Wednesday, December 3, 2008
Sudhanva CharEditorial Board – Academic Resources
India’s Store Wars by Geoff Hiscock. Subtitle: Retail Revolution and the Battle for the Next 500 Million Shoppers. Published by John Wiley & Sons (Asia) Pte. Ltd. ISBN 978-0470-82351-4
Many of the accounts of India’s dramatic economic growth after the economic policy liberalization in the early Nineties have been more macroeconomic and very little microeconomic. The book under review portrays how it really is at the firm or the sector level under the current swift scenario. It succeeds in bringing out the dynamics of growth in a micro-segment of the economy, the Retail Trade and Commerce. In this sense, it makes a noteworthy contribution, in the nuts and bolts area of microeconomic development: the Indian retail sector.
Geoff Hiscock’s account of the Indian retail scene is fascinating, and particularly so if you are among those familiar with Indian retail business, jammed chock-a-block with angadis, the mom and pop kirana stores, the bazaars, the dukans, dhabas, mandis, pottikadais, parishes, stalls, and weekly santes, and what have you, selling anything from boiled and salted peanuts to iphones and digital cameras. The book’s keynote is it effectively projects the humble retail store as one of the critical components of the engine of economic growth. It goes beyond that: it actually demonstrates why and how this modest constituent of the free enterprise world is indeed a key building block of economies such as India’s.
The book has twelve chapters. The first examines the ramifications of the Indian retail market size and makes projections into the future such as the share of ‘modern retail’s’ in total spending going up from 3.6% in 2008 to 26% by 2018. The theme of the second Chapter is “What Consumers Want?” discussing the strategic importance of rural retailing for marketing success. The third Chapter deals with key players in the retail area and the new comers are discussed in Chapter 4. The Bharti-Wal-Mart collaboration is the subject matter of Chapter 5. Chapter 6 deals with established business houses such as Tatas and Birlas becoming prominent in the retail area. The next chapter calls for attaining the economies of scale, and preaches the virtues of becoming big with excellent case studies of Nalli, Viveks and Subhiksha. The emergence of the Mall culture is discussed in Chapter 8. Rural retailing is the topic in Chapter 9, Supply-side snarls such as inadequacy of infrastructure in Chapter 10, Talent needs for Retail and their availability in Chapter 11. The last Chapter takes a 3600 perspective of the future of retailing in India. It takes a look at a whole set of problems such as infrastructure inadequacy, corruption, social and political upheavals, and others. What is most interesting is the list of top ten retailers today and a forecast of such top retailers in 2013, some five years from now. According to this forecast Reliance would emerge as the Numero Uno and the Bharati-WalMart collaboration second.
“India’s Store Wars” captures authoritatively the vibrance of the contemporary retail landscape and the vigorousness of the retail wars in India, the new players, the entry of global companies as well as of Indian conglomerates such as the Tatas, Birlas, and Reliance and others. It gives a sense of where the future of retailing as a unit of India’s growing economy is headed. It succeeds in bringing home to the reader the excitement that is Indian retail business. It mirrors the state of the Indian economy itself. If the Indian economy grows at a hurried pace of 8 to 10 percent, the Indian retail business seems to be clocking a hastier pace of expansion such as 12 to 14 percent. But the book does not, alas, discuss what factors validate such rapid growth attracting multinationals and conglomerates into India’s Retail Trade. This is not to deny that it does list the obvious reasons such as the actualities of increasing incomes, demographics and the emergence of the middle class in a substantial way and the increasing brand-consciousness.
The big retail chains of America such as Wal-Mart, K-Mart, Neiman Marcus, Walgreen, JC Penny, Sears Roebuck, Macy’s, Home Depot, Lowe’s and scores of others are globally eminent. The important role of retailing in America’s prosperity is taken for granted. The Retail Sector’s contribution to America’s GDP is about 12 percent or $1.62 Trillion. In comparison India’s retail sales are estimated at $350 billion which is a lot more substantial at about 25 to 30 percent of India’s GDP. In this perspective Wal-Mart’s decision to partner with Sunil Mittal’s Bharti Group is a bold step especially in the context of the unforeseen slow down in India’s retail business. Not surprisingly, as the book mentions, the Wal-Mart-Bharti collaboration is pejoratively termed by existing retailers as “Wal-Mart invasion.” (p.7) Sunil Mittal, the chief of the Bharti Group that is collaborating with Wal-Mart, calls India the “last Shangri-la of retail.”(69) and a “continent of consumers” (p.73)
Expansion of any business, including retail, during a recession is unwarranted. The current global recessionary trends could not have come at a worse time. In the short term there is little justification for optimism. However, over a longer term perspective, the increments in personal incomes and the emergence of a middle class about double the size of America’s population provide ample rationalization for expansion of the retail business. As a matter of fact the book could have shown how vast areas of the monetized economy are not catered to by retailing at all. This is where the question of marketing for the poor pops up. The poor number nothing less than five billion people around the world, reporting annual disposal incomes of less than $1500, and they “…. comprise the bottom of the economic pyramid” as C.K. Prahlad puts it. Concern for this segment of the population would make retailing a more requisite part of the economy.
Marketing for the rich alone is not a sufficient condition for progress and economic expansion. An all inclusive development pattern would include the underprivileged sections too so that they have the wherewithal for self-development and are able pull themselves up by the bootstraps. If we visualize retail business’s virtuous cycle as having, as one of its goals, the delivery of contentment to the poor, it would further buttress the argument for retail expansion. It could also very well fit into a strategy to expand retailing itself. Hiscock’s book refers to some steps in this direction taken by retailers to supply materials and services to the rural sector. It quotes Rupa Purushottaman and others supporting the theory that “urban growth is good for rural India” and this in turn would bring about “…greater integration between rural and urban supply chains.” The second chapter “What consumers want?” has done some justice to this topic.
Yet another lacuna of the book is it pays no heed to the growth of e-commerce which is ubiquitous and which could steal some market share from the brick and mortar retail stores, just as Amazon.com, E-bay, and scores of others have done in America. Current literature on marketing tells that it would be a faux pas to regard online or web retailing as an integral part of the real world supermarket.
The story of foreign collaborations in Indian retailing is well narrated by Hiscock. Many developing countries including China and India follow the classic model of economic growth taken up by Europe and America. Not surprisingly therefore the retail sector is gaining importance in those developing countries too. Wal-Mart is setting up its own first wholesale store in India in 2009 in collaboration with Bharti. On the success of this model of retailing depends dozens of new collaborations of the same kind.
It is arguable that because the developing economies are not organized, their dependence on the retail business to reach goods and services to nooks and corners of their far-flung economies is a good deal more than in the developed countries. They provide a vital service to the economy which otherwise would be crippled especially considering the generally poor infrastructure in developing countries necessitating additional efforts by the retail distribution business to make essentials and other goods available.
For the same reason, India’s retail business so far was a sheltered business, protected from the Wal-Marts and Dollar Generals of the world. In view of the desire to make up for time lost in the four decades after India’s independence, foreign investment is now being permitted in such sheltered sectors. This has been done in the hope that growth in GDP gets as close to the double-digit target aspired for.
Hiscock’s India’s Store Wars is well produced, easy to read and has a comprehensive chapter-wise endnotes and a separate bibliography at the end. Anyone wanting to update oneself about India’s retail business cannot disregard it.
Wednesday, September 17, 2008
In late May, the monthly Bulletin by the Hong Kong General Chamber of Commerce published Dr Steinbock's analysis of the U.S. Presidential Election 2008. It was based on his presentation at the HKGCC in the March election panel. "The renewed focus on the economy and increasing skepticism over economic globalization," he concludes, "go hand in hand with a more critical view of global trade in general and trade with China in particular."
