Mauka Mauka (India vs Pakistan) - ICC Cricket World Cup 2015
China and India The race for the two largest developing countries in the growth world†take different paths to economic prosperity is the best.
Diana Farrell, Tarun Khanna, Jayant Sinha and Jonathan R Woetzel.
The McKinsey Quarterly 2004 special edition China today.
First it was China The rest of the world watched in disbelief, then fear, as China's economy began to take off in the 1980s in what appeared to be the speed of light and the country ranks as a global GDP growth of the economy, largely by manufacturing, rose to 9 percent in 2003, after reaching 8 percent in 2002, China has used its vast reservoirs of domestic savings to build an impressive infrastructure and sucked in huge amounts of foreign money to build factories and develop the skills he needed in 2003, it received 53 billion in foreign direct investment, or August 2 cent1 of total†more than any other country of the world.
India began its economic transformation almost a decade after China did, but has recently grabbed just as much attention, prompted largely by the number of jobs that are transferred to it from the west at the same time, the country quickly creates world-class businesses in knowledge industries such as software, computer services and pharmaceuticals These companies, which have emerged with little government support, helped propel growth economy's GDP amounted to 8 3 percent in 2003, as against 4 3 percent in 2002, but the level of India's foreign direct investment†July 4 billion in 2003, against 3 billion in 2002†is a fraction of China.
The two countries still have serious problems in India has poor roads and water and electricity are insufficient, all could thwart its development; China has massive bad bank loans that must be taken into account the contrasting ways in which China and India are developing, and the particular challenges that everyone faces, the debate invites to whether a country has a better approach economic development and finally come out as the strongest We recently asked three leading experts for their views on the subject; their trials can be found on the following pages or by clicking on the titles below.
Notes 1 The United Nations Conference on Trade and UNCTAD database development on foreign direct investment.
The entrepreneurial advantage of India China has shackled its businessmen of independent India empowered.
China and India have pursued radically different approaches to economic development result of China's a conscious decision; India more or less reached its course is a better way than the other It is undeniable that China's growth has skyrocketed ahead of India's, but the conventional view that the Chinese model is clearly the best of the two is wrong in several ways; each has its advantages and it is far from clear which will provide a more sustainable growth.
In collaboration with Yasheng Huang, of the Sloan School of Management, Massachusetts Institute of Technology MIT, I have argued that these approaches differ in two dimensions First, the Chinese government nurtures and directs economic activity more than the Indian government made it invests heavily in physical infrastructure and often decides who companies†not necessarily the best†receive government resources and listings on local stock markets however, since the mid-1980s, the Indian government has become less interventionist the second dimension is foreign direct investment in China has embraced; India remains cautious.
These differences have an impact on the types of businesses that succeed and, I would say, on entrepreneurialism Let's first look at what kind of companies are developing in China trumps India in industries that rely on roads of physical infrastructure, ports, power, and will do for the foreseeable future, but in terms of soft infrastructure businesses†those in which intangible assets matter more†India tends to come out ahead, whether in software , biotechnology and creative industries such as advertising.
Thus manufacturing companies whose process time production counting on road and effective transportation systems are ill in India, but companies that are not constrained by the shortage of generators and roads bloom Assets underlying even the Indian automobile industry Unlike the automotive industry in China, which expanded as a result of large capital investments of multinational companies, India's success on the back of smart design that can produce cheap indigenous models India actually sends China mechanical and electronic components with high added value whose production depends more know -how on infrastructure.
Moreover, many severely active companies in China exist because the government funnels money to the government can do it, because it operates on the domestic capital markets in India, there is no such government intervention so successful companies tend to cluster in areas where financial constraints are less of a problem you do need a deep reservoir of capital to start a software company; you do for a big steel factory.
