Debate about China, india and US economies, by Businessweek

oneman28 · 08-18-2005, 22:45 PM

This summer, BusinessWeek brought together 13 of the smartest people we could find for an online roundtable on the past, present, and future of China and India (see below for a list of participants). On each of eight days, we posted a new question. Economics Editor Peter Coy moderated the discussion. The experts communicated both with us and with each other on everything from geopolitics to generation gaps. Now we're sharing the discussion with you -- and invite you to offer your comments. Please note that not all 13 participated every day, and comments have been edited for style and clarity.

Expert Roundtable 1
Growth: China vs. India
The debate's first question is, Will India ever grow as rapidly as China? If so, how might that occur?

http://www.businessweek.com/magazine...4/b3948421.htm

Quote:

Will India ever grow as rapidly as China? If so, how might that occur?

Subroto Bagchi
I do not think India should try to "grow as rapidly as China." Growth is not just an economic issue. Growth has to be aimed within a relevant country context. India has its own unique past, a very different present, and will chart her own version of the future. In that future, the most crtical component is to keep democracy safe.

The average Indian has, over the last almost 50 years, learned to value freedom. That requires India to socialize many actions before they get taken -- this has its own effect on speed. In matters of growth, one has to take a long view of time, and I see India making overall wholesome progress over time. Will that match China's current rate of growth? Probably not. Does not have to. There is a price to everything. We got to be aware of that.

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Oded Shenkar
At least in the next few years, India is unlikely to grow as fast as China. China leads India in foreign investment, a key contributor to economic growth, by a margin of 10 to 1, because foreign investors, who can place their money anywhere, see more opportunities and less obstacles in China.

Ironically, Indian democracy is viewed as a hindrance vis-a-vis the stability of China's authoritarian regime on its liberalizing market and docile unions. India also lacks a Hong Kong and a Taiwan, next-door technology, and capital hubs that when combined with the mainland's abundant, cheap, and productive human resources create powerful complements. India has a long way to go before it catches up with China.

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Viveca Chan
India is waking up and catching up fast. I will not be surprised to see India having a higher rate of growth. However, it will be hard for India to catch up with China on the size of its market and the absolute size of its growth. China dominates in manufacturing and has the market size and spending power domestically. India is strong in technology/IT services, which may be high value but not high volume. However, this can change as India starts to get into production and as Chinese companies start to buy Indian companies and set up production in India.

If India were to grow faster than China, it must increase its attractiveness to investing companies in terms of its market size and potential for luxury products. Indian consumers are more frugal and rational in spending. Chinese consumers are much more willing to pay for branded and luxury goods, a dream for marketers. This is evidenced by ubiquitous presence of luxury brands from Starbucks to Louis Vuitton in China vs. India.

So if the India market is to grow faster than China, Indian consumers need to be encouraged to buy things they do not need and pay prices that have no relation to the cost of goods. After all, market growth is about the growth of brands.

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Arun Maira
Will India ever "grow" as fast as China? The first question is grow "what" or "in what terms?" As another participant has pointed out, growth in the size of the economy alone may not be enough. Other facets of India must change and grow along, and he suggests that, in a balanced scorecard approach, lesser growth in the size of the economy may be O.K. if there is growth in other dimensions.

However, let me focus on economic growth for now. The constraints on the growth of India's GDP appear to be insufficienct investments according to most economists--investments include FDI and investments in infrastructure. The most commonly cited constraints on investments is the confusion and slowness of policy change as well as confusion and tardiness at the bureacratic levels, as contrasted with the "single mindedness" on the Chinese side.

Therefore, if this constraint could be eased and there was more alignment in the Indian system, India would attract more investment, including investments in the infrastructure, according to this view, and thus would grow much faster than otherwise--perhaps matching China's rates of GDP growth. Therefore, if processes for creating adequate alignment on key requirements for growth are strengthened, India will grow faster.

To obtain alignment, it will be necessary to face up to and resolve issues regarding the goals of development as have been mentioned. Alignment obtained by raising and resolving issues will create less fragile and more enduring alignment (even if the process of obtaining that alignment seems tough and confusing).

Therefore, I am of the view that the current debates in India about the goals of development and about the appropriate models for growth are good for enabling the alignment that we need to accelerate (even) economic growth. In fact they make me more, not less hopeful that we will grow in a more rounded way and faster over the next couple of decades.

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Rajni Bakshi

The key question, as Arun Maira has said, is growth in what terms? The competition between India and China over higher and higher GDP is a short-term concern. However, the fate of planet earth may depend on both India and China's ability to redefine growth itself and create new, ecologically sustainable patterns of consumption.

Both India and China have a knowledge base to move in the direction of sustainability. Whether they can deploy this in a significant way will depend on their decision makers' ability to marry a wide range of work on alternatives with innovative market mechanisms.

India has the advantage of having a vibrant, energetic and creative NGO [nongovernmental organization] sector that is now more and more willing to work in tandem with market energies to push for economic democracy, i.e level playing fields at many levels.

China seems to have a greater coherence in its policies. While the big challenge for India is to turn its trial and error muddling into an advantage.

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Saurav Adhikari
India can grow as rapidly as China if some critical macro (policy) and micro (at the firm and individual level) initiatives are taken.

First the macro initiatives. It has only been 14 years since the 1991 reforms were unleashed, a good decade or so after China's Deng-era reforms. The political pendulum has now moved so far to the middle that these initiatives cannot be stopped or opposed by even the political left. So India should see solid macro initiatives under any government. This should lead to much better external perceptions while internal reforms take place. FDI- and infrastructure-fueled growth will inevitably follow.

Second, a little understated (and understood) but key element of the initiatives that make me confident that India can match or even exceed China's growth is the micro-level changes. India's middle class is well-educated, increasingly more demanding of better services, products, and governance at all levels. This has ensured a "market/consumer/individual" level revolution of sorts which is not state-led. This will propel growth in a very significant way.

Yes, I am very confident that the next few decades the Indian story of growth will be as compelling as China's, even given statistical nuances that are part of the hazy interpretation of growth.

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Donald Straszheim
India will continue to lag until governmental leaders further open their eyes to the lesson of China and accelerate the economic reform process. That is happening, but it takes time. India must further the reforms in order to attract foreign direct investment. They are far behind. That FDI brings in talent and technology and expertise, easily as important as the capital itself.

One major advantage that India has is the existence of a functioning democracy and the economic "soft infrastructure," or what I would describe as "institutional capital" that those in developed economies accept as standard -- rule of law, commercial code, veracity of the data, evenhanded treatment of all parties, root out corruption, property rights (intellectual and otherwise), bankruptcy procedures, monetary and fiscal policies that work and are understandable, etc.

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Madhav Bhatkuly
India has not grown as fast as China, but it appears as if India might grow faster over the next decade. There are two key differences in the growth of these two nations. First, China has seen significant investment in infrastructure and FDI, while India's growth has been without any meaningful investment in infrastructure and FDI. Second, India's growth has emerged through an era of capital defficiency, while China's growth been the result of flinging increasing amounts of capital at it.

In power, telecom, and to some extent roads/highways and ports, India appears to be addressing the issue of infrastructure. On FDI too, foreign ownership is now less of an issue except in a few sensitive sectors. As infrastructure expands, so will the India's growth. So far it was restricted to a handful of sectors such as IT and pharma, which were relatively less affected by lack of infrastructure. Thus, India now appears set for multisector growth.

For example, new and large opportunities have emerged in textiles where India was thwarted because of quotas despite being the largest yarn producer of the world. Quotas have now been abolished. The auto sector could be another driver. Development costs in India are among the lowest in the world. India already has a large home base in two-wheelers with three of the world's top 10 manufacturers of the world. In passenger cars too, India is fast becoming an export centre. Though unlike the past decade which was led by services, the next 10 years may see India being driven by growth in manufacturing.

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Subir Gokarn
China has been growing at roughly 9% a year with an investment/GDP ratio of around 40%. India has been clocking about 6% a year with an investment/GDP ratio of about 25%. This indicates that India is using capital more efficiently, in the sense that it gets more growth bang for the investment buck. The reason for this disparity is quite simple: India's growth drivers have been services, which typically are far less capital-intensive than manufacturing, on which China has relied to a greater extent.

India can accelerate its growth rate if its manufacturing sector makes a larger contribution. For this to happen, several policy changes have to be made. The two key ones, to my mind, are labor market reforms -- labor market regulations currently hobble manufacturing, while leaving services relatively unscathed -- and the facilitation of investment in infrastructure, particularly power and transport.

