India’s Rise to World’s Third Largest Economy Puts More Pressure on China to Perform

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Foreign Investors in China Need To Prepare For Regional Alternatives

Op-Ed Commentary: Chris Devonshire-Ellis

With the recent news that India has just overtaken Japan to become the world’s third largest economy in PPP terms, China now faces increasing pressure to both hold onto its FDI performance, GDP growth, its  manufacturing competitiveness and maintain the domestic political mantra that the country is superior to that of its largest neighbour.

In terms of FDI, China’s rose last year by 5.3 percent, to a whopping US$117.6 billion, albeit at slower rates of increase than previously attained. But even that figure was eclipsed by the 5 largest economies in ASEAN, who achieved FDI inflows of US$128.4 billion. India’s, while smaller at some US$28 billion, still rose by 17 percent over the previous year – an increase over three times higher than that of China’s, and achieved during what was not an entirely satisfactory fiscal or political 12 months for the country. While it is true that the Indian performance comes from a lower economic base, there is some thought that the investment trends are now moving away from China and into other areas of emerging Asia – with ASEAN and India amongst them.

If so, there are some fundamental reasons for this. China has become considerably more expensive in terms of labour costs. It is now five times more expensive to hire a worker in Guangdong than it is in Mumbai. Coupled with that, China’s demographics point to it losing labour force over the coming years, while a much younger India is adding to its pool of available workers. Not only are China’s workers becoming more expensive, there are also less of them. It is that demographic that is now beginning to impact initially upon labour-intensive industries in China, but will rapidly filter down into smaller and medium size businesses with less cash flow to protect them against increasing production costs.

Foxconn, maker of numerous Apple products, are shifting production to Indonesia. Ford have bet their Asian vehicle strategy upon auto-manufacturing plants in Gujarat. Nearby Thailand, and not China, has been chosen by Volkswagen as their manufacturing base for auto sales into Asia. These decisions have been made despite regular comments about China’s infrastructure superiority protecting it from such leakage. Clearly the cost benefits of locating factories elsewhere, even with lower standards of infrastructure, are greater than investing that additional capacity in China. China has not been able to become the manufacturing hub of choice for Asia, let alone the world.

This is having an impact on where global CEOs see future production capacity moving. According to the 2013 Global Manufacturing Competitive Index issued by Deloitte, India currently ranks fourth globally. This report includes over 550 survey responses from CEOs around the world and provides their perspectives on the key drivers of manufacturing competitiveness for a country, a ranking of each nation’s current and future competitiveness, and a review of the public policies creating competitive advantages and disadvantages for key countries and regions around the world. The study also reveals that India will move up from fourth to second position over the next four years.

Meanwhile, even the Chinese Central Government’s desire to propel the majority of its citizens towards middle class consumer status at a rapid pace is beginning to face resistance. Dongguan, the so-called “factory of the world” has shelved, for the time being at least, any further minimum wage hikes as it strives to keep increasingly frustrated business owners competitive – and profitable. If not, they will – and many are – relocate to Vietnam.

The main attraction for many foreign investors now in China is the development of that same middle class consumer base. Currently standing at about 250 million, it is projected to reach 600 million by 2020, a staggering increase. Yet that projection also assumes that China will be able to hold onto its manufacturing base and service the domestic market domestically. That strategy is now starting to look less likely. Vietnam, expected to come into full China-ASEAN Free Trade Compliance by the end of next year, will be able to enjoy duty free exports to China on some 90 percent of all traded products. With Vietnamese wages far lower than China’s, and a lower corporate tax rate in the offing, China will struggle to compete with Vietnam within 18 months. Yet it needs to maintain manufacturing stability and foreign investment inflows at the same time. It’s a balancing act that is beginning to look a little out of kilter.

