Middle East and North Africa will see the largest increase in their population size relative to the rest of the world, fueled mainly by population booms in Saudi Arabia, Iran and Egypt.

As the relative size of a nation's population shifts compared to the rest of the world, so will its age distribution. While across the board nations will become older due to advances in medicine, Ghadar said the relative size of their working populations will see dramatic alterations.

Latin America, Sub-Saharan Africa and the Mid-East will experience "youth bulges" in their demographics in which a growth spurt in population causes problems with employment and resource allocation within a country.

"This does however serve to increase the relative size of the working population and in turn increase the potential for economic growth. In other areas, specifically Western Europe and Japan, their aging population will soon prove to be a massive liability. Declining birthrates and the increasing maturity of these nations will combine to up the costs in the fields of health care and pension funds, while at the same time reducing the relative size of the working population. As a result, national productivity will drop and so then will the governments' ability to meet the social contract they have established with their citizenry," said Ghadar. In addition to his role as executive director of the Center for Global Business Studies, Ghadar is considered by many of his peers to be the leader on research investigating the growing new field known as global tectonics — multifunctional business issues that will shape economies in the future.

"Immigration can help to relieve some of the woes created by a disproportionate age distribution within a country. The U.S. will be able to maintain its global population standing not by its own fertility, but by its relative open immigration policy, and the same applies for Canada, Australia and New Zealand," said Ghadar.

He points out that legal and illegal immigrants now account for more than 15 percent of the population in more than 50 countries, and this number will only grow in time. More developed countries and their aging work force need to replace their retirees with immigrant labor if they wish to prolong their economic vitality and avoid labor shortages.

Europe and Japan, Ghadar predicts, will have the toughest time with this process due to the dilemma they face with protecting their national borders and firming up their cultural identity, while at the same time facing the harsh reality that their populations can no longer meet the needs of their industries. For the less-developed countries, emigration will be a double-edged sword in that while it will relieve significant amounts of pressure on unemployment and infrastructure requirements, it also will deprive these nations of their best and brightest.

"A brain drain will occur in which those seeking a better life for themselves and their family will relocate, and take with them years of knowledge and experience not easily replaced," said Ghadar.

Urbanization will be an increasing trend in how the world organizes itself. Its expected that by the year 2025, more than 60 percent of the world's population will be in an urban setting, as opposed to the current level of 47 percent. The biggest change will be the rise of mega-cities, those metropolitan areas consisting of more than 10 million inhabitants. While some of the traditional candidates will remain, such as New York, London and Tokyo, more often than not they will be junior partners to the likes of Lagos (Nigeria), Jakarta (Indonesia), Shanghai and Mumbai (India). This increased emphasis on urban settings will represent a significant challenge to the local governments to provide adequate infrastructure and municipal services.

Another downside to urbanization is the increased complications to transportation that come with having so many people compacted into a dense area. To counteract these negative effects from urbanization is the reality that economic development is promoted by the inevitable creation of second and third value-adding industries that comes when a mass amount of people congregate in a relatively small vicinity, said Ghadar.

"Also, access to an ever-greater amount of people means that advances in information technology can be exploited en masse, allowing for greater productivity. Urbanization also calls for a greater demand in real estate, and infrastructure construction. The water, sewer, electricity and telecommunication capabilities will be stretched to the limit.

"No matter what this process of continued urbanization, it will place incredible amounts of strain on local and national governments. So much that some may not be able to handle their newfound responsibilities, and as such it may be necessary for the business community to intervene in order to ensure that their needs are met," said Ghadar. "Population growth, aging, immigration and urbanization are four speed bumps on the path of global population that the international business community will have to recognize in order to insure a smooth ride for their global operations."

Ghadar, the William A. Schreyer Professor of Global Management, is a leading authority on global corporate strategy and implementations, international finance and banking, global economic assessment, and e-business. He serves as a consultant to a score of major corporations, governments and government agencies and regularly conducts programs for executives of major multinational corporations in the United States and abroad. He served as an investment banker at the International Finance Corp. (World Bank), as well as research coordinator of the Harvard Multinational Enterprise Project. Ghadar is the author of more than 10 books and numerous articles on global economic topics.

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Last Updated March 19, 2009