The political will to go ahead with labor market reforms is not visible. There is some, but extremely slow, progress in infrastructure. Without these, the ratcheting up of investment, both in infrastructure and in manufacturing capacity, which is required to accelerate growth in manufacturing, simply will not happen.

India can grow as fast as China, but it needs to break through some rather imposing barriers to do so. The good news is that these are man-made and can be dismantled by the right policy interventions.

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Wang Yong
China and India will keep the position of growth stars in the future. China may be a bit faster than India. There are reasons to bet that China could keep a rapid growth of over 7% at least within the next 10 or 20 years. The reasons China will have a stable and fast growth, are like this:

The prospect of rapid development will be built on the country's weakness, that is, uneven development between the coastal east and the hinterland west. That [will allow for] China's keeping advantage in labor-intensive export while seeking industrial upgrading in the east. The double engines will give Chinese economy more power.

China has a development-oriented state system. China is still a one-party constitutional system. But the ruling party is very flexible and open to the demands of an increasingly pluralistic society. Economic freedom is more [assured]. The country is moving very quickly toward rule of law as well as rule by law, and a more investor-friendly environment will be more real in next several years. The country is able to sustain political and social stability while it is experiencing tremendous transition and uneven development.

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Wenran Jiang
India is picking up the pace, not far behind from the lower to below-average growth rates of China in the past 25 years (6% to 9%). Although India's potential higher rate may rest on a different set of factors than the ones that have driven China so far, it is important to look at China's experiences and to what extent India can create similar conditions.

The first is to confront the so-called "peasant question." With all the talk of the high-tech industry, software, and IT nowadays, let's not forget that China's economic reform and the subsequent takeoff began from the countryside.

From the late 1970s to the mid 1980s, it was not the cities but the rural areas that prospered. It was the redistribution of land that unleashed so much energy in 70% of the Chinese population at the time and formed the basis of the later urban reform. Then again, from the mid 1990s, Chinese peasants lagged behind and were left behind, and the income gap between the cities and the countryside widened.

The so-called "sannong" crisis -- crisis in the agrarian sector, in the agrarian regions and among the agrarian population -- has caused serious problems for China's overall development. India may have to deal with some of its own fundamental problems in the vast rural areas if it wants to produce its own sustainable miracle of growth.

The second is to pursue high GDP figures at the expense of equal distribution. Deng Xiaoping's famous sayings are: "To get rich is glorious," and "We should allow a portion of the population to get rich first." China used to be poor but equal. That is no longer the case. The "trickle-down" magic has so far not worked in China. Today, China is a more unequal society than India.

Will India push ahead for higher speed and make itself an even more unequal society? While China has hundreds of millions of peasants, India has a 160 million "untouchables" that are seriously oppressed. One way for rapid growth to occur seems to be leaving them behind -- for the moment if not forever.

The third is to create favorable environments to attract FDI, joint ventures, and trade partners, with a lot of preferential treatment. There is only so much domestic capital available, so for sustainable long-term growth, it is crucial to have an "open-door" policy with social stability. China has done well -- much better than its predecessors like Japan and South Korea and is way ahead of India in the game. Even today, it continues to provide better incentives to foreign capital. It is impossible for India to grow as fast as China unless India can do better in this area.

There is one even more fundamental issue: None of the above could be accomplished in the Chinese case without a strong state. And the Chinese state is both nondemocratic and totally committed to growth at the same time. While there is no convincing correlation between an authoritarian strong state and a high growth rate, neither is there clear evidence linking democracy with strong economic performance. It is obvious that there are some lessons that India can learn from China, but there are also factors in China that cannot be emulated by India.

Expert Roundtable 2:
Should China Be Feared?
The debate's second question is, Is China's rapid rise good for the rest of the world? Or something to be feared? Or some of each?

http://www.businessweek.com/magazine...4/b3948422.htm

Quote:

Subroto Bagchi
No, I do not think anyone should be afraid of China's growth. If 1/6th of world's population will get a better life, it is good for the planet. Gone are the days when growth, hegemony, and unilateralism were synonymous. We will increasingly live in times in which sustainability and connectedness of things will be better understood. Consequently, China will have to play the game, per the rules.

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Donald Straszheim
China is more opportunity than threat. The best assurance of global growth and geopolitical stability is for increasing globalization and interdependence. [The thinking should be] I cannot afford to attack my partner. This is the fundamental reason for favoring China's WTO entry on Dec. 11, 2001. China is far from a market economy, but they are making great progress, with more to come.

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Oded Shenkar
China's rapid rise is good for China and for the rest of the world. However from a business perspective, China is both a threat and an opportunity. Many companies will not be able to meet "the China price" and will have to restructure or exit the market, while others will benefit from opportunities in the Chinese market and from China outsourcing. The bottom line is that companies should rethink their business model so as to develop and sustain a competitive advantage in a global environment where China is a major player.

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Viveca Chan
China's growth is certainly good for the world. There has been concern in both developed and less developed countries over "the China price" as a threat to taking away jobs from their countries. This is like seeing a glass that is half empty instead of half full. From a positive perspective, China offers consumers goods at more affordable prices and encourages consumption. It also forces less developed countries to improve their competitiveness and more developed ones to move upstream. China's growth will not pose a threat because the Chinese culture is about harmony. As a superpower, China is very tolerant and does not impose its values or standards on other countries. It has a history of working comfortably with other nations, as long as they do not interfere with Chinese domestic policies or affect their economic interests. So China's growth is good for the world.

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Jiang Li
China's rise is certainly good for the rest of the world. A better life for 1.3 billion people is the biggest contribution to the stabilization of the whole world. The so-called "China price" is not due to China being developed but to its being not developed. In long term, the rise of China will finally put China on the same [plane as] developed countries and therefore eliminate any threat in product prices.

The rise of China is also benefiting the economy of the rest of the world. Take tourism. Tremendous [numbers of] Chinese people visited neighboring countries like Singapore, Malaysia, and Thailand. Now the huge Chinese tourist army is expanding to Japan, Australia, and Europe. Besides tourism, Chinese people are also spending wealth on their children's education overseas. This spending directly stimulated the economy of the related countries and in some sense returned the wealth to those countries.

China still has many things to do [to become a] developed country. Efforts need to be made to popularize education [and toward] environment protection and sustained development of industry and agriculture. In any sense, China is not a threat to the rest of the world.

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Wang Yong
No. The world should not fear China's rise. Let me first discuss if China's rise is a threat in economic perspective.

China's economic miracle is more of a globalization story. China's rapid development has taken place in the global network of interdependence. China's growth has relied upon international investment and trade much more than any rising country ever did ?whether it was the UK, U.S., Germany, or Japan.

A post-WTO China has doubled its import and export volume within three years, mainly because more investment flows in and the Chinese markets are much more open. Shanghai is widely [perceived as] China's economic capital and the center of innovation, but over half of Shanghai's export comes from foreign-invested enterprises.

Contrary to the American perception, China's foreign trade is generally in balance. The American public should know this. It means that China is not only an export machine, but also a tremendous market for imports from its major trading partners -- the U.S., EU, Japan, and Southeast Asia. [For those countries, this has meant] jobs, profits to companies, revenue to governments, as well as more choices to customers, both in developed and developing countries.

That is why developing countries are not scared of China's rising, though they are more likely to face the competition of Chinese exports.

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Saurav Adhikari
China's rise is to be feared as much as India's, should India become a global economic power. That is the natural corollary to this question. Frankly "with great power comes great responsibility," and I think so far China has used it well with saber (both military and economic) rattling more than any visible manifestation.

Another contrarian view is that as China grows so must its ability to deal with other lower-cost nations. So rather than fear China I think the world must learn to accept its power and respond to it.

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Subir Gokarn
The general tone of the comments is that Chinese economic ascendancy is not something to be afraid of but it does have implications for global governance mechanisms. I tend to agree with this view.

From an Indian perspective, with some expectation that India will also somewhere along the line approach China's share of world GDP, the rigidity of global institutions is a cause for concern. The UNSC is perhaps the most visible manifestation of this, but generally speaking, history is a far more important determinant of global influence.

For growing economic power to translate into more significant contributions to global solutions, institutions have to adapt. They don't show too many signs of doing this at the moment. The danger, going forward, is that emerging economic powers will look outside collective mechanisms to exercise and expand their influence. This will be harmful to both individual and collective interests.