China stands to produce another 350 million middle class consumers, all wanting modern products, that will increasingly be sourced externally from China. Yet at the same time, fiscal tax revenues on customs duties will drop. That doesn’t really balance the books as far as I can see China sustaining its projected middle class growth. As its population ages, it will become more dependent upon raising taxes to cover health care costs. Yet in multinational trade, exactly the reverse is happening.

India, meanwhile, is a little behind in all this. Its development path is often erratic, and as a democracy it has lacked the one party, single minded drive that has propelled China along the past three decades. Its GDP growth rates have performed at a far wider range than China’s from a low of 3.5 percent last year, from 9.7 percent in 2010, and an expected 6.5 percent this year. That compares with a consistent China deliverable of between 7-8 percent per annum. But the warning signs for China are there. India is not just a home of increasing numbers of workers (expected to double to just under 1 billion by 2025) available at far lower wages than in China, but it also has an alluring domestic middle class – coincidentally the same size as China’s is today, at 250 million. That middle class also has extensive purchasing power and is increasing. International brands are now flocking to India to sell to the domestic market. Yet still, India tends to fall down on infrastructure. That however is changing – investment into infrastructure is racing ahead at close to 8 percent growth per annum – higher than the GDP rate.

When India’s infrastructure gap starts to close – and the signs are already there – it will take just a couple of reforms to kick start India as both the world’s manufacturing hub and its largest consumer market. Those are tax reform, which has been on the agenda for the past three years, with the intent to lower corporate income tax from the current 40 percent rate down to 30 percent, and further FDI reforms into the retail sectors, and especially in agriculture and e-commerce. In the latter especially, India has been able to provide a far more open and transparent market than that of China. With the Chinese government wanting to keep a handle on every possible currency movement out of the country, and as a result supervising the rise of its own online retailers, global online retail businesses such as Amazon and ebay, along with many other e-commerce businesses, have found the going in China very tough. In comparison, the Indian market is starting to open and giants such as Amazon are expecting huge dividends as a result. Put simply, India’s market is more open to foreign investment and participation than China’s.

If these Indian reforms continue to happen – and both political parties contesting the Indian elections currently underway are considered business friendly – then the rise of India may yet cause China some headaches. I will not be surprised if India’s growth in two years from now starts to outpace that of a China that just may have attempted to become too rich, too fast, amongst too many people, with worrying implications for future growth.

Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States.

For further details or to contact the firm, please email asia@dezshira.com, visit www.dezshira.com, or download our brochure.

You can stay up to date with the latest business and investment trends across Asia by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

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31 responses to “India’s Rise to World’s Third Largest Economy Puts More Pressure on China to Perform”

  1. Curious says:

    I don’t see why India was brought up here when the main crux of the story you cited was of China overtaking the US in PPP. Why would China feel the pressure from India when it feels greater pressure to perform from Korea, Japan and ASEAN? And the greatest pressure on China to perform would be greatest from the Chinese people no?

    Also, the repeated refrain that India has the “same” middle class as China makes no sense to multinationals doing business in both China and India because sales in China are 10-20 times greater for everyone from GM and VW to Starbucks and KFC.

    If we were to accept this rather lazy statement that India has the same size middle class (with the implied notion that it can consume as much as China’s) please account for the fact that LandRover/Jaguar (an Indian-owned subsidiary) sells barely a tenth of what it sells in China.

  2. Norman Diamond says:

    These are extraordinary perceptions. That’s an interesting interview you linked to as well. Some real food for thought there Mr. Devonshire-Ellis, thank you.

