India vs China

International Business

Tommaso Jacopo Ulissi

Francesco Nicoletti

Deng Shuo

Chu Luyuan

Alessia Bruni

Agenda

2

Why India vs China?

An overall picture

Theoretic framework

Strategy’s differences and similarities

Institutions

A future perspective

Why India vs China?

People's Republic of China 中华人民共和国Zhōnghuá Rénmín Gònghéguó

Republic of India भा�रत गणर�ज्यBhārat Gaṇarājya

3

Why India vs China? Similarity in the development condition Being part of so-called BRIC’s countries Similarity in the country size,

population and long history Significant influence in Asia Competitors as well as neighbours

Boundary issue

Worldwide cultural influenceConfucianismBuddhism

4

An overall pictureIndia

1.166.079.217

25.3 years

1.548%

61%

3.2 % GDP

300.000

China

1.338.612.968

34.1 years

0.655%

90.9%

1.9 % GDP

645.000

5

Population

Median age

Population growth rate

Literacy

Education expenditures

Students abroad in 2025

Source: The CIA World Factbook 2009; The World in 2025- EU

In 2025 India and China could account for 20% of the world R&D

An overall pictureIndia China

6

Airports

Railways

Waterways

Merchant marine

Internet users

Internet host

Timezone

23° 349

4° 63.327

9° 14.500

23° 501

4° 81.000

22° 3.611.000 m

UTC/GMT+5.30

482 15°

77.834 km 3°

110.000 km 1°

1826 3°

298.000 m 1°

14.156.000 m 7°

UTC/GMT + 8

World rankin

g

World rankin

g

Source: The CIA World Factbook 2009

historyIndia

566 B.C. Siddartha Gautama born

1835 Institution of British education

1857-58 Revolt of Indian soldiers against East India Company

1947 India Independence

1948 Mahatma Gandhi murdered

Oct. ‘62 Border war with China

Dec ‘71 Third war with Pakistan; Bangladesh becomes independent

1984 Indira Gandhi assassinated

China

551 B.C. Confucius born

1368 Ming Dynasty established

1912 Republic of China founded by Kuomingtang party

1945-1949 Civil War between Nationlists and Communists

1949 People's Republic of China

1957 The Great Leap Forward

1965-1975 Cultural Revolution

1978 Deng Xiaoping’s reforms

7 Source: www.hyperhistory.com

8

Major economies share of world GDP (0-2005)

Gdp so far

Source: Angus Maddison (2001) in Saul Eslake

9

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

GDP based on purchasing-power-parity (PPP) - $ billion

China

India

After 2014, GDP growth is expected to be : 8% for China and 5- 6% for India

Source: International Monetary Fund “Dreaming with the BRICs: The path to 2050”, Goldman Sachs

GDP projections in the next five years

10

INDIA CHINA

THE BACK OFFICE OF THE WORLD

THE MANUFACTURE OF

THE WORLD

Source: “The dragon and the elephant”, Pang Zhongying, 2007

11

The missing element in development theory is:

STRATEGISING

The drivers of development are FIRMS, and the way firm deals with the world is STRATEGY

NO GENERAL LAWS OF DEVELOPMENT

WHY SO ?

Intellectual roots for latecomers development strategy

Latecomers status: Gershenkron

Industrial dynamics: Akamatsu “Flying geese Pattern”

Disequilibrium theorizing: Hirshman

“Latecamers need to make up for lost time and for their lack of resources, but they have certain avantage as

latecomers”

“Balanced growth makes sense in growth models, (..) butno sense in the real world of a late- industrialising

country”

Source: “The intellectual roots of latecomer industrial development”, John A. Mathews, 2005

Latecomers status: Gershenkron

“Latecomers are thosebackward countries

and companies withinthem, which might

take advantage of theirapparently weak

position in the global stagewhen they come to the

development task”(Gershenkronian

definition)

Advantages Disadvantages

Low cost of labour Lack of skilled labour

No organizational inertia Lack of financial capital

Creation of new institutions harnesssing capital and technology

Low salaries in local emerging-companies

Leverage of the cutting-edge technology

Lost time

Exploiting global value chain Poverty

Leverage the familiarity with •local market •distribution channel

Poor knowledge of industry dynamics

Gershenkronian’s Theory: Key elements

14

Institutions“The more backward a country’seconomy, the greater is the part played by special institutional

factors ...”.