Rise of Chinese Metropolises
"In the past, the wealthy OECD cities led the world economy," Dr Steinbock noted in his first commentary to Shanghai Daily (July 1, 2008), the largest English-language daily of China's financial capital. "Today, economic gravity is shifting to the emerging metropolises in the East, and China is showing the way." Based on his research, Dr Steinbock noted that the role of Chinese cities is becoming critical worldwide. "In the West, many urban leaders still think that they are competing with other established cities. They are in for a surprise. In the new city competition, the cities of the emerging economies are showing the way."
Oil Prices Threatens Globalization (China Daily)
China Daily (July 9, 2008), China's leading English-language newspaper, released Dr Steinbock's commentary, "Oil Threatens Globalization": During the past 30 years, global economic integration has supported extraordinary global growth. The take-off of large emerging economies, particularly China, has had a great positive impact on the world economy. If the cost of moving things and people continues to soar, globalization will erode and regionalization will gain." The commentary was also published by Xinhua, China's leading news agency.
Mobile TV in India
In the new Broadcast & Cablesat, India's premier magazine on media content and technologies, Dr Steinbock is featured as the guest columnist. Writing on the potential of mobile TV in India, he urges Indian firms to engage in pioneering strategies: "Since the cable revolution in the 1980s, marketers have been lamenting over the demise of mass television. Unlike the TV set, mobile devices are ubiquitous and closest to our heart – a 'must' means to achieve reach and frequency in mass markets. Mobile TV will play a key role in the cutting-edge mobile marketplace. India is well positioned to develop a substantial position in this market. However, pioneers cannot be followers – they must be among the innovators."
The Next Stage in China's Growth
In the opening week of the Olympics, China Daily (August 14) published Dr Steinbock's commentary on the next stage in China's growth. "The first challenge of China's economic development was to overcome poverty. Now the nation is preparing for the second challenge - achieving prosperity," he says. "Recently, some Western observers have expressed concern for what they call China's rising "nationalism" and "protectionism". These perceptions may be motivated by vested interests - concerns over China's rising economy and power." Unlike many other observers, Dr Steinbock says that the US and Chinese growth models "need not be seen as mutually exclusive, but complementary. In the Cold War era, the American model played a critical role in the increasing prosperity of Western Europe and Japan. In the post-Cold War era, the Chinese model can have a substantial role in spreading growth across emerging Asia and beyond." The commentary was also published by several leading Chinese news agencies.
Thursday, September 11, 2008
China’s hosting of the 2008 Summer Olympics has definitely burnished its image as a great nation with the largest haul of gold. This is enviable by any measure. China has done this even as she is trying to pull up the economic lot of its seven hundred million poor people, the other six hundred million people having already graduated from poverty to lower middle class, the middle class, the upper middle class and some even to the rich class. What inferences will future economic historians draw from all that is going on in China currently and of course since 1948?
First, no other nation, not even the former communist Soviet bloc countries (including of course Russia,) Cuba, North Korea, or China’s vassal states of Sudan or Myanmar, despite all the authoritarianism in them, has been able to organize itself as well as China, and on top of it, run away with so many medals. Nor have those birds of the same political red feather achieved equally impressive across-the-board economic and social progress. Also to start with, Chinese incomes were below the base line.
The tiger economies of Taiwan, S. Korea, Japan, Singapore and such others have been in some sense, harbingers of the kind of progress that China has made, telescoping a century of economic progress into just about five decades or less. What is noteworthy is that the tiger economies enjoyed the same or a lower scale of totalitarian rule and enforcement of the laws and rules that would govern such nations. But the Singaporean discipline enforced by the respective elected, autocratic, or military government was there. Many other nations of the world have been incapable of achieving such progress despite a large dose of despotic control. What gives? Is it something that the Chinese and East Asian people have and others don’t?
Thus, a somewhat convenient inference would be that high-handed and/or undemocratic systems together with populations that are of Chinese or Chinese-type derivation are likely to accomplish better overall (GDP) economic results than other populations wedded to democracies. Max Weber theorized that western nations with a Protestant ethic supported personal accomplishments and thereby societal development, facilitating rapid industrialization. Along the same lines it should be possible to theorize that:
A) Chinese populations have a higher need-to-achieve score than several other populations. And
B) Totalitarian systems are better equipped to pull up masses of people out of poverty than western style noisy if not chaotic democracies.
There is strong evidence for accepting Theory A. At least, this is what the millions of people that either visited China during the Olympics or watched the Olympics on their TV sets are likely to conclude. Nothing sells like the Olympic spectacle or the equally impressive fact of China emerging as the factory of the world, particularly in the past ten years. These indeed are rock-solid achievements. And so arguably, the Chinese in a personal and societal sense, are more capable of firing on all cylinders and get to wherever they decide to get to.
During the post-Long March period, collectivism perhaps succeeded in inculcating sought-after ethical principles such as that the national interest transcends personal or local or even regional interests, there is strength in unity, it is reasonable to be nationalistic, and it is okay to adopt western (or American) life styles, ways, mannerisms, education, technology, research and development and so forth.
The Hard Evidence
Take a look at several dictatorships with non-Chinese or East Asian like populations: Cuba, smaller Latin American countries, Iran, Zimbabwe, the Sudan, Myanmar, Pakistan (under military dictatorship), and countries in the Middle East, other than Abu Dhabi. There is of course no comparison here with China’s size, but only with the yearning for economic success. Apparently, Chinese economic fervor does not seem to be that ubiquitous and there appears to be a dearth in motivation for rapid economic and social progress (n/Ach score) even under a strong dictatorship. India’s progress has been second only to China’s despite the high jinks of a rambunctious democracy. It is a moot point whether India’s performance would have been superior under a Draco who would channel all efforts towards whatever was in the national interest. This is not to underestimate the real benefit of an uninhibited democracy that serves as the clearing house of all critical and not so critical information, a sine qua non for balanced development.
It is too early to conclude that despotism or at least Singaporean (draconian) government is good, let alone decisive, for pulling people out of poverty. A true democracy is definitely conducive for rapid economic progress. There are no controlled experiments to go by, but we can look at nations that are excessively democratic such as India, where a small bunch of individuals can protest and delay projects indefinitely if they perceive such a project is deleterious to their welfare even if it is in the collective or national interest. The Nuclear (123) Agreement with America, Tata’s Nano small car project, the Ganges-Cauvery link and numerous others have suffered in democratic India albeit the awesome benefits that would accrue to India from an expeditious implementation of these projects. It takes much public edification before grand visions can materialize into reality.
Chinese Tiger and the Indian Elephant
It is also a fact, that there is no true or perfect democracy, in the real sense of the word, anywhere. In the best of democracies today, it is not uncommon in many a democratic state to witness blatant promotion of self-interest of individuals or the privileged, indifference and ignorance of large sections of the population in regard to what is in the larger interest of the nation. Democracy in our times often connotes Tammany Hall politics, complete with no-holds barred political party fights and vote banks, jockeying for power, tug-of-war and wrangling on every policy point whether basic or peripheral, bribes and corruption, filibuster, and other claptraps that people are often free to indulge in with impunity in such a free society.
And so if India is not growing fast enough under freedom, it is not because it is under a democracy. It is because democracy is mistaken to be a free for all to do whatever they please, instead of looking beyond their nose at the national interest. Democracy gets bad a rap. Under such a political set up, even if people aspire for economic progress, it is hindered and hampered by what Henry Adams said: “Practical politics consists in ignoring facts.” Free people tend to follow their own personal interest, and ignore the larger good of the nation. In a true democracy it should be eminently possible to achieve rapid progress. Public education should therefore receive the utmost consideration.
