India vs. China. Marketing Management Presentation DDIM 09/10 GROUP 9. All rights reserved. Copyright 2010.

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2 Agenda Current Situation Strategic Approach Latecomer Effect National Competitive Advantage The Government Role Future Projections

Nowadays Current Situation Population growth

3 Nowadays Current Situation Population growth rate Labor force (1999) Fixed lines and mobile phone GDP Average annual real GDP growth rate ( ) GDP per capita China 0.87% 706M 24.8% $1078B 9.6% $854 FDI $44.2 B Size of Diaspora 55M India 1.51% 406M 4.4% $469B 5.5% $468 $3.4B 20M

4 History, Politics & Institutions 1 Democracy: DO NOT DESTROY CAPITALISM, BUT MITIGATE SOCIAL ILLS Not Democracy: ELIMINATE CAPITALISM AND PRIVATE PROTECTIONISM India Independenc e Communist Party Incentive to Private Entrepreneurship 1978 China s First Open Market Policies 1991 Limitations to Private Entrepreneurship India starts the Privatization Process 3 Decent Legal System: INDEPENDENCE JUDICIARY PROTECTION OF PRIVATE OWNERSHIP LEGACY OF BRITISH RULES Absence of an independence Judiciary 4 Ethnic and Religious Tensions Two Decades of Relative Political Stability

5 Strategic Approach BOTTOM-UP INDIA TOP-DOWN CHINA ORGANIC GROWTH Focus on private sector, providing more favorable environment Knowledge-intensive industry Make full use of resources and allocate them more efficiently WORLD S TECHNLOGY LAB GROWTH FROM THE OUTSIDE FDI-driven approach and export-leading manufacture Limits for private local enterprises and protection for SOEs State driven Capitalism WORLD S FACTORY CATCH-UP THE GAP AND LEAD THE MARKET Huang Y. and Khanna T., Foreign Policy July-August 2003, Can India Overtake China?.

6 Strategic Approach: Differences and Similarities STRENGHTS MAIN FIELDS China Low cost and unskilled labour force High investment capability Centralized political system MANUFACTURING Mass production Low-medium end product Low-tech labour intensive industry India Low cost and highly skilled human capital Local entrepreneurship tradition Management and corporate skills HIGH-TECH IT Services Back-office FIRMS STRATEGIES Supplier of global MNEs Globally competing multinationals HOW TO INTERNATIONALIZE Welcome to FDIs Seeking for international alliances/partnerships COMMON LATECOMER STRATEGY Khanna T. and Palepu K. G., HBR October 2006, Emerging Giants Building World-Class Companies in Developing Countries

7 Latecomer Countries Linkage Leverage Learning Networks among firms and institutions in order to share information, costs and knowhow On the least rare resources and the most imitable and transferable Absorptive capacity. Learning through repeated application of link and leverage. From lack of resources to market leader Mathews John A., Asia Pacific Journal of Management , Competitive Advantages of the Latecomer Firm: A Resource- Based Account of Industrial Catch-Up Strategy.

8 Latecomer Countries COMPETITIVE DISADVANTAGES Linkage Leverage Learning COMPETITIVE ADVANTAGES INDIA Lack of : Technology Capital Managerial skills Market access CHINA Agreements University networking Campus model Diaspora State controlled agencies SOEs Government driven capital allocation Education System Property Right protection Legal System High skilled workforce Low cost workforce FDIs Imitation capability SOEs Diaspora Entrepreneurial approach State driven approach WORLD S TECHNOLOGY LAB WORLD S FACTORY

China National Competitive Advantage Manufacturing Industry FIRMS STRATEGY STRUCTURE AND RIVALRY SOEs presence in strategic industries Competitive pressure

) Inefficiency in Banking System Rural Vs Urban area gap Special Economic Zones Capital Market Development FACTOR CONDITIONS Cheap unskilled labor force

CONDITIONS Growing size market Growing GDP per capita Export driven demand Not sophisticated demand Government consumption incentives RELATED AND SUPPORTING

