October 3, 2009

Why India can't be(at) China

As the global economy stumbles, a new international balance of power becomes visible. While the economic crisis imposes a heavy burden on most of the traditional economic powerhouses, emerging giants take their chance. But not all of them seem to succeed in conquering their new spot on the economic world stage. China appears to be among the winners, while India struggles to keep up.

After several prosperous decades for the Asian Tigers Singapore, Hong Kong, Malaysia, Korea and Taiwan, a new generation of rapidly developing economies has conquered the global charts of economic growth. Brazil, Russia, India and China (BRIC) have become major contestants in the battle to outflank the United States as the world economic leaders.

Although Brazil and Russia have been restricted by domestic and international struggles with regard to political and social-economical issues, the two nations with the largest populations in the world, China and India, have become eminent economic powers as a result of sound economical and political policies and their fast growing domestic markets. Even though both countries seem relatively unharmed by the current financial climate, India appears to lose terrain to its Eastern neighbor.

China success

Currently, China profits from its powerful international profile and strong domestic market. Before the crisis commenced, the central leadership from Beijing was considered a disadvantage, as it interfered with daily issues in business and the personal life of the Chinese. Nowadays, although especially social issues remain questionable, China profits from its strong central leadership. A firm government creates stability for domestic as well as international businesses, investors and customers. The new state owned newspaper Global Times, published to strengthen China’s international profile, emphasizes this new trend.

China has recently received a significant amount of international attention because of its continuously growing economy and enhanced international influence. The foreign assets of the government have accumulated enormously over the past decade, and the U.S. financial system has partially become dependent on Chinese policy. Furthermore, the Chinese have extended their international influence by rising acquisitions and trade agreements, especially with Africa, a continent which is often approached with skepticism by the traditional large economies.

Additionally, China can counterbalance the decline in global demand by its rapidly growing domestic market. Over the past years, the country has developed significant economies of scale, which now proves to be helpful as competitive export products can be offered. The growing international importance of the Shanghai Stock Exchange is another confirmation of China’s current economic success.

India Failure
India on the other hand, seems to have profited less from the new global economic up rise, and now pays the bill during the recession. Unlike China, the country has no strong central leadership. Although India distinguishes itself as the largest democracy in the world, its superior system is currently blocking efficient economic response to the crisis. Central authority lacks the power to implement nationwide reforms and initiatives, at the cost of its sustainable advantages. The weak international profile has resulted in far less international attention compared to China, and thus less influence.

Furthermore, compared to China, India made a significant lower amount of international acquisitions and mergers, and has far less financial foreign assets. China’s main focus is on production, whereas India focused on the service sector, especially outsourcing services. As the world economy is shrinking, firms cut back on outsourced projects, whereas basic production remains relatively untouched. Recently, tensions between the two super powers rose, as a Chinese state firm witnessed spectacular rises in the sales of telecom products in India: a clear example of the new situation.

Recommendations India
In order for India to narrow the gap with China, strong action is required. Improvements in the central leadership from New Delhi, in order to be able to initiate nationwide political and economic reforms. Strengthening of India’s international profile, in order to gain influence, respect and stimulate new investments and export. Finally, a switch from offering outsourcing services to creating fundamental innovative services.

With its highly educated and fluently English speaking workforce, India can do far better than just taking orders. Enormous prospects lie ahead in development, research and innovation. India can never be China, but can at least attempt to economically match the red giant.

1 comment:

  1. There's no need for India to be like China, as each country has its own unique selling points...