Also the mindset of the people is one of the factors that contributes to the success or otherwise of national endeavors (or experiments) in economic progress. No one would have missed the great enthusiasm the Chinese demonstrated or the unmistakable pride they put on view during the games.
From all that was witnessed during the Olympics, it would not be incorrect to surmise that the media-blitz represented people of China approve of the way nation-building is being carried on in China and would not demur too much even if they wanted to express frustration about any thing.
Editor, Academic Resources, ICA Institute's International Contributors Editorial Board
Wednesday, September 3, 2008
By: Russ Sandlin
(Issue Details:July 2008).
Ten reasons to have a BPO presence in China:
- The People’s Republic of China is the gateway to high-end value chain work available now in Hong Kong, Singapore and Taiwan. A mainland China presence allows a BPO operator to take advantage of ancient ties to Taiwan, Singapore and APAC. High-end KPO, ITP and BPO work demand is high in these markets, and the mainland is the best place for these countries to export their work. As China become the manufacturing hub for Asia over the last twenty years, look for China to use the same attention to efficiency to become the BPO destination for Asian Chinese-speaking countries.
- China has a large, skilled population of workers who have mastered or grew up hearing and speaking Japanese and Korean. BPO’s are growing and moving into Dalian, in the north-east which has been traditionally either a part of the Korean, or the Japanese empires for over half of the last 500 years. Look for Dalian and other eastern cities to take on more R&D, ITO and high-end BPO work for Korea, Japan and the rest of the developed world over the next five years.
- The Chinese domestic market is the largest, mostly untapped market in the world. A strong presence in China provides a beachhead for companies to make the potential of the Chinese markets a new growth stream for revenue.
- China has more engineering graduates than any other country on the planet. I recently met with the CEO of a large BPO/ITO company in China that is exporting engineers to work in India. The strong technical base of employees in China is one of the factors that makes the Global Outsourcing Report 2005 predict China will dislodge India as the top BPO destination by 2015.
- Strong infrastructure: Chinese motorists complain of traffic, which I compare to the traffic of Waco, Texas at rush hour. They have wide, well planned roads, first-class rail lines, planned airports and mass transit that is the envy of the world. That’s just on the transportations side. Getting fiber and redundant power is not a problem, and the business parks popping up like mushrooms all over the country give considerable concessions to foreign investors bringing BPOs into China. Getting past the censors on the internet which slow down bandwidth a little, the scale and throughput capacity of their network is amazing.
- Innovation: people do not consider China as innovative, more of a copycat country. I encourage one to look at the entire history of China: where would we be without the compass, gunpowder and irrigation, all invented in China? China is now in the vanguard for mobile technology, and look for China to take the lead in environmental initiatives, alternative fuel initiatives, mobile technology and R&D in the food and pharmaceutical sectors. They are not just copycats. The diaspora of Chinese engineers returning to the mainland, coupled with the large numbers of annual engineering graduates, creates a crucible of innovation in China over the coming years.
- Work ethic: Thomas Friedman spoke of the Zippies in India today, who are impressive indeed. China has just as many, and they are working 18-hour days creating companies like Baidu.com Inc., Alibaba.com Corp., and Maxthon International Ltd. to name just a few. These companies, as detailed in Rebecca A Fannin’s Silicon Dragons, will not only be super-starts in Asia, but will rock the foundation of US-based companies with their innovative new twist to the US high-tech company.
- China’s command of English is going to improve year over year. In September of 2008 there will be an influx of English-speakers hitting the job market at the close of the Olympics, allowing China to become a voice-contact call center destination for the first time at scale for English-speaking customer-base companies.
- Central Government has awesome power. Any government that can mandate and enforce something like the “one child policy” is capable of doing nearly anything. The government wants to work up the value chain with the economy, moving away from low-end manufacturing. They recognize English is necessary in order to capture more of the offshore outsourcing market share. Look for a more pronounced government policy mandating English education in the coming years.
- The Sichuan earthquake served as a national event that at once changed the nation. An unparalleled transparency in news coverage followed as China coped with the massive disaster and loss of life. Look for more government openness and transparency as a result of this massive tragedy.
And 5 things to worry about:
- Going at it alone: China still has challenges with different business structures, codes and tax laws, sometimes in conflict with one another, from province to province. For now, it is a good idea to have a partner, either with a co-location, JV, or a purchase, retailing the legacy team in minority status to carry on the methods and procedures to remain legal within PRC.
- Intellectual property; the laws governing IP are lax, or in many cases, lightly enforced. Steps should be taken to secure your IP as this gets sorted out.
- When compared with India, PRC lags far behind in spoken English language. Many more English speakers will become available at the close of the 2008 Olympics in August 2008, but for now, corporate English training and importing English speakers from other locations such as India and the Philippines will be necessary to supplement any voice campaigns of size.
- Bandwidth concerns; sensitivity with what is coming into, and going out of China, especially video media, slows down data transfers. Look for this to become more of a challenge up until the close of the Olympics as the PRC attempts to screen potentially provocative negative propaganda from being transmitted out of the country before the Olympics.
- Chinese culture is rich, and full of many wonderful traditions. However there are other “quirks” of acceptable behaviour in the PRC which would be frowned upon in the west. Expelling of phlegm, and slurping of noodles come to mind. It takes a little time to get used to, but it won’t kill you.
About the Author
Russ Sandlin is the COO for Benprise LLC. Russ started out in telephones in the early 1980s while attending the University of Delaware and worked his way up in the leading call centers of the United States. Russ was assigned Call Center CTI Dialer projects, Fair Isaac Behavioral Scoring and Adaptive Control modeling early in his career, and later managed large contact centers for Barclays PLC, HSBC, Chase Manhattan, Bank of America, AT&T and Dell. Since then, Russ has helped US-based investors move their work offshore setting up contact centers in Korea, Mexico, Dubai, Qatar, Pakistan, India, the Philippines and Ghana. Russ is an industry expert in offshore outsourcing, BPO, KPO and contact centers; he has a passion for CDM projects to lower greenhouse effects on Planet Earth.
From ICA Institute blogger, Erik Rostad:
A recent Chinese start-up called WaWaWa (www.wa3.cn) will test a subscription service that evens out to about $0.03 per song. At this point it is unknown whether or not Chinese consumers will pay even $0.03 per song. The content is mostly from independent artists, but this is pretty telling.
China just passed the USA in the number of internet users. Increasingly, China will begin having a much larger impact on the market and pricing. In this case, this is a pretty significant test, so to say, for the Chinese consumer. On the whole, China is notorious for downloading copyrighted material for free.
This is really amazing when you think about it. The music business sales model has changed so much that we are now asking ourselves the question of whether or not the country with the largest mass of internet users will put down $0.03 for a song.
The song is no longer the widget of value for an artist. This just shouts that the future of music will be more about the experience. The live music experience. Learning how to communicate effectively with your fan base who doesn’t just buy the $0.03 song, but experiences that song deep within their soul. The fan who has the experience will buy the merchandise, will attend the shows, and will pay to be a part of a fan club where advanced tickets are provided.
Companies will also tap into this experience factor for music. When a client has an experience with a brand and there is a song attached to that experience, perhaps through advertising, that client will associate the experience the music creates with the product.
By the way, at this point, you can only access the WaWaWa site by using Internet Explorer. Firefox and Opera don’t work.