9 China National Competitive Advantage Manufacturing Industry FIRMS STRATEGY STRUCTURE AND RIVALRY SOEs presence in strategic industries Competitive pressure comes from foreign enterprises Coexistence of different size and business model (ex: JV, WHOFE, etc.) Inefficiency in Banking System Rural Vs Urban area gap Special Economic Zones Capital Market Development FACTOR CONDITIONS Cheap unskilled labor force Effective and continuously improving Infrastructures Foreign Capital availability Lack of sufficient natural resources (foreign procurement agreements) DEMAND CONDITIONS Growing size market Growing GDP per capita Export driven demand Not sophisticated demand Government consumption incentives RELATED AND SUPPORTING INDUSTRIES Bureaucrats are the gatekeepers Support from Foreign Enterprises (Know-how and Technology) Inefficiencies through the Value Chain due to SOEs Porter M. E., HBR March-April 1990, The Competitive Advantage Of Nations.

India National Competitive Advantage High-Tech and Service Industry FIRMS

Privatization policies Bottom-up strategy Elimination of state monopolies Reduced

Sophisticated demand Increasing market size FACTOR CONDITIONS Low cost skilled

Effective IT technology system High Know-how base Solid footing economy RELATED

education: 1984-2006 Education networking IT networking Campus model (ex.

10 India National Competitive Advantage High-Tech and Service Industry FIRMS STRATEGY STRUCTURE AND RIVALRY Internal Entrepreneurship encouragement Privatization policies Bottom-up strategy Elimination of state monopolies Reduced tariffs Opening to private and foreign investments Free market DEMAND CONDITIONS Sophisticated demand Increasing market size FACTOR CONDITIONS Low cost skilled labor force Managerial and entrepreneurial skills Institutional infrastructures Effective IT technology system High Know-how base Solid footing economy RELATED AND SUPPORTING INDUSTRIES All-India growth in student enrolment in higher education: Education networking IT networking Campus model (ex. Bangalore) Indian expats linkages: know-how flows Porter M. E., HBR March-April 1990, The Competitive Advantage Of Nations.

11 The Role of the Government Intervention areas India China Specialized factor creation Factor and currency market intervention Regulatory standards University system R&D Centers IT Infrastructures Developed institutional infrastructures Market system Intellectual proprietary rights 6 th ranked Corporate Governance FDI promotion as a source of knowhow and technology Currency stability Controlled exchange rate Cooperation among rivals Competition incentives SOEs protection Investment incentive High-tech industry Prominent private investment Low product and safety standard Increasing environmental standards 19 th ranked Corporate Governance Strategic industry FDI source Deregulation Liberalization Strong public control Antitrust Established Institutions Anti-trust policy Trade policy Tariff cuts Nationalism No currency devaluation Export oriented policy Porter M. E., HBR March-April 1990, The Competitive Advantage Of Nations.

improvement Macro Stability Absence of Financial Crisis Absence of Natural Disasters Absence of

12 Barro s Growth Influential Factors FUTURE PERFORMANCE Institutional Capacity Education Infrastructure Legal System Lower Fertility Lower Government Consumption Lower Inflation Trade improvement Macro Stability Absence of Financial Crisis Absence of Natural Disasters Absence of Conflicts Robert J. Barro, July 1998,"Determinants of Economic Growth: A Cross-Country Empirical Study".

Projections until 2050 Goldman Sachs, Global Economics Paper No:99, Dreaming With BRICs: The Path to 2050 50000 Estimated GDP Real GDP growth 40000 30000 CHINA INDIA 20000 10000 0 2000 2010 2020 2030

13 Projections until 2050 Goldman Sachs, Global Economics Paper No:99, Dreaming With BRICs: The Path to Estimated GDP Real GDP growth CHINA INDIA INDIA Nominal GDP Growth Rate 5% From 8.1% to 3.5% Real GDP 17,356 US$ * 31,357 US$* Population Growth Rate % % Saving Rate 22% of GDP 30% of GDP More stable growth but lower convergence speed in Technological Progress CHINA * (2003 US$) World s largest economy by 2041 and higher annual increase in US$ Spending

14 Can India Overtake China? Conclusions

15 Q&A

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