india-vs-china_nov201

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PowerPoint Presentation:

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

Outline:

Outline Part 1 - A picture taken from the top. Part 2 - How are the two giants emerging? Part 3 - Who are the key actors behind their development? Part 4 - From backward to latecomers: different perspectives. Part 5 - Who is the winner?

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Part 1 A picture taken from the top

Intro:

India and China, the two former giants Intro

Economic indicators:

INDIA CHINA Gross Domestic Product $1.17 trillion $ 6.9 trillion GDP growth rate 9.1% 11.9% Population (m) 1,123 1,319 Population growth (annual) 1,2% 0,6% Inflation 4,3% 5,2% Export of goods and services (% of GDP) Over 40% 21% Imports of goods and services (% of GDP) 24% Over 30% Source: World Development Indicators database, 2008 Economic indicators

Growth trends:

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

The added value:

Source: Internal elaboration on World Development Indicators database, September 2008 The added value

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ADVANTAGE CHALLENGES MNC Sophisticated core technologies Tough to understand local customers’ tastes Well-known brand names Difficult to identify pools of talents Efficient innovation processes Tough to organize supply chain efficiently Management systems Difficult to deliver products to customers Vast reservoirs of finance and top-talent Costly and cumbersome to tailor product mix, organizational processes and cost structures to suit different local markets DOMESTIC CORPORATIONS Knowledge of institutional voids Cannot access capital or talent as inexpensively as MNCs Awareness of the customers Tough to invest in R&D or to build global brands Flexible service Lack international operating knowledge Can tap state capital and talent markets Operating in emerging markets

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Part 2 How are the two giants emerging?

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

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

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CHINA Focus on industry GDP per capita two times higher than India’s (in USD PPP terms). 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

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Part 3 From backward to latecomers: different perspectives.

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

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

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

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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

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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. These institutions feed highly essential data to the firms to establish, compete and grow in the competitive market INDIA CHINA Confederation of Indian Industry (CII) National Development and Reforms Commission ( NDRC) EXIM Bank State Development Planning Commission ( SDPC) Industrial Development Bank of India (IDBI) Closer Economic Partnership Arrangement ( CEPA) Federation of Indian Chambers of Commerce and Industry (FICCI) Ministry of Agriculture (MOA) How India and China are exploiting the latecomers advantages

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Part 4 Who are the key actors behind?

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INDIA before CHINA before Semi-socialist autarkic economy Socialist economic system High protection 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 CHINA now State planning through 5Year Plan 3Step Development Strategy Mixed economy Reduced control on economy Reduced control on foreign trade and investment Government supervision through indirect guidance of a more dynamic economy Privatization trend Many institutions to control and supervise (People's Bank of China, National Development and Reform Commission, Ministry of Finance…) Role of the government

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

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Exim Bank ( The Export-Import Bank of India ) Exim is an Indian government-owned financial institution for the public sector. Managed by a Board of Directors , which has representatives from the Government , Reserve Bank of India , Export Credit Guarantee Corporation of India (ECGC), a financial institution, public sector banks, and the business community. The Bank’s main objective is “…providing financial assistance to exporters and importers , 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 …” EXIM BANK (INDIA)

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

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Part 5 Who is the winner?

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

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

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

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If India has so clearly surpassed China at the grassroots level, 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?

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

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INDIA Future winner is…

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

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Huang, Y. and Khanna, T. 2003. “Can India overtake China?” Foreign Policy , (July-Aug): 74-81. Khanna, Tarun and Krishna Palepu 2006. “Emerging giants: Building world-class companies in developing countries”, Harvard Business Review , Oct 2006, 1-10. Lehman Bros 2007. “India: Everything to Play for” (Chaps 2, 3 and 4). Angus Madison , 2005, “The West and the rest in the world economy, 1500-2030” Australian National University, Canberra Angus Madison, 2001, “The World Economy. A millennial perspective” Development Research Center, OECD, Paris Mathews, J.A. 2005. “The intellectual roots of latecomer industrial development”, International Journal of Technology and Globalisation, 1 (3/4): 433-450. Zhongying Pang 2007. “The dragon and the elephant”, The National Interest, 1 May 2007, 1-2. http://www.worldbank.org www.imf.org www.eximbankindia.com www.en.ndrc.gov.cn http://www.gov.cn/english/ http://www.india.gov.in/ Bibliography

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