Music Industry Blog: http://www.kokopellitimes.com/
Recently, Dr Steinbock, the ICA Institute’s Research Director of International Business, has been lecturing in Shanghai’s leading think-tanks. He will soon be in New York City to explore the slowdown in the United States. Meanwhile, new publications have been released. Please find enclosed a sample of highlights:
“Senator Obama’s presidential campaign has entered a new stage,” said Dr Steinbock in Shanghai. “The appointment of Jason Furman, who worked closely with former Treasury Secretary Robert Rubin, as his economic policy director, triggered a bitter reaction from Obama’s union supporters. The appointment allies his campaign with leading economic centrists in the Democratic Party, particularly Rubin who orchestrated President Bill Clinton’s economic policy of promoting free trade and reducing the federal budget deficit. The inclusion of economic centrists in the Obama campaign is likely to reinforce his support in Wall Street and the private sector in general.”
“OECD metropolises prepare for the future by moving higher in the value-added chain, from cost avantage toward innovation,” notes Dr Steinbock in Talouselama, the leading Finnish business weekly (June 6, 2008; in Finnish). “In the long-term, emerging metropolises will follow in the footprints… The new rivalry of the cities requires increasing cost-efficiencies. In the advanced economies, the wealthy metropolises enjoy old but fading competitive advantages. The new Asia’s emerging metropolises are building a bridge into the future.”
The essay is based on his research for the Committee of the Future of Eduskunta, the Finnish parliament.
“In the 1970s and 1980s, the Japanese companies tore apart the cost structure in a few industries, particularly cars and consumer electronics,” concludes Dr Steinbock in the new Kauppapolitiikka (Trade Policy, Finland’s Ministry for Foreign Affairs, June 3, 2008). “That was only a prelude. In the coming decades, the rise of China and other large emerging economies will result in tearing apart the cost structure in industry after industry – through cost advantage and innovation.”
The column features comments by Jack Welch, former CEO of General Electric, on globalization and the Japanese challenge.
“There is an alarming trend among multinational companies,” notes Dr Steinbock on the latest CMO study. “Their own marketing and sales leaders give themselves failing grades when it comes to assessing their go-to-market capabilities. And while companies acknowledge these deficiencies, they’re not taking the steps necessary to create marketing and selling efficiencies.”
In a recently released study, CMO partnered with the Boston Consulting Group (BCG) to explore the in-depth insights from more than 1,000 global marketers on the challenges and obstacles they’re facing in optimizing marketing and selling effectiveness. Dr Steinbock serves as spokesperson of a mobile initiative by the Chief Marketing Officer (CMO) Council, which represents 2,000 leading technology firms. More of the CMO/BCG results later.
Gunjan Bagla, a presenter in the ICA Institute’s Tap into Chindia Global Virtual Seminar Series, offers expert advice in his new book.
Los Angeles, CA – With India’s annual economic growth of nearly 9% quickly approaching that of China’s, western business leaders are increasingly being lured to this land of extraordinary opportunity.
But corporate leaders who simply view India as the “new China” are destined for trouble, cautions Los Angeles-based India expert author Gunjan Bagla.
“With great opportunity comes great challenge,” stresses Bagla, author of the highly acclaimed book Doing Business in 21st Century India: How to Profit Today in Tomorrow’s Most Exciting Market (ISBN-10: 0-446-40224-9, 2008, Business Plus division of Hachette Book Group, New York, www.HachetteBookGroupUSA.com, 243 pages). “Significant cultural differences create a unique and demanding business landscape for western companies to overcome,” adds Bagla.
Bagla is founder and principal of Amritt (www.amritt.com) of Los Angeles which serves clients in the United States, Canada, and Western Europe who want to learn the secrets of doing business successfully in India. His book, however, will be just as useful to tourists as it is for the corporate world.
Ron Somers, President of the U.S-India Business Council, says Bagla’s book is “required reading for anyone who wants or has business in India. Take this book with you on the plane, keep it in your briefcase, and consult it often.”
Tata Sons, Ltd. Executive Director, R. Gopalakrishnan calls Doing Business in 21st Century India “A refreshingly simple book on a very complex subject.”
Doing Business in 21st Century India is packed with everything business leaders need to know in order to understand and succeed in this emerging market, including:
• An overview of the most promising sectors which every investor will want to read
• Guidance on navigating the often complicated laws, rules and regulations
• The keys to understanding important cultural differences
• Essential advice on sales and marketing in the region
• Relevant background and history
• Numerous supporting examples and interviews with top professionals in India
Doing Business in 21st Century India is available at fine booksellers everywhere and online at Amazon.com, www.HachetteBookGroupUSA.com or at www.amritt.com
About Gunjan Bagla
Los Angeles-based expert author Gunjan Bagla has more than 25 years experience in global sourcing and marketing in India. He publishes an electronic newsletter called Globalization Is Great with a circulation of over 20,000 professionals. He is the founder and principal of Amritt Inc. in Los Angeles, (www.amritt.com) which advises major Western companies on doing business in India. Bagla has written numerous articles and speaks frequently about India. Doing Business in 21st Century India, is poised to become the definitive handbook on the subject. Bagla also teaches workshops and seminars for executives on how to become more successful in India, including a seminar offered three times a year by the California Institute of Technology, Caltech.
From ICA Institute blogger, Erik Rostad:
One market that we all need to keep a close eye on for music & entertainment is India. Their music industry is booming. And the market looks much different than the US market. For starters, upwards of 60% of music sales are of songs found in films. The tie between movies and music is extremely powerful & lucrative in India.
We are now starting to see Indian companies sign 360 deals with India & U.K. based artists. These deals place the company in the revenue stream of albums, concerts, t-shirts, etc. and offer a nice diversification away from reliance of the declining album. One company, Big Music & Home Entertainment, has just initiated a division for artist management, cleverly title ‘Big Talent’. This group will specialize in the 360 deals with artists and will collaborate with the group ‘Big Stage’ who will be working on the live shows.
Big Music & Entertainment was started last year and is owned by Reliance, the large India conglomerate changing the face of India. You have most likely read about Reliance ADAG recently, as they are also trying to make a foray into the US film industry through a $550 million investment into DreamWorks. In Reliance’s own words:
“Big Music and Home Entertainment plans to focus on digital platforms such as the Internet and mobile and radio networks, in addition to traditional physical formats. It will also make its foray into events and live entertainment through talent management and conducting live events. An example is its tie-up with Star Voice of India to manage the winner and other finalists with shows and albums.”
Another interesting note about Big Music & Entertainment is that they are the licensee for Universal Home Video’s. So not only is Universal investing heavily in new internet social networking start-ups, they are also establishing strategic partnerships in key international markets. I suspect we will begin to see more international deals in the near future as USA record labels will seek additional revenue streams outside of the saturated home market.
Another side note, Columbia Records (under EMI) is also operating in India and is busy signing 360 deals.
I think we will soon see Big Music & Entertainment signing deals with USA acts. It is not too far fetched to see Big Music being able to offer more lucrative deals to USA bands for tours, album sales, film placement, etc. As the Indian economy continues to expand, the DreamWorks investment will end up being one of the first big investments that Indian companies make in the USA entertainment industry.
Music Industry Blog: http://www.kokopellitimes.com/
Last week Dr Dan Steinbock, Research Director of International Business with the ICA Institute, began commentaries in China Daily, China’s leading English-language daily, which is distributed in over 150 countries and regions. Please find enclosed the new release, “Guess who’s afraid of free trade,” (China Daily, May 14, 2008). It is based on some conclusions of his recent study in China & World Economy. “During the past eight years, Washington has engaged in unilateral security policies,” Dr Steinbock concludes. “If the next administration engages in unilateral trade policies, global prospects for security and prosperity will erode even more. What the White House truly needs is a decisive, prudent and cooperative political leadership.”
