Just Don't Call It 'Chindia'

As foreign executives have discovered, there are very different formulas for success in India and China

Editor's Rating:

The Good: Casts light on why business is so different in the booming India and China

The Bad: Overstuffed with case-study notes and personal travel details

The Bottom Line: Overstuffed with case-study notes and personal travel details

Billions of Entreprenuers:How China and India Are ReshapingTheir Futures and YoursBy Tarun KhannaHarvard Business School; 351pp; $29.95

The concurrent economic booms in India and China have led to a plethora of books on the two countries. With good reason: They are destined to reshape the global economy for years to come, and few companies can remain competitive without a presence in both. Yet foreign executives also have found that the formula for succeeding in one country doesn't apply to the other.

The latest book to enter the fray, Billions of Entrepreneurs: How China and India are Reshaping Their Futures and Yours, by Harvard Business School professor Tarun Khanna, casts light on why business is so different in the two places. Readers could have been spared many of Khanna's case study notes and personal travel details. But he makes a strong argument that unique historical and social factors will continue to shape the nations' entrepreneurial ecosystems. And he shows how companies such as GE Medical Systems (GE), Microsoft (MSFT), Metro Cash & Carry, and Unilever (UN) have overcome obstacles by adapting their business models accordingly.

Khanna sets out to demystify many of the questions that confound foreigners: Why is China so much more open to multinationals than India yet vastly less hospitable to its own private entrepreneurs? Why do Indian companies have a far deeper pool of world-class managerial talent than China? Why does the state pervade Chinese business even in the smallest towns, while the key economic catalysts in Indian villages tend to be grassroots self-help groups? And why can Beijing ram through sweeping free-market reforms while New Delhi is unable to do so?

To understand China's corporate scene, Khanna explains, one can't underestimate the lasting damage from Mao Zedong's Great Leap Forward of the 1950s and the decade-long Cultural Revolution (1966-76), which wiped out several generations of managers. When Deng Xiaoping ushered in reforms after Mao's death, China had to rebuild its corporate sector from scratch. Deng provided incentives to lure investment by multi- nationals and by the ethnic Chinese in Hong Kong and Southeast Asia. And he greenlighted hordes of Communist Party cadres to go into business.

China still lavishes favors on foreign investors, especially those bringing high technology. But there is almost no way to sidestep the state. To succeed, most multinationals play ball by cultivating top leaders and spending lavishly on programs to help China develop high-priority industries such as software and life sciences. Government bodies and officials have key stakes in virtually all important Chinese corporations. Even among the many small and midsize enterprises that superficially resemble private outfits, "the Party apparatus is never far behind." To raise funds from banks or equity markets, entrepreneurs often join the Party and dole out stakes to local governments and officials.

India also had its period of socialist excess, stretching for decades after independence. But entrepreneurs persevered, "when necessary ducking and weaving away from the state's predation." They made do with limited capital, and often focused on offshore customers. Moreover, most multinationals did not abandon India, even during periods of stifling state controls and the antiforeign campaigns that ousted Coca-Cola (KO) and IBM (IBM) in the '70s. That partly explains India's wealth of managerial talent.

Which system is better? India-born Khanna insists that he is neutral. While he disdains China's rule by fiat, he envies the Middle Kingdom's ability to implement reforms methodically based on an "overarching framework." India's technocrats, by contrast, are hobbled by a "farcical" Parliament in which one-fourth of legislators have criminal records and meaningful debate on reform is halted by "catcalls, sit-outs, sit-ins, and walkouts." Still, in his case studies, Khanna shows more respect for the Indian businesses that pulled themselves up by their bootstraps than for their state-coddled Chinese counterparts. Even with the generous perks they get in China, multinationals, suggests Khanna, perform better in India.

Despite their quirks, though, China and India both are destined to be global heavyweights. And CEOs shouldn't assume the idiosyncrasies will disappear anytime soon. The message of Billions of Entrepreneurs is that it is the Westerners who will be forced to adapt.

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