  3. @Curious: The “main thrust” of this article isn’t about China overtaking the US in PPT. In fact it wasn’t mentioned at all. As for Japan, and South Korea, neither have the worker base that India has, which is why only India and, collectively ASEAN can compete with China for labour. If that happens, China will feel immense social pressures internally as I think you recognise.
    In terms of middle class consumer patterns between China and India, they are two issues to this to help explain it to you. “Middle Class” means middle class to their own domestic standards, and the average Chinese middle class is wealthier than India’s. However China’s middle class is mainly restricted to buying only in China. It is hard for them to get money overseas. India’s middle class by comparison, at the top level, is old money and much more conservative than China’s. They tend not to buy bling products with little intrinsic value (unlike the Chinese, who do). Instead they invest far more into gold and jewels and property. And they are also more able to purchase assets overseas than the Chinese do. In short, at present, the overall Chinese middle class consumer is still immature and buys a lot of rubbish products with no or little resale value, and are restricted largely to purchasing only within their own economy. The Indians behave rather differently. I’ll try and get a qualified market research firm to comment further on this in a later China Briefing article.

    @Norman: Thanks. China-India issues are always entertaining.

    Best wishes
    Chris

  4. UI says:

    A few reactions.

    1. PPP is generally not used to measure the total size of an economy. It’s an adjustment to GDP per capita. So it’s a bit of a phony competition to either declare China as the largest economy or India as the third largest based on this measure.

    2. I believe India on a PPP basis was number three as early as 2012 so it wouldn’t be news.

    3. I also believe that the Indian economy has stayed the same or even shrunk (!) in 2013 compared to 2012 when measured in nominal terms, the standard way of looking at GDP.

    It’s economy was 1.9 trillion dollars in 2012, and in 2013 it was either 1.9 trillion or 1.8 trillion dollars.

  5. Prem Janardhan says:

    Could be people never really liked China, even though they admired its progress. That’s my reading of this article.

  6. pappu says:

    Being an Indian it is somewhat hard for me to accept the overwhelming optimism expressed towards Indian economy by the author. Thanks for the optimism. Indians are well aware of the challenges which the nation faces.

    What has really helped India and Indians in last decade is the explosion of social media and a digital revolution. The cellphone market is also growing like never before and a large percentage of this growth has given rise to access to smartphone and data to millions of illiterate people who might have never used the broadband based traditional PCs due to lack of resources. This looks insignificant but in reality this is a very big factor for strengthening democracy and people’s participation in democracy at grassroots level. This also has put a lot of pressure on Indian leaders to perform and deliver results. Doles and subsidies are not fetching votes anymore. India is also experiencing a re balancing of sorts where the labor is rapidly flowing from less developed northern states to more developed western and southern states. This has ensured a steady supply of cheap labor.

    The main challenge for India is to build infrastructure and manufacturing base on a vast scale and to educate it’s vast labor force to enable them to compete in global marketplace. China has also done very well lately in software development arena and it will increasingly compete with India for this space. Interesting times indeed.

  7. The shock of India doing well always stirs up a few comments:

    @UI: The Purchasing Power Parity (PPP) measure to compare economies is in fact commonly used as it assists economists build in differences in currency valuations and local pricing differentials. Clearly a kilo of potatoes will cost more in Tokyo than they will in Bangalore. This is why it is a useful, although not the only, way of comparing economies. India has just moved up to third place in 2014, pushing Japan down into fourth position. Those rankings were reversed last year. Finally, the Indian economy grew last year (5.3%, higher than the US or EU) so the economy won’t have contracted in size.

    @Prem: I don’t think its anything to do with like or dislike. China has come to the end of a particular economic growth cycle and is slowing. India is at the start of an economic growth cycle and is developing. It is what it is.

    @Pappu: I was in China for 25 years from the start of its development so I have seen first hand what happened. In my opinion India displays many of the same traits as China had back in the mid 1990’s. I have spent extensive time in both countries and have multiple offices and clients in both. I am hardly an “armchair observer.” My overall optimism is borne from my own experience of both economies as well as researching the fundamental drivers and demographics behind them.

    Your comments are all appreciated.
    Best regards – Chris

  8. Curious says:

    Again, I don’t see why the India taking third place from the World Bank report is worth much as an editorial on “China” Briefing about when the main thrust of that article as reported on every business news organization was of China passing the US in PPP terms.

    http://www.bloomberg.com/news/2014-04-30/china-set-to-overtake-u-s-as-biggest-economy-using-ppp-measure.html

    India has always been pretty peripheral in the China trade and even less relevant as a pressure to those leading the economic change of China from pitiful communist laggard to what we see today.