In the past, Dr Steinbock has contributed to the Beijing Review and several Chinese academic journals. He is also on the board of two leading Chinese scientific journals.
Guess who’s afraid of free trade
By Dan Steinbock (China Daily)
Updated: 2008-05-14 07:30
In the post-World War II era, the United States was the champion of global trade, overseeing the creation of much of the infrastructure of the multilateral world order. But times are changing.
According to recent surveys, Americans are now most skeptical about the growing trade ties between countries, whereas the Chinese hold the most positive views on global trade.
This dramatic reversal is reflected in the increasingly critical views of US presidential campaigns on global trade in general and trade with China in particular.
Since the normalization of US relations with China in 1979, Washington and Beijing have cultivated cooperative policies. After the 1990s, these policies have been under increasing scrutiny and debate, reflecting the US push toward unilateralism in and accelerating friction in US-Chinese trade relations.
Between 2001 and March, 2008, China’s foreign exchange reserves soared from $216 billion to an estimated $1.68 trillion. But China is not the largest holder of the US securities. Last February, this list was led by Japan ($587 billion), followed by China ($487 billion), the United Kingdom ($181 billion) and Brazil ($147 billion).
In 2007, US imports from China amounted to $322 billion, about $10 billion more than from Canada. But trade is a two-way street. The US exports to China have grown rapidly to $65 billion. China is now the third-largest US export market, larger than Japan and ranking behind Canada and Mexico.
As for the US-Chinese Direct Investments, in 2007, China maintained its position as one of the world’s top destinations for foreign direct investment (FDI), with overall FDI inflows totaling $82.7 billion. The United States is only the sixth largest investor in China, behind Japan and Singapore. Despite their overall support for free trade, Democratic contenders are critical of globalization, offshoring and free trade agreements (FTAs).
Senator Hillary Clinton’s emphasis on “America’s middle class under siege” goes hand in hand with retreat from free trade, which will be difficult to link with multilateralism in foreign policy. In turn, Senator Barack Obama has expressed concern about trade agreements that do not include labor and environmental protection. He would amend the North American Free Trade Agreement (NAFTA), whereas Clinton has pledged to renegotiate NAFTA.
Clinton believes that China’s economic impact on the US is causing a “slow erosion of our own economic sovereignty”. She co-sponsored the Foreign Debt Ceiling Act of 2005, which would compel Congress to impose limits on US foreign debt.
Clinton has urged Chairman of the Federal Reserve, Ben Bernanke, and Secretary of Treasury, Henry Paulson, to “reduce Chinese-owned debts”. She would also consult the International Monetary Fund (IMF) to pressure China.
Both Clinton and Obama have adopted an increasingly critical tone on global trade and support legislation that would allow US companies to seek anti-dumping duties on Chinese imports, based on the perceived undervaluation of the Chinese currency.
A Democratic president might work with the Democratic majority of the Congress, led by the Speaker of the House, Nancy Pelosi, a vocal supporter of the “Free Tibet” movement.
Like the Democrats, the leading Republican contenders favor more emphasis on diplomacy and multilateral engagement.
Unlike Democrats, the Republicans support free trade. Senator John McCain is one of the strongest advocates of free trade in Capitol Hill.
McCain argues that the stage for a Pacific-wide effort to liberalize trade will be set by free-trade agreements (FTAs) with Malaysia and Thailand. These FTAs will realize the potential of the new trade agreement with South Korea and institutionalize economic partnerships with India and Indonesia, while building on existing agreements with Australia and Singapore.
McCain believes that China and the rapidly developing nations of Asia are growing into stronger economic competitors. His economic and trade policies are designed to improve America’s global competitiveness.
Unlike the Democratic contenders, McCain supports increasing global integration. He has urged Americans to reject the “siren song of protectionism” and embrace a future of free trade.
However, even the Republican president would have to cooperate with the Democratic majority of the Congress. He would also face strong internal opposition. Along with the “human-rights wing” of the Democrats, the evangelical conservatives of the Republican Party are antagonistic toward China.
In 2007, for the first time, China - not the US - became the single most important contributor to world growth. Together, the US and China fueled nearly half of global growth, as measured by purchasing power parity.
Among the presidential candidates, there is a strong bipartisan consensus on the importance of US-Chinese relations in the 21st century. But the two major parties take a very different view in terms of the strategic goals of the US-Chinese relations.
Clinton and Obama agreed to co-sponsor legislation that would levy punitive duties on Chinese goods. In contrast, McCain embraces global economic integration, which he believes can reinforce national security.
During the past eight years, Washington has engaged in unilateral security policies. If the next administration engages in unilateral trade policies, global prospects for security and prosperity will erode even more.
What the White House truly needs is a decisive, prudent and cooperative political leadership.
The author is the Research Director of International Business at the India, China and America Institute
(China Daily 05/14/2008 page 9)
China Daily, established in 1981, is the only national English-language newspaper in China. The average daily circulation is more than 200,000, one-third of which is abroad in more than 150 countries and regions.
The Elephant and the Dragon: The Rise of India and China and What it Means for All of Us
by Robyn Meredith (ISBN 978-0-393-06236-6), W.W. Norton & Company, New York.
It may not be amazing that books and reports on China, India and their influence on geopolitics and their bearing on global economy are multiplying like rabbits. But what is indeed astounding, is the virtual consensus that the two nations together and even individually are bringing about “tectonic” changes and competition from them may pose a threat to America. This not-so-cool an inference about an apparent threat encourages authors, including Robyn Meredith to call upon USA to reinvent itself and perk up its gung ho unbeatable spirit. This reasoning is based on the assumption that deep into the future, the two countries would be able to maintain their relatively rapid growth rates. New evidence (about resource constraints) that is emerging should make everyone circumspect about the sustainability of continued high growth rates.
One of the several merits of this book is Robyn Meredith tells this remarkable story of the economic emergence of two developing countries accounting together for a third of the world’s population with a truly global perspective, and with a modicum of objectivity, and with a critical eye to detail. For a student or observer of societal transformation, Meredith’s book makes an attention-grabbing account. She threads the India-China story interestingly,with every next chapter alternating from China to India and back to China. After the introductory essay in which some fear is expressed about the ‘potential impact’ of China-India economies almost like a come-uppance of economic history of the two countries, comes Chapter one “Where Mao Meets the Middle Class” followed by Chapter two about India’s transformation “From the Spinning Wheel to the Fiber-Optic Wire.” This is followed up by Chapter Three “Made by America in China” and by Chapter Four on “The Internet’s Spice Route.” This threading of the China-India stories continues in Chapters 5, 6 and 7, and thereafter, the stories blend in 8 and 9, the last two chapters.
Meredith connects her story with the contemporary unraveling of the industrial revolution of our times. She chooses to describe the changes as ‘tectonic.’ It is not difficult to appreciate why she thinks so.
The author is captivated by the speed of the transformation of two hide-bound economies that wallowed in poverty and colonialism for centuries. She narrates unwearyingly the political backgrounds of the two economies: India believing in Gandhian values and peaceful ways, and the other putting faith in Mao’s authoritarian absolutism. Such a totalitarian system perhaps makes it possible for China to notch up higher rates of growth, at times even a blistering 15% rate in GDP growth. Adhering to a democratic system, India’s reports relatively slower rates of growth, with its economy plodding along at 8 to 9 %. And also make a note of the fact that China has much less diversity than India, whether in terms of languages, cultures, races, religion or what have you. And yet, the casual observer ignores these material differences, and judges strictly by the rates of growth.
