Sunday, March 2, 2014

The Long(er) View in 2014

The Long(er) View in 2014

When making any decisions about the future, one needs to look at long term trends, medium term episodes and short term events. They all guide where we are likely to be in a few years/ decades. Also, important is to understand the trends that will happen no matter what, and other things that will seek to counter-balance or reinforce these trends. In many cases, unraveling of some trends will set off domino effects that will fundamentally alter the reality that we see.

Overall trends can be assessed in the following areas.

  1. Demographics
  2. Technology
  3. Science
  4. Energy
  5. Economy
  6. Social
  7. Politics

Out of the above, I would rate Demographic trends to be most fundamental. Science and Technology follow a close second. The remaining – Economic, Social and Political trends to me are generated out of the more fundamental forces that are likely to be more kosher.

Demographic trends in the next decade

The demographic trends in the near future is almost clear. With 2.5 out of the 7 billion people on the planet (37%) living in China and India, the world's population is becoming more skewed towards South East Asia.
Global Population by country in 2013
A more fair comparison would be the density of population.
Global Population Density

Also, if we compared the population in East and South East Asia, we would find them to be comparable.

For most of the world population (including China), fertility rate is 1-2 births per woman. Also, world population growth rates around the world hover from -ve to 1-2% in most of the planet. So, what does all this mean?

Annual Population Growth Percentage by Country

Next the median age in different countries of the world.

It means that there will be more older people in richer parts of the world, while more working/ younger population in poorer parts of the world. While a small percentage of the working population may choose to take care of the old and rich, it is more likely that the now older and retiring population would want the younger population to take care of them. This could happen through the following ways

  • Healthcare professions may become more lucrative for younger population
  • More automation and technology coming into healthcare
  • More investment into training and education of younger people in health and medical disciplines.
  • Establishment of large healthcare organizations that may provide direct employment opportunities to working populations in current countries.
  • Manufacturing and innovation moving to more populous countries in Asia and Africa
  • It will also be important for currencies to stay favourable for enticing younger populations to focus overseas.

If we see global expenditures on health as percentage of GDP, we can see the following trend.

Health Expenditure as a percentage of GDP by country matches the median age distribution shown above with some minor variations
In dollar terms, we can see that expenditures are focused on the richest western counries in the world. We can see that governments will see that healthcare is no longer an expense they can allow at its current levels. To make the process more efficient, we should see governments putting more emphasis (and dollars) on preventive healthcare than on traditional medicine and recovery.

In dollar terms, expenditure on health probably is more in line with per capita GDP. As per capita GDP rises in other countries, we can probably expect absolute dollar expenditure on health rise more as well.
The increased dollars will also probably entice next generation of technology breakthroughs to come in the areas of health and medicine. Portable devices that allow patients to monitor their health and report it on a routine basis to health care professionals sitting remotely will become the norm. Add the capability to automate the backend using statistical and predictive analytics will add to the process.

Technology Trends

Technology is disrupting the economics of many fundamental value chains. Steve Jobs idea of modeling Apple on Sony instead of Microsoft, upon his return to Apple, and then using technology to try and disrupt each and every industry Sony was in (almost), including music, media and entertainment is a case in point.

As technology evolves, the threshold economics of many traditional industries will give way. Industries such as Banking (online banking), Trading (online), Finance, Higher education (MOOCS), Insurance (Geico), Entertainment (Netflix and YouTube), Print Media (websites, Facebook, declining advertising and readership), etc. have already felt the tectonic plates shift with communication and Internet technology. As new platforms emerge, they unravel the economics of previous business models and allow new businesses to emerge.


New changes will likely be increased adoption of 3G and 4G technologies in mobile. Current adoption is 30% in markets where 3G is deployed, and 4G deployment is accelerating as people are accessing more online services on their mobile. It is likely in next few years, 3G and 4G adoption will grow substantially. This is more true for areas where no other competing technologies such as television and fixed line phones and Internet have been deployed.

Also, as the mobile phone batteries improve, processing improves and demand for gaming and media consumption on mobile increases, it is likely that the phones will become bigger and adoption of smart phones will increase. Also, as TV content becomes more accessible on smart phones, it is likely that the smart phone user base will grow beyond urban to more broad-based as for traditional Television audience.

Smartphone adoption will rise across all countries with additional services coming on line.

Automobile Technology

Automobile technologies are increasing range and reducing price of electric vehicles. Tesla motors seems to be eying a more sizable percentage of the market in coming years, and other vendors are also investing in making traditional combustion engines, hybrids and electric vehicles more economic in terms of cost of ownership. Pure electric cars now provide a range of 300 miles at a full charge that costs 9 dollars on average.

In other countries, which are not producing their own oil (and hence have to rely largely on oil imports), the move to mass transit modes will intensify specially in urban areas. Given congestion and cost for travel, it is also likely that electronic commerce and e-delivery will intensify. In some countries, where the logistics and distribution is not well developed, online retailers may partner with brick and mortar companies to promote last mile delivery. Given these scenarios, it is likely that mobile commerce will also intensify.


There is wide disparity between countries in terms of per capita bandwidth consumption. This is an image from 2003, however this is perhaps indicative of the order of magnitude.

Given the economic realities that underpin these innovations, it seems most likely that these innovations will intensify. In the short and medium term, companies will benefit from capital investment in last mile connectivity.

Science trends

Much of scientific research is focused on medicine and health. This is a space I need to do more research to understand the trends a little deeper.

Energy Trends

Energy trends are a little mixed at this point. The ongoing exploration and extraction of oil and gas in continental North America and in Russia is likely to put pressure on OPEC. However, these efforts need oil to stay above 80 to 100 dollars per barrel. Therefore, it is unlikely that price of oil is going to change even with US and Europe reducing their reliance on middle eastern oil. This will make alternative energy sources more appealing including solar, wind and others. Also, as the adoption of electric vehicles increases, it is likely that solar adoption will increase both at grid as well as consumer side. On the consumer side, we can expect households, offices, plugin charging stations increase their adoption of solar and other alternative forms of energy.

Given new alternative forms of energy sources coming online, it is anticipated that power grids will be re-balanced to allow grids to tap into new forms of energy. Initiatives such as Smart grid roll outs will see investments in digitization and improvement in reliability of the grid. Smart grid drivers seem to be of two kinds – firstly, introducing Demand Responsive capabilities and secondly, Supply Responsive capabilities. Given energy efficiency is improving across most usage scenarios coupled with Time of use pricing, it is likely that Supply Responsive measures will be a bigger driver for change to the Grids.

That now leaves Economy, Social and Political trends that we will cover in the next post.