The Indian government lower level of intervention in the financial markets and its decision not to regulate industries that do not have tangible assets software, biotechnology, the media has created space for entrepreneurs Entrepreneurial activity is powered by both incumbents often owned by the family and by new entrants the former use cash from the various existing businesses to invest in new biotechnology firms, however, Biocon emerged pure entrepreneurial effort, as Infosys Technologies in the software itself, hundreds of small companies versions such as Infosys and Wipro Technologies unrelated government, unlike so many successful businesses in China.
While stock and bond markets of India are hardly perfect, they do on supporting any private Again, entrepreneurship played a role, even improving India ago Take the institutional framework BSE Bombay Stock Exchange, founded about 130 years and until recently the most inefficient entity imaginable It has become radically more efficient in the last decade because of competing efforts of a former official appointed enterprising RH Patil with technological inputs from around the world and fancy footwork to dodge the interests established to BSE, in 1994 he started a rival institution, the state of the art national Stock Exchange of India which now has more business in China, however, the government is trying to make the stock market successfully by the order, with predictably little to show for its efforts There was little competition e No effect between the exchanges in Shanghai and Shenzhen.
Good physical infrastructure and the decision of the Chinese government to welcome foreign investments make it relatively easy for multinationals to do business in China, and since they bring their own capital and the main talent, they should not rely heavily part of local institutions of China is no shortage of entrepreneurial talent Homegrown But indigenous companies have a much harder time because they are hampered by inefficient financial markets, a notorious banking system for doubtful accounts, and that the responsible local rather than market forces decide largely receiving funds.
China and India both have the ability to continue to grow in their own very different ways for ten years The Chinese government intervention in the economyвЂ, including the decision to welcome foreign direct investment†brought improvement high standard of living that India hasn t can also appreciated that each country has chosen the most suitable way for its own historical situation, but the advantages and disadvantages of these two development models should be studied, and it is just to ask whether the approach of China hamper its future economic development.
Huang and I believe that the presence of so many independent multinational companies has partly relieved the Chinese government pressure to expand or reform the institutions that support free enterprise and economic growth and the fact that many domestic investments are still not allocated by reasonable pricing mechanisms means that waste China many resources productivity and long-term economic growth, as we all know, thrive on competition, which is often stifled by government intervention.
When approaching two countries are compared, it is easy to forget that India began its economic reforms more than a decade later than China because India more open to foreign direct investment, we might discover more laissez-faire country has nurtured the conditions for free enterprise and economic growth to expand more easily in the long term.
About the author Tarun Khanna is Jorge Paulo Lemann Professor at Harvard Business School.
China The best of all possible models in an efficient market, the private sector is better for governments to allocate investment funds, but China is not an efficient market, and India has relatively few funds investment.
Blaming the approach of China's economic development is the easy cyclical overcapacity, resource allocation influenced by the State, and growing social inequalities are just some of its shortcomings, but it is difficult to see how a another model could give the economy a powerful kick start.
The Chinese government supports the development of enterprises to stimulate economic growth can be a small entrepreneur in China, but if you want to be great, you have to get money from a source affiliated to the government some officials Point Government essentially the power to decide that companies are developing.
To achieve the goal of growth, this policy has been a huge success in China has quickly built large enough to drive its economy industries Take the automotive industry, now an important factor for the manufacturing sector there is only 20 years, the China had no auto industry to speak of; there were some truck manufacturers, but none of passenger cars First, the government decided that in a large-scale, high-tech industry, some foreign company†in this case Volkswagen†was to come and show that local it must be because most local companies were state-owned there 20 years, Volkswagen has been hooked up with a company owned.
You might say that this development model has thwarted entrepreneurship But there weren t entrepreneurs in the industry at the time there were no private companies that could collaborate with Volkswagen, much less compete with it, the government says simply, we want China to modernize We want the Chinese economy to grow, we don t have the business we need to get there, so we're ready to do what it takes to create them .
Auto plants built capital intensive with foreign partners in China because of its development policy can have no benefit from productivity especially on plants that they could have built at home but all spending by large car companies paid.