What kind of a demonstration effect would the pattern of political organization of India and China have on the rest of the developing world? Would other developing countries prefer a more regimented China-like system with a faster rate of GDP growth or a more democratic Indian system with a slower GDP growth? Of course, we now know better, that if India had more of a free market oriented and less of a permit-license raj, she could boast of equally fast, if not faster, growth rates. If India had paid more attention to roads, electricity supply and other essential infrastructure, it would have matched her growth rates with China’s. Meredith makes a contribution to this discussion. She asks if the Chinese would trade their economic progress for more freedom, and whether Indians would trade their freedom for more economic progress. For both questions her answer is negative. On page 156 she discusses the ‘Singapore excuse’ that is used by China to justify authoritarianism. Having said this, it is sad however, that Meredith misses a great opportunity to go for a more serious discussion of the edifying effect the two models would have on other developing countries.
Consumers benefit the most from trade with China. Wal-Mart has set a China price benchmark and so American business is closing down high-cost American factories and outsourcing their merchandize to China. Very appropriately, Meredith brings in factors that aggravate cost disadvantages between America and China such as health care costs. According to her, first, it is better for America to concentrate on its core strengths such as ample resources, a highly educated and trained work force, and technological superpower status and further strengthen innovative capabilities. She advocates that America would need to ‘return to the basics’ such as education. There needs to be ‘dramatically improved education, starting with elementary school.’ While US universities are still considered best in the world, ‘American fifteen-year-olds are tied for twenty-first place in average academic performance globally.” College education is becoming less affordable.
Yet another factor that needs to be attended is wasteful consumer and corporate spending, the top executives being compensated by hundreds of millions of dollars even when their corporations are sliding into the red. Third, America’s infrastructure is in need of urgent repairs to avoid disasters such as the Katrina smash up of New Orleans. Internet connectivity is better in parts of India and China than in America. The book under review highlights the suggestion of the Council on Competitiveness demanding that there needs to be more basic research and US should spend at least one percent of its GDP on basic research and not just on product development.
Is Current Progress Sustainable?
The book calls for a change in mental attitudes in American working force such that instead of whining about loss of jobs due to outsourcing, they should retrain themselves for the next higher jobs. All cannot do so and will definitely become less competitive and would need their own, as well government safety nets. Also America needs to anticipate which jobs could be off-shored or Bangalored. Meredith quotes Nandan Nilekani, Infosys CEO: “If someone is cardiac surgeon, they are not going to be replaced. But if they are a radiologist, somebody from Bangalore is liable to check X-rays over a wire.” Hence the overwhelming need to focus on education. More significantly, she emphasizes his view that investment in education for the future of jobs in America is an imperative, and that is ‘nonnegotiable.’ And “the capacity of the US to constantly reinvent itself is extraordinary.” Meredith has great faith in America’s ‘can-do’ spirit. She sweet-talks America to believe that the rise of China and India would serve as a catalyst to restore America’s competitive outlook in issues of this kind especially when developing countries themselves can be so globally minded.
There are references in the book to broader questions of pollution, resource scarcity and related questions. However, it is perhaps beyond the scope of the book to discuss the sustainability of India’s or China’s economic rapid growth in the coming years. Willy-nilly, that is the issue engaging the attention of China and India observers because such scarcity could rein in growth.
Taiwan Is Ready for the Great Change
“After eight years of international disputes, economic stagnation and political corruption, the Taiwanese voters turned their back to the Democratic Progressive Party (DPP) last January when Kuomintang (KMT) captured 72 percent of the 113 parliamentary seats,” notes Dr Steinbock in his pre-election analysis for Talouselama, Finland’s leading business weekly (March 21, 2008; in Finnish). He expected a strong and positive market reaction. “In the absence of miracles, KMT’s presidential candidate Ma Ying-jeou will win and Taiwan will prepare for a great change. The outcome of these elections has the potential to change Taiwan and, more importantly, to stabilize its relationship with mainland China.”
Stock prices soared in Taiwan on Monday March 25 as investors welcomed Saturday’s presidential election victory of Ma Ying-jeou, the Nationalist Party leader who has called for closer relations with mainland China — a development that could spur the island’s lagging economy.
The Rise of Importphobia
“In the United States, economic anxiety has inspired a backlash against free trade. Will it lead to protectionism?” asks Dr Steinbock in his new brief for Kauppapolitiikka, the prestigious trade journal of Finland’s Ministry of Foreign Affairs. U.S. share of world imports peaked at over 20 percent in August 2000. “In June 2007, America’s share of global imports had dropped to 14 percent of the total. U.S. consumer spending remains a key ingredient of global growth, but the baton of global consumption is being passed from shoppers in the U.S. to consumers in Europe, Japan and particularly the emerging markets – which accounted for 40.6 percent of world imports in the first half of 2007.”
Burton G. Malkiel and Patricia A. Taylor with Jianping and Rui Yang: From Wall Street to the Great Wall - How Investors Can Profit from China’s Booming Economy, W.W. Norton, New York, 2008, ISBN: 978-0-393-06478-0 (hardcover)
This book is intended to help investors to take advantage of one of world’s fastest growing economies that is also emerging as a potent super power with more political, social and economic control of itself than any other. Hardly has any other nation of even one half of China’s size, either in terms of population or geographical area, had such a linear whoosh of a growth, sometimes at a blistering 15 percent per annum in GDP. The book under review brings out the salient features of China and its emergence as the fourth largest economy in terms of nominal GDP and the second largest in terms of Purchasing Power Parity. It attracts the “largest amount of foreign investment of any nation making it a magnet for venture capitalists and others seeking to capitalize on the country’s booming economy.” The sudden transformation in about forty years from a most hostile to a pro-business state is explained captivatingly in the book.
The principal author, Burton G. Malkiel is the Chemical Bank Chairman’s Professor of Economics at Princeton University. He has also been a member of the Council of Economic Advisers and has served on the Boards of investment and finance companies such as the Vanguard Group and Prudential Financial Corporation. He is also well qualified to write on investment opportunities in China by virtue of being the author of the periodically updated and informative A Random Walk Down Wall Street. The other authors have either collaborated with the principal author or have had similar experiences.
Anyone familiar with the contents of Pearl S. Buck’s Nobel-prize winning book “Good Earth” knows what an awful opium den complete with all social evils China was till the 1950s, with several European nations having colonies on mainland China. Willy-nilly, to the credit of the Chinese government it must now be said, that hundreds of millions of poor Chinese have been lifted out of poverty. China ranks amongst top super powers of the world today commanding notice and consideration from everyone. Malkiel et al list the “stunning accomplishments” such as the $1.5 T surplus or reserves that they can wield to buy any asset anywhere, unquestionable control over its populace and resources ( unlike the Soviet Union, on account of which it crashed), plans to send lunar explorers and staging the Olympics this August in Beijing and the World Expo in Shanghai in May-October 2010, the very first such in a developing country, largest consumer of wireless phone services, coal, steel, cement, metals and scores of other items. Thanks to the embrace of an open economy and a high savings rate such as almost 50%, China has become one of the largest markets, if not the largest, for most luxuries from Bentley limos to Armani suits, cosmetics, Bordeaux wine and golf.