    Anyone who had worked in China would know instinctively that the driving forces in pushing changes in China are constant competition and comparisons with Japan, Korea, Hong Kong, Taiwan and Singapore (as well as the other nations of ASEAN to a lesser extent.) Comparisons where China always comes up short which in turn fuels impetus for economic (and social) change. India has never been much a point of comparison if at all.

    Jobs from China are being lost to Vietnam not India. Cultural trends overtaking Chinese social society come from Korea not India.

    Chris, I’m sorry but it seems to me you are trying to crowbar India into the China discussion when there is no basis for it.

  9. Curious says:

    Chris, this talk about the middle class consisting of “new” and “old” money makes no economic sense and sounds more like personal opinion than anything that would be useful to businesses in or looking to set up in China (which I thought was the purpose of China Briefing or am I wrong?)

    If I were a multinational intent on selling products and I hear and believe your constant refrain that India’s middle class is the “same size” as China’s what would happen to me when I expend the same amount of capital investment and attention on India as I do on China? What would happen if like BMW or Disney, I end up with a tiny fraction of the sales in India compared to what I would have sold in China?

    I find it hard to call BMW and Mercedes Benz “rubbish” but they, like every other MNC out there, are in force in China because you can actually sell to the middle class in China. And at a much higher markup than even the West. BMW, Mercedes and practically every other Western MNC cannot sell to the middle class in India at anywhere remotely close to the same numbers.

    So why keep bringing up the middle class in India as the same size as China’s? Most business people take the rise of the middle class in a developing country as portent of a consumer society. But when the sales figures are a fraction of what they are in China, saying this serves no purpose except. Except, I’m sorry to say, as a way to mislead people into thinking that the size of the consumer society in India is the same as that of China. It is not. For MNCs as a whole, India consumes between 1/10th to 1/30th of what we can sell in China.

  10. UI says:

    Hi Chris,

    Although there was growth of 5% in 2013, the Indian economy shrunk when comparing 2012 to 2013 because of currency depreciation. Hence it’s possible the overall size of the economy (nominal) is smaller than in 2012.

    PPP is often used as a tool for GDP per capita comparisons but for the overall size of an economy it runs into many problems, and nominal measures are favoured.

  11. @Curious: Whether or not you think China reaching up to the US is more important than India taking third position is irrelevant. This article is about India and the development of the country putting pressure on China. It is not about the US and China, which is a totally different subject. I’m sure you can find some articles on the US-China PPP comparison if you search for them, and I thank you for the Bloomberg link, which I note was published in April 2014. We wrote, on this website, that China would overtake the United States in trade volume over an entire year earlier, in February 2013: http://www.china-briefing.com/news/2013/02/12/china-becomes-worlds-largest-trading-nation-passes-u-s.html
    So it seems we know what we are talking about when it comes to trends. And neither did I say China is losing jobs to India. But I did state that the trends for future manufacturing capacity are going to ASEAN, and India, rather than exclusively China as has been the case until recently. That is a different thing. That is future capacity. As for China-India trade being “peripheral” that is just nonsense I’m afraid. Bilateral trade is set to reach USD100 billion next year and is one of the fastest growing trade corridors today. China-India trade already far outstrips that of China-Taiwan and China-South Korea. As for the middle class consumer base, yes, there are more consumers able to buy Mercedes in China than in India, and the sales in China are higher in volume. India is still a work in progress. You have to remember that India largely imports such vehicles, and that involves a heavy import duty. Mercedes are manufactured in China for the domestic market and there is no import duty. That is why they sell more cars there. I have no doubt that in time Mercedes will set up a manufacturing plant in India when they consider the market ripe to do so. Curious, you seem to be fixed purely on “the now”. My comments are fixed further ahead, into the “what will be”. That is why you seem to struggle with my perspectives. I’m interested in what will happen looking forward so I can plan for it, I already know what is happening today. And in a 25 year career in Asia, I haven’t been proven very wrong thus far – when I began people advised me not to go to China, just as you today suggest India is ‘peripheral”. I have a different point of view.