Catching-up Strategy

“Latecomers adopts the latest technologies in order to gain

advanatages in international competition reducing the gap from developed

countries”

Overcame Disadvantages

Exploit Latecomers Advantages

Source: “The intellectual roots of latecomer industrial development”, John A. Mathews, 2005

Institutional Innovations

tools that allow latecomer countries to take short cuts that might include a financial innovation, according to the country’s degree of backwardness

India ChinaIDBI

Industrial Development Bank of India

MOFCOM Foreign Trade

Development Bureau of Ministry of Commerce

EXIM Bank Export Import of India

Bank

SDPC State Development

Planning CommissionCII

Confederation of Indian Industry

NDRCNational Development

and Reforms Commission

New institutions for the harnessing of capital and

technology

Dominant and Compensatory rule of the Institutions providing:

Financial capitals

Skilled labour

Technological capabilities

Best Effective Catching-up

Strategy

16

Awareness ofLatecomers Advantages

Awareness of local resources

global competitive

market

Driving forces behindIndustrial dynamics Best fit & ad-hoc strategy

Development Strategy

Homegrown entrepreneurship

Robust infrastructure

Financial market:• easy access to credit• greater transparency• greater efficiencyImprovement of corporate governance

Investors Class

Strategy of keeping the skilled labour

Foreign Direct Investement

Weakness of infrastructure

Financial market• obstacles to credit• less transparency• inefficiency

Bureaucrates control: State major shareholder

No same guarantees and protections of MNE

vs

India China

Source: “Emerging Giants” by Tarun Khanna and Krishna G. 2006

Akamatsu: the industrial dynamics

Temporary Competitive Advantage

Industrial upgrading

Latecomer needs to be linked to advanced countries in order to generate its own

activities

Latecomers Advantage: grasp the opportunity presented by developing an industry with machinary and techniques already perfected elsewhere, but at a lower cost

Source: “The Intellectual roots of Latecomer Industrial development” by John A. Mathews 2005

Hirschman: disequilibrium dynamics

Preferred sectors are favoured by price distortion to enable it to work at economical efficient scale: public istitutions create artifical favourable condition to make the sector put down roots.

Development and exports more important than efficency: entrepreneurial

opportunities arise through governament interventions aimed to growth paths.

19 Source: “The intellectual roots of latecomer industrial development”, John A. Mathews, 2005

differences and points of similarity in development strategies

1.Ground-up democracy, and the

divisive ideas of multiparty

government

2. Softer brand of socialism, Fabian

socialism

3.Focus on the Service sector,

especially IT industry, because of

inefficiency of delivery of public

services and resources and

undeveloped infrastructure; .

4.Advanced inherited system and

insitution

5. High-techonology talents (many

IT Engineers graduated from

universities every year)

6. Emigrants do not want to reinvest

back

1.The Top-Down appoach “Open” Reform

2. Eradicateng private ownership in 1949

and quickly did

3.The large pupulation & huge demands for

jobs; Limited capital accumulation after the

establishment of the P.R.C

4.Efficient national capital & resources allocation

5. The return and reinvestment from emigrants

6. The desire to absorb capital and attract

investment to quickily develop the country

Domestic entrepreneurs have

been provided a more nurturing

environment and are flourishing

Foreign Direct Investment(FDI)

largely create China’s export-led

Manufacturing Boom

Political System

History functio

nNationa

l conditi

ons

People Characteris

tics Source: “Can India overtake China?”, Y. Huang, T. Khanna

differences and points of similarity in development strategies

India’s Domestic Nurturing Strategy China’s attracting FDI strategyKey Words:Domestic entrepreneurs , nurturing environment

Key Words:Foreign Direct Investiment(FDI), export-led Manufacturing

The Reflection of the Different Strategies

L&R constraints on private businesses and lower political status

Strong and protected SOEs

Unfair legal, policy and market environment

The protection of private ownership is far stronger

A decent legal system provides the regulatory

framework

A tradition of entrepreneurship and

government has taken a back seat

Source: “Emerging giants: Building world-class companies in developing countries?”, Khanna, Tarun and Krishna P.