To the discerning observer, while the positive features of economic growth are too conspicuous, the negative aspects are no less striking. The sacrifices that the Chinese people have made for this prosperity, particularly under “Mao’s extreme economic policies”, are too large to be enumerated, including in terms of loss of democratic freedoms and of course loss of life itself. To this must be added the costs in terms of quality of life, environmentally dreadful conditions, high toxicity in food and water, and even in toys and other items. It is sad commentary on the state of public health in China that the US Olympic team is planning to carry 25,000 pounds of lean protein food to Beijing to avoid local contaminated or tainted food.
Malkiel and his coauthors deny that China would trip over any road blocks and obstacles such as its demographics of aging population, bad bank loans, tensions with Taiwan, Japan, India and others, environmental degradation, continuing poverty in particular in the Western provinces, inflation, unbalanced and unsustainable growth, and so forth. In their preface Malkiel et al even surmise without evidence, that “…there is no question that China will shortly surpass the United States and once again become the world’s mightiest economic power.” They state more categorically in their summing up (p. 294) that “…even if growth rate slows, it will be the largest economy in the world by the 2020s, as measured in terms of purchasing power.” In an earlier ICA Institute blog (Chindia Biz) we have extrapolated available data to prove that this cannot happen short of discontinuities in America’s growth.
What the book is strong in, is the analysis of the Chinese stock market and opportunities for investment. While the stock market is not efficient, it is becoming less so more recently. They describe A-Share markets that are exclusively for Chinese citizens and are inefficient, and H and N Share markets that are open globally and are somewhat efficient. The Price/Earnings ratios for Chinese companies were more favorable than for American companies, as were (P/E)/Growth Rates (PEG), in the latter case hiding the potential for making a rewarding buy if such a PEG were below 2. They also identify the broad categories of investment such as stocks, bonds, real estate securities but also mutual funds and their earning records. The Book has information on different indexes such as the Hang Seng, MSCI Hong Kong Index and the FTSE/Xinhua China 25 Index. In the last Chapter the Book offers “The Optimal Investment Strategy” for relatively small and large investors, including all Exchange Traded Fund Portfolio aimed at making the best of rapid Chinese growth.
The Book is somewhat exuberant about China and not all of that is justified. But they are quite right to advise that “no well-diversified investment portfolio can afford to ignore the investment opportunities that China offers.”
Psst!…..Here are some investment tips the Book does not give, but the book reviewer collected on his own! Almost $500 billion is being spent to clean up the air in Beijing, the venue for the 2008 Olympics, and any air, water and environmental cleaning company can bag business and go for them. Also go for metal, oil, electric, electronic, security surveillance, travel and related businesses: Chalco, Security and Surveillance Technology, Petro China, Baidu (China’s Google), Terra Industries, and China Eastern Airlines, and others are reporting gains of over 100 per cent.
Editor of Academic Resources
India, China and USA: 2007-2017
Over the next ten years India’s nominal GDP will grow from the present $1.00 T to $2.4 to 2.6 T at the current compound rate of nine to ten percent annual growth. A less optimistic statistical secular linear trend projection based on actual GDP for the 1997-2006 ten-year interregnum (Table 1) would place India’s GDP at 1.5 T in 2017. (Totally three estimates are presented here for each of the three countries.) India’s 11th FY Plan is predicated on a 9-10 % growth rate as doable.
GDP in 2006
Trillions of Current US Dollars
Expected Growth Rate %
Multiplier from Future Value Table
GDP in 2017 Less Optimistic Scenario in Trillions of
GDP in 2017
Trillions of Current US Dollars
| || |
9 to 10
2.367 and 2.594
| || |
9 to 10
2.367 and 2.594
| || |
2 to 3
1.219 and 1.344
3 to 4
1.344 and 1.480
Note: GDP Data for 2006 compiled from IMF and
World Bank sources and Estimates computed by SV Char
China’s nominal GDP, burgeoning at an average compound rate of ten percent will grow from the present $2.668 to between $6.3 to 6.9 T during the same period. A less optimistic trend projection based on actual GDP for the 1997-2006 ten-year period would place China’s 2017 GDP at $4.55 T in 2017.
USA’s nominal GDP increasing at a relatively lower two to three percent compound rate will grow from the present $13.20 T to $16.1 to 17.7 T. However, more optimistically, as it turns out, a trend projection on the basis of actual data for the 1997-2006 period would take US GDP to 18.2875 T by 2017.
The inevitable deduction is that barring discontinuities America would continue to be the number one economy in the world in 2017 and even much beyond that year, unlike rough predictions that China would overtake it. Even ten years hence this would not materially change America’s dominant position. The economic distance between India-China and the USA, in terms how much bigger the US economy would be, is reduced. For instance, currently, US GDP is about 13x larger than India’s and in 2017 it is likely to be about 6 to 7x larger. US GDP is currently almost five times the China GDP and this is likely to come down in 2017 to about 3x larger.
In an interview with Money Control magazine (http://news.moneycontrol.com/india)
Jeffrey Sachs offers the view that by mid-century India’s per capita could be about a quarter that of the USA, say roughly $10,000. India’s population by 2050 is likely to be 2.3 billion persons, the current population of 1.1 billion, approximately more than doubling by that time. The product of ‘Per capita income x the 2050 population’ would be about $23 T when America is likely to have a GDP of $34.95 T, 1.5x more, assuming no discontinuities. In this light, Jeffrey Sachs need not be sanguine that “…..By the mid century I think India could overtake US by absolute size (of GDP).” Identical remarks by Sachs about China’s GDP overtaking America’s do not seem to hold water even if one is speaking in terms of PPP-based GDP estimates.
Limits to Growth
This inference is further reinforced when economic growth in China and India bumps into limits to growth factors such as natural resource constraints including drinking water, discontinuities in technology, equalization or leveling of price advantages as a consequence of world trade, inflation in developing countries, ennui with western pattern of growth that seems to generate much waste and pollution.
There is also the cost of economic growth serving to subtract from the GDP in China’s case, as much as 5 to 6 percent. World Bank’s ‘Cost of Pollution in China’ Report (2007) deals with the physical and economic cost of air and water pollution in China in terms of “pollution-related diseases, pollution-exacerbated water scarcity, wastewater irrigation, loss of fisheries, loss of crops, material damage” and so forth. Health costs of such pollution is estimated at 4.3 percent of GDP and non-health impacts of pollution at 1.5 percent or a total of 5.8 percent of China’s GDP. The poor are affected more than others. Not surprisingly, there were 50,000 pollution-related disputes in 2005.
Some authors such as Philip Lane and Sergio Schmukler (2007) are relatively more conservative in projecting future growth rates of China and India. Between 2005-2020 they cite the Winters and Yusuf (2007) projected growth rate of 6.6 and 5.5 percent for China and India respectively. The projected shares of the two countries in the world GDP are expected to be 8.2 percent for China and 2.4 percent in 2020. My Table 1 projection for 2017 gives China 7.1% share and for India, 2.7%, compared to US share of 18.1%.
A dramatic increase in the cost of key inputs such as oil can have a devastating effect on all costs across the board. More than any other country, China’s drawings of resources such as oil, coal, iron ore, copper, tin, bauxite, nickel have multiplied in very short periods and world commodity prices have shot up, the most dramatic being crude oil, hitting a prohibitive $100 earlier this week. In a linear setting, China is expected to emerge as the largest car producer by 2015. However, planetary resources are finite. Prices would have to give in if demand-pull pressure increases. If input costs and fuel prices become so unaffordable, will China continue to make gas-based cars? Do they have the technology for electric cars? If not, China may not emerge as the largest car producer by 2015. Repeat this scenario for almost every other product: wood-based articles and the disappearance of forests in China with 90% of wood products of China being exported to the USA. China alone accounted for 90% of the sharp increase in world coal consumption during the 3-year period between 2003 and 2006 when the boost in consumption was as much as during the entire 23-year period, 1980-2003
China’s development has won admiration. However, Quality is a large as life issue: pet foods making dogs sick, Thomas trains and Mattel dolls with a toxic paint coating, ginger with pesticide residue etc. The fact remains China has been somewhat apathetic to factors such as environment, quality and safety. It is high time to treat environment as a key limited resource in economic growth. There is only one planet and it cannot support American style consumption for all people, not even a fraction of it.
