China and India have followed vastly different paths to economic
success. In China, a dictatorship has implemented its strategic
vision with an iron fist. In India, under democracy, every party
advocates different policies, so a national vision would be
impossible even if people wanted one. Yet this non-strategy has
produced 9% annual GDP growth for five years.
India's 1991 economic reforms abolished industrial licensing and
many other controls, and demoted central planning to indicative
planning. Deregulation plus investment in new infrastructure --
which provided the connectivity crucial for globalization --
created a million possible paths in place of the planned one. And
entrepreneurs did the rest.
In under two decades, India has become a global force in
computer software, business process outsourcing, R&D, and
high-tech manufacturing. Before deregulation, no planner saw these
as areas in which India could beat the world.
Computer software, India's most famous export, was hobbled by
government policy for decades. In the 1980s, it took Infosys, now a
star software exporter, two years to get a telephone connection and
a computer import license. Politicians and trade unions opposed
computerization as a threat to jobs. In the non-computerized
economy, software engineers could not develop the skills they
needed to compete. But they went to Silicon Valley, where they
learned the business, then brought new abilities back to India, and
established world-class companies. This was an unplanned success of
non-strategy.
No planner imagined that hundreds of foreign companies would
move back-office and technical services to India. General
Electric's Indian subsidiary first tried this as a cost-reduction
experiment, and it was such a dramatic success that multinationals
galore soon followed suit. In the process, foreign companies found
that India had not only low wages but untapped skills in everything
from engineering and medicine to legal and audit services. Moody's
and Standard and Poor's even shifted some of their rating
operations to India.
The availability of highly skilled labor has also transformed
India into a global R&D hub, attracting companies like GE,
Suzuki, Intel, IBM and Microsoft. Renault-Nissan is even partnering
with Bajaj, an Indian motorcycle specialist, to make a small car.
Amazingly, Renault-Nissan has entrusted the R&D to Bajaj.
Most experts thought India would follow the labor-intensive
export route taken by East and Southeast Asian countries like China
and Vietnam. Alas, India's rigid labor laws made this strategy too
risky. But to everyone's surprise, India became a world-class
contender in high-tech areas like cars and pharmaceuticals.
All major Indian drug companies are now multinationals, making
acquisitions across the globe. The government historically opposed
strong patent laws, but the World Trade Organization forced it to
accept them in 1995. Indian drug companies initially feared they
would be wiped out, but soon found globalization an opportunity,
not a threat. The end of the government's drug strategy was the
start of global commercial success.
The automobile industry requires constant innovation, and Indian
engineers and component manufacturers have proven that they can do
it quickly and cheaply. American companies take three months to go
from new concept to prototype to commercial production; Bharat
Forge can do it in one month, and this helped make it the world's
number two manufacturer of car parts like axles and engine
blocks.
When the Indian economy opened up in 1991, many predicted that
Indian companies would go bust or be taken over by multinationals.
Nobody dreamed that one day Tata Steel would acquire Britain's
Corus, which was six times its size, or that Tata Motors would
acquire Jaguar and Land Rover, or that India's non-ferrous metals
major, Hindalco, would take over Novellis.
Indian minnows swallowed foreign whales by borrowing massively
from abroad. Until recently getting loans from abroad on such a
grand scale was prohibited by rules intended to thwart
irresponsible foreign debt. No planner realized that the
prohibition was also preventing Indian takeovers of global
giants.
In the 1980s, Sunil Mittal was a small trader importing portable
generators. When the government banned their import, Mittal moved
into push-button telephones. No planner, nor even Mittal himself,
could have foreseen his meteoric rise to India's top cellphone
magnate. His company, Bharti Airtel, is now worth $40 billion, and
it's going global.
In 1983, Subhash Chandra, a rice merchant, was looking for
plastic packaging at an international fair. Dealers told him
laminated plastics were replacing aluminum tubes for toothpaste,
and this accidental discovery helped transform Chandra from humble
rice trader to owner of Essel Propack, the world's top producer of
laminated plastic tubes for toothpaste, drugs, and cosmetics.
Nobody planned that.
Many analysts, including Tarun Khanna of Harvard Business
School, argue that China's success is largely government-driven,
while India's is driven by private enterprise. So far, China has
experienced more economic growth, but India may be better
positioned for the future. In the long run, no other growth
strategy is as good as no strategy at all.
topics:
Trade, Business, Law, Unions
