By Simon Lazenbatt

While China and India are often cited together in breathless appraisals of international business opportunities the realities of doing business in these two Asian giants are, and will long remain, distinct. Perhaps the only comparable fundamental is that the new entrant had better beware.

Still, the launch of this website is timely as international business with China and India has expanded massively in recent years. It is worth considering the background issues that will shape the development of both nations in the coming decades. The social structures, political processes, and national aspirations in each country may well produce different and complementary futures, but other factors – energy requirements, population dynamics, environmental concerns and relations with the wider world (notably with the USA) – will inevitably create a complex future.

The trade between the two nations is also increasing, albeit warily after a long period of mutual suspicion, and continuing potential disputes over their lengthy common border (what the Indians call Chinese ‘cartographic aggression’). In this environment companies established in one of these markets may well find the evolution of bilateral trade relations creating demands and opportunities in the other. Many Indians believe that the established business development segmentation – India producing the software, while China manufactures the goods – is going to be superceded by a future wherein India develops its manufacturing capability and takes an increasing share of the manufacturing too. This outlook is supported by the demographic differences between the nations. Chinas’ ratio of active workers to dependants is about to peak within the next few years whereas India will continue in the demographic ‘sweet spot’ for another 30 years. The attitude that this, almost alone, will fuel the development of India is quite prevalent and the visitor to India may from time to time be struck by the mood of self congratulation and triumphalism. That there are also many obstacles to India’s development is often disregarded in a fug of complacency.

The manpower question in India will bedevil confidence for some time to come, as it has in China. Although there may be millions looking for work their suitability is an issue. In educational attainment as in most manpower parameters China is way ahead of India with over 90% literacy compared to 65% in India. All the same, the Chinese found, when they tried to attract foreign investment in order to spread the fruits of opening up to the remoter western regions, that many would-be investors were put off by the low talent level available. In India this issue is more acute and will hamper expansion of the economy unless the government gets a grip soon. Provocatively, one of India’s leading financial analysts, Ashok Wadhwa, has said that there is no unemployment in India, as the more than 300 million people who are considered unemployed are in fact unemployable. At the other end of the educational spectrum there is now a real shortage of skilled labour in India and this is, of course leading to wage inflation.

The inadequate condition of the Indian infrastructure and the impact of this will continue to provoke concern and will, I’m sure, be explored at length in this website. It is an issue that has an impact now but will do so into the future and is causing many international companies to revise their bullish forecasts for India. An executive with one of the major aeronautical firms told me that their long term planning has been significantly impacted by the delays in upgrading India’s creaking and overloaded airports.            

For the international businessman selecting business partnerships, office locations, employees, manufacturing sites, vendors or government approvals, not to mention grappling with day-to-day issues, the apparent advantage that India offers in terms of facility in the English language may be more than offset by other factors such as poor infrastructure and complex bureaucracy. The World Bank estimated that the average manager in India spends 15% of his time dealing with inspectors and other officials, which is more than double the figure for China.

In recent days the business community has been absorbing the implications of the latest Indian budget. It is not unfair to say that the response has been tepid. Some measure are seen as frankly anti business including a new 12.5% tax on the rental of commercial space, which considering that Mumbai, Delhi and Bangalore already have some of the most expensive real-estate in the world is not going to encourage the establishment of offices for foreign or domestic enterprises. On the plus side there is a commitment to expenditure in social infrastructure which is sorely needed but there is a lack of confidence that this will be implemented more successfully than past well intentioned measures have. Perhaps in this area can be found the greatest difference between these two countries: China gets stuff done while India talks about it. 

Mr. Lazenbatt is a main board director of UK listed pharmaceuticals and supplement distributors Goldshield plc and is based in Mumbai. He was previously country manager for pharmaceutical manufacturers Grunenthal GmbH, based in South China and is experienced in the corporate business environment in both countries.

This entry was posted on Tuesday, March 6th, 2007 at 4:10 pm and is filed under Letters from Bombay. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.