shadow of chinese dragon on india

8/4/2019 Shadow of Chinese Dragon on India

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The Shadow ofChinese Dragon on India

This is the story of two Asians nations. Both have populations in excess of

billion and the ability to become superpowers. Yet there is a study ofcontrast: one had achieved the distinction of being the fastest growing

economy of the twentieth and twenty-first centuries. The other is still

playing catch up with the tiger economies of South East Asia.

China has achieved the status of one of the fastest growing economy of the

decade, close to being the second largest economy behind US. It has the

largest market in terms of population-wise which every company in the

world crazes to command. It is also the country which has got the

reputation of being the cheapest manufacturing base in the world, highly

skilled and cheap labour and products which, riding on the low price ship,

are commanding a share and position all over the world and making life

miserable for companies competing against them including that of India.

Lets have a look as to what has made all these things happen. What is the

history of the reforms undergone by the country and how has it got in the

commanding position.

Also a look at why has India not been able to be in the same position as that

of China. What has been the impact of Chinese industries on India and what

are the measures, which needs to be undertaken to counteract this possible

threat.

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China

Introduction

Walk into any major retail outlets like Wal-mart, Kmart, Sears, Ikea, Sogo,Carefour or any other major retail chain anywhere in the world. Chances

are that more than 30% to 40% of the merchandise on display will be from

China. Chinese toys, garments, shoes, cutlery, consumer electronics, PCs

and accessories, sports equipment etc. are making waves.

Even in India, many industries are feeling the heat of Chinese products

becoming available at substantially lower prices. The Indian consumer, so

far used to high prices, is having a great time buying these products of

reasonable good quality 30-40% cheaper than their Indian counterpart.

The initial success in penetrating the Indian markets in product categories

like batteries, toys, bulbs, consumer electronics is slowly being replicated in

other industries like pharmaceuticals, engineering, machinery and even

sophisticated industries like computers hardware and mobile phones.

Ten years back, nobody could have imagined such a dominance of Chinese

products on the world scene. Many are bewildered by the sudden

transformation in such a short time. Indian industry appears to be

completely at a loss to respond to such an aggressive competition from

China. Most of them are running to Government for help in the form of

protection and anti-dumping measures. Such steps may give them breathing

space in the short run - but in the long run they will completely isolate

themselves from the world scene.

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The story of Chinas competitiveness is the story of how human skill can

attract its own capital and how the ownership of the means of production by

the workers can actually produce miracles. Chinas competitiveness shows

how the supply of cheap and standardized goods can win markets helped bylow assets but intense knowledge. It shows the intense, tremendous and

autonomous role which trade unions can play in the industrialization of the

country. It shows how decentralization and local autonomy can invoke both

corruption and boost productivity with equal probability. The story of

China shows, like Michael Porters all other examples how adversity for a

community in a country can work wonders for its fate.

To understand this inner story, lets examine what makes china tick.

What are the reasons due to which China has an advantage and upper hand?

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The opening up of China

The First Phase

The process of liberalisation in China was started in late 70s. The Chinese

leadership had a vision to make China an industrial giant. It opened the

gates for foreign investors by giving them sops. The overseas Chinese

settled all over the world took advantage of this by bringing in capital and

starting manufacturing activities. The produce had ready markets in their

respective countries where large Chinese population was concentrated.

Also the central government initiated price and ownership incentives for

farmers, which enabled them to sell a portion of their crops on the free

market. In addition, the government established four special economic

zones for the purpose of attracting foreign investment, boosting exports,

and importing high technology products into China.

Economic control of various enterprises was given to provincial and local

governments, which were generally allowed to operate and compete on free

market principles, rather than under the direction and guidance of state

planning. Additional coastal regions and cities were designated as open

cities and development zones, which allowed them to experiment with free

market reforms and to offer tax and trade incentives to attract foreign

investment. In addition, state price controls on a wide range of products

were gradually eliminated.

This process of opening up of Pearl River delta (Guangdong province)

became an example for other provinces to follow.

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They started as copycats in products like toys, garments, consumer

electronics etc., producing at one tenth of prevailing prices and making

these available under OEM brand names.

Once the reputation for value was established, they wooed the likes ofSears, Wal-mart, and Kmart etc. to offer these products under their private

labels.

The presence of Hongkong helped China to market the products not only to

the ASEAN countries but also to other countries in Africa, South America

and the Middle East. This geographical spread helped them to expand

capacity and reduce costs further.

The Second Phase

In the second phase, China allowed multinational companies to set up bases

in China's economic free zones to take advantage of Government

incentives, cheap labor and presence of large domestic market. This helped

them to create employment opportunities, gain technical knowledge and

improve infrastructure in terms of power, roads, ports etc.

As a result of this most consumer electronics majors such as Panasonic,

Sony, LG, Toshiba, Nokia etc. have set up manufacturing plants in China.

Many transnational companies like GE, Siemens, Electrolux etc feed

exports all over the world from plants located in China. Favorable

economic policies have contributed to China becoming the largest Foreign

Direct Investment (FDI) destination among developing countries

The importance and contribution of FDI to China is explained below:

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Foreign Direct Investment (FDI)

China became to open up to foreign direct investment in the early 1980s,

the amounts initially were relatively small. But by the 1990s, China wasattracting $30 to $40 billion of foreign direct investment per year. These

inflows have been so massive that China now accounts, for one-third of all

foreign direct investment in all developing countries combined. Though it

has dropped this year. FDI in China totaled 13.37 billion U.S. dollars in the

first two months this year, down 26.23 percent from a year earlier.

FDI inflow

010203040506070

1979 1985 1990 1995 1997 1998 1999 2000 2003 2006

Years

US$

Billion

Fig. 1

This has been a very important driver, of course, for exports, because many

of these foreign invested companies are heavily involved in export

production. Indeed, the next diagram shows that the share of exports being

produced by foreign invested companies in China grew from about 1

percent in 1985 to something around 61 percent last year.

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Share of Exports by Foreign

Companies in China

010203040506070

1985

1990

1993

1995

1997

1998

1999

2000

2003

2006

Years

%R

ise

Fig. 2

As a result of above phases of opening up of Chinese economy, China has

developed a substantially large manufacturing base in almost every product,

be it a commodity like steel or consumer goods like toys batteries, watches

etc. Chinese industry has benefit of a large production base, flexible

capacity and sort of integrated structure of supporting industries in manysectors. In many sectors, China is still adding capacity in anticipation of

emerging global opportunities. Besides, China has a well-developed

infrastructure.

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Secret of Business and Manufacturing Strategy

A very significant aspect of its competitiveness is perhaps the mindset thatmakes business strategy - the way they think and the way they operate.

This can be explained by the fact that:

Presently most Chinese companies have a single corporate mission be a

global company. Corporate profiles of most of the companies had this to

convey; we are a national company, going to be a global company.

They seemed to be selling their product at prices that would create markets

for their products and enable the consumers to buy large and many more

times. They believe in maximization of sales rather than profits that follow

from sales. Their business strategy is seemingly focused around the

principle of mass production and mass consumption. The Chinese

concentrate on mass markets, rather than premium markets and premium

products.

China has a subsequent large manufacturing base in virtually every product,

be it a commodity like steel or light consumer goods like toys, batteries,

watches, etc. Chinese industry has the benefits of a large production base,

flexible capacity and assort of integrated structure of supporting industries

in many sectors.

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About China's manufacturing strategy it can be said that it has opted for

a price- and volume-led growth, at wafer-thin margins. From the research

conducted on Chinese manufacturers, it can be seen that the Chinese are

neither consciously profit or sales maximizers and value maximizers. Thephilosophy of a Chinese manufacturer is simple. It won't claim to sell you

the best quality product, but it will charge you a tenth of the price offered

by others. In other words, their sole aim is to fulfill the customers value for

money for which they pack both product value as well as money value.