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Wenran Jiang
Overall, the world has responded positively to the rise of China. While the U.S. has shown anxiety over growing Chinese strength from military to commercial, the rest of the world seems to think differently. As demonstrated by a number of cross-nation opinion polls, most countries, including most industrialized countries, view China more favorably than [they do] the U.S. In fact, most fear the U.S., not China. Furthermore, most developing countries prefer a stronger China to balance the U.S. in world affairs, although most Western countries don't want that.

Now the question of "what ought to be." China's rapid economic expansion raises serious questions about the sustainability of traditional development paradigms. It is good that China is improving its living conditions for most of its people, and hundreds of millions have been lifted out of poverty. The Chinese people also have every right to enjoy greater wealth and consumption just as people in rich countries do.

But let's look at the facts: If every Chinese person's daily consumption of oil is the same as that of people in the U.S. , China alone will require some 80 million barrels of oil per day ?the daily oil consumption of the entire world. That is difficult to sustain, if possible at all. Moreover, we have not even considered the impact of India and others who are catching up fast in their energy consumption.

The West, especially the U.S., must confront this fact not as a China threat but as a common development problem. The world has to work on solutions to alternative and renewable energy, with possibly a change of paradigm on our lifestyle and energy consumption patterns.

Another concern about China's development is the tremendous cost of its modernization program. Even the Chinese themselves have realized this and are currently engaged in a heated debate on this topic. In producing about 4% of the world's annual GDP, China consumes 10% of the world's electricity, 20% of its copper, 31% of its coal, and some 40% of its cement. In generating every ton of iron and steel, major Chinese iron and steel producers consume 40% more energy than the world average.

And there is the damage to the environment, an issue I would like to see as a question from Peter and more attention from this panel. China's rivers are now running black. China is also the second-largest contributor to global warming, not on a per-capita basis but that does not matter. So the world should be fearful about these developments when it comes to the environment and resources, because we are one and the earth replaces nation-state borders.

That being said, the solution does not lie in preventing China or India or the developing world from becoming economically strong or depriving them of the right to "happiness." The U.S., if it really wants to maintain its lead position as a great power, has to do more to facilitate the efficient use of energy and resources in China, India, and other developing countries. Of course, the challenge is to start at home.

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Madhav Bhatkuly
China's rise through the productivity growth of its people should not be feared. However, what perhaps should be is China's rise through the pricing of some of its products. Increasingly, most China watchers believe that neither financing costs nor infrastructure costs are being passed on to buyers. This has perhaps translated into China's banking system. The extent of the impact that a messy banking system straddled with bad loans will have, when this perceived anomaly is corrected, remains unclear still. The correction itself is inevitable.

China will have to raise prices at sometime, and Chinese banks will have to cleaned up at some time. Until then, the pace of Chinese growth through subsidized financing and infrastructure is already impacting the world in the short run -- either though a greater dislocation of global manufacturing than there ought to have been and/or through prices of commodities. This aspect of Chinese growth needs to be fearfully watched.

Expert Roundtable 3
India and China: Partners?
The debate's third question is, Are India and China rivals for world markets and resources, or will they tend to be business partners?

http://www.businessweek.com/magazine...4/b3948423.htm

Quote:

Donald Straszheim
China and India are natural business partners to each other and to every one else in the world. Any country in the world that neglects China and India does so at their economic peril. India has caught the growth bug -- and they caught it from China. It is obvious to all observers that China's economy and society are dramatically better off than in the past, and that there are benefits of this to the society as a whole and to the governing parties.

To the extent they compete for resources, fine. Each will use these resources to some economic end that will make us all better off.

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Oded Shenkar
Yes, China and India are competitors but also natural business partners. The complementarities between the two, e.g., China's competitiveness in computer hardware and India's competitiveness in software and IT services drive rapidly growing reciprocal trade and investment which is likely to outpace global averages in the years to come.

This is also a reminder to the rest of us not to apply a narrow bilateral lens to recent economic and geopolitical developments but rather prepare for the coming global realignment.

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Viveca Chan
China and India are ideal business partners more so than competitors. I agree with Oded that the two are complementary. China has the hardware and production capability and India the software and technology edge. If these strengths can be combined by more bilateral cooperation and mutual investments, it will increase competitiveness of both countries. China and India also have a lot of similarities so they can share experience and knowledge. Both have great diversity in income between the rich and the poor, the have and the have-nots. Both have a big rural population who are still living at subsistent level. Both are big countries with multiple dialects, climates, regional cuisines, and tastes.

In China, we find Indian expertise is often more applicable than that from developed western worlds. This may be why we see a lot of Indian planners who do well in China. They tend to have a better grasp of the complex market dynamics. China entrepreneurs and businesses are also very interested in selling to and sourcing from India. Haier for example, has a big presence and organization in India. From both the macro perspective and talent perspective, India and China can benefit by working closely as partners

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Subroto Bagchi
I do not think China and India are "natural" business partners. There is a social memory in India that [inspires a] lingering trace of caution about China. It goes back to the perplexing military move China made against India during the Nehru days. What perplexes two generations of Indians is why and how Chinese leadership decided to surprise India. It shook up a whole nation that was espousing "non-alignment." In 1962, in a sense, Indians were shaken up from a state of innocence.

This followed a long spell during which, though conflict did not take place, there was continued suspicion of geopolitical motives. China has always militarily supported Pakistan and India gave shelter to the Tibetan cause. As a result, the climate for cooperation has always been overshadowed by clouds of non-understanding. Only in the last few years have a few Indian businesses gone ahead and started exploring China and Chinese merchandise has started getting into India.

I would call two countries "natural partners" only when there is wider people-to-people contact and comfort. Both nations have a long way to go to achieve that. But, the reason for establishing such a relationship has long existed -- the problem is the [climate] has not. The future seems to point toward a time when we may see the two coming together.

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Manoj Singh
The answer has to be yes. India and China could be business partners, surely! Let's look at it on three levels: historical, entrepreneurial, and economic compatibility.

Historically India and China have a number of similarities. Both are ancient civilizations, have led the world as its richest point in civilization at different times ?only to fall down in the second half of the second millennium. Both kickstarted their re-entry into modernity in the middle of the last century.

India and China accounted for more than 50% of world gross domestic product in the 18th century and to my mind, there is no doubt this will be repeated. Trade synergies will emerge over the next few years as India and China continue to exert their muscle.

From an entrepreneurial standpoint, Indian businessmen and corporations are already looking at China and at cooperation at the enterprise level. A large number of business leaders and corporations have already established a base in China and are looking to grow and leverage the advantages that China offers. There is a natural "partnership" between the Indian spirit of entrepreneurship and the Chinese desire to create wealth, and their socio-cultural similarities will make this partnership easier.

Economic compatibilities exist with Indian companies in the IT, pharmaceutical, and auto-component manufacturing industries already setting up plants in China. And China could look at India among other markets for glass, ceramics, electronic components, plastics, and other materials. There are definite synergies around India's software and China's hardware capabilities -- and both countries need look not only at joining forces and increasing their strength in the global economy but at the captive market of 2.5billion consumers they share.

Both governments need to look at their natural economic compatibility and their growing influence on the world economy and use this advantage to create a sustainable economy and start the process of creating wealth for the needy that still exist in both countries.

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Rajni Bakshi
A somewhat tangential observation, not a direct response to the question posed: Out there in the everyday bustle of the bazaar there doesn't seem to be a "China" and "India" in any monolithic sense. An example: This last week shops in Mumbai have been besieged by demand for a Funskool toy called "Bay Blade," which is out of stock. Some retailers are now selling a Chinese-made look-alike at a premium. Mumbai shopkeepers, their unseen suppliers in China, and several link-agents in between are making money. Meanwhile Funskool India is presumably losing out.

Perhaps the partnerships and competition will take shape not so much between nation-states but between entrepreneurs of differing scale, speed, and savvy.

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Subir Gokarn
There is a body of evidence that supports a "gravity" theory of trade between any pair of countries. This means that trade volumes are directly correlated to the combined size of the economies and inversely to the distance between them. By this yardstick, China and India have enormous potential for trade and current volumes are just a fraction of that potential. Of course, when we get down to the level of specific commodities and services, the picture may get a little blurred.

China's and India's comparative advantages in manufacturing overlap significantly; at this point, China has achieved greater competitiveness in most, if not all, of the overlapping sectors. Language barriers make trade in services a lot more difficult than it has been for India with the U.S. and other English-speaking countries.

Nevertheless, from a macro perspective, the combined size of the economies and their relative proximity do make them "natural partners" and their economic diplomacy must take this into account.

