INDIA vs.

CHINA
International
Business
Group members:

Iman Alalawi, Viola D’Andrea, Davide Di Labio, Marco Fossati, JiHong He, Harpreet
Singh
 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?

 Part 1
A picture taken from the top
 Intro
India and China, the two former
giants
 Economic indicators

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

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

Source: IMF, 2007

 The added value
India: Compositionof GDP China:CompositionofGDP

2007
2007
12%
18%
1990
2007
22% 1990
1990 29%
27%
32% 1990
42% 2007
48%
2007
40% 1990
1990
46% 31%
2007
53%

Industry Services Agriculture Industry Services Agriculture

Source: Internal elaboration on World Development Indicators database, September 2008
Operating in emerging
markets
 Part 2
How are the two giants
emerging?
 India as back office of
the world
FACTORS DEMAND RELATED AND FIRM STRATEGIES,
SUPPORTING STRUCTURE AND
INDISTRIES RIVALRY

High profile human Back-office High R&D Ground up strategy

resources investments and
capabilities
Skilled labour Sophisticated software R&D Homegrown
consumers and Centres/Labs and entrepreneurship
industrial buyers software training
institutes
High level Internal Robust High competition
infrastructure, entrepreneurship infrastructure
(Reliable/satellite (telecom, power
telecommunication) and roads)
availability of fast
Digital
telecommunication
links

High technological IT parks favourable foreign

internal resources (Bangalore, policy
Hyderabad,
Chennai, Pune,
Gurgaon)
 China as the work shop of
the world
FACTORS DEMAND RELATED AND FIRM STRATEGIES,
SUPPORTING STRUCTURE AND
INDUSTRIES RIVALRY

Low average of MSC direct Low R&D Top down

instruction investment capabilities
Unskilled and low Internal demand Dependent on State involvment
cost labour (State Owned foreign technology
industries)
Basic industrial External demand High burocracy Growing
infrastructure (exportation) competition
between JVs,
indigenous firms,
and global
Multinationals
Cheap raw Demand of labor Frees capital
materials intensive market to promote
production expenditures

External Large number of

source of state owned
technology industries
Mass production
based on economy
 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).
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
 Part 3
From backward to latecomers: different
perspectives.
 Development in
strategic terms
• SOME DISADVANTAGES OF BEING BACKWARD COUNTRIES:
INDIA CHINA
Poverty Low level of education

Poor knowledge of the industry Poor living conditions

dynamics
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

 Development in
strategic terms
How to overcome disadvantages of being
“backward” countries?

STRATEGY INSTITUTIONS
Understanding the
character and
State Compensatory
driving forces
role
behind the
industrial dynamics New institutions for
the harnessing of
Assessing existing capital and
resources 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
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, according to the country’s
degree of backwardness.
• These institutions feed highly essential data to the
firms to establish, compete and grow in the
INDIA
competitive market CHINA
Confederation of Indian National Development and
Industry (CII) Reforms Commission (NDRC)

EXIM Bank State Development Planning

Commission (SDPC)

Industrial Development Bank Closer Economic Partnership

of India (IDBI) Arrangement (CEPA)

Federation of Indian Ministry of Agriculture (MOA)

Part 4
Who are the key actors
behind?
 Role of the government
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 Government supervision through
and investment indirect guidance of a more
dynamic economy
Privatization trend 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, 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.
 EXIM BANK (INDIA)
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)
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.
Part 5
Who is the winner?
 Who is the winner?
India China
Referred as The back office of the The workshop of the world
world The factory of the world
The technology lab of the
world
Development Homegrown Foreign Direct Investment
Strategy entrepreneurship. (FDI)
Development From the ground up. Top-down approach
approach
FDI status Low Extensive
Domestic firms Nurturing environment for Restricted environment with
environment domestic firms supported many obstacles for private
by stronger infrastructure domestic firms, preventing
that allows enterprises to them from challenging state-
flourish. owned enterprises.
Legal System Advanced and decent Unfair & inconsistent legal
legal system, that system with low political
provides ownership status. Domestic private
protection for private enterprises are discriminated
domestic enterprises. against several policies and
regulations.
 Who is the winner?
India China
Political system Democracy No democracy
Capital market Allows firms to obtain Tightly controlled
capital they need to capital allocation
grow. Capital market restricting the ability of
operates with greater private companies to
efficiency and obtain stock market
transparency. listings and access the
money they need to
grow.
Macro-economic Low performance High performance
figures
[Growth rate & GDP]

Micro economic Fuller use of resources Misallocation and

level owned necessary for Inefficient use of
long-term growth. resources depending
on FDI.
 Published studies
• 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.
 Who is the winner?
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
?
 Why?

1. It’s the history; India’s economic reforms only began in

1991, more than a decade after China.

2. India has had to deal with a national savings rate half

that of China’s and 90 percent less FDI.

3. Moreover, India is an extensive, messy democracy

driven by ethnic and religious tensions.
4. 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.
Future winner is…

INDIA
 Conclusions

Comparing India and China,

India is doing a superior job
in utilizing their resources
and exploiting the
• institutional
China advantages.
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.
 Bibliography
• 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/
Any Questions?