America’s own growth is tottering into a Japanese type recession or worse and this could confine America’s 2017 GDP to between $14.0 to 14.5 T. Current economic issues hobbling the US economy are: the twin deficits, de facto dollar devaluation, the bursting of the housing bubble, the sub-prime mortgage lending crisis, the recessionary trends in the economy, loss of incomes due to consolidation of businesses, the Iraq and Afghanistan commitments, global warming constraints, and the movement to apply brakes on consumerism or growth for growth-sake.
PPP based GDP
PPP based GDP calculations cannot be projected into the future on account of unpredictability of prices that form the basis of calculating the PPP. In terms of PPP-based GDP, India’s economy is as large as $4.04 T which would make India the third largest GDP in the world, next only to that of the USA and China, and followed by Japan, Germany, UK, France, Italy, Russia and Brazil. (IMF WEO Database) These PPP estimates for India and China are now under revision because the GDP estimates somewhat ignored the more recent inflation in those economies. For instance, China’s PPP GDP was based on a 1980s survey of Chinese prices. (Eduardo Porter, NY Times 12/09/2007.) Such an omission of inflation in China and India would overestimate the PPP based GDP. Based on the work of Albert Keidel (Carnegie Endowment for International Peace) that in turn used the ADB exchange rates, the new GDP numbers are likely to be some 40% lower.
Secular trend analysis establishes in unmistakable terms that American hegemony as a world economic and geopolitical power would stretch far into the future, beyond any horizon date. Current discussion of this fact is clouded by erroneous combining of PPP data with nominal data, likes being not compared with likes. Current discussion also ignores the real limits to growth in terms of both depletion of both renewable and non-renewable resources including oil, coal, iron ore, bauxite, etc., and of even as critical an item as water. Yet another major lacuna relates not loading the environment as a resource key factor in the economic development equation. The results are therefore confounding.
The World Bank reestimates the GDP of some 146 countries on the basis of a new set of data of Purchasing Power Parity collected by the World Bank, Eurostat and the Organization for Economic Cooperation and Development. According to this study, China and India and many other countries are not as large as they are reckoned to be. Inflation in India and China has reduced the purchasing power of the Yuan and the Rupee. Economists have used the “Big Mac Index” as a convenient method to figure out the purchasing power of the respective currencies. If inflation eats into the Yuan or the Rupee, their buying power goes down.
On this purchasing power parity (PPP) basis, China’s share in world trade has gone down from 14 to 9.7 percent and India’s down from 6 to 4.3 percent. Instead of a GDP of $10 T it is only $6 T, a 40 percent downsize. Similarly, India’s GDP goes down from $4.5 T to $3.2 T. Needless to emphasize that it is sensible to use these estimates as mere indicators of the broad dimensions of the GDP, and not put too much faith in them.
When the GDP of the two countries is measured in terms of market exchange rates rather than PPP, China’s share in World GDP comes down from 9 to 5 percent and India’s from 4 to 2 percent.
In view of the new light on GDP sizes, we too will soon revisit the ICA Table of Comparison of Fundamentals.Dr. S.V. Char
Editor of Academic Resources
Right from 1950s India has believed in planned economic development, even while trusting the market forces to determine prices, allocation of resources and otherwise decide about the pattern of economic development. There have been both market and government failures, but by and large the market economy has come to prevail. The 1991 dramatic shift of emphasis from disproportionate governmental control and intervention in the economy to easing up on them has to a very large degree enabled the trebling of the rate of growth in GDP from 2-3 per cent in the first few decades of development to 9-10 per cent currently, a rate that the 11th Plan envisages for the 2007-12 period during which the envisaged investment is Rs. 36,000 billion or about $900 billion. The Prime Minster complimented the people for historically high savings rate of 34% which would enable investments up to 35% or even more of GDP, depending upon the quantum of inflow of foreign direct investment (FDI.)
There is considerable slack built into the Plan model to allow states to promote more or less economic development. As it is, for a couple of decades they have been competing with each other for financial resources and for FDI. There is also a compelling demonstration effect brought on by the Internet Technology (IT) industry whose annual 30-40 rate of growth over the past fifteen years has been attributed in large part to the ‘virtually’ or almost entirely free setting it operates in as compared to other businesses that seem to run a three-legged race with the Government acting at times, as a difficult teammate.
As is common at the launching of the five year plans, egalitarian noise is heard such as reduction of poverty by ten percent. Equal opportunity is also emphasized and it is proposed to create 70 million new jobs over the 2007-12 plan period.
The 11th Five year Plan like its recent predecessors, is largely indicative of the areas that offer opportunities for rapid to moderate expansion. It has often served in the past as a map of the economy as it advances into the future.
Editor of Academic Resources
China’s Efforts to Ensure Product Quality and Food Safety:
During 2007 some of the items imported from China caused serious concern. Pet food from China made many American dogs and cats sick. Then toys such as Thomas trains and Mattel dolls had toxic paint coatings or some other toxic content. Still later food products like ginger imported from China had pesticide residue. Not surprisingly at the Third China-US Strategic Economic Dialogue that began on December 12, product quality and food safety figured prominently as the most critical issues on the agenda. Promptly enough an article on the subject by Ms. Wu Yi, Vice Premier of China appeared in the Wall Street journal the previous day elaborating the different measures that are already in place to ensure the quality of things made in China as well as the full safety of consumable items either for humans or animals. The article is a frank effort aimed at convincing the user of China-made goods that inspections and testing are stringent like any where else. The Vice Premier has also pleaded that individual cases of breach of safety or quality norms should not be exaggerated to give the erroneous impression that it is the rule rather than the exception. Such hype about poor product quality and hazard would ruin China’s image.
It is easily conceded that even under the most stringent regimen of scheduled inspection and testing, faux pas could occur. However, it is also possible that in some locations, in a hurry to get on with development, and meet export obligations there is a short shrift of environment safety. Recently CNN’s Sanjay Gupta showed graphic accounts of sickness and even cancer in China caused by consuming rice grown with river waters that are dangerously polluted. Such river pollution does not appear to be isolated cases, and instead are not uncommon. Like it or not, bad news travels faster than good news and this applies universally to business everywhere. Consumers do not spare domestic (American) suppliers either and slap product liability suits on the producers and suppliers.
At the conclusion of the Dialogue, Treasury Secretary Henry Paulson, the Co-Chair of the Dialogue stated that the talks were instructive and constructive. U.S. Commerce Secretary Carlos Gutierrez, as well as U.S. Secretary of Health and Human Services, Mike Leavitt participated in the Dialogue. Leavitt stated that Product safety “engages at a deeper, more visceral level than other issues.” One of the helpful outcomes of these consultations is that there will be more bar coding and tracking of food grown in China. Discussions under third Strategic Economic Dialogue was also expected to bring China and America closer on issues such as the undervalued Chinese currency of Yuan with a view to give a leg up to Chinese exporters.
Dr. S.V. Char
Editor of Academic Resources, ICA Institute