INDIA vs.

CHINA
International Business
Group members:
Iman Alalawi, Viola D’Andrea, Davide Di Labio, Marco Fossati, JiHong He, Harpreet Singh

Outline
• Part 1 • Part 2 • Part 3 • Part 4
- A picture taken from the top.

- How are the two giants emerging?

- Who are the key actors behind their development?

- From backward to latecomers: different

perspectives.

• Part 5

- Who is the winner?

Part 1
A picture taken from the top

the two former giants .Intro India and China.

6% 5.9% 1.2% 4.2% 21% Over 30% Source: World Development Indicators database.319 0. 2008 .123 1.9 trillion 11.17 trillion 9.3% Over 40% 24% CHINA $ 6.1% 1.Economic indicators INDIA Gross Domestic Product GDP growth rate Population (m) Population growth (annual) Inflation Export of goods and services (% of GDP) Imports of goods and services (% of GDP) $1.

2007 Source: IMF. 2007 . 2007 Source: IMF.Growth trends | 1978 1982 1986 1990 1994 1998 2002 2006 1980 1984 1988 1992 1996 2000 2006 Source: IIF.

September 2008 .The added value India: Com positionof GD P 2007 18% 1990 32% China:CompositionofGDP 2007 12% 1990 22% 2007 29% 1990 27% 1990 42% 2007 48% 2007 53% Industry 1990 46% 2007 40% 1990 31% Services Agriculture Industry Services Agriculture Source: Internal elaboration on World Development Indicators database.

Operating in emerging markets .

Part 2 How are the two giants emerging? .

Gurgaon) favourable foreign policy . entrepreneurship (Reliable/satellite telecommunication) availability of fast Digital telecommunication links High technological internal resources High competition IT parks (Bangalore. power and roads) Ground up strategy Homegrown entrepreneurship High level Internal infrastructure. Hyderabad. Pune. Chennai. STRUCTURE AND RIVALRY High profile human Back-office resources Skilled labour Sophisticated consumers and industrial buyers High R&D investments and capabilities software R&D Centres/Labs and software training institutes Robust infrastructure (telecom.India as back office of the world FACTORS DEMAND RELATED AND SUPPORTING INDISTRIES FIRM STRATEGIES.

STRUCTURE AND RIVALRY Low average of instruction MSC direct investment Low R&D capabilities Top down Unskilled and low Internal demand cost labour (State Owned industries) Basic industrial infrastructure External demand (exportation) Dependent on State involvment foreign technology High burocracy Growing competition between JVs.China as the work shop of the world FACTORS DEMAND RELATED AND SUPPORTING INDUSTRIES FIRM STRATEGIES. and global Multinationals Frees capital market to promote expenditures Large number of state owned industries Mass production based on economy Cheap raw materials Demand of labor intensive production External source of technology . indigenous firms.

Lack of advanced institutional infrastructure and corporate governance Indifference towards oil prices fluctuations Enjoy wide foreign exchange reserves Global economic integration through international trade and investments .India vs China remarks INDIA Focus on services Lower GDP per capita Strong corporate governance standards Advanced institutional infrastructure Commercially-driven companies Enjoy wide foreign exchange reserves CHINA Focus on industry GDP per capita two times higher than India’s (in USD PPP terms).

.Part 3 From backward to latecomers: different perspectives.

Development in strategic terms • SOME DISADVANTAGES OF BEING BACKWARD COUNTRIES: INDIA Poverty Poor knowledge of the industry dynamics Low level of resources Bad physical infrastructures CHINA Low level of education Poor living conditions Low level of resources Low level of institutional infrastructures and corporate governance Skilled labour necessity Technological capacity Time issue Inadequate supplies of capital Late process of modernisation Time issue .

Development in strategic terms How to overcome disadvantages of being “backward” countries? STRATEGY Understanding the character and driving forces behind the industrial dynamics Assessing existing resources INSTITUTIONS State Compensatory role New institutions for the harnessing of capital and technology Exploiting latecomer advantages! .

Development in strategic terms How to overcome disadvantages of being “backward” countries? STAGES OF GROWTH Traditional society Transitional stage STRATEGY Take off Drive to maturity High mass consumption Quasi-automatic process .

Development in strategic terms How to overcome disadvantages of being “backward” countries? FLYING GEESE PATTERN Shifting competitive advantage from one industrial sector to another and from one country to another Industrial upgrading CHINA MNCs. FDI and technological learning as key factors for developing of flying geese latecomer industries .

• These institutions feed highly essential data to the firms to establish.How India and China are exploiting the latecomers advantages • Institutional innovations: tools that allow latecomer countries to take short cuts that might include a financial innovation. compete and grow in the INDIA CHINA competitive market Confederation of Indian Industry (CII) EXIM Bank National Development and Reforms Commission (NDRC) State Development Planning Commission (SDPC) Industrial Development Bank Closer Economic Partnership of India (IDBI) Arrangement (CEPA) Federation of Indian Ministry of Agriculture (MOA) . according to the country’s degree of backwardness.