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Saurav Adhikari
I do not think India and China are "natural" business partners. The needs of the two countries are different. However statistics show growing trade and a favorable trade balance for India! Given India's increasing services trade and China's trade in manufactured goods there is an asymmetry here. But each one is trying to move in the other direction -- India toward manufactured goods and China toward services. So there will some conflict here till a balance is found. Till then both will focus on their natural directions. That seems to be more natural for the next decade.

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Wenran Jiang
As I see it there is a difference between whether India and China are NATURAL business partners and whether they will TEND TO BE business partners in the coming years.

I beg to differ from the polarized positions that see the two either as natural business partners or as not. I doubt if there is a set of factors that we can put together to measure any two countries or two peoples as natural business partners. The arguments put forward so far to support one view or the other are mainly pick-and-choose type of emphases that do not necessarily share the same variables.

The U.S. and China have a huge trade volume. Are the two peoples therefore natural business partners? The EU as a whole has now surpassed both the U.S. and Japan in terms of trade with China, and continues to grow. Are Europeans and Chinese natural business partners?

In fact, if we measure by the intensity of economic activities, China would be a natural business partner with everyone now. But that was not the case 30 years ago. Some factors of history, language, religion, geographic proximity, culture, and political system may play a role, but business partnerships in today's world are primarily socially acquired, humanly constructed, market-regulated, profitability-driven and historically conditioned. In this sense, it is not whether India and China are NATURAL business partners but rather under what conditions they can BECOME business partners.

Looking at the development stages of the two countries and the international environment surrounding them, India and China are and will continue to be both competitors and business partners in the foreseeable future. It is quite obvious that the two are competing for low-end manufacturing jobs that tend to flow from higher-wage places to lower ones in a globalizing marketplace. When more FDI goes to China, the rest of the world will get less. Even when the wage-level is similar, many other factors come into play. So far, China has proven to be very innovative in certain manufacturing sectors, outperforming others not just by cheap labor cost but also by efficient management from materials supply to production to distribution to international marketing. But India is catching up fast.

It is also clear that when rapid growth is projected for the economies of these two giants over the next few decades, they will have to compete for energy and other natural resources. On a per capita basis, both countries are energy and resource poor, and there are already indications that high energy prices are hurting both. Whereas China may absorb some of these high costs from its $600 billion and growing foreign reserves, the same cannot be said about India. Beijing and New Delhi have certainly recognized that and so some initiatives, especially from India, have been taken to strengthen India-China (plus Japan and South Korea) cooperation in the energy area. They hope is to form a buyers' bloc to have some influence over OPEC policy and the international oil market.

Although the Chinese rhetoric about "South-South cooperation" used to have a strong political tone, it is now more about real business partnerships based on market and profit calculations. The majority of Chinese enterprises are totally market driven and they do cut-throat capitalistic operations with a ruthless attitude. So whenever they find it complementary with Indian enterprises, they will be ready to do business as they do with others. And there are many opportunities emerging.

A China-India business partnership can [result in] a particular competitive advantage over the U.S. and other industrialized countries that have high labor cost. That could be a particular challenge for the rest of the world in the years to come. So a mixture of competition and cooperation in all areas will be the likely pattern of India-China relations.

Expert Roundtable 4
Advice for the U.S.
The debate's fourth question is, What should the U.S., and individual Americans, do to keep good, high-paying jobs in the U.S.?

http://www.businessweek.com/magazine...4/b3948424.htm

Quote:

Donald Straszheim
Most important as a nation is to continue to push for reforms that foster growth -- efficient regulation, low tax rates, incentives for investment and saving, promotion of technology, and much more focus on education, training, and retraining. Root out social-welfare like practices which remain too common in America.

Individuals need to build their human capital -- knowledge, education, work skills, and habits. Find companies to work for that are innovative, with managements that look to the future and attempt to posistion themselves for the future, and operate in an efficient and cost-effective manner.

Combining these macro and individual comments, the central theme is this: There is no better way to get a bigger piece of the pie than to have the pie itself grow.

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Oded Shenkar
In a global economy you are competing not only with your fellow residents but also with those of other countries, including the well-educated who are willing to work for a fraction of your cost. To keep high-paying jobs in the U.S. we need to upgrade our educational system from the ground (elementary school) up (to the business school, where international business is not even a requirement), encourage students to study foreign languages and cultures, and make sure we develop, attract, and retain the most innovative minds.

We also need to make sure we defend and get paid for our hard-earned innovations in the form of intellectual property rights protection.

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Manoj Singh
American labor organizations have been concerned about jobs [going] offshore since the first car rolled off the Ford assembly line, yet the U.S. economy continues to gain strength, and the U.S. continues to keep good, high-quality jobs.

As a previous commentator noted "there is no better way to get a bigger piece of the pie than to have the pie itself grow." To grow the pie, the U.S. government and business leaders need to focus on the upper end of the supply chain, which is after all where the high paying jobs lie.

As the manufacturing industry transformed itself 30 years ago, U.S. companies need to focus their more expensive resources on product development, marketing, and sales, and allow assembly and manufacturing to take place offshore in developing countries which have a lower cost basis. By focusing on innovation rather than brawn and ensuring labor and regulatory conditions are attractive -- low tax rates, investment incentives, social cohesion, quality education and training, etc. -- the U.S. will continue to attract and retain the best and brightest.

By making their impact of the upper end of the value chain and partnering with countries such as India and China, U.S. companies need not fear any labor readjustment.

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Subir Gokarn
People in the U.S. have been concerned with job losses since the early 1970s. Quotas on textile imports were one manifestation of this. Voluntary export restraints against Japan in automobiles were another. Rising sentiment against Chinese exchange rate policy is merely the latest. Despite these concerns, by and large the U.S. has acted in a manner consistent with the interests of domestic consumers, i.e., it has not allowed barriers to become too high or stay too long. I expect a similar position to prevail in the outsourcing area as well.

However, despite the broad tendency toward genuine free trade, expressions of protectionist sentiment by various groups in the U.S. are most vivid to other countries. There is, therefore, a perception of double standards. If the U.S. is to remain the standard-bearer of free trade in the global economy, it has to project the reality of its trade environment more forcefully.

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Viveca Chan
Calculating China's and India's impact on the job market in the U.S. is difficult. McKinsey argues that offshoring creates additional value for the exporting country. (Using offshoring to India as an example, for every dollar offshored, they estimate the U.S. accrues between $1.12 and $1.14, while the receiving country gets just 33 cents.) Others argue otherwise. I am in favour of the McKinsey arguement. Nike is a famous example of a company that does not have its own manufacturing but gets better ROI and business growth by concentrating on building its brand.

As our experts say, the U.S. should focus their resources on higher-value services such as product development, sales, and marketing, and concentrate on education, training, and developing a knowledge economy.

The U.S. will be better off with a government that encourages competition and partnerships rather than protestionist policies. The U.S. people should have more confidence in building value-added propositions and moving up the value chain. The U.S. should put more effort in marketing their culture and their proven education system and should relax their immigration policy to allow more students to come to the U.S. for continued education.

Foreign investments from China and India should be enouraged, so more Chinese business will expand to the U.S. rather than other countries. It will also increase the demand for the export of U.S. services.

To keep high-paying jobs, the U.S. should understand where their key competitive edge is and create an environment and enhanced education system to foster those talents. This should be in the area of marketing and planning, management, and finance. The result should be the best blending of creative thinking with analytical market projection, resulting in innovation that drives/leads the market.

While there may be scientists and technology gurus in other markets like India and Russia, U.S. innovation is market-driven. If the U.S. concentrates on fostering these strengths through training and education, and encourages partnerships with China and India, it will continue to lead the global economy and has nothing to fear.

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Subroto Bagchi
In the near term, we are dealing with an emotional issue. Some issues will settle down only with time. The danger is, some politicians either do not get it or decide to make capital out of flux anyway. You cannot keep "high-paying" jobs anywhere as a matter of entitlement. We have to wake up every morning and add new value to remain at the same place.

I visited Citibank in 1996 to understand their quality initiatives. They had calculated the sigma level of two things: the passbook entry system and the uptime of their fund-transfer system. Both were running at a three sigma level at that time, which means 68,000 errors in 1 million. The cost of a passbook correction was $25 per error. Who was paying for it? The average U.S. bank customer. If that same error could be corrected at $5 an error by doing it from someplace eles, who benefits?

In the manufacturing world, we are told that the cost of poor quality (COPQ) in a well-run company is 15%. Simply told, anything the customer didn't pay for is COPQ. That is like taking 15% of cash and burning it. In an average company, it is more like 20%-25%. In service companies, ususally the COPQ is as high as 40%-50%. So, just think how much inefficiency is out there, and if part of it can be removed by right sourcing of talent, what it does to the economy.

