The Race to the Global Finish Line
By Nicole Ali
On your mark. Get set. Go! The race is on. The contestants, you ask? The world's largest developing countries, ironically both based in Asia: China and India. The course level? Very advanced. Anticipated speed? Faster than a speeding bullet. The finish line? Economic prosperity. The prize? Oh, only world economic dominance.
It's a pretty important race, if you ask me. And it's certainly one for which we've all purchased a front-row ticket--whether we like it or not--since we're in the business of "doing business."
In our industry, ROI is crucial. It's not only a matter of how many thingamajigs we sell and at what price, but also of how many are returned and all of the costs involved along the way--these factors combine at the end of the day to give us the true picture. And if we need to "get lean" to serve the ever-so-important bottom line, China and India are the two countries we all want to visit. Regardless of the category--fitness, housewares, DIY, DVD/VCD duplication, electronics, health and beauty products or even the myriad of services available--these two countries are the hot tickets.
First to step up to the gate was China and many of us onlookers are still shocked by the speed with which the country rose to global economic power. Driven largely by manufacturing, China's domestic savings have helped build an infrastructure that has enticed businesses around the world to pour in over $55 billion in foreign direct investment, or just under 10 percent of the world's total--more than any other nation. A very serious contender, indeed.
Next in the race with a late start was India, with its economic transformation occurring almost a decade after China's (which many people fail to remember). All we seem to see are the flashing bulbs of the business paparazzi worldwide, as India commands attention (Bollywood-style) due to its increasing dominance of outsourcing from North America--and other markets--combined with advanced knowledge-based industries such as IT/software and biotechnology. The difference here, though, is India's level of foreign direct investment--only a fraction of China's; you don't need as deep of a pocket to fund an IT company as you do a steel plant. Therein lies the key to how two completely different countries can somehow, over time, compete and succeed despite very different playing fields.
China and India each have followed different paths to economic development and are now actually running neck and neck in many respects. The questions: Which is taking the better course for them (and ultimately, for us all)? and Who will finish on top?
China's strategic growth appears cautious and very deliberate, and we are all responding according to plan, it seems. They also have the benefit of government support for economic activity both domestically and from abroad, which allows them to "trump" India in terms of funds allocated to physical infrastructure (roads, power, ports for import/export, etc.). This is why their manufacturing sector continues to thrive and why suppliers or distributors worldwide are capitalizing on the cost savings here.
India's growth on the other hand, seems somewhat reactionary, continually changing mid-course, but achieving great strides globally in far less time. This should make us all look twice at them as a viable option for many aspects of our businesses. India's government, however, remains cautiously reserved on investment and support. This is India's huge obstacle, as it affects its basic infrastructure and logistics necessary for growth--water, electricity and roads--as compared to China. It's also a contributing factor as to why the country's "soft" or knowledge-based industries seem to be thriving.
Common to both countries, however, are struggles with side effects of this rapid growth--"growing pains," if you will. China now has massive debt due to foreign investment that must be repaid and/or accounted for, while India continues to tread along with little support from the government and little foreign investment to support the thriving businesses that have been transplanted there.
China also has put itself into manufacturing over-capacity and with government-influenced resource allocation, the government essentially has the power to decide which companies grow and which don't, perhaps leaving the smaller entrepreneurs out in the cold. Internationally, countries also are putting higher import duties on Chinese-made products in an effort to support homegrown economies and restore some balance.
India also is increasingly becoming burdened by tariffs, taxes and licensing regulations which, as a result, make it difficult for sellers of Indian consumer goods to compete internationally--and prices for these items unnecessarily high for Indian citizens buying locally. This encourages gray-market activity, the effects of which stretch far across India's borders.
The winner at the end of the day? Predicting a winner is not a simple proposition. China has become globally competitive through local and foreign direct investment, but it's still unclear whether they will continue to thrive with India now in the game--and ultimately, which economy will emerge as the stronger in the long run.
The foundation for long-term and sustainable economic growth must be tailored to the industry, and focused on the ease of doing business, high productivity or output, government support for physical and economic infrastructure, sound regulation and--ultimately--the creation of fair competition. Only time will tell who comes out on top--let the bets fall where they may. Who we choose to work with or opt to support may ultimately make the difference in the end.
Nicole Ali is vice president of the International Sales Division at Northern Response (Int'l) Ltd. in Toronto. She can be reached at (416) 261-6699, ext. 322, or via e-mail at nicole@nresponse.com.
