China and India

China and India Case study: China and India Question 1: Discuss the innovation implication for the leading developed nations concerning China and Indias rapidly escalating capabilities. It is not unreasonable to consider China and India as crouching tiger and hidden dragon (Engardio 2005) because both countries possess remarkable capabilities that others do not have. The term capabilities are broadly based, encompassing the entire value chain and representing technological and production expertise at specific points along the value chain. (Stalk et al. 1992, cited by Smith 2008, p.1). In other words, capabilities embrace both competences and resources. Foreign companies believe the two countries as ideal destinations to invest, first of all thank to abundant and cheap workforce. Two nations together account for one-third of the worlds population and the average hourly compensation is just a tiny fraction of that found in other commercial partners. In 2005, the labour cost is $1.1/hour in China and $0.9/hour in India (ANON 2009), occupy merely one thirtieth compared with Germany ($34.1), the UK ($26) or the US ($23.8). In addition to human resources strengths, Chinas abundant factor has been low-wage workers, many of whom become factory hands. Indias abundant factor has been the relatively well-educated, English-speaking labor that provides a low-cost gateway to global services (Cox and Alm 2008). This is not to mention technical and managerial skills which are becoming even more fundamental than cheap assembly labor in both nations. China is dominant in mass manufacturing with multibillion-dollar electronics and heavy industrial plants while India stays outstanding in software, design, services and precision industry (Engardio 2005). These capabilities undoubtedly lure foreign investors and also have influence on leading developed countries including giants like the US, Japan and Germany. As Engardio (2005) states these established powers will have to make room for China and India because they will be 21st-century heavyweights in almost every fields such as consumer markets, investors, producers and users of energy and commodities. For example, in the estimated share of global raw materials consumption in 2005, China uses 47% of cement, 37% of cotton, and 30% of coal while the whole world consumes the rest (ibid). The two countries are also racing ahead of the US in numbers of young professionals. According to Engardio (2005), Chinese and Indian engineers are supposed to combine skills: mastery of the latest software tools, a knack for complex mathematical algorithms and fluency in new multimedia technologies, which surpass those in the US. Little wonder the booming growth in young brains in China and India attra ct increasing number of investors to operate business there. Moreover, the rising consumer class contributes to innovation drive as well. Consumers of car and cellphone market in both countries have surged nearly 10 times since 2000 and made up the substantial part in the world market (ibid). Furthermore, young people of two nations are sensitive to fashionable devices and view products as status symbols, as a result, according to Philips Semiconductors Executive (cited by Engardio) these nations will play a greater part in defining global trends. In the future, there might be a change in positions of followers and leaders between these countries and the leading developed nations. Question 2: Evaluate the evolving balance of economic power shift from the West to the East Some economists believe that there is unquestionably a shift of economic power from the West to the East while others argue that Eastern countries are not strong enough to reverse the situation. In the one hand, advocates have a great number of persuasive reasons to support their ideas. Little wonder that the Eastern nations, especially two most populous countries in the world China and India, offer certain competitive advantages and chances to be attractive destinations for investors. Their appeals comprise not only cheap labor which becomes less crucial but also technical and managerial competences (Engardio 2005). In addition, the number of scientists, engineers and young researchers of these nations continues increasing sharply, on the contrary to the consider drop of the US and other Western countries. These factors no doubt contribute to the shift of economic power. In respect to other economic indicators, say buying power and production output, China ranks as the worlds second-largest economy and India is fourth, according to new World Bank data which uses new measurements of countries buying power in U.S. dollars. Also, the banks report of 2008 showed that developing countries now produce 41 percent of the worlds output, up from 36 percent in 2000 and 5 of the 12 largest economies are emerging countries (Wroughton 2008). These figures show the increasing greater role of nations from the developing world especially China and India in the world economy. With successive achievement, the prospective of China and India is definitely bright in the coming years. There is much optimistic estimation of the two economies. In 2012, China might pass the US to be the biggest buyer of luxury brands in the world (Khanna 2007). Also, Wroughton (2008) quoted Eric Swanson, program manager for the World Banks development data group that the domestic market in China is really much larger than people might have thought when they were looking at the exchange rate data said. Or as Engardio (2005) believes, the two nations will reshape the global economy with the percentage of world gross domestic product occupying approximate 50% while the EU makes up 15% and the US 26%. On the other hand, opponents argue that the two countries are facing plenty of obstacles that throw them far off course (ibid). Huge population contributes to their strength of workforce but as a double-edged sword if social, political and environmental challenges are not managed, may lead to increasing unemployment rate. Furthermore, to fulfil the widespread predictions that they will become superpowers, annual growth of at least 8% must be maintained regularly. It is obviously not easy for both to overcome such huge challenges as financial crisis, coups, political backlash, environmental problem, health, plain bad management and war which have derailed many other miracle economies in Southeast Asia and Latin America (ibid). The cooperation between China and India seems to lay the ground for sustainable economic growth and the power of two may reinforce their economic position in Asia as well as in the world market (Cox and Alm 2008). As Khanna (2007) states, there are three reasons for their symbiotic. First, in the past before 1962, they enjoyed close economy, culture, and religion. Second, neighbors trade more than non-neighbors do. Third, despite the same target China and India have different paths to go, thus, cooperation will reduce the competitiveness between them and boost the complementarities. In fact, there are some companies succeeded in making use of both countries capabilities. For instance, the countries state-owned oil companies Sinopec and ONGC have teamed up to hunt for oil together and both of them are powerful in two countries (ibid). Question 3: What are the potential market opportunities for China and India? Also discuss the future competitive threats of China and India for industries in developed countries. As the most populous countries in the world, China and India have major domestic markets that produce for them. They also suggests to other participants in the world economy that they are not only producers of goods but also vast potential markets. said Eric Swanson, program manager for the World Banks development data group (Wroughton 2008). Actually both countries have a great deal of potential market opportunities. One of them is the ability to attract foreign investment which enables the two nations to reduce unemployment rate as well as improve the living standard. Moreover, the approach with developed companies offers China and India valuable chances to learn their modern managerial style and technological advance. Basing on experience of the developed countries, they may learn their lessons and apply to the actual situations. Additionally, some multinational companies like Motorola, Microsoft and GE (Engardio 2005 and Khanna 2007) realize that they must succeed in both China and India at many levels simultaneously to gain competitive advantages. If they fail to view them as symbiotic they may lose their competitive edge not just in these countries but globally. This acknowledgement of international cooperations certainly enhances the key role of the two as key players in the global market. There would be more and more multinational organizations having little choice but being engaged to make use of both nations capabilities. Consequently, the potential market opportunities of China and India brought by the world giants would increase in comin g years. The recently rapid development and increased openness over the past quarter century of both countries, as an indispensable result, poses the competitive threats for industries in developed countries. China and India recognize that the cheap labor edge wont last forever especially in skilled areas and that technical and managerial skills are far more fundamental (Engardio 2005). They will specialize in generating products and services with high-quality but at ridiculously low prices. Companies in the developed world, therefore, would encounter the fierce competition of these kinds of product and service not only in domestic markets but global market as well. In addition, the China and Indias supply of engineers, scientists and researchers has grown considerably in contrast with a drop in the US and Westerner, which may lead to the shift of power balance in many technologies from West to East (ibid). This factor also sweetens the charm of these markets while erodes some industries appeal in developed markets.