I see the U.S., like any other country, needing to reinvent itself and add new value, at a collective level and at an individual level. There are some areas in which the U.S. will lead unless it chooses not to. These are R&D in every which field, capital markets, and international finance, global defense (it is an outsourcing opportunity if thought through well), and space. It will be difficult to upstage the U.S. in these areas. Everyplace else, water will find its own level -- that is the meaning of globalization.

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Rajni Bakshi
The fear of losing jobs to Indians and Chinese is a subset of a more fundamental tussle within American society -- the contest of Main Street vs. Wall Street. Our exchange on this blog is premised on the absolute victory of the latter, since that is what is more visible. This handicaps our discourse in two major ways: One, we are straightjacket into a false binary mindset of "free market vs. welfare"; and two, we overlook and/or undervalue the innovative thinkers and businessmen who are seeking to reconnect society and markets in a more balanced way.

The question of more long-term significance is not how Americans can hang on to high-paying jobs vis-à-vis India-China but how rapidly they can redefine market activity itself in order to weave together social and monetary values. This in turn will depend on its political and intellectual leaders' ability to free themselves from the currently constricted and stifling definition of "free market."

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Wenran Jiang
Let's face it: This is a difficult question, and the prescription depends very much on the diagnose itself. Both the U.S. government and American people must come to terms with the fact that losing jobs to India, China, Mexico, and other developing countries in certain industrial sectors is inevitable. The single most comparative advantage of these developing countries is the low cost of their labor -- plenty of cheap but more and more skilled workforce, ready to sweat for long hours in harsh conditions at a tiny fraction of what a low-paid blue-collar worker is earning in the U.S.

Driven by the market forces in the globalization process, many multinationals have been moving manufacturing bases to low-waged countries like China and India. Americans have legitimate concerns about job losses, but they must understand the very structural nature of the challenge, and more importantly, it is not the only problem they are facing.

It is neither fair nor helpful to just blame others. It may sound patriotic or popular to bash China, Mexico, or India for the lost jobs in the U.S., but Americans must realize that, as serious as the challenge of low-cost labor from developing countries is, the roots of their economic problems are deep inside the U.S. Even if the Chinese currency appreciates by 40% or manufacturing jobs double in salary in the developing world overnight, there is unlikely to be any major impact on the U.S. job situation or other related problems.

The Bush Administration is running a huge deficit in government expenditure and has shown little interest in curbing it. This irresponsible behavior is hurting both the U.S. economy and the world economy. Washington has so far gotten away with such recklessness due to the fact that Japan, China, Taiwan, and others are still willing to subsidize the U.S. by purchasing large quantities of U.S. Treasury bonds. At the same time, average Americans continue to spend more than what they earn, living on credit, showing no sign of buying less, thanks in part to cheap imports from China and other countries. But that causes the U.S. trade deficit to mount.

Unfortunately, many people don't realize this, and thus can easily be misled by short-term events, biased media coverage, or political manipulations

There are a number of things that are fundamental in keeping and creating jobs in the U.S. (I am not sure how to define high-paying jobs here).

For the U.S. government: To be fiscally responsible is the first step for creating an environment for job growth in the U.S. The Clinton era proved that it is possible to create jobs in the U.S. in the age of rapid globalization. Unless Washington balances its books, it is not in a position to lecture anyone else about fiscal responsibility.

To negotiate with developing countries as equal partners in order to solve short-term difficulties facing the U.S. manufacturing industry, Washington needs to be patient in explaining its concrete concerns to the countries that may take jobs away, sector by sector. For example, when the WTO quotas for textiles were finally removed for the U.S. and other industrialized countries at the beginning of this year, large quantities of Chinese imports rushed into these markets. Instead of negotiating with the Chinese government for a commonly acceptable settlement, Washington imposed unilateral measures to curb Chinese imports.

In contrast, the EU managed to work with China on an agreement on the same issue, prompting Beijing to believe that the U.S. government is not genuine in wanting to have a negotiated settlement to the trade dispute. Effective negotiations will help the U.S. in managing a transition in the short-term for its potential job loss in such sectors as textile and other low-end manufacturing industries.

In the medium and long term, I agree with other colleagues that government should facilitate structural reforms and promote competitiveness. But it does not have to be at the expense of the social welfare system. To the contrary, a better, more efficient, and comprehensive social safety network, which does not exist in the U.S. today, will provide a much needed cushion for those who have lost their jobs or are being trained for other employment opportunities. Canadian and European social welfare practices have much to offer in this regard.

The fact that many developing countries are engaging in a primitive form of capitalism without a sound social security network should not be a pretext for the U.S. and other Western countries to cut or eliminate their own welfare system.

For the American people: There are many areas in which the U.S. is very competitive, and a good focus on one's own and the next generation's possible employment opportunities will definitely help. It is ideal to have a good college degree in a desired job category but even primary schools can make differences. Edmonton, Alberta [Canada], is the city in which I live, and it has a publicly funded bilingual program in many languages other than French, such as Chinese, Arabic, Ukrainian, etc. Such programs are in place largely due to the collective efforts of citizens trying to make our education system more competitive.

Living within one's means and learning to save and changing lifestyles if necessary for that goal. Chinese are putting away as much as 40% for either reinvestment or for future uncertainties.

The U.S. also must confront that it is both a rich country and a country that has a very unequal distribution of wealth. Maybe it's time to think of some kind of redistribution of income and benefits via a more progressive taxation system as a necessary and integral part of keeping and creating U.S. jobs.

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Rajni Bakshi
Thanks to Wenran for this detailed input. Your point about American spending habits and the deficit raises the following questions for me:

Is there room in U.S. public discourse to challenge this model of growth, which depends on perpetually increasing credit-based consumption? I'm assuming that U.S. social phenomenon like the voluntary simplicity movement and ethical buying habits (boycott of sweatshop products etc.) are still quite marginal.

• Might such questioning and soul-searching within the U.S. help to challenge this model at the global level? My hunch is that it would help. Otherwise, we will continue to exalt the creation of cheaper and cheaper goods while underplaying the human and ecological toll of low wages and lax environmental regulations.

• Would the adoption of measures like Genuine Progress Indicators by societies across the world help mitigate the current imbalance between economic growth and livelihoods?

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Jiang Li
I don't believe there is any magic to reserve high-paying jobs for any people with unqualified skills. The only way to get high-paying jobs is to possess skills that few people have.

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Madhav Bhatkuly
The only constant is change. Three hundred years ago, India was amongst the most prosperous countries of the world till it became amongst the poorest. Economic forces are never static. The very fact that per capita income in the U.S. is high must mean that labor rates in the U.S. also have to be high. With little to no accretion to its work force, this only suggests an inability to compete on labor.

Thus the U.S. has only two choices. One, it adopts a protectionist policy, and thus forces its high labor costs to get reflected in prices of its goods and thus increase the cost to the American consumer. Two, it embraces low-cost products and services, thus reducing prices for the average American consumer. The surpluses generated can then be spent on investment in design, technology, and creating industries which are in a position to compete on platforms other than merely cost. The latter remains the only way forward.

A competitive advantage on labor is never sustainable. The differences in per capita income between the U.S. and India-China are too great for them to not be arbitraged away by natural economic forces. This is just a natural way for global rebalancing. The U.S. has no choice but to find ways to compete apart from merely the cost of labor. These could result from innovation and development to retooling the economy for services-led growth.

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Saurav Adhikari
I think there are some solid words of advice in the expert comments above, so I will keep mine brief.

Can the U.S. compete and not lose jobs to India and China? Sure. Today a McKinsey report talks about 4.1 million jobs lost by 2008 to outsourcing. I think that the hype -- like the bark -- is worse than the bite.

Expert Roundtable 5
Can China and India Innovate?
The debate's fifth question is, Will either or both become leaders in technological innovation? And if so, in what fields?

http://www.businessweek.com/magazine...4/b3948425.htm

Quote:

Oded Shenkar
Imperial China accounts for key inventions (e.g., the compass, gunpowder) but has failed to develop the scientific foundation that would permit a solid innovation stream. The country is also hampered by its Communist legacy, which sought innovation by decree, by an education system that has traditionally encouraged rote learning, and by lack of intellectual-property protection, which reduced the incentive to innovate.

Today, Chinese firms are by and large followers and imitators rather than innovators. The country's R&D expenditure of about 1% of GDP is low by developed nations' standards, though it buys more, given wage levels for scientists, and it grows with the Chinese economy. India's R&D spending is even lower.