Technology & Institution late-development advantage

Resource late-development advantage

Attract FDI to increase Capital

Lower labor cost

Huge population

High availability of cheap unskilled workforce

Products exporters

Efficent allocation of resources across the country by the government

Tech

nolo

gy-in

tens

ive

Indu

stry

&

Adva

nced

Sys

tem

and

Insti

tutio

nLabor-intensive Industry

& Capital-intensive Industry

Software, ServiceManufacture

Indroduce advanced technologyLow imitation cost (capital & time)Inherited system and insitution

Skilled engineers

Time zone differences

English speakersWater scarcityUnreliable electricity systemConflicts between States

Foreign Trade Development Bureau of Ministry of Commerce

(MOFCOM)

Export Import of India Bank (EXIM Bank)

A premier export finance institution of India. Started

with a mandate to enhance overall

economic growth.

A catalyst and a key player in the

promotion of cross border trade and

investment.

A public management

agency under the Chinese State

Council, in charge of international trade and international

economic cooperation

1 Prime mover in encouraging project exports and advisory and support services

2 Offers credit to overseas financial institutions to finance imports of goods and services from India

3 Provides financial assistance for the upgrade of facilities and for acquisition of leading equipment and technology overseas.

4 Rural Initiatives Program linking Indian rural industry to the global market

Main functions

Source: “India: everything to play for” by Lehman Bros 2007

Main functions

1 To formulate development strategies, guidelines and policies of foreign trade and international economic cooperation

2 To monitor and analyze market activities and commodity supply and demand on foreign countries, organize the

adjustment of market supply and regulation of the distribution

3 To give general guidance to nationwide efforts in foreign investment, analyze and look into China’s foreign investment

developments

Characteristics:

1 Entire Public Background

3 Give top-down support to Chinese “latecomer” companies in global market

3 Offer consultancy support and advisory services to Indian latecomers

4 Keeping a balance on FDI to avoid that it plays a bigger role in the

economic growth

Characteristics:

1 Partnered with Small and medium enterprises

2 Act institutional functions in a more detailed way: offering credits and

facilities, providing financial assistance

4 Attract FDI to speed up economic development

2 Act institutional functions in macro and Long run vision: issuing policies,

formulating guidelines

CAS (Chinese academy of Science)

Other examples of institutions of India and China

IDBI Bank (Industrial

Development Bank of India Limited )

CAE (Chinese academy of

Engineering)

CNSA(China national Space

Administration)

Reserve bank of India

United bank of India

What could go wrong?Both China and India appear to be on a path of strong and

sustainable growth. What, if anything, might knock them off this path?

India

-The big and growing population and not generating enough jobs for a very large proportion of its population

-the lack of delivery of public services and resources

-developing and maintaining infrastructure

-health

-the conflicts of politicians and interests groups

28

China

-Missteping in political reform

-Interruption of global economic growth

-Energy shortage

-Income disparity

-Taiwan Issue

-Renminbi

-demographic time bomb because of the one-child policy

-Will "opening up" lead to a demand for democracy?

Can India overtake China or not?

What is the answer?

The answer is change the question!

What matters most is how to catch up with early-develped countries for China & India!

Because the latercomers advantage will not exist forever!

Source: “Can India overtake China?”, Y. Huang, T. Khanna

A future perspective

Short term early development advantage Short term later development advantage

Long term early development advantage Long term later development advantage

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..for your

attention!

Thank you..