    @UL, One can argue these economic factors all day long and still not reach a consensus. Its the old joke about what happens if you put 20 economist in a room together – they’ll still all come out arguing! However the minuate doesn’t really matter at the end of the day – the underlying trend is growth in India. My view is that will put pressure on China for the reasons I explained. It’s also quite apparent to me that global growth does not fully depend on China. There are opportunities throughout Asia, and that includes ASEAN – and India. People can take that or dismiss it – but I know where my investment dollars are headed – and Dezan Shira & Associates just expanded our offices in Singapore and Delhi big time. As we deal with foreign investors, I’d suggest that’s a pretty good indicator of what is happening, whether or not any one else agrees with my perspectives or not.

    Best wishes
    Chris

  12. Sanjay says:

    @Mr. Curious: It seems you don’t understand what is going on with middle class consumers in India. Here is a story about Ferraris and Lamborghini’s in Mumbai: http://www.motorbeam.com/super-cars/mumbai-police-catches-racing-ferrari-lamborghini/
    Note the blogger wrote: “A red hot beast parked in the National Garage at Haji Ali, and the passersby stopping to have a long look at it, especially if the red beast is a Ferrari? Well, this is not a rare scene in most parts of Mumbai. With high purchasing power of people, cars like Ferrari, Maserati and Lamborghini are a common view on roads of Mumbai.”
    Mr. Chris is right in my opinion of his evaluation. It’s just people like you need to catch up a bit. (which is why I guess he wrote this article).
    .

  13. Monica deSilva says:

    Thank you for hosting a really interesting article and debate. Here’s some news and links about middle and upper class consumerism in India you may find interesting:
    Rolls-Royce: http://www.business-standard.com/article/management/rolls-royce-grows-an-indian-heart-113091600986_1.html
    Ferrari: http://www.livemint.com/Companies/i8PWuZFMoLHdJZpZAynozM/Ferrari-launches-in-India-eyeing-growing-superrich.html
    Louis Vuitton: http://businesstoday.intoday.in/story/luxury-special-louis-vuitton-upwardly-mobile-indians/1/197642.html
    Gucci, Armani, Hermes: http://articles.economictimes.indiatimes.com/2011-10-08/news/30258043_1_luxury-brands-canali-small-cities
    They all say the same – China is buying more today and is ahead of Indian wealth consumption. But Indians are also buying a lot more luxury and middle class products too. A lot of people think Indians don’t have any money and there is a very small middle class and most Indians are very poor. It is definitely not true. The Chinese now like to think of themselves as the richest and most successful people in all of Asia and say so a lot but that isn’t true either.

  14. Curious says:

    Chris, India taking third place in the World Bank’s PPP rankings really has little relevancy to China — especially considering the main thrust of the WB report was China’s position vis a vis the US. It makes no sense to see India in this story. Again, you are trying to crowbar India into the China discussion.

    India’s trade with China has been dropping precipitously in the past two years. It fell by 15% between 2012 and 2014. It is falling off the cliff even as China’s trade with the rest of the world goes up. Believe you me, we’ve looked at the possibility of expanding our China business to India but the numbers are not worth it especially when taking into account that visas for our Chinese employees are a hassle to get in India. In fact, being from China puts you are a distinct disadvantage in India.

    It is far better to work India from Europe or the US since the prejudice against anyone emanating from Chinese soil will work against.

    India is an important nation in its own right but it is irrelevant to those of US who are doing business in China. When people come to “China Briefing” and see a piece like this then it is nothing more than a bait and switch.

