India & China: Asia's Non-Identical Twins

Sleeping Beauty versus Dungeons and Dragons Why regional approaches aren't working An analysis of telecoms, pharmaceuticals, steel, paper, and food For many corporations, India and China are two sides of the same coin. This is understandable. After all, India's economic potential and the challenges it faces do look very much like those of China. And just as there was a fashion for China among multinational corporations, so India looks set to be the next flavor of the month. But there the resemblance ends. Such is the weight of their economic histories that each country goes its own way when it comes to the practical matters of government policy and business opportunities. Similar, but different Comparing and contrasting India and China in terms of their size, past growth, political stability, bureaucratic barriers, and economic freedom has become commonplace. True, the two countries do face similar macroeconomic challenges, but their ways of responding to them are very different. Even their apparent convergence on the same model of economic development - deregulation and a greater openness to trade, foreign capital, and imported technologies - stops short at the level of policy implementation. For multinational corporations, this means that treating India and China as similar entities with shared opportunities and pitfalls is a recipe for disaster. No generalization about them both would be valid - except that no company in any industry should neglect either of them. Similarities are real . In general terms, China and India, both vast, both developing rapidly, face the same challenges: * Reengineering the supply structure. This involves improving capital allocation systems so that funds can flow toward the most productive uses rather than being trapped in inefficient activities, encouraging efforts to improve productivity, and allowing local players access to global best practices. * Responding to the consumer revolution. Coping with rapidly growing demand means supplying the right quantity of goods, raising quality, and enhancing value for money - all at the same time. Demand for some products is rising much faster than GDP [ILLUSTRATION FOR EXHIBIT 1 OMITTED] because a larger number of households have crossed the consumption threshold for these products [ILLUSTRATION FOR EXHIBIT 2 OMITTED]. Productivity gains and advances in logistics and distribution are also helping to expand markets by improving mutual access between suppliers and consumers. Figures for India show how quickly the number of "rich" households is rising [ILLUSTRATION FOR EXHIBIT 3 OMITTED], while the parallel evolution of China's income distribution has created new consumer product markets that did not exist a decade ago [ILLUSTRATION FOR EXHIBIT 4 OMITTED]. * Developing agriculture to drive growth. Agriculture is still under-developed in both countries, leaving ample scope to boost yields. So large are the agricultural populations that a transformation into a service or industrial economy as in Europe, Japan, and the US is unthinkable in the next few decades. Instead, agriculture will have to serve as a significant engine of economic growth, both directly through increased production and indirectly as a source of raw material for a future food processing industry. * Improving infrastructures. Inadequate hard infrastructures are a major obstacle to growth. Even a high rate of domestic saving will not be enough to meet exploding needs in transport, telecommunications, housing, water, and energy, so external finance will be required. The soft infrastructures vital to progress, such as education, health care, banking, and financial markets, will have to become more efficient and better at allocating resources. * Containing social issues. Demographic pressures and productivity gains free millions of workers every year. Though rapid economic growth is creating new jobs, the transition to a modern, productive economy will require delicate adjustments along the way. …