On the positive side, the Chinese government is undertaking educational reform and is enticing the best and brightest among its overseas graduates and scientists to return home. India will probably try at some stage to do the same. The Chinese government also continues to provide incentives for the transfer of technology and knowhow, and R&D intensity among U.S. China affiliates is three times their global average.

The bottom line: The jury is still out. Success will mean that China may become a global leader in certain technologies. Failure will imply continued dependence on the foreign investors, who account for the bulk of China's technology exports.

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Donald Straszheim
It is hard to imagine that either China or India will be a real economic innovator in the next five to ten years. The innovation has come from developed countries for a long time. China and India have their hands full in building out and capitalizing on the opportunities in mass production of goods and services that are so plentiful. The path of least resistance in China and India to riches and rewards is this build-out. The companies that will lead in innovation likely will remain in the developed West.

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Wenran Jiang
Both China and India are the latest of "late comers" in the modern history of industrialization. Thus both are likely to encounter some kind of "late-comers' effects": They have benefited from and will continue to take advantage of the newest technological innovations available. By leap-frogging ahead of the learning curve, the two countries will build their economies first of all as "fast followers," as Japan and Germany did long ago.

In this regard, China is ahead of India and has displayed substantial vigor and sophistication in dealing with technology transfer and innovation in the past 25 years.

Another late-comers' effect facing China and India is the fact that they were and to a certain extent still are at the bottom of the innovations ladder with a weak technological base, lack of capital input for R&D, are short of expertise in all areas, and are facing a virtual monopoly of high-tech areas by the advanced industrialized countries. Therefore, they have no choice but to be followers rather than innovators.

But that does not mean China and India will stay at the rank of followers forever or even for long. The Japanese development path earlier and the Chinese experiences recently have demonstrated that it won't take long for late comers to have a competitive edge in many areas of innovation. The Chinese leadership has been keenly aware of the importance of innovation in its efforts to modernize the Chinese economy and to catch up to the West. In the first decades of the People's Republic of China, "reverse engineering" was the method to unlock the technological secrets from abroad.

From the 1980s, China's "open-door" policy has become the means of absorbing foreign technology and knowhow. The Chinese are especially eager to get technology transfer in their FDI and joint-ventures. The rationale is that unless you have the latest available technologies in a given area, you will not be able to make further innovations. There are clear indications that India is about to do the same.

So one major indicator of whether either or both of the countries will become leaders in innovation is the extent of their engagement of other advanced industrialized countries and the level of FDI they can attract. So far China is doing better, but India is likely to follow closely.

Another major measurement is the level of basic and professional education of its population. While China is much better at providing basic education, India has a strong [tradition of] higher education and the advantage of [more of the population speaking] English, although it has a long way to go for its basic education. China has a huge overseas Chinese community and a growing army of overseas students that compensate for its weakness in post-secondary education.

While the future is promising, neither China nor India will have much luck in producing Nobel Prize winners in major science categories in the near future. But to put things in perspective, with a per capita GDP of $1,000 or less and so many living in deep poverty, China and India may settle for being "fast followers" if they can maintain a good pace of economic growth to meet the challenge posed by the their huge populations.

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Rajni Bakshi
It seems unlikely that major new, world-changing, technologies will come out of either India or China in the near future. However, what is crucial for defining our place on the world stage is the intensity of technological innovation at the ground level, in harnessing renewable resources for fuels and dispersed industrialization that generates livelihoods.

China appears to have an advantage in this sphere. It was able to tap its polytechnic network to design and maintain small, mobile wind-based electricity generators in the 1970s. It has created brilliant modern applications of its bamboo resources.

Similar technological talents are plentiful in India but, they are mostly expressed in local-level initiatives that are not up-scaling in a serious manner. A serious infusion of social venture capital, with supportive government policies, could proliferate innovative technology initiatives and transform India's social and economic base. This would make it a still bigger market and a more competitive economy.

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Subroto Bagchi
Though India and China have been adaptive and not innovative, my sense is that we will see a change in that. First of all, we will witness a substantial amount of process innovation coming from these two countries -- some of these will have global impact. We will also see a lot of business model innovation. This will be followed by product and technology innovation with a lag. Large multinational corporations setting up their own centers and the flow of VC money will create a potent generation in five years' time.

Meanwhile, we are beginning to see the spirit of innovation coming in from a whole bunch of nontraditional folks. Today Indians make films and write books or design dresses with a global audience in mind and they are selling. Heard about Monsoon Wedding? Bend It Like Beckham? Jhumpa Lahiri or Arundhati Roy or Ritu Beri? I think these are important as "proofs of concept." These are coming from a bunch of next-generation folks who are not given to incumbency.

I see this as a key directional indication because innovation always happens within an ecosystem. When we see a certain pattern in which flora is getting influenced in a rain forest, it is an indication of how we will soon see changes in the surrounding fauna as well. We seem to be on the cusp of things. Indians are getting in touch with the right brain.

A very fundamental requirement for the spirit of innovation to work is in the creation, nurturing, and celebration of diversity. Different countries in the region will embrace that reality differently. As a result we will see degrees of innovation as we go along.

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Manoj Singh
I am cautiously optimistic that India and China will become leaders in technological innovation over the next 10 to 15 years. They certainly have the right DNA. Clearly some of the best minds come from these two countries, and they have been immensely successful outside of their countries, and have been at the front end of technological innovation from microprocessors to software. This would indicate that if India and China were to create similar environments, and more importantly markets, the intellectual capital these countries produce could become innovators in their own countries. Of course, this is a lot easier said than done.

India and, in particular, China have a rich history of innovation which is well known -- cotton production, iron casting, gunpowder, printing, porcelain, shipbuilding to name but a few -- but in more recent times they have been content to adopt and build on Western technology. Deloitte research has shown China is emerging as a key player in shaping technology standards -- standards that could define the nature of global competition for years to come. From operating systems and software applications to storage media, wireless communications, and satellite positioning, Chinese government agencies and companies are looking to break the hold of the West on standards and are working to shape new technology standards.

In India, a number of technology companies from Motorola, Texas Instruments, GE, Intel, and others have already established R&D bases besides software giants like Microsoft, Oracle, and SAP. India is also rapidly becoming a key player in high-precision automotive parts. Multinational corporations are increasingly relying on professionals in India for greater contribution higher up the value chain than they did even two years ago. This trend represents the start of India potentially being a leader in technological innovation.

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Viveca Chan
I am confident that China will become a leader in technology innovation in the 21st century. China has a history of innovation that peaked during the Ming Dynasty and started to decline. China has reached a new phase and is on its rise to prosperity.

China has a background in research and innovation. In fact, Chinese researchers and scientists have contributed significantly to technological innovations in the West in the past century. China now has the economic power to support extensive R&D and should be able to attract talent back and develop a new pool of talents. What China needs is a whole support system to ensure the inventions can be successful in the marketplace.

Inventions need to be partnered with the right marketing approach (translating it to the right product, the test market, the right price, the right distribution, etc.) and the right management. With the growing sophistication and growing size of Chinese companies, I believe we will see China starting to lead in technological innovations in the 21st century. It is a natural and necessary evolution if Chinese companies are to become global and market leaders.

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Jiang Li
I believe China would be able to become a leader in technology innovation in the foreseeable future. The more than 300,000 engineers graduated every year, the many higher-education schools across the whole country, the numerous emerging high-tech companies and enterprises, the heavy R&D investment from international corporations, and the huge market requirement are some of the [reasons] that I can list here. For example, I am working in a research lab of Microsoft in Beijing, Microsoft Research Asia. We published about 10% of the total papers of the most influential conferences in the IT industry last year.

Although the IP belongs to Microsoft, the people who did [the work] belong to China. The innovation and its ability will finally spread and penetrate to the IT industry of China. Besides, the IT industry of China has also been making innovation in the adaptation of new technologies, in creating new user experience, and new business models. For example, the so-popular use of mobile devices and the so-hot short message service exhibit China's business innovation beyond the rest of the world.

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Madhav Bhatkuly
Path-breaking innovations do not occur everyday, and for those infrequent ones, both India and China have to go through their own learning and development process. Also both countries have too much low-hanging fruit that they can pick purely on the basis of low cost for them to really focus on technology that sends man to the moon! The Chinese haven't needed to produce anything path-breaking to be world leaders in toys. The critical drivers were low price points, scale, and variety, and the Chinese delivered these boundlessly.