This has been the crux of the competitiveness whether in the 19 th century

Europe or the 20th century Japan and America or the 21st century China.

Example:

Chinese aggressive marketing strategy is to take hold of exports order at

any cost. For instance, early this year, the Nepal government invited bids to

purchase 40 buses. Tata Engineering and Locomotive company (Telco)

offered competitive prices at thin margins. When the bid was opened, it

turned out to be the lowest bidder. However, Telco was surprised when it

found that the order had gone to a Chinese company. The cause Chinese

firm gave an offer to the Nepal government a four-year, interest free

credit.

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Facilitators of dominance of Chinese products based on cost leadership

A split unit air conditioner for less than $350, a 29inch television for $200,a mobile phone for $20, a cotton shirt for $2, the most demanded product

like Children scooter at $15, toys for $1 and ceramic for less than a dollar -

these are some of examples of prices of Chinese goods.

How are the Chinese able to produce at such a low cost - sometimes, as per

many experts, at costs lower than the theoretical cost of material used? This

question is repeatedly asked by many people who do not have an in-depth

knowledge as to how the Chinese economy works and it can be explained

as follows:

There are two sides to the China story. The first is that cheap labour; high

productivity and government subsidies have turned it into a low-cost

producer that can beat any country. The second part is seamier: Chinese

firms are often ready to try anything -- even illegal methods -- to capture a

market. And it is becoming increasingly difficult to separate the two.

Lower Costs Lead To Lower Prices

Although the data is sketchy, empirical evidence suggests that three

factors help Chinese manufacturers gain an edge over their counterparts in

other countries. These are:

1. productive and inexpensive labour

2. cheap inputs and

3. in-built economies of scale

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In each of these areas, the government also chips in with specific measures

designed to improve the cost competitiveness. In fact, the government

incentives also explain why multinationals are keen to set up manufacturing

bases in China. Last year, the country attracted $40 billion of foreign directinvestment, or 13 times India's. To put this in perspective, the South Korean

LG Electronics has 10 units in China, while Schneider of France has 21.

First the low-cost, high-productivity labour edge that China enjoys.

Recent studies indicate that the Chinese workforce is three to four times

more productive than India's in most sectors. Add to it the labour-related

policies adopted by the Chinese government, which are tilted in favour of

the manufacturers. In Mainland China, most workers are party cardholders.

Also food, clothing and housing for the workers are subsidised by the

government. That obviously results in lower corporate wage bills.

The situation is somewhat different in the export zones. There, the

companies negotiate wages each time they receive a new export order.

more than half of the companies with foreign investment in the three SEZs

(special export zones) in Guangdong pay far less than the minimum wages.

In addition, managements in these zones have the flexibility to hire and fire

workers, a flexibility that Indian corporate has been demanding for years.

Advantage of lower input costs.

To begin with, the import duty on capital goods is less than 5%, compared

with between 22% and 45% in India. And import duties on raw materials

are fairly low too. For example, the duty on Caprolactum, an input for

making nylon tyrecord, ranges between 4% and 18% in China, compared

with 33.42% in India.

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And finance costs, too, are lower in China. Interest rates on bank loans

range between 4% and 6% (compared with 14% in India). Indian managers

who regularly visit China claim that Chinese firms do not have to bother

about repaying the principal. And in case of default, the debt is convertedinto equity as long as the interest is paid regularly.

Chinese Businessmen

Chinese exporters also take a number of steps to prune costs by increasing

productivity and building huge economies of scale. On an average, the

capacities of Chinese firms are at least three to four times that of their

Indian counterparts. Even in sectors like steel, where capacities are

fragmented -- China's largest plant has a capacity of less than 9 million tpa,

while its total capacity is over 100 million tonnes -- the plants are located in

clusters to reap the benefits of scale.

Other methods followed

To play the volumes game, China also tacitly allows its manufacturers to

take any step necessary. For example, while the manufacture of genuine

high-quality goods allows them access to organised markets, counterfeits

help crack the gray market in most countries. China has realised that the

unorganised sector in countries like India is often bigger than the organized

one

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Chinese use the dirt-cheap counterfeits to woo new customers in market

where the per-capita consumption is low due to the price barriers

What is interesting is that the counterfeits are made in the same factorieswhich produce genuine goods and provide economies of scale and cross-

subsidisation. That could explain why high-quality Chinese goods can also

be sold so cheap, and why the government turns a blind eye to the illegal

activities

One of them tells this story as an illustration. A few years ago, when

Chinese companies were busy inking JV agreements with their western

counterparts, the Communist regime insisted that the foreign partner should

submit the technology-related documents along with the application. When

the JVs finally went on stream, the western firms found that copies of those

documents had been passed on to local Chinese producers.

When one of these foreign firms complained, it received a curt reply: "In

the People's Republic of China, all documents submitted to the government

are people's property." The inference: Chinese rivals were free to use those

documents to make products that were similar to the foreign brands. And

they could sell them for cheap due to low overheads, economies of scale

and the ability to use the under invoicing and smuggling routes to evade

import duties

Yet another loophole available to these JVs was the buyback agreement.

So, if the proposed capacity was 100,000 units, and the entire production

was to be purchased by the foreign partner to be sold in global markets, the

Chinese would set up a plant with twice or thrice that capacity. The

additional production would be sold as look-alikes.

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China's counterfeit culture has become so predominant that certain

estimates indicate that two-thirds of products sold in its domestic markets

are fakes. Since it is difficult to differentiate the real from the fake -- as thesame firm could manufacture them.

But what is not an exception -- in fact, it is a planned strategy -- is the

endeavour among Chinese companies to use the smuggling routes and

loopholes in the legal system to evade duties and, hence, reduce prices.

Nepal is a good channel. The porous border with India has resulted in

organised smuggling channels. Also, the trade treaty between the two

countries enables free flow of goods at low duties if the Nepalese exporter

has achieved a minimum value addition.

The import duty on plastics goods coming from Nepal is 15%, but the

government gives a rebate of 75% if the goods are made locally. That

implies that the effective duty is less than 4% and local manufacture is

defined in terms of value addition." By that logic, if a Nepalese trader under

invoices the price of imported goods from China and sells them at the

original price to an Indian party, he can easily fulfill the value-addition

norms. And, thus, pay a lower duty.

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The third phase

During the 90s the Chinese government took some unpopular but steps to

further enhance the growth of China and preventing it from losing its steam.

This steps included:

1. since 1995, China has laid off 5 million workers, a fallout of its

decision to shut loss making SOEs.

2. Chinas pink slip will continue for the next 3 to 5 years; the Chinese

is sticking to its 1998 policy of grasping the large and realizing the

small

3. thus it will help large and profitable SOEs turn into conglomerates

4. also it will either sell or lease the smaller ones to the private sector,

encourage them to merge with others of their type in effort to turn

viable or allow them to go bankrupt

5. Also unlike India, which is still waiting for the foreign direct

investment to fund infrastructure projects, China began work on this

critical sector using resources mobilized locally. For example:

almost 80 percent of the investments in the telecom sector, have

come from the domestic sources.

6. In order to make sure that it is able to pay the $180 billion loan in

foreign debt China had made it a point that the currency was not

devalued since 1994.

7. Since 1998 more than 1000 branches of unprofitable banks have

been closed down

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8. The privatization of welfare is another Chinese initiative. Education,

housing, healthcare, and unemployment benefits, which were earlier,

delivered through the decaying SOEs is now being privatised.

The current scenario:

After we have looked at the evolution and reforms through which china has

gone through from 1979 till date, lets see as to where does China stand and

what it has gained due to the reforms. What is the current situation as

regards to the economic position of china, the different types of laws

applicable and such other things?

China's economic reforms and open investment policies have contributed to

a surge in economic growth. From 1979 to 1999, China's real GDP grew at

an average annual rate of 9.7%, making it one of the world's fastest

growing economies; real GDP growth in 1999 was 7.1%.

