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

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Final part of our 4 part white paper written by Dan Park.

Where next for Western companies

There are two dimensions that Western business has to consider in the Chinese and Indian elements of internationalisation and globalisation - the deals and the learning.

Some Western companies have been demonstrably successful in developing a balance of trade and investment. Central government has tended to stick too long to the “export trade� model in the hope that this will retain jobs and contribute to added value in the face of evidence that the trade-to-investment balance has already changed considerably. Deals are being struck increasingly through investment relative to export trade. Where such a strategy is implemented, the result is not job loss but the creation of more skilled jobs back in the home market and net increase in labour earnings at the level of the domestic economy whilst participating fully in the opportunities presented by globalisation.

What comes next is more challenging and critical for economic and business development. How will Western companies build on the second dimension - the learning - that has been part of this process?

Unless a strong base of “intellectual capital� is maintained, the West will come under increasing pressure, especially in manufacturing, from countries such as China and India. It is not a question of direct labour cost, since direct labour in most of modern manufacturing accounts for a relatively low percentage of total cost. It is the inflation in general operating cost that is the bigger problem.

Quite simply, in an increasingly global business environment Western companies will achieve success only by moving up the value-add chain. In other words, low-skill transactional-type jobs and activity will migrate Eastwards simply because this is a rational consequence of ever-opening economies, and at the same time there will be a compensating increase in the demand for higher-skill services that are used in the creative configuration and rapid re-configuration of such services - predominantly in designing and managing internationally competitive supply chains. Such supply chains are not restricted to materials and products: they include, inter alia, information and finance. It is through competency in the management of high-skill value-adding activity that the future of Western business is to be developed if our companies, large and small, are to compete successfully in the global economy.

China and India as part of global economic shift

Globalisation presents us with threats and opportunities simultaneously, and the growth of China and India is a significant factor in this. Partly through the influences of GATT/WTO and partly through advances in technology, primarily information technology, most organisations have easier access to markets than in the past. This means inevitably that our own regional markets are also open to increased competition.

However, the concept of globalisation goes further than the product/market dimension. It includes questions relating to fluid organisations, capital structure and value migration. It relates increasingly to labour supply and deployment. Whereas globalisation was defined customarily in relation to physical trade, it now relates to multiple factor mobility. Globalisation is therefore about developing or sourcing a set of competencies that enable an organisation to contest any market it chooses and to derive competitive advantage from any combination of value-creating activities. Success in the future for Western companies will depend on continuing to develop the core competencies and technologies required to design and manage multi-factor supply chains that will give access to the most attractive product and service markets.

Summary remarks

Against this background B2B International has opened an office in Beijing, China. It has two main business thrusts: (i) to undertake market research for Chinese companies on the China market and (ii) to undertake market research for non-Chinese companies looking to enter the market directly or via collaborative venture. The concepts of marketing and consequently of market research are still in their infancy in China, but the speed with which Chinese companies and managers are taking on board the tools and techniques that we take for granted is truly astounding. It is also part of the impact of globalisation on the market research business itself - we are finding that an increasing part of our market research work is concerned with markets for investment and opportunities for sourcing and operational collaboration as well as with opportunities for exporting products to China.

This ‘White Paper’ is not written to present India and China as some kind of “either/or� opportunity or threat. Indeed the opportunities and constraints presented by each market have led to a sizeable and growing incidence of trade along with greater scientific and investment linkages between the two countries themselves. Not least, the experience of India in its gradual move away from a Soviet-style development path is of considerable interest to policymakers in Beijing itself, and we should expect, and not be surprised by, the increasing linkages that are now opening up between the two very different countries.

Daniel Park
March 2007
Copyright © J D Park 2007

References

DAS, Gurcharan (2006) “The India Model� Foreign Affairs, July/August.

LARDY, Nicholas (2006) “China - Toward A Consumption-Driven Growth Path� Washington DC: Institute for International Economics, Policy Brief No PB06.

About the author

Dr Daniel Park qualified in economics at the University of Glasgow. He has been associated with B2B International since its foundation, and he has acted as adviser and consultant in many of the company’s international projects.

This entry was posted on Wednesday, March 14th, 2007 at 10:43 am and is filed under White Papers, Industrial Research, Market Research China, Market Assesment, International Market Research, Market Research. 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.