On the other hand, the Indian's have done remarkably well in generic pharmaceuticals, where critical drivers were high chemistry skills and quality manufacturing at low cost. Thus the point to take home here is that there is enough that they can do easily [that it doesn't make sense] for them to start focusing on path-breaking innovation just yet. They also need to go through the development process cycle, and when they do, they will have their [own] technological innovations.

Meanwhile there is already some visibility of what might come in the years ahead from India. Tata Institute of Fundamental Research (TIFR), India, has one of the world's largest groups working on cutting-edge [physics] research in string theory. India is among the six countries in the world with knowledge to build and launch satellites. Texas Instrument's Bangalore center is responsible for over 30% of TI's global patent filings. About 600,000 students from India have been enrolled in U.S. universities for higher education in the pat 20 years.

At the current pace of growth, this would be more than 2 million in the next 20 years. Nine Indians were among the top 100 innovators under the age of 35 in 2004, according to the Technology Review, MIT's magazine on innovation. The telecommunication and networking group at IIT Madras has developed an ATM machine costing $1,100, compared to $10,000 for ATM's supplied by global giants such as NCR and Diebold.

India is among the few countries in the world to build a supercomputer. According to the American Association of Physicians, 35,000 of its members are of Indian origin, and 14 of every 100 researchers in U.S. pharmaceuticals laboratories are from India. Over 20 nanotechnology patents are filed from India annually. Indian nanotechnology scientists are working on nanotechnology applications including cancer treatments, heat-reflective glass coatings, aerospace materials, TV screens, etc.

The Institute of Bioinformatics at Bangalore has identified 43 genes which were never predicted by any group globally. The Centre for Cellular and Molecular Biology has developed an indigenous gene-mapping system. With a headcount of over 2,000, Intel's India development center has now overtaken Israel's, which has 1,700 people.

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Saurav Adhikari
The general consensus from the discussion above appears to be that both China and India may not be in the forefront of immediate and dramatic new technologies but will be, given their historical tradition [of innovating] around "appropriate" and "relevant" technology. This is inevitable.

Take drugs. With dramatically lower costs of R&D, the hub of research is shifting. Take technology. With increasing production of tech products especially in China, the inevitable innovations will occur. Both India and China have developed several low-cost technologies such as medicines, agricultural methods/implements, IT/tech products, albeit with collaborative support from the outside world. But then in an interdependent world is that not the way forward?

The key question is will India and China provide breakthrough technology solutions based on R&D in the near to medium term given the economic and social imperatives of development?

Expert Roundtable 6
Chinese and Indian Youth
The debate's sixth question is, How are young Indians and Chinese different from their elders? Smarter? Lazier? Less obedient?

http://www.businessweek.com/magazine...4/b3948426.htm

Quote:

Oded Shenkar
Whenever a country modernizes there is speculation that the new generation will be dramatically different from those that preceded it, in particular more Westernized. Much of that speculation is based on superficial observations regarding rock music and the like. However most systematic studies show that new generations retain much (though not all) of the core values of their culture.

Cultures change, if at all, very slowly. What is changing is the environment in which they live, their living standards, opportunities for advancement, and self-fulfillment. Young Chinese and Indians certainly have more opportunities today, and it is easier to be ambitious and hard-working when these qualities are rewarded.

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Wang Yong
According to some latest pollings, young generations in China are more individualistic, more consumerist, less obedient, and more knowledgeable about the world. The country will have a better-educated workforce, and the eagerness about a successful career is quite high. Young generations are optimistic and positive. Personal interest and high income are top factors in choosing a job while the concern about job stability is quite low.

Regarding the potential of technology innovation, about 65% of high school students express they are not interested in science.

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Subroto Bagchi
I have two daughters. One is 23, and the other is 20. We have raised them partly in India and partly overseas. I see their generation at close quarters also because my company has 2,500 people, mostly, twenty-somethings. I often travel to nonurban Indian places, and I watch young people there. Here is what I think.

When I look at my two daughters, it amazes me that they never lost a day in school or college due to a "student strike." We have before us a generation that did not turn to the streets because they were deeply unhappy about something.

The current generation has, by and large, rejected politics as a prime mover. They have grown up with a TV and a telephone either at home or in the vicinty. They have watched MTV but washed their hands before dinner. They still go the temple, and most of them seriously believe that God exists.

For the first time, it is O.K. in India for a kid to say that he or she wants to be a theater person, a singer, a fashion designer, a writer, a cricket player as a profession without parents losing sleep. It also means that they had multiple choices to pick up a role model. For the first time in India, business is not a bad word. It is O.K. to be a businessman. When I look at young people around me, I see more hope than helplessness. More aspiration than angst.

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Wenran Jiang
These questions are primarily about the differences between the younger and older generations within the two countries, but it is worth noting that China has experienced unprecedented economic transformations and other dramatic changes (including its political environment) in the last 25 years, exactly the time needed for a generation to grow up. In contrast, changes in India are less extraordinary and more gradual.

Such a difference results in a much wider generation gap in China than that in India. Another thing we need to keep in mind is that not all the young people are the same, growing up in the same environment or thinking in similar ways, especially in India and China, where in both there is a huge development gap between the urban and rural areas and between the regions.

The young in urban China today are much more open-minded, better informed about the outside world, less politically indoctrinated, and more entrepreneurial in economic activities. They could be still nationalistic, yet the value system is predominantly utilitarian and self-centered. They tend to seek better education opportunities to study abroad as hundreds of thousands have done.

None of these qualities can be said about the generation that grew up from the 1950s to 1970s. Among this new generation there will be very energetic and talented people emerging as social, economic, and political elites, and they are likely to guide the Chinese economy all the way to rival that of the U.S. by the time they retire.

Many of them will study in the U.S., Japan, and other advanced industrialized countries. Unlike the last generation of Chinese students who went abroad and stayed abroad, the new generation of students who go abroad will return to China as they see that's where the future is and where they can make a good living.

However, the majority of young Chinese live in the countryside: There are still 900 million classified as rural population, and 600 million to 700 million are still trying to make a living in the agricultural sector. Some 200 million are surplus labor, and most of them are now floating population. The young people in rural China are experiencing similar kinds of changes but not quite at the same level of intensity as those in the cities, and they also face a new set of challenges: They no longer want to remain in the rural areas, either out of desperation or out of the desire for a better life in the cities.

They venture into cities, but many young males end up doing hard labor, such as in the booming construction industry. Many young women from rural areas go to cities, working mostly in the low-paid service industry, and many of them also end up in the fast-growing prostitution trade. They form a huge army of internal migration that is likely to become the largest urbanization movement in human history, moving hundreds of millions from the Chinese countryside to the cities in the next few decades.

They will also join a growing and young urban unemployed population. Together, they will put tremendous pressure on the government to continue the current pace of economic growth, and they are likely to be the core element of social instability when things go wrong or their expectations are not met.

I would like to hear from other colleagues who are more familiar with India. There might be some global trends affecting people across borders, but my understanding is that the young in India are not growing up in such a quickly changing and dramatic environment as their counterparts in China.

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Rajni Bakshi
There is, as Subroto has outlined, an exciting expansion of opportunities in India. But it is not yet clear if this is greater than the parallel reality of simmering frustration. This contrast is visible in cities and villages alike -- for there is now substantial rural affluence.

For those young people who are "in the loop" and in a position to tap the new opportunities, things are changing fast. For those who are left out, who have nothing more than their labor to sell for a bare subsistence daily wage, there is a dark stagnation. This is partly why armed Marxist-Leninist groups are able to wield considerable power over large tracts of three states in India.

In this context there are no simple, uniform answers to the questions posed above. But if we limit our view to the young Indians who are even on the edge of the expanding opportunities, there is certainly a greater "go getting" energy than before. The iconic status of Infosys is largely about it being the creation of regular middle-class folk who rose to the top through sheer skill, dedication and honesty -- not by manipulating a license-quotas system. The ripples of confidence triggered by such examples were not there 20 years ago and are thus important to celebrate.

However, these ripples don't reach those young Indians who are at present completely out of the loop -- either because they are malnourished, or insufficiently educated or unable to cope with an English-speaking world. There is a real fear that India could become a competitive global economy and still leave hundreds of millions out in the cold. In which case the potential advantage of a large working-age population would become a nightmare. The jury is still out on whether India's current growth trajectory can ward off this scenario.

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Jiang Li
I agree the assessment of Wang Yong on young generations in China. I want to describe some special conditions that may not be common in either India or Western countries and that may be used to explain some special characters in young Chinese. The first one is the One Child condition. In the new generation of urban areas, a [single] boy or a girl is almost always the center of a family. Extraordinary care is taken to the child by the whole family (usually father, mother, grandfather, and grandmother).