A significant share of FDI in China comes from overseas Chinese,

especially Hong Kong and Taiwan. At present The United States is the third

largest investor in China. Major U.S. corporate investors in China include

Motorola, Atlantic Richfield, Coca Cola, Amoco, Ford Motor, United

Technologies, Pepsi Cola, Lucent Technologies, General Electric, and

General Motors.

China has quickly become a major world trading power. Total Chinese

trade (exports plus imports) rose from $21 billion in 1978 to $361 billion in

1999; over this period, China's ranking as a trading economy rose from

27th to 10th. The World Bank projects that by the year 2020 China will

become the second largest trading economy.

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According to a report by Chinese government the countrys productivity

has been growing by 5 percent a year for the last 2 years. Its export was an

impressive $250 billion in 2000-01, and its imports touched $225 billion

the same year. Its forex reserves were a comfortable $165 billion.

China became the largest source of Indian imports, overtaking the US, andbilateral trade grew 33 per cent in 2008 over the previous year, to nearly$52 billion, despite the economic slowdown. Imports from China almostdoubled to $24.16 billion in April-December 2008-09 over the comparableperiod of 2006-07, and now account for a little over 10 per cent of Indiastotal.

So, will the Chinese deluge leave a trail of destruction in its path? Are thebusiness linkages being created bad for Indias strategic interests?Officially, the heads of Indias trade lobbies fuelled the China bogey, evenas many of them as entrepreneurs rushed off to find Chinese suppliers. Andwhy not? The ground realities indicate that Indian industry is a bigbeneficiary.

Consider this: Almost half of Indias imports from China consist of capital

goods crucial for the manufacturing and infrastructure sectors. There is

robust demand from user industries such as power, automobiles and

electronics (which account for more than half of Indias imports)and cost

is not the only consideration

The Chinese are gaining a name in quality and sophistication.

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China Makes Claim To Lead World Economies

Based on claims from the Chinese government, which should not be a

revelation to anyone given their source, the economy of the worlds most

populous nation has begun to turn around. That would put it several

months, if not quarters, ahead of the worlds other large economies. If the

pretensions are correct, China has the opportunity to make a real claim for

its role as the critical driver of global GDP.

The countrys leadership has already made the case that its semi-regulated

approach to fostered growth has trumped the corrupt and greed-driven

financial engines in the developed world which has been, in Chinas view,

the primary source of the erosion of the worlds credit system. It would

have the world believe that its economy is simply more robust and resilient

than those in the US, Japan, the UK, and EU.

Crude oil imports into China hit a one-year high last month, a sign of strong

demand in the industrial and transportation sectors. Car sales also hit a

record in March. The central government said, in addition, that its

manufacturing sector grew last month for the first time since October.

While Chinas GDP may not do as well as the governments stated goal of

8%, any number above 5% in 2009 would be impressive when compared to

the contraction in the West which looks like it could last through the entire

year.

If China is recovering faster than other countries from the global downturn,

one reason may be that its stimulus package of $585 billion is better

designed and better implemented that those elsewhere.

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A superior stimulus package, even one applied to the economy almost

perfectly, does not let China lay claim to being better able to maintain GDP

growth than other large nations. Stimulus packages like the ones being

employed now in most large countries only come along every few decades.They are not a reasonable basis on which to measure which nations are the

most commercially and financially robust over long periods.

Chinas boasting cannot be based entirely on exports either. Chinas trade

partners are simply too weak for the country to look to what it can

manufacture and ship abroad as the source of a fast and broad-based

recovery.

China at least has the potential to have the largest middle class in the world

because it has 1.3 billion people. Since a large portion of the population is

still rural, the process of creating consumers may only be in its early stages.

If it continues to be successful, China may actually come out of the

recession with a meaningful edge over the US as the preeminent driver of

global GDP, perhaps not in size yet, but certainly in its ability to affect

global economic improvement.

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The overall picture of Chinese competency

In all if to summarise the whole cost and advantage, which China has overother countries, which shows it leadership can be done through the

following points:

1. Government vision and leadership to make China an industrial

power along with favorable economic policies with respect to

taxation, foreign exchange, low interest rates etc.

2. Chinas government is managing very ably the global financialcrisis, and continuing to deliver to its people a better standard ofliving. Yes, the economy in China is growing more slowly than ithas over much of recent history, at around 7%-8%. But, overall, thecountry continues to bustle as nowhere else does. People still havespring in their step, and the same sense of boundless potential.

3. In China, the government, wisely, takes a much lighter approach to

regulation, always with an eye focused on creating circumstance thatwill lead to new jobs, more activity, and more competition in mostsectors of the economy.

4. Mindset of catering to global markets and deep understanding of

consumer trends and building economies of scale to bring down cost.

5. Providing better infrastructure in terms of power, roads and ports

and removal of any infrastructure related bottlenecks.

6. Creation of support industries such as steel making, machinery,

telecommunication and transportation etc to facilitate the trade andlower the cost of input. Most of the input material is produced within

the country.

7. Low inflation and stable exchange rate.

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8. Low dependence on Oil import as 75% of the country's requirement

is met by indigenous production. This also helps in lowering cost of

raw material and transportation.

9. Cheap labour - The average labour cost in China is below $30 permonth, compared to India where the wages are more than $60-100

per month.

10.Committed labour force with a mind set to work for the nation not

just for individual need.

11.Spread of modern means of education to large population totally

supported by the Government.

12. Presence of large Chinese population overseas who not only became

the first to set up industries by providing much needed capital but

also act as customers in their respective countries for Chinese made

products. Each city in USA boasts of China town where most of the

traditional Chinese products are sold. Once successful they become

available to other ethnic groups through retail chains like Wal-mart

and Kmart.

13. In order to make sure that it is able to pay the $180 billion loan in

foreign debt China had made it a point that the currency was not

devalued since 1994.

14.Since 1998 more than 1000 branches of unprofitable banks have

been closed down

Due to these reasons China is able to produce items at such a low cost. This

is what has contributed to China's emergence as the most favored FDI

destination for transnational companies. 'The Chinese concentrate on mass

markets based on mass production and consumption. They seemed to be

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focused on selling at prices that will create markets and enable the

consumer buy. What really matter, when technologically you do not have

the cutting edge, are factors like affordability and customer convenience.

This is where the Chinese seem extremely focused and dominating theglobal markets.

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Why and where China scores well over India

China scores well on the following consumer dimensionson theinfrastructure front, China has strong PSTN subscription (with a relative

score exceeding 0.8); broadband penetration (as measured by thepercentage of households with service) is also well above the average forResource and Efficiency Driven economies. Unlike India, China is nearthe top in terms of coverage of the population by mobile networks, animpressive accomplishment given the sheer size of the nation.

Chinas performance on the consumer usage front is more mixed.Although it has a relatively high literacy rate, Internet usage is not as highas one might expect given the high levels of broadband penetration. This,however, reflects the fact that in certain higher-scoring countries on this

measure (such as Iran, which scores highly on Internet usage) the primaryaccess modes for Internet are public spaces, rather than at home.

To some extent, Chinas scores (like those of India) in both 2009 and 2008have been adversely affected by the fact that the scorecard computes somany performance metrics on a per capita basis. However, despite theseintrinsic disadvantages, China stands well above India in all measures of basic infrastructure deployment. It is possible that the tyranny ofdividing by a large population base is more of a factor in producing lowscores on the business metrics: but even if this is the case, the fact that

China does so well on consumer infrastructure deployment suggests thatthere is the scope for improving business

To the extent that China retains a command and control economicstructure in place, this structure is well-suited to rolling out infrastructureand coordinating the required investment.

However, there are limits as to how well this approach can work,especially when the demand for infrastructure is so driven by patterns ofusage (as in the business sector). Despite these shortcomings, it should berecognised that China has far outstripped India (the only real comparatorcountry) in mostaspects of Connectivity.

