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India vs China

India vs China. International Business. Tommaso Jacopo Ulissi Francesco Nicoletti Deng Shuo Chu Luyuan Alessia Bruni. Agenda. Strategy ’ s differences and similarities Institutions A future perspective. Why India vs China ? An overall picture Theoretic framework.

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India vs China

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  1. India vs China International Business Tommaso Jacopo Ulissi Francesco Nicoletti Deng Shuo ChuLuyuan Alessia Bruni

  2. Agenda • Strategy’sdifferences and similarities • Institutions • A future perspective • Why India vs China? • An overallpicture • Theoreticframework

  3. Why India vs China? People's Republic of China 中华人民共和国 Zhōnghuá Rénmín Gònghéguó Republic of India भारत गणराज्य BhāratGaṇarājya

  4. Why India vs China? • Similarity in the development condition • Being part of so-called BRIC’s countries • Similarity in the country size, population and long history • Significant influence in Asia • Competitors as well as neighbours • Boundary issue • Worldwide cultural influence • Confucianism • Buddhism

  5. An overall picture India China In 2025 India and China could account for 20% of the world R&D • Source: The CIA World Factbook 2009; The World in 2025- EU

  6. An overall picture World ranking World ranking India China • Source: The CIA World Factbook 2009

  7. history India China • Source: www.hyperhistory.com

  8. Gdp so far Major economies share of world GDP (0-2005) • Source: Angus Maddison (2001) in Saul Eslake

  9. GDP projections in the next five years After 2014, GDP growth is expected to be : 8% for China and 5- 6% for India • Source: International MonetaryFund • “Dreamingwith the BRICs: The pathto 2050”, Goldman Sachs

  10. INDIA CHINA THE BACK OFFICE OF THE WORLD THE MANUFACTURE OF THE WORLD • Source: “The dragon and the elephant”, Pang Zhongying, 2007

  11. NO GENERAL LAWS OF DEVELOPMENT The missing element in development theory is: WHY SO ? STRATEGISING The drivers of development are FIRMS, and the way firm deals with the world is STRATEGY

  12. Intellectual roots for latecomers development strategy “Latecamers need to make up for lost time and for their lack of resources, but they have certain avantage as latecomers” Latecomers status: Gershenkron Industrial dynamics: Akamatsu “Flying geese Pattern” Disequilibriumtheorizing: Hirshman “Balanced growth makes sense in growth models, (..) but no sense in the real world of a late- industrialising country” • Source: “The intellectualrootsoflatecomer industrial development”, John A. Mathews, 2005

  13. Latecomers status: Gershenkron “Latecomers are those backwardcountries and companieswithin them, whichmight take advantageoftheir apparentlyweak position in the global stage whenthey come to the development task” (Gershenkroniandefinition)

  14. Gershenkronian’s Theory: Key elements Overcame Disadvantages Exploit Latecomers Advantages • Source: “The intellectualrootsoflatecomer industrial development”, John A. Mathews, 2005

  15. Institutional Innovations tools that allow latecomer countries to take short cuts that might include a financial innovation, according to the country’s degree of backwardness • New institutions for the harnessing of capital and technology • Dominantand Compensatoryruleof the Institutionsproviding: • Financial capitals • Skilledlabour • Technologicalcapabilities

  16. Best Effective Catching-up Strategy Awareness of LatecomersAdvantages global competitive market Best fit & ad-hocstrategy • Drivingforcesbehind • Industrial dynamics Awareness of local resources

  17. DevelopmentStrategy India China vs • Source: “Emerging Giants” by Tarun Khanna and Krishna G. 2006

  18. LatecomersAdvantage:grasp the opportunitypresentedbydevelopinganindustrywithmachinary and techniquesalreadyperfectedelsewhere, but at a lowercost • TemporaryCompetitive Advantage • Industrial upgrading • Latecomerneedstobelinkedtoadvancedcountries in orderto generate itsownactivities Akamatsu: the industrial dynamics • Source: “The IntellectualrootsofLatecomer Industrial development” by John A. Mathews 2005

  19. Hirschman: disequilibriumdynamics • Preferredsectors are favouredby price distortiontoenableitto work at economicalefficient scale: public istitutions create artificalfavourableconditiontomake the sector put down roots. • Development and exports more importantthanefficency: entrepreneurialopportunitiesarisethroughgovernamentinterventionsaimedtogrowthpaths. • Source: “The intellectualrootsoflatecomer industrial development”, John A. Mathews, 2005