In addition, local, private automakers such as Chery Automobile and Geely Automotive are beginning to thrive A generation of entrepreneurs took advantage of the skills and training that foreigners provided, so that Chinese companies are now putting together cars reasonable quality much cheaper than foreign manufacturers at present, the national players benefit from the price umbrella that foreign supply But these small fry are making cars for 2000, which means that any business that high cost structures may suffer with lower fares on the road because of China's accession to the World trade Organization, and with new competitors proliferating, the automotive industry is moving towards a price war classic that only the strong survive that is precisely what happened in the industry of consumer electronics, where competition has led to the emergence of successful Chinese companies that operate globally I think that in five or ten years, is the third of China's auto industry will be nothing completely private†to do with state players and it all started with the state saying, We want to build a car industry.
Looking at the industry more broadly, inefficiencies and cyclicality resulted from the fact that many funding decisions are driven at the local government level Local officials GDP growth performance as a political objective, many of them seek biggest investments they can do to push along the regional economy as stock market investors pursuing the latest speculative fashion, they created a lemming effect, with lots of risky investments, whether in aluminum, the residential real estate, factories or television the result tends to be waves of overcapacity investments are made up to†sometimes beyond†way to the point where it is clearly evident that the economy can not justify them.
But remember that the essential mechanism of economic reform in China was encouraging competition among provinces and municipalities Until the 1980s, there was no such thing in China as a national company everything was local There was no single legal entity that operated more than five kilometers about 3 1 miles from his seat with the elimination of internal trade barriers, local entrepreneurs and government funders invested to build neighboring scale markets and attack Yes, this leads to overcapacity and price wars But on time†and relatively short periods of time, too†everything cyclicality also leads to shakeouts that the most competitive companies survive these companies through their national competitive advantages and real scale, no longer dependent on the financing of local authorities and may my intenant begin to compete for the long term, both nationally and internationally.
This has certainly been the story in consumer electronics, where the top three players in personal computers control 50 percent of the domestic market and beer, where ten percent own 30 It starts to be history in heavy industries, where companies such as China Qianjiang owns 40 percent of the motorcycle market and Wanxiang dominates its niche in automotive components see the supply of auto parts in the world, available on September 16 Interestingly, these are not foreign companies, but people who tend to be the winners consolidation wars the beer industry is a good example of most foreign brewers, unprepared for the difficult and rapidly consolidating domestic competition, entered and left in 1990.
Moreover, I do not believe that foreign direct investment is linked to the development of China's capital markets and to reform the banking system Multinationals account for only 15 percent of fixed investment, so they does not lead the economy to a very large extent China must rely on its own domestic financial resources to finance growth as a result, the country's financial markets are being developed and the government fixing the banks through difficult margins higher reserves, changes in the agencies in the performance management and incentives, and based pricing more flexible risk.
Regarding the often stated view that China is trying to create global champions owned, it is at least partly a myth The government will develop strong Chinese companies, but do not expect them to State enterprises, which are by definition inefficient indeed, he now told them that if they want to grow, they will be listed on the stock market of government policy for the first 20 years of its reform program was, Let's do what's necessary to establish market policy for the next 20 years will be, let's get out of these global Chinese companies future markets will be competitive, mostly listed, and entirely commercial in their aims and objectives.
Ultimately, one must ask whether the inefficiency of the Chinese approach outweigh its achievements for the economy as a whole The answer, I think, is not the government still controls most country's financial resources and was reasonably good at them†allowance why the economy has been growing so fast compared to the private sector in an efficient market, the government is no doubt the worst assignment fund, but China is not effective and the Indian market model†essentially one with relatively little investment funds, whether by the government or the private sector†could not have achieved as much growth in the Chinese economy the Chinese government's approach has made the Indian model may not be sufficient for the Indian economy or companies belonging to the family of the country and other private investors pe uvent be good to decide what makes a good investment for them, but they did not spend enough money to lead the kind of growth seen in China it w ould not surprise me at all to see investment in India rise so spectacular that foreign and domestic investors are also beginning to recognize its potential well in the future.