The second one is the extremely tough education competition. A primary school student usually needs to study very hard to upgrade to a famous middle school, then a middle school student usually also needs to study very hard to upgrade to a famous high school, and then to a famous university. Any failure in this career path will result in leaving the mainstream, therefore the psychological pressure of urban area children is usually very high.

I am concerned about the children in rural areas, as Wenran Jiang commented. These constitute the largest part of the young Chinese population. As the urbanization movement is expanded from coast areas to inner areas of China, the education condition in these rural areas is also being improved. However more efforts still need to be made to improve the living and education conditions of these young generations.

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Arun Maira
I think the more interesting aspect of this question may be not what is the difference in orientation and attitudes of younger and older people today but the differences in how the older people thought about the world when they were young.

A principal difference in India, I notice, is the attitude toward money and wealth. In my younger days, wealth did not automatically or easily give you high esteem. Now, wealth seems to have become the most important indicator of a person's worth. In those days, a question one had about rich people was, "I wonder what else is good about this person for me to respect him?" As a contrast, I was asked when I moved to the U.S. in the late 80s by an American colleague, "If you are so good, how come you are not rich?"

Indian youth think more in this way now. Jobs and careers are valued mostly in money terms, whereas in those earlier times, "service to the nation" was an important source of status, compensating greatly for less money. The admiration of wealth is an orientation that will accelerate the growth of India in money terms. We need economic growth, therefore this shift must be good for the economic side of India.

I am nostalgic, however, for the idealism that I found, in much greater measure, in young people in those earlier times.

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Viveca Chan
Our company, Grey Worldwide China, has been tracking Chinese consumers' attitudes, beliefs, and values in the past 10 years and doing in-depth research amongst specific groups, including Chinese youth.

Youths in China are behaving quite differently from youths some 10 or 20 years ago and from their parents. Apart from what has been said by our panel of experts, the biggest difference is Chinese youths today are optimistic and more confident. In most urban areas, life has improved significantly, and they no longer need to worry about having enough to eat or to wear. They can afford to go after higher hierarchy of needs.

The biggest difference is in the past young people's aspiration was to have job security: work for a big company, or get respectable job with the government or be a teacher/professor. Today, many more young people want to be their own boss. They are more willing to take risks, change jobs for a better future. Some of the youth idols are no longer just superstars on TV. They include Internet song writers and Internet writers who started their own business and may not even have completed college.

The other significant change is young people knows how to ENJOY life. It is not just about work and making money. The best is if they can combine learning and enjoyment. That's why going on trips is so popular because it is both a learning experience and enjoyment. This means that experiential marketing will be big and of growing importance to marketing to Chinese consumers.

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Manoj Singh
To give you the perspective of "the young," I threw this question to two of my managers in the Deloitte Asia Pacific Regional Office -- one of Indian origin, and the other Chinese. Here is what they said.

China
I think the behaviour and attitude of young Chinese (those below 30 with higher education) is quite different in mainland China and Hong Kong. In mainland China, the young are quite spoiled by their parents as a result of the one child policy. They are known to be quite self-centered and keen to express their ideas. Due to the open-door policy and increasing exposure to the Western world, they are aggressive and hardworking and look to seize every opportunity.

Young mainland Chinese are also enthusiastic to embrace knowledge and are highly adaptive to new technology. They are willing to spend on high-end technology products (digital cameras, iPods) or luxury items like Gucci and Louis Vuitton -- even if they have to save a significant portion of their income to do so. Young mainland Chinese are also quite patriotic.

In Hong Kong, young Chinese are well exposed to the West, and their eagerness to acquire new knowledge is therefore relatively less than those in mainland China. They have more of a "take it for granted" attitude. On the other hand, young Hong Kong Chinese are certainly creative and smart. They are also efficient in problem-solving. They closely follow technology trends, and especially chase after Japanese and Korean products. Since they are well blessed with material goods, many of them have a passion to lead a yuppie lifestyle.

India
One of the biggest advantages the youth of India have is mobility. It is very easy for them to move about the country and follow the opportunities -- an edge the Chinese youth do not currently have. The youth of India are quickly adapting to new technologies, and English is now being more widely accepted and spoken than before. India's youth have a very unique advantage, a combination of mobility, language, education, a thirst for knowledge, and technology-savvy nature. Add to that a country that has an entrepreneurial spirit and a very clear intent to adapt to Western culture, and you have a very solid case.

But it's not all hunky dory for the Indian youth. Parents of the burgeoning middle class in India are driving their children ever harder at academic and other activities. They believe this is the only way to stand out and survive in a system which is cutthroat because of the exploding population and as education becomes more and more accessible to the masses.

The 18- to 25-year olds have now started to look at different professions besides becoming a doctor, engineer, lawyer, or government official, jobs that the earlier generations were expected to pursue, and did. Alternative professions are also beginning to gain credibility amongst parents.

The youth today are definitely more aware of the choices available to them. The middle-class youth seem to be grounded within the value system and culture, since it is so unique. They are also more creative. The environment that currently exists warrants that, and competition ensures that creativity is likely to be the best way to get ahead.

Though it is largely believed that the culture-and-value-system-torch-bearing youth are losing their way, I still believe that relates to a small percentage. The combination of the Indian value system and the Western approach is a winning one and if the Indian youth can manage to achieve the right balance, global organizations will court their skills vigorously.

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Saurav Adhikari
Every generation will experience change, and so will India and China. This will be more dramatic especially in the context of development. Social changes are what is rapidly driving this as is evident from a walk around the Indian cities and even rural areas. I am unable to comment about China, but I guess similar forces must be unleashed there from the comments above.

Simply put, young Indians are more aware about the world they live in. They are more materialistic (this is not to suggest that the spiritual side was more dominant earlier). They are consumers in the true sense. Frugality and conservation are not the virtues they grow up with. They are exposed to satellite TV (there was only one or two state-run channels in India when I grew up), the Internet (DSL/cable access is growing, but cybercafes remain a key access point), freer access to social interaction, mobility (global and virtual). They are global citizens. Adoption of styles and fashion from anywhere (America still dominates) is quick.

But as several surveys have shown, this openness and confidence does come with some sense of humility and purpose. I feel confident that they can dream and achieve. My generation could only dream. We were hostage to a system that did not let us unshackle ourselves.

oneman28 · 08-18-2005, 22:47 PM

The Participants

Saurav Adhikari
Corporate vice-president for strategy, HCL Technologies
India

Subroto Bagchi
Chief operating officer, MindTree Consulting
U.S. and India

Rajni Bakshi
Activist and author
India

Madhav Bhatkuly
Managing partner, New Horizon Investments
India

Viveca Chan
Group chairman & CEO, Grey Global Group
Hong Kong

Subir Gokarn
Chief economist, Crisil Ltd. debt-rating agency
India

Wenran Jiang
Associate professor and associate chair
Department of Political Science, University of Alberta Canada

Jiang Li
Research Manager, Media Communication Group, Microsoft Research Asia
China

Arun Maira
Chairman, Boston Consulting Group (India)
India

Oded Shenkar
Professor of management and human resources, Ohio State University Fisher College of Business
U.S.

Manoj Singh
CEO, Deloitte, Asia-Pacific Region
Hong Kong

Donald H. Straszheim
Chairman & CEO, Straszheim Global Advisors
U.S.

Wang Yong
Associate professor, School of International Studies
Director, Center for International Political Economy, Peking University
China

08-18-2005, 22:47 PM	#2 (permalink)
oneman28 Banished *Senior Contributor* Join Date: 02-20-05 Posts: 894	The Participants Saurav Adhikari Corporate vice-president for strategy, HCL Technologies India Subroto Bagchi Chief operating officer, MindTree Consulting U.S. and India Rajni Bakshi Activist and author India Madhav Bhatkuly Managing partner, New Horizon Investments India Viveca Chan Group chairman & CEO, Grey Global Group Hong Kong Subir Gokarn Chief economist, Crisil Ltd. debt-rating agency India Wenran Jiang Associate professor and associate chair Department of Political Science, University of Alberta Canada Jiang Li Research Manager, Media Communication Group, Microsoft Research Asia China Arun Maira Chairman, Boston Consulting Group (India) India Oded Shenkar Professor of management and human resources, Ohio State University Fisher College of Business U.S. Manoj Singh CEO, Deloitte, Asia-Pacific Region Hong Kong Donald H. Straszheim Chairman & CEO, Straszheim Global Advisors U.S. Wang Yong Associate professor, School of International Studies Director, Center for International Political Economy, Peking University China