  15. Curious says:

    And no, China-India trade comes nowhere close to China-Tawain or China-Korea.

    Two-way trade between China-India is $66bn. China-Korea is $250b. China-Tawain is $200b. The Taiwanese surplus alone is $100b.

    Chris, again India is an important nation and your enthusiasm for it commendable, But it really has little relevancy for those of us involved in the China trade and selling the Chinese middle class “rubbish” as you put it.

  16. @Curious: Thank you once again for your comments. As I said before, this particular article is not about China trade as you seem to think it is. It is actually about the impact that the rise of India will have on China. These are different subjects. I am not “shoehorning” India into being a major trade player, and if I could I would be akin to a Warren Buffet figure. But this is a China focused website, and we focus on that, the good, the bad, and the controversial from time to time. China/India issues always seem to draw attention, it is for whatever reason an emotive subject prone to some very stringent thinking. This site continues to deal with China, and is geared towards to foreign investment issues, either hard law and tax facts, or opinion pieces concerning development such as this one. In terms of your pet subject of China overtaking the United States (which is a separate issue), we have also, if you care to read, written today about China doing just that in economic terms (which is what you seem prefer to want us to do) here: http://www.asiabriefing.com/news/2014/05/china-overtake-u-s-worlds-largest-economy-year/. Now back to this piece, it is about the impact on China that a rising India will have. And you have had your say, you’ve made five separate comments on this. You are apparently involved in China trade, and alternatives to that probably aren’t very welcome. So, disregard what I have written. India is, in your mind, a “peripheral” play; its trade “falling off a cliff”, and its “numbers not worth it”. You’ve had your say, and you’ve been allowed to make your comments. You don’t need to trade with India. You don’t believe it is important. All this is OK. Ignore India, forget it is there, and concentrate on China. If that is your decision and belief, stick with it. You’ve made your position very clear, thank you. But there are other people who have a different opinion.

  17. Jayati Ghosh says:

    Hello. The reported growth rates in India vary depending upon who you refer to. According to the World Banks ‘international comparison programme’ the Indian economy grew last year and is now valued at USD5.75 trillion. It is equivalent in size to 37% of the US economy. That is smaller than China, but is still the worlds third largest. Future growth is expected to be at about the 5-6% per annum mark.
    To clarify the PPP debate here, the alternative measurement is nominal (actual) value. India is currently tenth. But it is expected to be the worlds third largest economy in nominal value anyway by 2020.
    Accordingly I would agree on the whole with the sentiments of the author of the piece. Whichever you look at it, or however you want to value or measure that, India is growing. There is no doubt that this will have a huge impact upon China as the author has suggested.

  18. Nicholas says:

    Editor’s note: Indian Economy To Grow at 5.6% During 2014-15 – http://www.india-briefing.com/news/indias-gdp-grow-56-percent-201415-8372.html/

  19. Paritosh says:

    Hello Chris

    in one your statement above that Mercedes might think of setting up manufacturing in India. I think Mercedes has had a assembly/ manufacturing setup in Pune since quite bit of time.
    http://en.wikipedia.org/wiki/Mercedes-Benz_India

    One more point worth noting in manufacturing related issue, is that Harley Davidson has recently setup a manufacturing plant in Haryana, India the ONLY ONE OUTSIDE their U.S production base. Which was quite surprising.
    http://en.wikipedia.org/wiki/Harley-Davidson_India

    B.Rgds
    Paritosh

  20. @Paritosh: You’re right, I didn’t know that. I looked into it and they’re making the C and E class sedans and overseeing their importation business (everything else). Although I did note they have also announced its plans to assemble GL-class and M-class SUVs in India. Which again presses home the point about the rise of the Indian middle class consumer. Auto is a great barometer of wealth creation (as I saw first hand in China) as these are expensive plants to set up and require a real certainty that they’ll sell production. It is also very good news for component manufacturers as cars need a huge number of these. All round, great news for India’s domestic manufacturing industry – which they really do need to develop. Thanks for the heads up.
    Chris