Part 4 Who are the key actors behind? .

Role of the government INDIA before Semi-socialist autarkic economy High protection CHINA before Socialist economic system State monopoly of the foreign trade system Difficulty to set up a new business State-owned domestic enterprises Foreign investment not welcomed Strict control INDIA now State planning through 5Year Plan Mixed economy Reduced control on foreign trade and investment Privatization trend CHINA now 3Step Development Strategy Reduced control on economy Government supervision through indirect guidance of a more dynamic economy Many institutions to control and supervise (People's Bank of China. National Development and .

NDRC (CHINA) • The National Development and Reform Commission (NDRC) NDRC is a macroeconomic management agency under the Chinese State Council. . and  To guide restructuring of China's economic system. • The NDRC's functions are.  To maintain the balance of economic development.  To study and formulate policies for economic and social development. which has broad administrative and planning control over the Chinese economy.

Reserve Bank of India. which has representatives from the Government. and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade…” . public sector banks. • The Bank’s main objective is “…providing financial assistance to exporters and importers. • Managed by a Board of Directors.EXIM BANK (INDIA) Exim Bank (The Export-Import Bank of India) • Exim is an Indian government-owned financial institution for the public sector. and the business community. Export Credit Guarantee Corporation of India (ECGC). a financial institution.

pre-shipment credit.handles the financing and export transactions in the agricultural sector. Corporate Finance.EXIM BANK (INDIA) The Bank's functions are segmented into several operating groups including: •Corporate Banking Group .handles the entire range of export credit services such as supplier's credit. Loan Recovery. Legal. Human Resources Management and Corporate Affairs. •Project Finance / Trade Finance Group . it offers assistance to Indian companies.handles financing programs for Export Oriented Units. . buyer's credit. etc. Information Technology. •Export Services Group offers a variety of advisory and value-added information services aimed at investment promotion. Management Information Services. Importers. finance for export of projects & consultancy services. •Support Services groups. Internal Audit. •Small and Medium Enterprises Group handles specific financing requirements of export such as credit proposals from SMEs under various lending programs. to enable them to establish their products in overseas markets. which include: Research & Planning. •Lines of Credit Group . and overseas investment by Indian companies. guarantees.

Part 5 Who is the winner? .

Domestic private enterprises are discriminated against several policies and regulations. Foreign Direct Investment (FDI) Top-down approach Extensive Restricted environment with many obstacles for private domestic firms.Who is the winner? India Referred as China The back office of the The workshop of the world world The factory of the world The technology lab of the world Homegrown entrepreneurship. Advanced and decent legal system. Unfair & inconsistent legal system with low political status. Low Nurturing environment for domestic firms supported by stronger infrastructure that allows enterprises to flourish. preventing them from challenging stateowned enterprises. Development Strategy Development approach FDI status Domestic firms environment Legal System . that provides ownership protection for private domestic enterprises. From the ground up.

resources depending on FDI. High performance Macro-economic figures [Growth rate & GDP] Low performance Micro economic level Fuller use of resources Misallocation and owned necessary for Inefficient use of long-term growth.Who is the winner? India Political system Capital market Democracy Allows firms to obtain capital they need to grow. China No democracy Tightly controlled capital allocation restricting the ability of private companies to obtain stock market listings and access the money they need to grow. . Capital market operates with greater efficiency and transparency.

In a recent survey of leading Asian companies by the Far Eastern Economic Review (FEER). “private and individual enterprises have a lower political status and are discriminated against several policies and regulations.Published studies • Last year. India registered a higher average score than any other country in the region. In a World Bank study published last year. included 13 Indian firms but just 4 from mainland China. • • • . A report issued in 2000 by the Chinese Academy of Social Sciences concluded that. the Forbes 200. including China. only 52 percent of the Indian firms surveyed reported problems obtaining capital. versus 80 percent of the Chinese companies polled. an annual ranking of the world’s best small companies.

why isn’t India’s superiority reflected in the numbers? Why is the gap in GDP and other benchmarks still so wide? Why ? .Who is the winner? If India has so clearly surpassed China at the grassroots level.

India has had to deal with a national savings that of China’s and 90 percent less FDI. It’s the history. more than a decade after China. volatile dispute with Pakistan over Kashmir. it has been able to focus almost exclusively on economic development. India has also had a longstanding. on the other hand. . China. has enjoyed two decades of relative tranquility. rate half 3. 2. democracy 4. India’s economic reforms only began in 1991.Why? 1. messy driven by ethnic and religious tensions. India is an extensive. Moreover.

Future winner is… INDIA .

• strategies. • Indeed. India is doing a superior job in utilizing their resources and exploiting the China and India have pursued different development institutional advantages.Conclusions Comparing India and China. • India’s strategy may enable it to catch up with and perhaps even overtake China. • China used the fastest route to reach economic development which is foreign direct investment (FDI). India’s homegrown entrepreneurs may give it a long-term advantage over the Chinese inefficient financial system and capital market. .

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Any Questions? .