Global Themes

As EU sleeps, China and India get to work

A few weeks back, I came across the second part of Eye on the Tigers series in which Tosh talks about the strikingly different approaches to development/globalization being followed by India and China and how awareness about these changes continues to be very low in Europe.

He starts his analysis by noting that in spite of Indian companies now controlling “three European
Icons” (Arcelor, REpower and Whyte & Mackay), “awareness about India among Europe’s policymakers is feeble”.

But the really interesting bit (IMHO), is the part where Tosh analyses the differences between the Chinese and the Indian approaches to development.

In his own words:

“As perplexing at the Brussels Asia-Europe conference was a pictorial tsunami of Chinese technology parks – sprouting by day, sometimes by night. There was no analysis, for instance, of why China chose an Indian majority partner for its first offshore IT park, or the absence of windows at Intel’s high-security Bangalore operation.

Missing too were numbers, such as the American stock-market capitalisation of the large Indian software firms, each of which outranks ‘giant’US rivals Accenture and EDS, and have revenues higher than China’s entire offshore IT industry.

Though globalisation is principally about India and China, blurring the differences is unwise.

China is driving up the value chain, very visibly, from low-cost, ultra large-scale foreign-invested manufacturing. Its technology parks may well be needed in the future; but they could also share the fate of Malaysia’s much-hyped ‘Multimedia Super Corridor’.

India is driving in the opposite direction – down the value chain from technology services. This ride is carefully calibrated to global market forces. In effect, India is harnessing its technology/management skills to add value to emerging frontiers in manufacturing –such as rapid prototyping and mass customisation.

On the flip side, unlike the US, Europe’s rich but fragmented patchwork of SMEs offers would-be buyers easy targets to ‘plug and play’ in tomorrow’s global supply chains.

… waiting in the wings are others like Tanti (Suzlon’s CEO). India’s bottom-heavy but world-class stock markets already boast 150 companies with over $1 billion valuations.

This is the global/European face of tomorrow’s India Inc., bankrolled byAmerican capital and soldiered by Indian-American managerial Merlins co-opted from McKinsey, Bain and the like.

Such wholly-new trends surely require some assessment….”

Sadly, “the state-of-play within the European Commission, its listening posts and sounding boards, is that of Rip Van Winkle waking up and seeing a new emperor’s new clothes.”

I am very interested in comments – particularly from those with insight into (or experience of) policy-making in Europe and UK.

July 25th, 2007 Posted by Shantanu | China, Europe and Asia, Globalization, India | 2 comments

Feeling the heat in China…

Last week, I shared a panel at the China Venture Capital Forum at the Hilton in London with Gerry Montanus from Atlas, Jean-Bernard Schmidt from Sofinnova, Andy Tsao from SVB Global and Kevin Wang from Natixis, moderated by Max Burger-Calderon from Apax.

The panel was part of the day long discussions and panels about the Venture Capital environment in China…The buzz was unmistakeable, the energy and optimism was evident…the ambience very very close to what I sensed the day before at EuroMoney’s India conference.

I heard some startling stats:

• 50% of VC-backed companies in China exited via an IPO last year (the comparitive figures for US and Europe are closer to 10% and 20% respectively)
• The median return in VC in China is now ahead of the global top quartile (- I think this is what I heard but I am not entirely sure)

There was the inevitable talk of the market being overheated…so, whats new?

On my panel, we discussed entry strategies for getting into China and everyone agreed that as a VC market, it is coming to a point where it cannot be ignored. Gerry and Jean-Bernard shared Atlas’ and Sofinnova’s approach to the region and how they had slowly begun to dip their toes in the water.

Everyone complained about valuations…except the entrepreneurs.

For young Chinese men and women with ideas, these are heady times.

July 1st, 2007 Posted by Shantanu | China, Europe and Asia, Venture Capital in Asia | no comments

What might stall the “Great Chinese Growth Engine”?

        A few weeks ago, I attended a fascinating talk at Chatham House by Professor Wing Thye Woo who teaches Economics at the University of California on “The Real Challenges to China’s Continued High Growth”

He identified three important factors which might lead to the “crash of a speeding car” aka the “Great Chinese Growth Engine”:

• Hardware failure: “right tire burst” = collapse of a crucial economic mechanism
• Software failure: “fight within car” = social disorder
• Power supply failure: “no petrol” = limits from ecological barrier or external sanctions

He also cited several interesting statistics in his presentation of which the two below particularly stood out for me:

1. “Social Disorder”: 1994 had 10,000 mass incidents involving 730,000 persons? in 2004 the number had gone up to 74,000 mass incidents involving 3.7 million people.
2. China’s GINI coefficient has almost doubled from .24 in ‘78 to .47 in 2005

The China Policy Institute, which made it all happen, wrote its own report on the talk which can be accessed here.  The report nicely summarised the key points. I would recommend it and the slides to everyone who is watching China and its impact on the global economy.