About the Author Jonathan Woetzel is director of the Shanghai office of McKinsey.
sector by sector The strength of the Chinese and Indian economies will actually decided at the industry level.
The answer to the question, What is the best approach to economic development should not be found at national level you have to watch what happens in individual industries and when you do, you find that the favorable government policies that encourage d driving the good performance competition China and India industries slow, inefficient, which are highly regulated and competitive energy, but lack the two countries also have growing industries successfully without being hampered by poor regulation .
The McKinsey Global Institute has long argued that the key to strong economic growth is productivity and that the main obstacle to productivity gains is the raft of microeconomic government regulations that impede competition This idea is well illustrated in the case from India.
At the end of India's productivity spectrum is the information technology, software and sector of business process outsourcing is a great success, having created hundreds of thousands of jobs and billions of dollars of exports as a new sector†and one whose potential government, in my opinion, not recognized early on†he avoided stifling regulation, software and outsourcing companies are exempt from labor regulations governing hours work and overtime in other areas, and they were allowed to receive foreign direct investment, which is prohibited in retail, such Without this foreign money, it is questionable whether the sector would off in 2002, he already represented 15 percent of all foreign direct investment in India.
In the middle of the spectrum is the auto industry, which has changed dramatically since the government began liberalizing in the 1980s In 1992, most barriers to foreign investment were lifted, which allowed the production and labor productivity to skyrocket prices fell and as the industry has consolidated, employment levels were held with a strong stable demand Nevertheless, tariffs on finished cars remain relatively high, automakers remain sheltered from global competition and the sector is less efficient than it could be.
At the lower end of the spectrum is the consumer electronics industry, which, despite the lifting of restrictions on foreign investment in the early 1990s, is still burdened by customs duties, taxes and regulations Consequently, the Indian consumer electronics can t compete internationally and the prices for local consumers are unnecessarily high performance of India in the food distribution industry is even worse partly because of a total ban foreign investment, labor productivity is just 6 percent of US levels.
Now look at China, which also has some reasonably liberalized and highly competitive industries, including consumer electronics, where labor productivity is double that of his Indian counterpart the past 20 years, the industry is become globally competitive through a combination of direct foreign investment and intense competition among domestic firms is also notable for the relatively liberal approach, the government has taken to regulation†probably because of a failure to see its potential growth Today, China is 60 billion electronic products a year.
The performance of China Auto industry†which was considered a strategic and remains strictly regulated because of the government's commitment to bring technology and investment†is less clear, the market was opened to foreign automakers, demand consumers has increased dramatically, and prices fell, however, the sector shows how government intervention can counteract the potential direct foreign carmakers foreign investment can invest in joint ventures, they have to buy components from local suppliers, and protect the market prices of imports from the competition begins to increase private enterprises become stronger but for now, the productivity of foreign joint ventures in China is low compared to that of plants in Japan or the United States†surprising given the low cost labor from China.
As there are such big differences in the performance of different sectors in the same country, it makes sense to compare the performance of India and China in the sector rather than national level in IT and process outsourcing business, India is so far ahead of the game that China can do anything t over the next 10 or 15 years closer to catch the consumer electronics, however, dominates China, and India won t deliver a serious competition over the next 10 years.
The automotive sector is one of the strengths Toss competitive system in India resulted in a tremendous amount of innovation in the low-cost labor sector was used instead of expensive automation and engineering talent local has developed innovative products such as Scorpio†a sport utility vehicle that sells for a fraction of the price of an equivalent car in the United States in China, large amounts of foreign direct investment have built a large industry, but regulation has so far limited its competitive potential.
It is far from clear that the economy will emerge as a stronger foundation for the robust economic growth, sustainable must be built at the industry, the high productivity of back, which is achieved when governments ensure a level playing field by its regulation and removing barriers that stifle competition in China and India still have ample opportunity to help their industries and economies develop.
About the Author Diana Farrell is director of the Institute McKinsey Global.
India v, India, foreign direct investment, economic development approach.
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