China is at least a generation or two ahead of India when it comes totechnology. China's leaders have been described as Technocrats, havinghigh regard for Science and Technology. China has ploughed its huge

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reservoir of domestic saving about 40% of GDP into some of the bestinfrastructure in the world. And it has been brilliant in attracting massiveinflows of foreign direct investment as the means to acquire technology,managerial expertise, and factories on a scale and with scope that is hard tobelieve. China has, in fact, leapt to the fore as the largest recipient of FDI in

the world some US$53 billion per year in 2002-03. India suffers incomparison basically from having none of the above. China possesses adiversified communications system that links all parts of the country byInternet, telephone, telegraph, radio, and television. System includes someof the most sophisticated technology in the world. R&D for furtherdevelopments are still going on. China is already leading in the hardwaresector in world. It is worlds largest cell phone users of 400 million andworlds largest cable TV subscriber base. It is worlds second largest PCmarket (20 mil/yr).It has 2nd largest internet users with a number of 162million.

China's software industry has been performing well despite the deepeningworld recession. In 2008, software exports reached US$14.2 billion, up39% year-on-year. Services outsourcing grew at an even faster speed of54.3% to $1.6 billion. The growth in the whole year was 6.2 points higherthan in the first 11 months. During the current global recession, due to thedowntown in the manufacturing and export sectors, China has selectedoutsourcing as a new arena for economic growth. While India's outsourcingentered difficult times, China saw opportunities, because India's limitationsare China's strengths. China has abundant IT human resources available atlow cost. The ratio of wages in China is about 1:7 now, a ratio much more

advantageous than that for India. China also provides a safe and stableenvironment to overseas investors: no terror attacks have ever taken placein Chinese cities.

Whereas India is yet to succeed in attracting manufacturing investments,China has been successfully garnering investments in the IT servicesprojects as well as for R&D. This is mainly due to the well-educated andcheap labour force in China. The high influx of foreign investors into Chinahas ensured the high demand for ICT products and services in the country.As per a Feb 2009 Report, The Atlantic Century : Benchmarking EU &U.S. Innovation and Competitiveness from The Information Technology& Innovation Foundation (ITIF), China stands at 33 with 36.0 points whileIndia finishes the last in the list of 40 countries in the world with 21.6points. And when it comes to overall change from 1999 to Feb 2009 onsimilar ranking, China tops the list with 19.5 points while India secured thespot of 14 with 13.6. So these rankings indicate that over the last 10 years,China is becoming competitive and innovative faster and better than the rest

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of the world. And India still lags behind China with wider margin in boththe change as well as absolute rankings.

Government Policies:

Freedom from Internal Control:

In China, citizens need to fill out paper works in the local policedepartments where they relocate to a new place. This requirement formigrate workers to file documents enable the central census bureau toconduct their survey in population and overall economic statistics.However, citizens are free to create their wealth anywhere else in thecountry.

Education:

Chinas school life expectancy is 11 years (2006), It is a quarter shortercompare to the U.S 15-16 years (2006), The total number of graduates fromcolleges and universities in 2004: 2.8 million, which is about 25% of thetotal high school graduate population. Number of Students in Colleges andUniversities is 4.13 million, which is about 33% of the total young adultpopulation. In contrary, the education quality is pretty good in China. AndChina has some historical and world famous universities, for instance,

Beijing University, Tsinghua University and so on.

Freedom from Outside Control:

Undeniably, China is one of the strongest countries in the world, thecountry does not facing any threat from other countries, Chinese citizensare only under Chinas jurisdiction. And as mention in the beginning,Chinas military spending accounted for only 1.4 per cent of its GDP,compared to 4.6 percent for the United States, and more than 2 per cent forFrance and the United Kingdom.

China (starting from the same level as India in 1978) achieved a more thantenfold increase in its output in the 27 years to 2005.Indias currenturbanisation rate of 29% is still very low compared with 81% for SouthKorea, 67% for Malaysia and 43% for China. Rural-urban migration inIndia has the potential to accelerate to higher levels as, judging by theexperiences of other countries, the pace of migration tends to accelerate

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after a critical level of 25%-30% urbanisation is reached, and due to fastereconomic growth.Urbanisation is spurred by both push and pull factors. Deterioratingagricultural productivity, caste barriers and unemployment in villages push

rural inhabitants out, while better opportunities in cities, very high growthin the construction industry and demonstration effects from other migrantspull rural workers into urban centres.

Chinas Investment Boom: The Great Leap into the Unknown

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A brief comparison of some important factors is given below:

Comparing criteria China India

GDP Based on PPP

$7.8 trillion (2008est.)country comparison

to the world: 3$7.104 trillion (2007)$6.475 trillion (2006)

$3.267 trillion (2008est.)country comparison

to the world: 5$3.065 trillion (2007)$2.812 trillion (2006)

Real GDP$4.222 trillion (2008est.)

$1.237 trillion (2008est.

GDP Growth rate

9.8% (2008 est.)country comparison

to the world: 813% (2007 est.)11.6% (2006 est.)


to the world: 419% (2007 est.)9.6% (2006 est.)

Per capita income(PPP)

$6,000 (2008 est.)country comparison

to the world: 132$5,500 (2007 est.)

$4,900 (2006 est.)

$2,800 (2008 est.)country comparison

to the world: 168$2,700 (2007 est.)

$2,500 (2006 est.)

GDP-sector wise

agriculture: 10.6%industry: 49.2%services: 40.2% (2008est.)

agriculture: 17.2%industry: 29.1%services: 53.7% (2008est.)

Labour force

807.7 million (2008est.)country comparison

to the world: 1

523.5 million (2008est.)country comparison

to the world: 2

Labour force byoccupation

agriculture: 43%industry: 25%services: 32% (2006est.)

agriculture: 60%industry: 12%services: 28% (2003)

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Unemployment rate

4% (2008 est.)country comparison

to the world: 46

4% (2007 est.)


to the world: 857.2% (2007 est.)

Population below povertyline

8%25% (2007 est.)

Exchange rates

Renminbi yuan(RMB) per US dollar- 6.9385 (2008 est.),7.61 (2007),

7.97 (2006),8.1943 (2005),8.2768 (2004)

Indian rupees (INR)per US dollar - 43.319(2008 est.), 41.487(2007),

45.3 (2006),44.101 (2005),45.317 (2004)

Foreign direct investmentabroad

$139.3 billion (2008est.)country comparison

to the world: 21


to the world: 29

Foreign direct investment

at home

$758.9 billion (2007est.)

country comparisonto the world: 6

$142.9 billion (2008est.)


External debt

$420.8 billion (31December 2008 est.)country comparison

to the world: 20

$163.8 billion (31December 2008 est.)country comparison

to the world: 27

Forex and gold reserves

$2.033 trillion (31December 2008 est.)country comparison

to the world: 1

$250 billion (31December 2008 est.)country comparison

to the world: 5

Imports

$1.156 trillion f.o.b.(2008 est.)country comparison

to the world: 4

$287.5 billion f.o.b.(2008 est.)country comparison

to the world: 17

Exports $1.465 trillion f.o.b.(2008 est.)

$175.7 billion f.o.b.(2008 est.)

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country comparison

to the world: 3country comparison

to the world: 28

Current account balance


to the world: 1

$-38.39 billion (2008est.)


Industrial productiongrowth rate


to the world: 11


to the world: 64

Inflation rate(consumerprices)

6% (2008 est.)country comparison

to the world: 1014.8% (2007 est.)


to the world: 1276.4% (2007 est.)

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India

Introduction

India always was way behind to realize the need of opening up its economy

for better competitiveness. This is because India was 13 years late in

announcing and adopting the open door policy, which China announced to

the world in 1978 at the 11th peoples congress.