A few excerpts:

“…China had enjoyed the highest sustained economic growth rate of any country in recorded history, he said, and it was probable that this high growth model would succeed.

But it was important to examine the factors most likely to disrupt the high growth rate from continuing…

…Professor Woo said that perhaps the greatest challenge to China’s continued high growth in China would be future global disputes over resources and the environment, following what he called the unravelling of the global consensus for free trade in the United States, which was making the atmosphere ripe for protectionism.

As China and India moved up the value chain in manufacturing complexity, he said, Western countries were being forced to make painful adjustments as more and more jobs were lost. At the same time they would be faced with demands to help pay for the environmental improvements needed in countries like China and India to curb carbon dioxide emissions, he said.

…The best way to reduce CO2 emissions was to ensure that the new power generation capacity installed in China and India made use of modern, clean coal technology, he said, but this would mean that the richer countries would have to offer to pay for this in order to enjoy the benefits.

This made the atmosphere also ripe for what he called a coming global clash over the “Global Commons” not just air but also water as well. Asia, he said, faced a looming water crisis as China made plans to divert the flow of water to rivers such as the Bramaputra and the Mekong that flowed into India and Southeast Asia…”

June 24th, 2007 Posted by Shantanu | China, Development Issues, Economics, Emerging Markets, Globalization | 3 comments

India & China: so different, yet so alike

In its latest “Index of Failed States“, Foreign Policy magazine has ranked India (at # 110) way ahead of China (and Russia – both at #62) in terms of stability while Pakistan jostles for a position in the “Top 10″ (at # 12) with North Korea (at # 13) – both nuclear armed for good measure.

…and yet the report describes China in words that could have almost been written for India:

“…the growing divide between urban and rural, as well as continued protests in the countryside, reveals pockets of frailty that the central govenment is only just beginning to address”.

 For the curious amongst you, the top 3 places in the Index go to Sudan, Iraq and Somalia.

Related posts:

Why India will* overtake China – II

China, India and the “3D Advantage”

India, China and the next decade…

Of Googlies*, Cricket, India and China

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June 21st, 2007 Posted by Shantanu | China, Development Issues, Emerging Markets, Globalization, India | 2 comments

The Gospel according to Goldman Sachs

My good friend Tosh (author of “The Rising Elephant“) sent me one of his recent articles last week titled, “Eye On The Tigers” which makes the point that putting the all the BRIC countries in one basket may not only be unwieldy but also confusing and possibly inconsistent.

  Excerpts:

The BRICs report published in 2003 by Goldman Sachs – which foresaw the rise of Brazil, Russia, India and China as global economc powerhouses, has acquired the aura of a Delphic Oracle.

Nevertheless, it remains confusing with regard to some key assumptions and conclusions, particularly for policymakers.

The first problem is the heterogeneousness of the BRIC membership. Demographically, Brazil and Russia have a combined population of just 330 million – against 2.4 billion for India and China.

Russia, by many accounts still a nuclear-armed superpower, is essentially an exporter of com m odities to the West and of arms to China and India – which, in some cases, its own armed forces cannot afford.

Russia is also ageing fast: 15 percent of its population is over 65 years old,against a mere 5 percent in India.

For its part, Brazil’s growth is three to four times lower, and its income distribution far more skewered, than India and China.

Indeed, the lack of a meaningful middle class is one reason for Brazil’s stagnation, while its presence in India underpins the surprising spurt in its GDP growth.

More perplexing is Goldman Sachs’s faith in the three-fold gap between Chinese and Indian GDP lasting for the next 25 years.

India has been far more efficient than China in moving up the global value chain.

Its telecoms market is now the w orld’s fastest grow ing.Outbound Indian acquisitions, ahead of China in both quality and scale, are another example.

… All this may be overlooked.

What cannot is the report’s unquestioning faith in the continuity of the current global order.

To show precedents for the BRICs, the Goldm an Sachs team turn to Japan and Germany’s rapid growth after World War II.  Such straight-line insight may well apply to Japan and Germany, or Brazil and Russia…

To imagine this is true for India and China, inhabited by a third of the w orld’s population (and sometime soon, half its workforce), is curious.

…Devoid of the yardstick of the dollar,  things look quite different . Both within the BRICs,and for the world outside.

For in purchasing power terms, China’s econom y is over tw ice the size of India’s,  while India’s is larger than those of Brazil and Russia combined.

More dramatic is the fact that the Indian and Chinese econom ies are together already equivalent to those of the U S or the EU.

*****

I would enourage you to read the article in full – especially if you have anything to do with policy-making in Europe.

June 6th, 2007 Posted by Shantanu | China, Emerging Markets, Globalization, India | 2 comments

This is a *must watch*

An amazing slideshow by Jeff Branman (Winner of the Best Presentation award at the “World’s Best Presentation Contest” ShiftHappens

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and for my readers familiar with India, another un-missable one…People’s Choice Winner at the same contest Panipuri by Thakkar

May 15th, 2007 Posted by Shantanu | China, India | 3 comments