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Are India and China Natural Business Partners?

? Is China's Rise to Be Feared? |


| Advice for the United States ?

July 01, 2005

Are India and China Natural Business Partners?

Peter Coy

Are India and China rivals for world markets and resources, or will they tend to be business partners in coming years?

11:10 AM

China and India are natural business partners to each other and to every one else in the world. Any country in the world that neglects China and India does so at their economic peril. India has caught the growth bug -- and they caught it from China. It is obvious to all observers that China's eocnomy and society is dramaticaly better off than in the past, and that there are benefits of this to the society as a whole and to the governing parties. to the extent they cpompete for resources, fine. Each will use these resources to some economic end that will make us all better off.

Posted by: Donald Straszheim at July 1, 2005 01:06 PM

Yes, China and India are competitors but also natural business partners. The complementarities between the two, e.g., China's competitiveness in computer hardware and India's competitiveness in software and IT services drive rapidly growing reciprocal trade and investment which is likely to outpace global averages in the years to come. This is also a reminder to the rest of us not to apply a narrow bilateral lens (e.g., US-China) to recent economic and geo-political developments but rather prepare for the coming global realignment.

Posted by: Oded Shenkar at July 1, 2005 03:52 PM

China and India are ideal business partners more so than competitors. I agree with Oded that the two are complimentary. China has the hardware and production capability and India the software and technology edge. If these strengths can be combined by more bilateral cooperation and mutual investments, it will increase competitiveness of both countries.

China and India also have a lot of similarities so they can share experience and learnings. Both have big diversity in income between the rich and the poor, the have and the have-nots. Both have a big rural population who are still living at subsistent level. Both are big countries with multiple dialects, climates, regional cuisines and tastes. In China, we find Indian learnings are often more applicable than from developed western worlds. This may be why we see a lot of Indian planners who do well in China. They tend to have a better grasp of the complex market dynamics. China entrepreneurs and businesses are also very interested in selling to and sourcing from India. Haier for example, has a big presence and organization in India.

From both the macro perspective and talent perspective, India and China can benefit by working closely as partners

Posted by: Viveca Chan at July 1, 2005 11:25 PM

I do not think China and India are "natural" business partners.

There is a social memory in India which has lingering trace of caution about China. It goes back to the perplexing military move China made against India during the Nehru days. What perplexes two generations of Indians is why and how Chinese leadership decided to surprise India. It shook up a whole nation that was espousing "non-alignment". In 1962, in a sense, Indians were shaken up from a state of innocence.

This followed a long spell during which,though conflict did not take place, there was continued suspicion of geo-political motives. China has always militarily supported Pakistan and India gave shelter to the Tibetan cause. As a result of all these, the climate for cooperation has always been over-shadowed by clouds of non-understanding. Only in the last few years, that a few Indian businesses have gone ahead and started exploring China and Chinese merchandise has started getting into India. However, it is a sub-natural state.

I would call two countries as "natural partners" only when there is wider people-to-people contact and comfort. Both nations have a long way to go to achieve that. But, the reason for establishing such a relationship has long existed - the problem is, the season has not. The future seems to point towards a time when we may see the reason and the season coming together.

Posted by: Subroto Bagchi at July 3, 2005 10:52 AM

The answer has to be yes. India and China could be business partners, surely! Let’s look at it on three levels: historical, entrepreneurial and economic compatibility.

Historically India and China have a number of similarities. Both are ancient civilizations; have led the world as its richest civilization at different points of time – only to fall down the league table in the second-half of the second millennium. Both kick started their re-entry into modernity in the middle of the last century.

India and China accounted for over 50% of world GDP in 18th century and to my mind, there is no doubt this will be repeated. Trade synergies will emerge over the next few years as India and China continue to exert their muscle.

From an entrepreneurial standpoint, Indian businessmen and corporations are already looking at China and at cooperation at the enterprise level. A large number of business leaders and corporations have already established a base in China and are looking to grow and leverage the advantages that China offers. There is a natural "partnership" between the Indian spirit of entrepreneurship and the Chinese desire to create wealth, and their socio-cultural similarities will make this partnership easier.

Economic compatibilities exist with Indian companies in the IT, pharmaceutical and auto component manufacturing industries already setting up plants in China. China too could look at India among other markets for glass, ceramics, electronic components, plastics and other materials. There are definite synergies around India's software and China's hardware capabilities - and both countries need only look at joining forces and increasing their strength in the global economy; but at the captive market of 2.5billion consumers they share.

Both governments need to look at their natural economic compatibility and their growing influence on the world economy, and use this advantage to create a sustainable economy and start the process of creating wealth for the needy that still exist in both countries.

Manoj Singh

CEO and Regional Managing Partner

Deloitte Asia Pacific

Posted by: Manoj Singh, CEO Deloitte Asia Pacific at July 4, 2005 03:18 AM

A somewhat tangential observation, not a direct response to the question posed:--

Out there in the everyday bustle of the bazaar there doesn't seem to be a "China" and "India" in any monolithic sense.