  21. I am joining the debate a bit late in the day, but nevertheless have been fascinated by the dialogue. Having been living in India for the best part of 22 years & doing business between India and the rest of the world and also doing business in China, my views are as follows:

    1). China liberalised over a decade and a half ahead of India so it not realistic to compare it with India except that India’s growth in its short post liberalised era (1991) is similar to the trajectory of China at a similar stage
    2.) China’s demographics are v different to India. China is ageing (has been for a while) whilst 50% of India’s 1.3bn popn are under the age of 25. This will present an historic labour pool AND emerging consumer population 2nd to none
    3.) China has benefitted from its no nonsense approach to development. Democracy has been India’s achilles heal in this regard…HOWEVER on May 16th (Friday), a new pro business autocratic led government is going to be announced in India, signalling the beginning of a new area of growth.

    In conclusion…I would spend less time arguing about which market is bigger/better and focus on actually engaging in each market for their own merits. India has a long long way to go before it catches China’s manufacturing capabilities etc or begins to resemble China’s economic footprint…but isn’t that the opportunity?

    Adrian
    An India & China fan…and also a realist!

  22. Well said Adrian, thanks
    Best wishes
    Chris

  23. Curious says:

    The issue is not whether India or China is better. The issue is whether India has any affect on China and whether this premise that India will put “pressure” on China is even logical considering that China outgrew India (7.5% to 5.6%) in the years that India became the 3rd largest economy by ppp. I thought you put pressure on people by closing the gap not by falling even further behind!

    At any rate, it seems even unuseful in a China trade website to shoehorn India into the China story just to create this artificial pairing of India-China.

    But I’ve seen attempts to do this before. Around 6 years ago, our company decided to hyphenize India and China. They decided, not illogically at the time, that India would be a similar play to China. It wasn’t just our company but many others. It is natural to look to the southwest and see another billion people population and see a similar market. So, India piece was tacked onto our China division and we were renamed “TEAM” inside our corridors of power — The Emerging Asian Market. LOL

    But that was completely wrong. The higher ups stateside had little idea of the differences between the two nations and cultures. “Oh they are both Asian so they must be more alike than not.” But no, that is not true at all. I mean these nations are completely different and even further from one another than they are to the US or Europe.

    The TEAM was hardly comparable at all. The chiefs of India team were mainly Indian-Americans, “Desi”, while the leadership of the China team were majority — for lack of a better term — White Anglo-Saxons Protestants.

    Things were lopsided from the very beginning. We, the China team, provided 90% of the total revenue and made 150% of the net profit (we covered their losses three times over.) India simply didn’t buy. And supposedly they had the cultural affinity advantage in India. But the fact is we fought hard for this market and were probably more attuned to the China market than they were to theirs. But in the end, China was simply a far bigger market.

    We had four years of that until our China CEO basically won his fight to break off the arrangement. The final straw being the India team asking to have Western China — where the Third Tier cities in Szechuan were bringing in the fastest growing piece of the revenue pie — under India to augment their sales figures.

    In the end, all I could say is India is great nation and a potential market but it simply operates in a different world than China.

    China is East Asia. Its cultural affinity will come from the East — Japan, Korea, Taiwan, etc. Its pressure points will come from the East. Therefore, the business trends and affects will come from the East. It does not include India. It never did and probably never will considering the ever diverging trends between the two. (India treats businesses located in China with heavy prejudice. Chris, if you operated in both, you must have known this. Visas is only one issue, but paranoid security concerns and pretty much racist treatment of our Chinese workers make it nearly impossible to run an efficient division across both nations.)

    At any rate, my last word on the subject. But I think my view is proven in that here, in a China business website, we see all Indians and a few white expats with nary a Chinese in sight.

