The coming crisis of declining fertility

Changes in macro factors can be major drivers of an organisations competitiveness and profitability. By “macro factors” I mean changes in sociological, technological, economic and political factors, which can have positive or negative effects on your organisation’s competitiveness. These macro factors are different from the impact of competitors. Indeed competitors will also be impacted by changes in macro factors.

But I’m not writing about competitors in this blog article. Because I want to focus on a major macro factor which is all too often imperfectly understood – demographics. We’ve all heard about the ageing population and the importance of the “grey pound”. But far less is understood about big changes at the other end of the demographic spectrum – fertility. I’m prepared to lay bets that
fertility – specifically declining fertility – will figure more and more prominently in the strategic planning of organisations throughout the world in the coming years.

The level of fertility in the UK and in other countries is important for most organisations the public and private sectors. For two big reasons. First because it affects the number of customers the organisation serves. From markets for children’s clothes and buggys to the number of pupils in schools and students in universities. Second, because with a lag of 15+ years, the number of births
affects things such as the size of the UK workforce and the tax revenue of governments. In terms of exports fertility trends can have a big impact on the attractiveness of a foreign market for targeting.

And here comes the bombshell. Much attention is paid by the media to the so-called “population explosion”. Yet behind the rhetoric lies a crucial trend: much of the world has declining fertility. Here are some facts:

  • Some major countries already have populations which are actually declining, such as Russia, Japan and Germany
  • Many others have below replacement fertility and their populations too will decline in the future without significant immigration.
  • The “total fertility rate” (TFR), which measures the number of children per completed family, of the four so-called BRIC countries (Brazil, Russia, India & China) are either below the replacement level of 2.2 per family or are about to decline below replacement.

Only India has a TFR above 2.2, and on present trends will be below 2.2 in a few years.

Surprising? Here’s some more interesting facts:

  • Europe has a below replacement fertility
  • North America has higher fertility than Europe but still below replacement.
  • Australia and New Zealand are in a similar situation to North America
  • Only in the majority of African countries, and in a few countries in Asia such as Pakistan and Bangladesh are TFR’s significantly above 2.2.
  • In the UK the latest TFR is 1.9.

Overall the TFR for the world in 2011 was 2.46, having fallen from 2.59 over the previous five years. The UN forecasts that world TFR will fall below 2.2 about 2040. However if the trend of recent years continues into the future, the world will dip below 2.2 by 2025. By that time the majority of the countries in the world will have below replacement fertility. And many countries will have falling populations.

The key thing about all this is that many organisations competitiveness and profitability are going to be significantly impacted by falling fertility. Both in this country and abroad. Those countries unable to make up the “losses” caused by declining fertility by attracting increased numbers of skilled and unskilled immigrants will suffer.

Organisations such as private sector companies and universities should start planning now, for these demographic trends are already having their effect. Knowing where these declines in fertility will have their biggest impact is going to be a crucial piece of work for organisations to carry out. Good competitive intelligence is not just about competitors. It’s about macro factors too.