Demographic factors such as size of the population, population growth rates, age composition, family size, nature of the family, income levels etc. have very significant implications for business.
The size of the population is an important determinant of demand for many products. There are countries with only a few lakh of people on the one hand and those with hundreds of millions on the other hand. According to a World Development Report there were 58 countries with a population of less than one million. India has several multi million cities.
Poor countries with small population are generally not attractive for business. However, even such countries may hold out opportunities for some companies. As these markets may not be of interest for large companies, small firms may find promising niches in these markets.
Advanced countries, particularly with large population, are generally attractive markets. The major part of the international trade and foreign investment naturally take place between these nations. Because of the large potential of these markets, competition is generally strong in them.
Several high income nations, however, pose a problem for many businesses. Because of the decline in the birth rates and the consequent fall in the size of the baby population, the market for baby products has shrunk. This has prompted some companies to reposition their products (originally introduced as baby products) and to pay more importance to international business.
The declining birth rate has been a boon to certain industries. For example, industries such as hotels, airlines and restaurants have benefited from the fact that young childless couples have more time and income for travel and dining out. Small families have also similar advantages when compared with large families.
Although birth rates have fallen in many developing countries, the population growth rates are still very high. This coupled with a steady increase in income drives fast the growth of the markets of a number of developing economies.
When the population is very large, even if the country is generally poor, there could be a sizeable market even for those goods and services which are regarded luxuries in these countries. For example, if just 5% of the Indian population is well to do, absolute number is larger than the total population of many of the high income economies.
High population growth rate also implies an enormous increase in the labor supply. When the Western countries experienced industrial revolution, the population growth was comparatively slow. Labor shortage and rising wages encouraged the growth of labor intensive methods of production. Capital intensive technologies, automation, and even rationalization, are opposed by labor and many sociologists, politicians and economists in developing countries. Cheap labor and a growing market have encouraged many multinationals to invest in developing countries like India and China. Many companies in the developed countries have relocated their production facilities, wholly or partially, in the developing countries to reduce the labor costs. For example automobile manufacturers of Korea, U.S and Japan are setting up additional manufacturing units in India for exporting as well as for Indian markets.
The problems of developing countries due to the population explosion also indicate the enormous scope for several industries. A very significant share of the Indian population is below the poverty line. Although these people, who do not have a sufficient income even to meet the bare minimum basic necessities of life, do not come within the market for a large variety of goods and services , the existence of such a large size of poor population has a lot of other implications. To solve the basic problems, the additional number of children to be educated , the additional number of people to be provided with medical care, water supply etc. during one Five Year Plan are more than what most nations have done over centuries. While it is a formidable national challenge, it also indicates enormous business opportunities.