Dragon shows elephant the way

Chennai: If Indian bureaucrats were to closely study the manner in which our great neighbour China got industrialised itself, our babus will not only get shocked but would desist from following any of those Chinese lines. Why is it so shocking?

The dragon country could march ahead by adopting, chiefly, a very simple measure: periodically analysing the performance of district- and town-level bureaucrats in terms of investment proposals cleared and the number of jobs created. It is needless to say that poor performance will attract punishment.

The results of such measures are there for the world to see in terms of huge foreign direct investment that the country attracts. The beneficiaries are naturally the investors, as the Chinese bureaucrats have become sensitive towards investors’ needs and work close on their toes to fulfill their needs.
For instance the Essel Group took just 93 days to get all clearances, set up plant and start commercial production in China, according to Sudarshan Sampathkumar, a partner with the Mumbai-based firm Accenture.

Releasing Accenture’s study on what makes China a favourite destination for global investors at the All India Management Association’s (AIMA) 28th national management convention, held in Chennai recently, he said China gives clues to a great opportunity, which if India follows, it can more than just make profits: it can even invest in China.

China, an opportunity:
Krishna Srinivasan, president and senior partner of the Chennai-based Frost & Sullivan India, too echoes the same views. “Only India looks at China as a major threat; all other countries are looking at that country as an opportunity.”
“China’s entry into the WTO actually opens up several doors for Indian managers as they are more exposed to western management concepts and practices. Indian companies are not leveraging the full potential of NRI managers despite their successful performance in several American companies,” he says.
In order to meet the Chinese challenge, Srinivasan prescribes three strategies for Indian industry. The defensive plan is to invest in brand building and strengthen the ‘Made in India’ label. Similarly, Indian companies going overseas should not depend on agents, but have a local presence; in case if they are entering new markets, barter deals are to be explored.
“The rule of having local presence overseas acquires more sanctity if one intends to do business in China. In addition, he said, Indian companies should enter China through joint ventures or strategic alliances and unlike Indian market, which laps up foreign brands, companies should consciously brand their products bearing the Chinese identity in mind.
Earlier, detailing the participants at the AIMA national convention about Accenture’s study, Sampathkumar showed the danger light for Indian industry by predicting that 50 per cent of the domestic manufacturing sector that exists now will not be there in a span of five to ten years. While 25 per cent will have a tottering existence, only 25 per cent will really make profits. “Surely, Indian industry has to reorient its goal.”
Explaining the Chinese roadmap to economic success, he said the Chinese per capita GDP increased four times in a single generation, while for other nations it took several generations. Similarly, China reduced the share of workforce dependent on agriculture to 50 per cent from 71 per cent while increasing the urban population to 35 per cent from 19 per cent. That apart, the country’s share in the world trade went up to 3.5 per cent from 0.9 per cent in a short span.

Chinese roadmap
“The Chinese manufacturing sector,” he said, “took the similar route taken by Southeast Asian countries.” So, what is that?
Firstly the country had its focus on low technology but labour-intensive products (like textiles, garments and rubber products) and latter graduated to those industries that require medium technical skills but also labour intensive (white goods, electronic assemblies). Finally, China went up the manufacturing value curve by going for high-tech and capital-intensive industries like ferrous metals, automobiles and petroleum.

With its focus on labour-intensive industries that generate lots of employment and creating huge capacities, China emerged as a location of choice for the manufacture of such products.
In the process, the country’s share in the $560-billion world trade for low technology labour-intensive industry touched 12 per cent by 1993-1996 from 0 per cent in 1980. Whereas, India, which had a share of 1.4 per cent in 1980, was able to increase that to just 2.1 per cent between 1993-1996.
“The other positive fallout was that the Chinese manufacturing sector contributed 37-40 per cent of the country’s GDP and transformed it into an industrial economy from an agrarian one,” Sampathkumar said.

The government’s role
For the Chinese manufacturing to scale such heights, the government played a crucial role. Emphasising the importance of economic growth, it effectively marketed China at the global arena by reinforcing positive sentiment. “The government marketed to the investors only chosen fields by creating the needed infrastructure benchmarking with world’s best,” he said. At the same time, rules and procedures were simplified while making the local administration accountable for attracting investments and creating jobs.

The extent to which the government’s intention to help investors could be gauged from an Indian group’s experience in setting up a production facility in China. It took just 93 days for the Essel Group to get all permissions and start commercial production in China, he cited.

Tacking the labour in Communist China
In order to ward off labour unrest, the Chinese government introduced liberalisation policies only on its east coast. “Reform became the key word. More than 30 million people were laid off in the last seven years and currency maintained a steady stature,” Sampathkumar said.
In the same vein, the government nurtured its small-scale sector called town and village enterprises. These enterprises were grouped together as per their product profile and created a global scale. “Fiscal incentives, however, were restricted to first few years of operations,” he said.
Referring to the common refrain of Indian industry that Chinese products are inferior in quality Sampathkumar said: “That is the niche that the Chinese industry target. There is this market segment which doesn’t mind the quality much for a lesser price. The Chinese industry played on the price volume card and captured the market. It is not that Chinese products are inferior now.”

Speaking about the Chinese workforce, Sampathkumar said the Accenture study found the workers disciplined and taking pride in their work. The government has taken adequate care to protect the labour interests stipulating attractive compensation package when retrenched.

Is China really competitive?
The major concern about China is that taxes, subsidies or even raw material prices are negotiated on a case-by-case basis thereby distorting the global competition. “This situation is bound to change with the entry of China into the WTO,” he said.
The problems that the Chinese industry would face in the future are: the absence of managerial talent, high non-performing assets in the banking sector, social unrest due to income disparity and restructuring the government undertakings. Added to this is the country’s economy, which is largely dependent on FDI and its weak legal system.

How India should learn
Sampathkumar said the Indian bureaucracy should be sensitivised as to the needs of the investors, and the performance of public officials should be measured in economic terms. “Low-cost, labour-intensive industry is an opportunity, and we should target global markets while building local defenses.”