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White Paper: China and India -The Growth Debate – Part 2 of 4

Part 2 of our 4 part white paper written by Dan Park.

The business dimension

Though India has made well-publicised progress in technical and business education in the past twenty to thirty years, China has not held back. Starting more recently, the level and pace of investment have been breathtaking. However there are significant differences in the approach. Whereas India has developed through its internal resources, China has undertaken rapid transfer of best practice and has adapted this quickly to the Chinese culture. Additionally the spread of best practice has affected a very wide range of sectors of the economy.

The “Indian phenomenon� has been concentrated on engineering technology. Hence we have seen the emergence of a very effective and internationally competitive software and I.T. community abound Bangalore, and it is often assumed that this is becoming typical of India. It is not. Much of Indian industry is still old-fashioned and, worse, it is stifled by a structure of bureaucratic management coupled with high levels of vertical integration that is over a century out-of-date. Thank goodness labour costs remain low, because structures and management approaches are intrinsically uncompetitive in whole sectors of the economy. Low labour cost is to a significant extent a compensator for systemic inefficiency, and the problem will come when labour rates begin to rise, as will naturally happen as the country becomes more developed. Just as significant is the fact that the “Indian miracle� is manifest principally in product that can be delivered electronically rather than physical product. It is in this latter type of product that the deadening impact of bureaucratic systems is found. Any advantage of low cost for highly and non-so-highly skilled direct and indirect labour can quickly be outweighed by the transaction costs and delays incurred in operating through unresponsive, high-cost administrative systems.

Contrast China. Theirs has been a much more holistic approach – an approach that fits so well with the philosophical and social traditions of the country. What has happened here is that not only is there a major initiative in upgrading technical skills but also a set of programmes in transferring managerial systems and their associated competencies. The Chinese have accepted that technology is only one dimension of international competitiveness, and that low labour cost is one more. But these are effective only if the system as a whole meets best-in-class standards. This does not always have to be “state-of-the-artâ€?, but it should always be “state-of-the-marketâ€?.

Hence there has been a large-scale transfer of the best that the developed world has to offer. Starting with the education of a top class of Chinese managers abroad – principally in the United States of America and Europe – and continuing with a similar programme of training trainers, one now finds replicas of top management development programmes in China ranging across many sectors of the economy. Large-scale collaborative education and training ventures are found in all major Chinese centres. This has rapidly resulted in the emergence of a new type of Chinese technocrat – (i) highly skilled in contemporary tools and techniques of logistics and supply chain management as well as in the basic technologies of product design, materials management, systems engineering, and in addition (ii) fully familiar with new concepts and practices in strategic management, international finance, global structures, partnerships/joint ventures.

The last skill mentioned above – partnership – is where the Chinese culture is particularly advantaged. The Chinese have always been natural networkers: they networked for centuries and operated “extendedâ€? or “virtualâ€? enterprises before we in the developed world claimed these as “advancesâ€? in management thinking! Superimpose all this on to the modern structures of industry and commerce that are found in China’s new cities and special economic zones and the foundations of formidable competitiveness can be built provided that a more intensive approach to economic development can be achieved simultaneously.

It is misleading to think that there is some kind of “competition� between India and China as centres of outsourced activity. Each will develop in its own way. We need a note of caution in making assumptions based on well-publicised, but inherently superficial and partial, information claiming that the two growth rates are neck-and-neck and therefore there is a question of “who wins?�.

India will have to tackle the problem of bureaucracy – ask anyone who has operated there – and it will be a big issue as wage rates increase and eventually converge with world levels. For its part China retains a huge and inefficient formerly state-owned sector of industry and commerce that is causing problems for the economy as a whole. The best-publicised success stories come from the (atypical) new cities and special economic zones, which still constitute a minority of the total output economy but a major contributor of overall economic growth and added value.

Competitiveness depends on (a) a multiplicity of factors and (b) the ability to fuse these factors into an effective whole in competing for customers with increasingly global perspective, requirements and choice. It is not enough to have the best qualified technical people in the business available at relatively low cost if the business cannot achieve fast response times and quick decision-making. The diffusion of “know-what� and “know-how� is so fast nowadays that any technical advantage, whether this be through superior knowledge or low labour cost, cannot be sustained for long. What matters is the achievement of a holistically superior business model. It is my contention that on balance India, despite its problems of bureaucracy and structure, is for the moment a little ahead of China in this, despite China’s being culturally more suited to the model, as stated earlier.

This entry was posted on Thursday, March 8th, 2007 at 10:29 am and is filed under International Market Research, Market Assesment, Market Research, Market Research China, White Papers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.