Lets have a look at the reforms, which India underwent after the opening up

of its economy in 1991

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Economic reforms in India

The first decade (1991 2001)

1991

1. new industrial policy announced

2. foreign investment upto 51% in select industries allowed

3. PSU reservel list cut from 17 to 8

4. FIIs allowed to invest in market

5. PSUs brought under SICA

1992

1. Steel industry decontrolled

2. Wealth tax abolished

3. free pricing of IPOs allowed

4. 100% equity in core sectors like steel, telecom and power permitted

5. five year EXIM policy announced

1993

1. companies act amended

2. rupee made convertible on trade account

3. excise duty simplified by merging special and excise duty

1994

1. private Telcos allowed to compete with state owned companies

2. lending rate deregulated

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1995

1. modified trading-forward system allowed

2. insurance regulatory body mooted

1996

1. 74% foreign equity in 9 industries and 51% in 16 more permitted

2. minimum alternated tax (MAT) introduced

3. corporate surcharge cut from 15% to 7%

1997

1. coal sector privatised

2. maximum income tax rate cut to 30% and corporate tax to 35%

3. restrictions on import of 69 goods lifted

4. new takeover code approved

1998

1. FII investment in treasury bill cleared

2. FDI norms under automatic route simplified

3. trading in derivatives by FIIs cleared

4. norms on foreign equity participation in airline sector overhauled

5. 100% FDI in cigarettes allowed

6. 74% foreign equity cap announced for TV software companies

7. upto 40% FDI in private bank allowed

8. ISP policy free tariffs, allows private gateways

9. insurance patent forms cleared

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1999

1. IT ministry launches a 100 crore VC fund for start-ups

2. IRDA ( insurance regulatory & development Act) bill passed

3. foreign exchange regulatory act replaced by the foreign exchangemanagement act.

4. department of disinvestments created to oversee the issue of

privatisation of public sector enterprises

5. excise rate slab cut from 11 to 3. mainly consisting now of 8%, 16%

and 24% slab.

2000

1. VC companies made exempt from income tax as well as dividend

fund

2. Minimum daily requirement for maintaining cash reserve ratio

balances slashed from 85 to 65%

3. Inter-bank gold trading by banks allowed

4. Scheduled commercial banks allowed to float insurance subsidiaries

5. Special economic zones to be created with 100% foreign equity

quantitative restrictions (QRs) on 714 tariff lines at the 8-digit level

lifted

6. Single-window clearance for import of capital goods at a flat rate of

5% announced

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After India opened up its economy in 1991 things did look good for 2 years

in the middle of 1990s when the economy grew by over 7 percent in both

years, but it soon returned to where it was before. The Indian economy

grew by an average of 6.4% in the first decade after reforms (1991 2000).Today the most cheerful estimates put it at 6% and both the industrial and

agricultural sectors are on the downward spiral

If you see at the reforms, it can be easily noticed that the reforms are world-

class. They have been properly thought about and it is seen that justice is

done to everybody.

But the main problem lies in the implementation of the reforms in the right

spirit. As a result of which even though we have a well planned and laid

down reforms and procedures, the intended and the required amount of

changes and development are not taking place.

But in India, people feel unsecured to do something different and also do

not want to get exposed to the competitive environment even if it means

that one day they have to shutdown their shops and face doom.

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Law, rules and regulations

One very important reason due to which investors are shying away from

India is due to its labour law, which is not at all flexible as compared to that

of China.This can be demonstrated through an article published in the times of India

'Indian labour laws keep away investors'

Foreign Direct Investment (FDI)

This is one area where most of the problems of India lie. The way in which

India looks at FDI is the total reverse in the way China looks at it. In case

of India, there was no realization or a need felt to make sure that there is a

constant inflow of FDI in the country.

There has always been hesitation on the part of the government as far as

welcoming FDI is concerned. There is no clarity of vision among the

leaders. Also, FDI approval in India is done at the central level while the

implementation is left with the state government. There is a huge gap

between approvals and inflows as there is no mechanism for either proper

delegation or monitoring the implementation.

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Poor inflow rates

0

5000

10000

15000

20000

1991 1993 1995 1997 1999 2000

Years

US$Million

Aproval

Actual inflow

Fig.3

From the graph it can be seen that even though foreign companies are ready

to invest in India, the legal hassles take so much of time that by the time the

application of the concerned company has passed, they have already lost

interest to invest in India.

India ranks high on intent but low on content because government fails to

attract FDI by not showing advantage of investing in India. Also the

procedural delays for the sanction lead to a very less amount of inflows into

the country as opposed to those who had initially desired to invest into

India. As a result the approval to actual inflow of FDI in India is very low.

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To further make it clear as to the flow of FDI into the country, here a look

at the next figure.

FDI inflows in india

0

10000

20000

30000

2001

-02

2003

-04

2005

-06

2007-08

Years

US$Million

Fig. 4

It can be clearly seen that there was a gradual increase in the flow of FDI

from 2001. This was mainly because of the opening up of the economy and

the strong support given by the government towards the upbringing of the

economy and the reforms, which were intended to be undertaken through

the inflow of foreign investment.

.

The share of flow of foreign funds in India as compared to Asia and the

developing countries is shown in the figure.

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comparison of flow of FDI

0

10

20

30

40

1991 1993 1995 1997 1999

Shareinworld

FDI

Developing countries Asia India

Fig. 5

The graph clearly shows the position of India as compared to Asia and

developing countries as a whole is much lower and is as good as non-

existent. The share of Asia and developing countries is high mainly due to

the contribution of FDI in china, which is the largest attractor of foreign

funds in developing countries.

After a decade of opening up of the economy and the liberalized reforms

undertaken, lets have a look at the economic indicators and how it is at

present

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Impact on India

Now that we have looked at the reforms undertaken in both countries and

what gives China the upper hand, lets take a look as to what this has done in

respect of the impact created on Indian industries.

The impact can be shown with the help of some articles, which were

published in the national newspapers recently.

Economic Times

Textile

For now, its advantage China!

IF EVERY inch of India Inc is cowering before the hidden dragon, can the

desi wardrobe be immune? Indias ready-to-wear garment industry is facing

tough competition from China, which has emerged an important sourcing

base for international brands and retailers in the Asian region because of its

comparatively cheaper costs.

This helps the Chinese sell their garments 40 per cent cheaper than Indian

companies. It seems India has just not been able to compete with China on

pricing, and China has been able to keep its price-quality balance to its

advantage.

A year ago, China produced 10 billion garments and 5.2 million tonnes of

synthetic fiber. Indias export of readymade garments, on the other hand,

touched 1.5 billion pieces valued at $5.3 billion.

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Example of first mover advantage and future oriented thinking

The Indian tractor industry is yet to come up with low horsepower tractors

that may be suitable for the eastern and northeastern region. A Chinese firmis selling such tractors priced between $800 - $1000 a price that last for ten

years. It does not pose a severe debt to the farmer. On the other hand, our

farmers need the support of NABARD if they want to buy Indian tractors.

Information Technology

IT race: Gushing dragon leaves elephant panting

Recent Gartner figures of hardware and software growth in India and China

shows how our agile neighbour has managed to outstrip 'IT superpower'

India.

Take hardware, for instance. Chinas hardware market in 2000 was almost

eight times as big as Indias. While China had hardware sales worth $16

billion, India managed only $2.2-billion hardware sales.

Last year the Chinese hardware market grew 17.8 percent as compared to

Indias 6 percent growth rate.

Furthermore, in the hardware business, local players dominate China,

unlike in India where unbranded grey market and MNCs rule the roost.

Chinas PC-maker Legend, which has more than 80 per cent domestic

market share, happens to be Asias largest PC-manufacturer.