  20. differences and points of similarity in development strategies Foreign Direct Investment(FDI) largely create China’s export-led Manufacturing Boom Domestic entrepreneurs have been provided a more nurturing environment and are flourishing 1.Ground-up democracy, and the divisive ideas of multiparty government 2. Softer brand of socialism, Fabian socialism 3.Focus on the Service sector, especially IT industry, because of inefficiency of delivery of public services and resources and undeveloped infrastructure; . 4.Advanced inherited system and insitution 5. High-techonology talents (many IT Engineers graduated from universities every year) 6. Emigrants do not want to reinvest back 1.The Top-Down appoach “Open” Reform 2. Eradicateng private ownership in 1949 and quickly did 3.The large pupulation & huge demands for jobs; Limited capital accumulation after the establishment of the P.R.C 4.Efficient national capital & resources allocation 5. The return and reinvestment from emigrants 6. The desire to absorb capital and attract investment to quickily develop the country Political System History function National conditions People Characteristics • Source: “Can India overtake China?”, Y. Huang, T. Khanna

  21. differences and points of similarity in development strategies The Reflection of the Different Strategies The protection of private ownership is far stronger • L&R constraints on private businesses and lower political status A decent legal system provides the regulatory framework Strong and protected SOEs A tradition of entrepreneurship and government has taken a back seat • Unfair legal, policy and market environment • Source: “Emerging giants: Building world-class companies in developing countries?”, Khanna, Tarun and Krishna P.

  22. Resource late-development advantage Technology & Institution late-development advantage Manufacture Software, Service Technology-intensive Industry & Advanced System and Institution Labor-intensive Industry & Capital-intensive Industry

  23. Export Import of India Bank (EXIM Bank) Foreign Trade Development Bureau of Ministry of Commerce (MOFCOM) A premier export finance institution of India. Started with a mandate to enhance overall economic growth. A catalyst and a key player in the promotion of cross border trade and investment. A public management agency under the Chinese State Council, in charge of international trade and international economic cooperation

  24. Main functions 1 Prime mover in encouraging project exports and advisory and support services 2 Offers credit to overseas financial institutions to finance imports of goods and services from India 3 Provides financial assistance for the upgrade of facilities and for acquisition of leading equipment and technology overseas. 4 Rural Initiatives Program linking Indian rural industry to the global market • Source: “India: everythingto play for” byLehmanBros 2007

  25. Main functions 1 To formulate development strategies, guidelines and policies of foreign trade and international economic cooperation 2 To monitor and analyze market activities and commodity supply and demand on foreign countries, organize the adjustment of market supply and regulation of the distribution 3 To give general guidance to nationwide efforts in foreign investment, analyze and look into China’s foreign investment developments

  26. Characteristics: Characteristics: 1 Partnered with Small and medium enterprises 1 Entire Public Background 2 Act institutional functions in a more detailed way: offering credits and facilities, providing financial assistance 2 Act institutional functions in macro and Long run vision: issuing policies, formulating guidelines 3 Give top-down support to Chinese “latecomer” companies in global market 3Offerconsultancysupport and advisoryservicestoIndianlatecomers 4Attract FDI tospeed up economicdevelopment 4 Keeping a balance on FDI to avoid that it plays a bigger role in the economic growth

  27. Otherexamplesofinstitutionsof India and China IDBI Bank (Industrial Development Bank of India Limited) CAS (Chinese academy of Science) CAE (Chinese academy of Engineering) Reserve bank of India CNSA (China national Space Administration) United bank of India

  28. What could go wrong? Both China and India appear to be on a path of strong and sustainable growth. What, if anything, might knock them off this path?

  29. Can India overtake China or not? What is the answer? The answer is change the question! What matters most is how to catch up with early-develped countries for China & India! Because the latercomers advantage will not exist forever! • Source: “Can India overtake China?”, Y. Huang, T. Khanna

  30. A future perspective Short termearlydevelopmentadvantage Short termlaterdevelopmentadvantage Long termearlydevelopmentadvantage Long termlaterdevelopmentadvantage

  31. Thankyou.. ..foryourattention!

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