  24. Thank you again Curious. Just to clarify, this website is targeted at foreign investors in China. It covers regulatory updates, tax and legal news, issues concerning China business operations from the foreign investors perspective and opinion pieces. This is one of the latter. We know from our own reader, subscriber and Dezan Shira & Associates own client statistics that in fact many of them have business interests in both China and India, either existing right now, or intending to within the next two years. Therefore when an issue comes up that impacts on this area, it gets featured either here, on our India Briefing website at http://www.india-briefing.com, or sometimes on our Asia Briefing website – http://www.asiabriefing.com – depending on the nature of the subject matter.
    Our firm maintains offices in both China and India, dealing with MNC clients in both. Many have operations in both countries, and further afield in Asia as well.
    This piece has been one of our highest read articles dealing with the China-India trade space this year. We believe that the China-India bilateral trade space is of massive development interest to our readers and clients in both countries – which is why we occasionally feature such articles, why they continue to be well received, and why we will continue on occasion to feature bilateral trade and relations between the two countries. I hope that makes our position clear.
    Best regards;
    Chris.

  25. Research Analyst SW1 says:

    @Curious: “if you operated in both, you must have known this. Visas is only one issue, but paranoid security concerns and pretty much racist treatment of our Chinese workers make it nearly impossible to run an efficient division across both nations.)”

    However foreign manufacturers use Indian labour in India, not Chinese. And the Chinese aren’t much better when it comes to be friendly to Indians in China btw. You would have an Indian workforce to operate in India definitely not a Chinese one. Also you certainly wouldn’t have a Chinese management team to tell Indian local staff what to do, its just common sense. If your company failed in India that is a lot to do with your company and its inability to adapt. Plenty of foreign manufacturers are doing just fine in India. And the Indian stock market is at its highest level ever – compared to China, whose market is depressed.

  26. Matts says:

    I hope the Indians will not get carried away and become complacent in their quest for development because of so much praise and putting on the back. Some people in this discussion have problem separating ideology, personal affinity and liking, economics and business.

  27. Being an Indian I want to tell you that India has young blood comparison to China and now Indian youths are dominating the world so we are ready to put India on map of Pleasant economies..Good bye Good luck.

  28. chris-lee says:

    The young blood must be educated in order for an effective labour force. What are the % of young people are educated today and you will see the effective labour force in market tomorrow.

  29. The worker-age demographics that carried China to cheap manufacturing global dominance in the 1990s and 2000s are now being generated by India. It has a young, inexpensive and massive workforce emerging just as China’s is aging, shrinking slightly and becoming more expensive. This is one reason why both ourselves and now Goldman Sachs have been suggesting India’s growth will outpace China’s in the next couple of years: http://blogs.wsj.com/indiarealtime/2014/12/05/india-set-to-outpace-china-in-2016-says-goldman/

  30. love says:

    Chris, although agree with your view, most of it makes sense
    I’m no economist in any way. But with recent interest in the subject and reading a few blogs written by learned people like you, I’ve got some basic idea.
    India has been the future along with China there isn’t doing about it since history has witnessed but don’t agree India will ever match Chinas economy as such.( Chinas got the head start and 10T$ India is just 2T$) The tripolar world is a fact,which will be seen by 2030 but power potential of China is going to be almost twice of India and US is what I’ve read. That’s the reason for rapprochement of INDIA-US relations.
    Correct me if I’m wrong. I think you could have also hihkighted India’s love for the language of English which makes us largest speakers.
    Is there a personal twitter handle of yours? Are there more related articles?/
    Thanks.
    Proud Indian.

  31. @Proud Indian: Thank you for your kind comments. To keep up to date with articles and so on, please subscribe to our Asia Briefing portal (its free). Just click on the subscribe button (there’s one on the top of this page in fact) complete the details and you’ll receive all our latest updates on India and related materials by email each week.
    Happy New Year!
    Chris

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