India Vs China – the contrasting giants, as the economic power swings back to Asia

For the last few decades, I was always focused on the United States. Running an Indian IT company, life was almost US centric. Business in technology space can never afford to ignore the US. Most clients were in the US. Most funding came from the US. The technology business culture came from the US. And I had some of my best friends living there. I used to visit the US at least once every quarter to meet clients and to drum up new business. But I realize for the past one year, I have been to the US only once while on the other hand, I have traveled about six times to China and more within Asia. I would have never imagined this a few years back. Something surely has happened in global economy and it is so powerful it has touched my own life! In India and China, there is so much excitement in the air – it was like the way I always felt when I stepped into the Silicon Valley - a lot of positive energy, enthusiasm, and optimism hanging in the air. Now it is in the Asian air!

How did this sudden change come about? Well, it had to happen and it was inevitable! Six hundred years back, 75% of world’s GDP was produced by India and China. And then with a combination of Guns, Germs and Steel to start with, (Guns Germs and Steel: The Fate of Human Societies - By Jared Diamond, published by Norton and Company), and with the industrial revolution and colonization, the world was “conquered” by Europe and later more recently by the US. By 1950, only about 5% of world GDP was being produced by India and China. Now the pendulum is swinging back. It is predicted that in the next few decades, 50% of world GDP will come from “ChIndia”, the increasingly common new term. These are two nations of great opportunity today. They are the new engines that will power the world economic growth. No wonder everyone I meet in the US today looks at me as a person coming from the most exciting place on the planet. For a long time, the feeling has just been the reverse.

With its GDP galloping, China is ahead of India by a clean 15 years – they started liberalization that many years ahead. After Mao’s death, Deng Xia Ping, the ultimate “practical man” made many pragmatic changes. With his now famous pronouncement – “What matters is - does the cat catch the mouse, and not whether it is black or white in color”, led the country away from dogma and into practical wisdom. And, India is finding its feet too. In 1992, pushed to the wall, an unlikely combination of leaders pulled the nation in the right direction. But, what an interesting contrast today – the two economies!

I had visited China on and off over the past decade. But, in 2004, when Flextronics acquired Deccanet, the Bangalore IT venture I had co-founded, I was asked to be the “custodian” of the China design operation of the company. Ash Bhardwaj, the man who made Asia happen for Flex, told me, “please go and see China and our plants there. The factories are music in motion…man…” he would say. And music it was! The huge manufacturing plants of Flex, by then under the watch of Peter Tan, another wonderful Flex executive who welcomed me and arranged to show around his plants. The plants were very impressive - massive in size, each the size of many football fields, humming with machinery and activity, large teams of young men and women, producing for the world, practically round the clock. Then on, I spent quite some time in China - visiting Flex plants, trying to decide on new locations for the Design operations, putting together new teams, meeting potential clients and so on.

I was struck by the general momentum. Many Chinese friends I met treated me well. India and China had at best a very testy relationship over the past four decades. The 1962 war was always in the memory. Added to that, another touchy issue for India was China’s close ties with Pakistan - the “arch enemy” for India. But, I found the new generation of Chinese was looking through economic and not political lenses. They hardly seemed to relate to the hostile past. For them, India is a country with which they shared a lot of culture, religion and spiritualism in the past, a country with whom they traded throughout history. Now, India for most Chinese is a country of beautiful women, people who can sing and dance at will (Bollywood inspired), good at maths…. There is big respect for India’s achievements in IT. Due to the long break in relationship, India is a mysterious neighbor; a puzzle couched in an enigma. And, it would seem that an average Chinese accepts an Indian far more warmly than an average Indian would accept a Chinese. Hopefully, as time passes, things will warm up both ways.

…India and China are a study in contrast...

India is a services driven economy today, while China is manufacturing driven. Both are powered by cheap labor. Both are facing a dwindling share of agriculture in their economy and are involved in the huge task of redeploying the labor.

Demography: Being the most populous nations on the planet, they have huge demographic advantage compared to the developed economies which find the raising average age and a reducing work force a big challenge. China however is now staring at the problem of a population aging too fast. Its “One Child” policy, while putting break on population growth, has given raise to a unique “1+6” problem. With the increase in average life span, old folks live longer and consequently, an average young man/woman in China has to produce enough to support two parents, and four grandparents. Some feel China is aging much too faster than it is building prosperity. On the other hand, India is aging slower and will continue to have a dynamic young population for decades. For the next 50 years, India will have a much younger population than its neighbor. But in case of India, the real problem is its poor record on education and basic infrastructure. A large population of illiterates is a huge problem facing India. If you want numbers, try 350 million plus illiterates! Keeping the average age lower does not seem to be a big demographic advantage to me if a huge part of the population can’t read or write. This is especially troublesome in a modern economy that is tending to me more information driven.

