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India and China: Fruitful Partnerships and Bound to Grow

George Zhibin Gu
16 February 2005

In this era of globalization, the two biggest elephants, India and China, are running fast, finally. There is sense of urgency for these two ancient peoples to catch up with the developed world. More is true: there is a high rivalry going on in between them. But the really fruitful thing should be creative and productive partnerships for them.

Mutual benefits are plenty. So far, India has built up a world class IT army, while China has created a fast expanding manufacturing force. Their strengths are complimentary to each other in numerous ways. If they team together in a more productive way, then one plus one is greater than two. Similar things can also include more nations, especially in the developing world.

Indeed, there are tremendous potentials for them to have a more active partnership. So far, India's IT army has successfully courted the big boy club in the developed world. But there is limitation to it. That is, Indian software companies are service-oriented. They have not had a large space to develop their own propriety products. Instead, they act as an OEM player mostly. But China can provide a larger room for them to develop their products in all possible ways.

In the meantime, China Inc will benefit enormously from this partnership with India Inc. China has been able to develop a most extensive manufacturing capability. It is able to produce nearly all products under the sun. But its intellectual development, especially software and design, has not gained an equal development. So, the Indian software army can play a big role in this regard. At the same time, these combined forces will be able to supply the world with better and cheaper products of all sorts.

At the next level, both nations have a low cost structure. If the developed nations charge $100/hour, China and India can do it for 10-20% of the price. So, if they team up together, their low cost would make more sense to each other, and to the rest of the world.

So far, businessmen from both nations have begun to tap into each other's resources. Among Chinese companies, two kinds of projects are most active in India. The first is manufacturing plants set up in India. Both Konka and TCL, two leading Chinese consumer product companies, have factories in India that produce all sorts of consumer electronics and home-appliances. Haier, the biggest Chinese consumer product maker, is adding a handset production in India. A booming Indian economy can make it a great market, besides being a great factory. All Chinese consumer product companies wish to tap into India's $4 billion home-appliances market. Once Indian economy growth further, it will become another explosive consumption market. For now, India has 46 million handsets, but in a few years, it will have 340 million as China does now.

Another is research and development centers. The high-profile case is with Huawei, the leading Chinese telecom network player. It has been operating a sizable research and development center in Bangalore for several years already. It has some 700 employees, mostly Indians, with $80 million investment. Now it is satisfied with the general environment and the talented employees. It is adding additional $100 million to expand its programs there.

For Indian companies, they are also active in China. All the top Indian software firms are in China already. Among them, NIIT, a leading consulting and educational concern, has been operating there for several years already. It has set up numerous training schools in major Chinese cities with thousands of students, among other things. The other leading IT names, such as Infosys, Wipro, TCS, and Satyam, are all-active. They can certainly play a big role in helping China to move to the next level. In addition, their international experience is a plus. At this time, the Chinese have gained direct experience, largely satisfying, working with these Indian businesses.

In addition, there are plenty of Indian manufacturing companies operating in China. It provides both a factory and market for them. They can fully take advantages, as China now has vast business chains. It has plenty of components suppliers and there are vast choices for Indian manufacturers. They can also sell their products to the Chinese directly. In fact, consumption in China is way ahead of India for now. But India's growth has become impressive in the late.

These businesses have helped economic ties for the two nations significantly. With all the great benefits, the trade between them should really become exciting. One would guess it to be around $200 billion. But not yet. In 2004, it reached $13.6 billion. Even so, it was a new record. By now, China is the second biggest trading partner to India, but India is way behind. Even so, such trade momentum can increase only.

In many ways, their businessmen are ahead of the governments in these two nations. They can easily get benefits by working together. As long as the two governments are concerned, they have become more pragmatic than ever before. They are more active to search for ways to widen doors for opportunities and partnerships. This is very healthy indeed.

A Great Era

In the eyes of elite Indians and Chinese, once these two nations learn how to work with each other, they will reshape the world. Indeed, once their trade reaches $200 billion, the developed world will have to work harder to sell their highly priced chips and software to Asia, among other things. At the same time, both India and China can have better products and services for the rest of the world.

It must be said that the developed world can easily tap into these two markets. So, it will also benefit most directly from a prosperous India or China. In fact, it can get more benefits. The foreign multinationals can easily choose OEM or set up their own shops in these two low cost nations. In the end, they benefit more than anyone else.

There are more to it. For many centuries, both nations have tried to live in isolation. In this era, they have become reborn. Both are active to participant in the global development today. So, a prosperous India and China is great news for the world. This has laid down a grand framework for the great convergence of global civilizations.

They do have a lot of new lessons for the world. An explosive entrepreneurial spirit leads the growths of their economies. Both are creating millions of entreprenurers. These entrepreneurial armies are changing the very basics of their traditional societies. Under this new environment, their large burdensome population is being turned into a productive force. For them, there is one direction: growth. Interestingly, they have become the champion for globalization.

About the Author

George Zhibin Gu is a veteran business consultant based in China. He holds a Ph.D. from University of Michigan (1987). He has worked for Prudential Securities, Lazard, and State Street Bank, among others. His work covers M&A, venture capital, business expansion and restructuring.
He is the author of two books, China's Global Reach: markets, multinationals, and globalization (Haworth Press, Fall 2005) and China Beyond Deng: Reform in the PRC (McFarland, 1991).

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