An example: This last week shops in Mumbai have been besiged by demand for a Funskool toy called "Bay Blade", which is out of stock. Some retailers are now selling a Chinese made look-alike at a premium. Mumbai shop-keeers, their unseen suppliers in China and several link-agents in between are making money. Meanwhile Funskool India, a joint venture between MRF and the US toy giant Hasbro Inc., which created the deamnd through an ad-campaign is presumably losing out.

Perhaps the partnerships and competition will take shape not so much between nation-states but between entreprenuers of differing scale, speed and savvy.

Posted by: Rajni Bakshi at July 4, 2005 08:53 AM

There is a body of evidence that supports a "gravity" theory of trade between any pair of countries. This means that trade volumes are directly correlated to the combined size of the economies and inversely to the distance between them. By this yardstick, China and India have enormous potential for trade and current volumes are just a fraction of that potential. Of course, when we get down to the level of specific commodities and services, the picture may get a little blurred. China's and India's comparative advantages in manufacturing overlap significantly; at this point, China has achieved greater competitiveness in most, if not all, of the overlapping sectors. language barriers make trade in services a lot more difficult than it has been for India with the US and other English-speaking countries.

Nevertheless, from a macro perspective, the combined size of the economies and their relative proximity do make them "natural partners" and their economic diplomacy must take this into account.

Posted by: Subir Gokarn at July 5, 2005 03:08 AM

I do not think India and China are "natural" business partners. The needs of the 2 countries are different. However statistics show growing trade and a favorable trade balance for India !

Given India's increasing services trade and China's manufactured goods led one there is an assymetry here. But each one is trying to move in the other direction - India towards manufactured goods and China towards services led trade. So there will some conflict here till a balance is found.

Till then both will focus on their natural directions - India towards IT/BPO led exports to the western world and China towards manufactured products to the same markets. That seems to be more natural for the next decade.

Posted by: Saurav Adhikari at July 5, 2005 05:25 AM

I think Peter has given us three questions here rather than two, as I see it there is a difference between whether India and China are NATURAL business partners and whether they will TEND TO BE business partners in the coming years.

I beg to differ from the polarized positions that see the two either as natural business partners or as not. I doubt if there is a set of factors that we can put together to measure any two countries or two peoples as natural business partners. The arguments put forward so far to support one view or the other are mainly pick-and-choose type of emphases that do not necessarily share the same variables. The US and China have a huge trade volume. Are the two peoples therefore natural business partners? The EU as a whole has now surpassed both the US and Japan in terms of trade with China, and continues to grow. Are Europeans and Chinese natural business partners? In fact, if we measure by the intensity of economic activities, China would be a natural business partner with every one nowadays. But that was not the case 30 years ago. Some factors of history, language, religion, geographic proximity, culture and political system may play a role, but business partnerships in today’s world are primarily a socially acquired, humanly constructed, market-regulated, profitability-driven and historically conditioned category. In this sense, it is not whether India and China are NAURAL business partners but rather under what conditions they can BECOME business partners.

Looking at the development stages of the two countries and the international environment surrounding them, India and China are, and will continue be both competitors and business partners in the foreseeable future. It is quite obvious that the two are competing for low-end manufacturing jobs that tend to flow from higher-wage places to lower ones in a globalizing marketplace. When more FDI goes to China, the rest of the world will get less. Even when the wage-level is similar, many other factors come into play. So far, China has proven to be very innovative in certain manufacturing sectors, outperforming others not just by cheap labor cost but also by efficient management from materials supply to production to distribution to international marketing. But India is catching up fast.

It is also clear that when rapid growth is projected for the economies of these two giants over the next few decades, they will have to compete for energy and other natural resources. On a per capita basis, both countries are energy and resource poor, and there are already indications that high energy prices are hurting both. Whereas China may absorb some of these high cost from its $600 billion and growing foreign reserve, the same cannot be said about India. Beijing and New Delhi have certainly recognized that and so some initiatives, especially from India, have been taken to strengthen India-China (plus Japan and South Korea) cooperation in the energy area. They hope is to form a buyers’ bloc to have some influence over OPEC policy and the international oil market.

Although the Chinese rhetoric about “South-South cooperation” used to have a strong political tone, it is now more about real business partnerships based on market and profit calculations. The majority of Chinese enterprises are totally market driven and they do cut-throat capitalistic operations with a ruthless attitude. So whenever they find it complementary with Indian enterprises, they will be ready to do business as they do with others. And there are many opportunities emerging. A China-India business partnership can form a particular competitive advantage over the US and other industrialized countries that have high labor cost. That could be a particular challenge for the rest of the world in the years to come. So a mixture of competition and cooperation in all areas will be the likely pattern of India-China relations.

Posted by: Wenran Jiang at July 9, 2005 02:37 PM

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