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Electronics

Polar prefers the dragon as an ally

With the cheap Chinese imports pervading the domestic market, Polarindustries has decided to ward off threat and join hands with the chinese

counterpart.

polar is importing fans from china and selling them under its flagship

brand, "Polar Mistral". Ashok tiberwal, chairman of polar industries said"

of course, we are reaping full advantage of the cheap manufacturing base

available in china. we have laready joined hands with a number of chinese

manufacturers. our technical teams regularly visits china and updates the

manufacturers about our latest needs.polar is thus getting the chinese tailor

made products to its own requirments. the company has already imported

fans almost worth a crore over the last 4 months, which have seem to met

with a good response in the domestic market.

Business today

Ajanta clocks, the worlds largest clock manufacturer first considered

shifting its entire manufacturing operations to China, then, gave up that idea

and is now considering the idea of getting out of the business altogether.

This is because of the many advantages, that China has over India, which

includes

1. raw material being cheaper by about 20 to 25 percent

2. electricity is cheaper by 50 percent .

3. because of the excellent infrastructure, there is little need to maintain

inventory, which reduces the overhead cost.

4. also since there is an hire and fire policy and workers are paid

according to their productivity, the wage bill is very low.

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MAIT Report

India is very strong in software, but the main concern is that China isinfrastructure ready and for it to leapfrog to software will not be difficult.

In fact the lack of a hardware base has threatened to take the steam out of

India's software run. And now, China is set to invest $5bn internally in

software spending, he adds. According to industry reports, China is well

on the way to becoming an IT superpower. Vis-a-vis India, the trends are

disturbing.

China has 125 million telephone lines compared to India's 30 million, 70

million mobile phones to India's 2.5 million and 22 million internet

subscribers to India's 1.5 million. Its international bandwidth is already 1.2

giga bits per second compared to India's 860 mega bits per second.

Beijing is also aggressively laying fiber optic cables throughout the country

and upgrading its backbone with the latest 3G (third generation mobile)

technologies and is expected to surpass the US as the world's largest mobile

telecommunication network by 03. It is also setting up its own Integrated

Circuit valley as also a notebook zone.

The MAIT report observes that China is the third largest IT hardware

supplier in the world. The total turnover of the IT industry is expected to

cross $46.1 billion in 01, an increase of 36.8 per cent over the previous

year.

Hardware exports are likely to increase by 30 per cent in 01 and software

sales are also likely to register an increase of 31.7 per cent from 00 ($3.6

billion in 01).

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Other Areas

Apart from this Chinas impact will also be on industries like calculators,bicycles, stationery like pencil sharpeners, herbal medicines, bikes, glass

products and now colour televisions.

The reasons why China has an advantageous position is

1. the reforms undertaken by the government which give them better

productivity and lower price as already mentioned earlier

2. the characteristics of such products are that they involve standard

technologies but highly skilled labour. The labour in China is

relatively more skilled than their counterparts who produce such

goods elsewhere in the world.

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Industries facing the Threat

Now lets have a look at the industries, which are suffering, due to theadvantageous position of Chinese industries.

Most of the goods manufactured by China in which it has an upper hand

require a major portion of labour efforts. In India all such goods are mostly

made by small-scale industries. These are industries, which have a very

small startup amount. They produce the goods and either supply it to some

bigger companies or sell it in the local market. Now these are the small

companies which are going to get affected the most due to the entry of

Chinese goods in the Indian market.

The small-scale industry in India is the largest employer of people as it is

highly people oriented and very little amount of technology is used. Also

they contribute to about 30-40% of our exports to foreign countries.

Therefore they are very important and play a very significant part of the

growth and prosperity of the country. This Industry is either under threat or

facing stiff competition of cheap imports from China. It is really a matter of

concern for everybody in the country

The people in this industry are of the opinion that they too can compete

with China if input costs are also brought down to their levels. It claims that

Chinese products are cheaper by 10-70 per cent compared to similar Indian

products The Indian small sector also makes very competitive products, but

the fact that Chinese businessmen get capital at lower interest rates and

their electricity and freight charges are much lower than ours help them

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price the goods better. Given a similar business environment, they can take

on China any day.

Also they claim that Chinese goods though cheap cannot compete withthem on the quality front. The Chinese cycles, fans and other products can't

claim to be superior in quality that ours. They are just priced better. Though

the Chinese threat will fizzle out in a few months, the small sector needs

support to see it through this period.

Recently, a FICCI survey on Chinese imports stirred a hornets nest. Thesurvey reports a surge in imports from China in categories like food items,light and heavy engineering goods, chemicals and metal products.

Why small-scale industry is facing this stiff competition, can be explained

as follows:

The operating scenario for Chinese businessmen: The government has set

up export zones with extraordinary infrastructure facilities, importing the

latest machinery, buying raw materials in bulk from the world markets in

slump, giving export incentives and making bank loans available at 4-6 per

cent. In contrast, the Indian businessmen claim to be working with power

cuts, high-interest bank loans, expensive raw materials, bad infrastructure,

high transportation charges and a corrupt system. Imagine what that has

done to our costs. All this is making us the SSIs uncompetitive against the

Chinese.

The managing director ofAshok Leyland, Mr. R. Seshasayee was of the

opinion that, One half of the industry, which is unfortunately the small-

scale industry, is very vulnerable. But the organised industry will probably

not face such a serious threat, for two reasons.

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The organised industry is capable of delivering more competitive products

because of the fact that there is a greater degree of technology, access to

market and distribution channels are available to them. So, they will fight

and come out.

But the unorganised small-scale industry, where there is negligible use of

technology and which is starved of finances and the necessary strength to

fight a brand-battle, will be most adversely affected.

The organised industry will have to recognise that China is capable of mass

production at lower prices in comparable quality. A combination of big

production volume, huge market size and different labour laws has made

this possible. The state pays 50 per cent of the labour costs one-way or the

other.

It is very unfortunate because this sector is employment intensive and the

sickness in this can have a domino effect.

Extended impact

The impact can also be seen in other sector like the IT industry where India

boasts of a good percentage of growth and where India is suppose to have

an edge. But China, which invests heavily in education and boasts of 100

per cent literacy levels, could well surpass India as a global software

producer soon.

In any case, domestically China consumes four times the software as India

does already. It is pointless for mantris to waffle on about Indias so-called

potential to become a global IT powerhouse. With a government in terminal

drift, such aspirations could well turn into pretentious nonsense.

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Chinas well-documented lead in education, infrastructure and IT also

add up to something more fundamental than leadership in the IT sector

alone.

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INDIAs current situation

Growth has continued to slacken to under 8% by the second quarter of2008. Inflation is high, driven by commodity prices, but the peak appears tohave passed. The current account deficit has risen substantially and there is

downward pressure on the exchange rate. The economy is projected to slowfurther over the next year and to recover in tandem with the world economyin 2010.

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Whos buying from China

The power sector is a prime example. Over the last couple of years, Chinesesuppliers have made deep inroads into the power plant equipment market inIndia, riding on the back of Indias huge requirements for power generationand inability of local companies to meet the growing demand. In India,

power generation companies face regulatory pressure to keep tariffs low.Most companies pursue a dual strategy to achieve this. First: Fasterexecution of projects to prevent cost over runs, which can only be donewith timely delivery by the equipment maker. Second: Reducing the cost ofsetting up the power plant itself. On both counts, Chinese companies scoreover their Indian counterparts. Chinese suppliers like Dongfang ElectricCorporation, Shanghai Electric Corporation and Harbein ElectricCorporation dont just offer lower costs, but have shorter delivery periods.On quality parameters, too, Chinese companies set high standards. SaysS.L. Rao, Director, Reliance Power: With private sector entry into

infrastructure in India, there is a demand for cheaper and good quality plantand equipment, especially because their bids are based on competitivetariffs. China can give them supplies, low prices and quality. For instance,Chinese suppliers specialise in producing highly-efficient supercriticalequipment. Reliance Powers Ultra Mega Power Project (UMPP) in Sasanis committed to delivering power at Rs 1.20 per unit only because it willhave supercritical boilers. Using such Chinese products, which require lesscoal to produce electricity, is helping power companies such as ReliancePower and Adani Power bolster their performance.The auto industry, too, has been a major importer of Chinese products.