The Drivers of growth: The Chinese economy is powered by the Govt. and people are joining in. By contrast, in India, the economy is powered by the people (read entrepreneurs) and the Govt. (sometimes reluctantly) joining in. The Govt. is effective in China in spite of certain level of corruption and all other criticisms. Things just happen! People try and align themselves to the Govt. policies and cash in on new opportunities. I was pleasantly surprised when a lady entrepreneur in China took me for dinner with some key Govt. officials and they were all talking the same language – I mean same theme. China seems to have studied the Singapore model well and seems to have scaled it up to a much larger level. Over the last decade, Shanghai is transformed from a shanty town to a promising “New York of the east”. When you travel around China, you are shown a new metro, a new maglev train, a new expressway, a new airport, a new this and a new that. Things happen at breakneck speed, because the Govt. need not win arguments over every step it wants to take unlike in a coalition ridden polity like India. And, there are no prolonged fights to acquire lands for new factory, or road – good or bad. The Political leadership in China is savvy, nationalistic and with a clear problem solving mindset. Most of the top leaders in china happen to be engineers from their top schools. Engineers are essentially problem solvers. Look at the contrast – Shanghai and Bangalore started talking about new airports 15 years back. Shanghai now has a 12 year old world-class airport. And Bangalore just decided where to locate the airport and started work on it. Our politicians and bureaucrats have been pulling at each other, unable to move.

So, have I fallen in love with China? No, not exactly. I just think there are a few things India could learn from China. As I would say, China can pick up a few ideas from India too.

While there is clear case for improving the governance, India has a very large participative democracy. We can call our leaders names, and throw them out of power when they seem seriously flawed. We have a fourth estate that is very active and powerful. If grave injustice is done, like in the case of Jessica Lal, it can really put the Govt., police and judiciary on the mat and get things corrected. India is one of the few countries in the world that has built democracy first and is then building Capitalism– a far more difficult option than the reverse. While China has a fairly homogeneous population, India has a very diverse one. Many languages, cultures, and religions divide us. And we have to carry the old baggage of caste, which with its history of 1000s of years, may take another fifty to hundred years to disappear. With these, disadvantages we have done remarkably well.

The driving force for India has been its entrepreneurial spirit which is extremely strong. A foreign Joint Venture partner of mine came to India on my invitation. I showed off India to him – basically Bangalore and Chennai - the cities, the people and the companies. At the end of the three day trip, his comment was: “the infrastructure here is far worse than” what he expected. He just couldn’t understand how such smart people can’t solve this problem. But on the other hand, the companies he visited were “far beyond what he expected to see. The quality of people and the systems and processes are very impressive.” It is the entrepreneur who is the driver in India. And, today, the entrepreneurs do not come form a small family of industrialists; on the contrary, they are sons of school teachers, farmers, middle class working families; they come from every where; from a wide cross section of people.

And, we are a young nation as far as entrepreneurship goes – it is just 14 years old, when we broke finally from a socialistic past to respect individual entrepreneurship. In a way, we were really reborn as a nation in 1992. Then on, what we have achieved “in spite” of our leadership and Govt. is remarkable. We are really building our nation bottom up – with a massive participation from people. It can be very powerful and sustainable.

Big opportunities in the junction between India and China…

So, India and China are moving from practically nothing to account for 50% of world’s GDP amongst them in just a few decades. The two economies are very complementary in many ways. There are a lot of opportunities in the junction between these two economies. There is a strong case to start engaging each other. We must complement each other and “exploit” each other’s strengths. This will lead to a lot of new wealth being created. And that will spread prosperity to large sections that are yet to taste the fruits of development and growth. China can be a big market place for India. If they tried a bit harder, Bollywood for example, renowned for its packaging of emotions can have the whole of China eating out of their hands. China has a very weak entertainment industry. Indian services industry, running into a serious labor crunch at home for engineering manpower can exploit the relatively better labor position in China. And Chinese product companies could bring their product culture to India. Emerging product companies of India can use the strong supply chain of Chinese. A complex PCB today may take a month to turn around by a hard pressed PCB maker in India while in China, they can deliver in a matter of days. Yes, the opportunities are immense!

Twenty years back, my dream was to start a company in the US. Today, nothing could be less exciting and more daunting than that. Eight years back, I didn’t give China a second look. Today I am visiting it with increasing frequency. We are surely living in changing times, with fast changing equations. US does continue to offer a lot. The level of innovation, the entrepreneurial energy, the academic institutions, business dynamics are all there to see. In US everything seems to have “happened” though; one needs to make something dreadfully innovative to capture attention there. But, there is something very simple and exciting about Asia today. You do almost anything well enough, and you will be rewarded.

The trade between India and China which was at a few hundred million $s a few years ago, stands at $ 20 Billion now and is expected to cross $ 40 Billion by 2010. These are big strides. Time to engage with China!

And in my own scheme of things, I am trying to do just that. Of the many new ventures I am currently involved in, two are in China. It is not easy. Language, culture, systems, ethics, everything is different. But it is interesting to learn; and it is not impossible. At the bottom of it all, engineers are engineers and businessmen think business. If you look hard and stop typecasting and generalizing, you can find good people everywhere.

Two economies, different in their own ways, fast emerging to occupy key positions in a new emerging world – positions they always deserved. Time to learn; and time to engage!