Imports of original equipment manufacturer (OEM) components fromChina have grown at a CAGR of 100 per cent over the past three years. Infact, imports from China now constitute more than 10 per cent of the totalcomponents imported, up from 1.5 per cent in 2003-04. Several leadingmanufacturers, such as Tata Motors, Bajaj Auto, Ashok Leyland, Mahindra& Mahindra, TVS Motor and Ford Motor India, are already sourcingimportant components from China. Thats not all. Indian companies arenow setting up purchase offices in China and are sourcing tyres, wheel rimsand shafts in bulk from Chinese firms.

Indias imports from China of automotive components have jumpedexponentially from Rs 100 crore in 2003-04 to Rs 2,200 crore in 2007-08.Cost is certainly an important driver of this surge in imports. The landedprice of Chinese components is, on an average, 30 per cent less thancomponents sourced locally, according to Automotive ComponentManufacturers Association of India (ACMA) estimates. But theres more toit, according to industry experts.

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Says Dilip Chenoy, Director General, Society of Indian AutomobileManufacturers (SIAM): The increased presence of Chinese auto productsin the domestic automobile sector has been largely attributed to bettertechnology and superior quality. Moreover, Chinese auto partsmanufacturers are producing specialised components, which are not

available in the Indian markets.

image

Consumer electronics and durables majors in India have also begun tosource from China. Components such as resistors, capacitors, fly back

transformers and rotary compressors along with end-user products likeplasma TVs, LCDs, high-end refrigerators, microwaves and split airconditioners are all being imported from China. And almost all the majorplayers are doing itPhilips, Onida, Voltas, Whirlpool and others.

This surge in imports is an outcome of several factors. An important reasonis the capacity constraints among domestic suppliers. In some instances,companies have their own manufacturing units as well, but still have todepend on imports. Voltas, for instance, has a plant in Pantnagar,Uttarakhand, which manufactures 300,000 units of ACs. The company,though, is targeting sales of 500,000 this fiscal and will import the shortfallfrom China.

Says Pradeep Bakshi, VP (Marketing), Voltas: We get a wide range ofmodels in China. The domestic suppliers just dont have the capacity tomeet our requirements. On quality and cost parameters, too, Chineseproducts stand out, say industry sources. Arvind Uppal, Region Head (AsiaSouth) and MD (India), Whirlpool, says: We have found that Chinesecompanies do meet the specifications we set.

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World Trade Organisation

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WTO and China

There has been a lots of hype created over the much anticipated entry of

China into WTO. For many companies this would mean an opening of ahuge market on a liberal policy basis and many such factors.

Lets have a look at the implication of Chinas entry into WTO on WTO,

other countries and importantly, over India.

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What does it mean for India?

Advantages

On the positive side, Chinas entry into WTO may provide some relief to

the Indian industry. As a member of WTO, China will have to abide by the

multilateral rules and the agreements and make its policies transparent. All

these may lessen the anxieties of the Indian industry about infiltration of

exceptionally low cost products from China into the Indian market. China is

likely to lose several of its existing advantages in the process of being WTO

compliant.

Substantial lowering of tariffs, reduction of subsidies etc should provide

significant opportunities for accessing the Chinese market. Removal of

quantitative restrictions (since China is not a country with BOP difficulty)

is also expected to widen export opportunities. Further, with transparent

economic and trade policies, it should be easier for the Indian industry to

understand this complicated and vast market, establish their presence and

develop long-term strategy.

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Disadvantages

This has a very significant implication for India. As a transparent and

compliant economy, China may be more attractive to the investors from theUSA and the EU. Currently, bulk of the FDI flow to China comes from the

expatriate Chinese. To the foreign investors, China may be much more

preferable ground to invest compared to India.

China will also be entitled to greater market access opportunities in the

global market. It will surely make every effort to secure higher share of

world trade. This will mean that Indian industry should be prepared to face

stiffer competition from China in the world markets.

China has two distinct and significant advantages that the Indian industry

does not have:

1. China has the advantage of mass production and large volumes.

2. China has a unique advantage of efficient port infrastructure that

gives the benefit of large volume shipments ie low freight cost.

Indian industry will have to contend with such realities.

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Counter Acting Strategies

It is believed that in times to come Indian industry will face tough

competition from China in terms of cost, quality and economies of scale.Indian companies need to take serious view of domination of Chinese

manufacturing based on cost leadership while looking into the future. It can

spell doom or end of the road for manufacturing sector in India - more so in

open trade regime of WTO, which China is going to be part of.

Indian industry needs to learn to take cognizance of this factor, not by

asking for Govt. help in terms of protection, but by creating world-class

organisations in terms of cost, quality and product innovations. Indian

industry is still reeling under the hangover of protected regime but now it is

time to get up from deep slumber and act before it is too late, as has

happened in many industries especially in the consumer products, which

were reserved for the small-scale industry.

Competition from Chinese products have given rise to anxiety in many

countries but not many countries are complaining and responding the way

we are. On the contrary most of them are taking this as an opportunity and

building strategies to take advantage out of it.

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Here are some of the strategies for Government and Indian industry:

Strategies for Indian Government

1. rather than resorting to anti-dumping and non-tariff measures, which

will be retrograde steps in the long run, Government should allow

free competition and create favorable economic scene.

2. the Government has to modernise labor laws and bankruptcy laws.

3. de-reservation of products that are currently reserved for the SSI.

4. removal of infrastructure bottlenecks by allowing free flow of

foreign capital into roads, power, ports, tele-communication.

5. allowing local players to compete by providing level playing field in

terms of availability of capital at low interest rates and lowering of

excise and other duties and lowering taxes.

6. to improve the efficiency by allowing foreign companies in all major

sectors of economy.

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Strategies for Indian industries

a) Face the competition head on

Indian industry must recognise that the only way to fight competition is bycutting costs and improving quality. This needs to be done at the company

level by focusing on efficiency in the use of factors of production.

Currently Chinese are dominating the lower end of technology-based

products by producing them at 30-40% cheaper than Indian industry. Indian

industry should evaluate the strength and weakness of each industry in

comparison to China. They should move vigorously to knowledge-based

industries where India still has an edge due to spread of English and

technically qualified workforce.

The Indian industry should constantly look for industry where they still

have an edge over China and create world-class organisations offering

innovations. They should also tie up with organizations all across the world

to block them before they cross over to China.

They should develop industry with world as a focus rather than

concentrating on domestic market. For example, India has a well-developed

automotive parts manufacturing industry. They should start talking to

automotive manufacturers all over the world to become favored suppliers

by offering quality products at unmatched cost by leveraging on economies

of scale. The highly skilled manpower of India can be utilised in upcoming

industries like Pharmaceuticals, Software, Biotechnology and education

which are more research based industries. To combat Chinese invasion,

Indian industry needs to create a new mind set of thinking about world as a

market and developing strategies around it.

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b) Collaboration and tie up with Chinese companies

If you cannot beat them, join them. This what many Indian companies have

done to ward off the stiff competition from Chinese products. Instead of

lobbying to keep them out, companies like Bajaj Electricals are switchingover to Chinese manufacturers to source products for the Indian market.

Bajaj Electricals is bringing in a range of products - irons, toasters, fans,

and ovens at a rate 30-35% cheaper than those manufactured within India.

Baron international has tied up with TCL, a major home appliances

manufacturers in China to market products in India. Haier, another major

appliances manufacturer has set up a joint venture in China. Konka is

another example of Indian industry collaborating by setting up joint venture

to take advantage of opportunities offered by Chinese companies.

There are many similar companies looking eagerly towards India. It is time

for India to tap them, develop skills offered by them, and become a player

in the global markets

c) Setting up bases in China

Indian industry can set up bases in China like many transnational

companies have done to take advantage of favorable economic conditions,

better infrastructure and huge domestic markets. The world's single largest

clock maker, India's Ajanta, has decided to invest in a manufacturing

facility in China. Ajanta has realised that China is a cheaper and better

manufacturing host than India. Essel packaging in another Indian company

which started a packaging unit in China. Ranbaxy too has set up units in

China and Vietnam. Many of the well established Indian companies who

are looking outward for markets to improve the economies of scale should

follow above example.

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Critical steps in making infrastructure leadership a strategy for

sustainable development of India

A2:- India initiated an ambitious reform programme, involving a shiftfrom a controlled to an open market economy showing signs ofoverheating because of basic infrastructure constraints, both physical andhuman. So far, the bulk of infrastructure was in the public sector. Publicsector in India operating in a protected set up has been largely subsidisedby the Government. Since the launching of reform, Governmentis trying to reduce its borrowing which means that further subsidization will

not be possible. There is one area where there is a need for private sector

and foreign investment to come in. Because of the long gestation period,

and many social implications, the infrastructure sector compares

unfavorably with manufacturing and many other sectors. For this, specific

policies in this area are need to make infrastructure attractive. Clearly, there

is a wide gap between the potential demand for infrastructure for high

growth and the available supply. This is the challenge placed before the

economy, i.e. before the public and private sector and foreign investors.

This can also be seen as an opportunity for a widening market and

enhanced production

The six core and infrastructure industries, viz., electricity, crude oil,

petroleum refinery products, coal, steel and cement, having a weight of 26.7

per cent in overall Index of Industrial Production (IIP). Several fiscal

incentives were announced by the government for boosting investment in

infrastructure projects. Ten-year tax holiday offered to projects in core

sectors like roads, highways, waterways, water supply, sanitation and solid

waste management systems can now be availed of during the initial 20

years. Projects in airports, ports, inland ports, industrial parks and

generation and distribution of power can now avail of 10-year tax holidays

during the initial 15 years

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The Critical Steps:-

A-A Strong Government with Clear direction

"Once committed to a focus on economic growth, some good policydecisions were implemented quickly and efficiently While India's

corporate leaders agree that this could be true, they are emphatic that India'svibrant democracy is the only way for the country to ensure that growth anddevelopment reaches all.There is chaos in it and sometimes policy decisions tend to be reversed. But

ultimately India's democracy is essential for the country's welfare,

But come what may any party Govt. may come or go but the direction of

development of Infrastructure may not be altered.

B- A consistent and thoughtful marketing effort

We need to sell India. A USP is what is needed.

India's corporate leaders agree that the country's politicians have never sold

the country.

Much of the investment flowing into the country today is on the back of

India's reputation as a place for skilled people who have proven themselves

in the information technology services sector.

C-Bringing in the Money (FDI and Private Participation)

. The importance of infrastructure sector also follows from the fact thatforeign investors are now looking at infrastructural development as ayardstick for directing their investments. In fact infrastructuraldevelopment had taken precedence over wage levels in assessing theinvestment potential in developing countries. In India infrastructure sectoritself is becoming an attractive investment area for FDIs.Already there is a huge demand for funds from the manufacturing sector.

On top of that is the demand from the infrastructure sector. Both draw

heavily from the savings of the household sector. The growth of financial

savings of household sector however is not rising fast. In this context, the

importance of increased obligation of domestic saving needs underscoring.

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According to the India infrastructure Report (IIR)2009 (Q2), currently 3.5% of the GDP is invested in the infrastructure sector. Infrastructureinvestment in the region of US$500bn is being planned between 2007 and2012 under the government's 11th five-year plan. Of this, utilities willreceive the largest portion with US$167bn, roads will be allocated

US$92bn, railways US$65bn, ports US$22bn and airports US$8bn. Thegovernment envisages 30% of the total amount in the plan to come fromprivate sector companies through public private partnerships (PPPs).However, the global economic downturn has highlighted the barriers inIndia's infrastructure sector, which may harm the government's ability toattract private sector participation, especially at a time of risk aversion andtightening access to credit.

D- Creation of zones and infrastructure for businesses

India has tried to do this with its creation of export processing zones andsoftware technology parks.But the problem lies in some key areas like creation of infrastructure andquick approval of investment proposals.More needs o be done

E-. The business-above-all attitude

"In India, trade and economic growth have never been paramount. That hasto change if we need to be a developed economy by 2020India's economic growth has always given in to the sentiments of the local

industry; like in cases where foreign investments have been. curbed orrestricted.Provincial and local governments control the vast majority of capital-

hungry enterprises, and that creates an unsolvable collusion between

regulators and the state's ownership interests. This is arguably advantageous

in the early, low-tech stages of infrastructure and commercial development,

but for the future its impact is likely to be less positive

Indian Interests have always to be kept in mind while we do our

interactions with the other dwellings of mother earth.

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Conclusion:- With this a belief that we can infact be business leaders and a

developed country of the world is what can lead us to a strong nation and

lead us to sustainable development.

5 Policy Intervention strategies that can be put in place in India. One

in each for

A) Power

B) Transport

C) Fiscal

D) Communication

E) Agriculture

To make these a Robust & growth oriented

Power

Privatise Distribution

Privatisation of distribution has a couple of advantages. First, the companywill invest in some modern equipment. Second, they will ensure that 100

per cent metering is done and everything is billed. They will also ensurerevenue collection. These things will be better taken care of by privateparties.

Transport

Total Policy focus on this with chalking up a plan (like the Golden

Quadrangle) in terms of the following:-

Railways.

Roads

Ports Air

Four major problems that need to be addressed through policy and

institutional reforms: 1) Unclear or overlapping responsibilities; 2)

Inadequate resource mobilization; 3) poor asset/system management and 4)

Inadequate accountability for service outcomes. A suggested way forward

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is through improved public sector performance and accountability,

increased private sector participation and investment, improving customer-

responsiveness of the core rail business services, focusing a much larger

share of the capital budget on economic priority investments etc.

Communication

The telecom sector is going great guns. Not much has been done wrong

on that front

Internet In spite of frequent claims that the Internet will erode nationalsovereignty, government interest and support is seen to be important bothdirectly and indirectly through its influence on the other factors. Bothgovernments are now committed to the Internet, and we examine changinggovernment roles, primarily the adoption of an ambitious Action Plan inIndia and the consolidation of two key ministries in China. The IndianAction Plan addresses each of our six dimensions, and is designed toelevate India to the level of information technology (IT) superpower. Theimpact of Chinese consolidation is less clear, but will also be important indetermining the future of the Internet there. We conclude with a discussionof sources of uncertainty.India has total of 350 million cellular users by year 2009. China has total

of 660 million cellular users by the year 2009

Internet users in India: More than 50 million: see: Internet users in China:

298million.

Broadband users in China: 93.5 million while,

Broadband users in India: 7 million

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Agriculture:-

Creation of strong markets for Agri produce

And creation of Processing/Transport/and Preservance.

The infrastructure requirements of the agriculture sector are many and

varied. India needs good roads that would allow sufficiently large trucks forspeedy and bulk movement of agricultural produce before it turns bad. Itneeds large cold storage plants, modern drying facilities andcommunication facilities.

Traditionally, India has been an agricultural economy and even today

agricultural sector accounts for one third of GDP as well as one third of the

work force. Successive governments have realized the importance of

agriculture to India and initiatives have been taken for the growth of this

sector.

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Conclusion:

Competitiveness showed that resources do not make nations competitive

it is how best use you make of your resources, which actually matter. In

India, the basic thing we lack is a mind-set. Wherever we have been able to

change this mindset, we have made wonders. Our films are extremely

philosophical. We are world leaders in film production. Our software

people are better concentrated and service minded we have the best brains

in softwar

shadow of chinese dragon on india

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