Temat: Choosing China or India - Jack Welch

Choosing China or India

Which country has the best business prospects in the long run—China or India?

Don’t we wish we knew the definitive answer to that question! Doesn’t everyone? That’s why there are so many books, articles, speeches, research papers, and even blogs on the topic. It seems that everyone not already playing in the global market is trying to figure out which of the two emerging powerhouses to bet on.

Our opinion is neither. Or both. Or either one. What we mean is, the choice between China and India is entirely situational. Both countries have advantages and disadvantages. The only way to pick between them, if you must, is to find the right match for your business. That means figuring out which country is best equipped to help you win. It’s as simple as that.

O.K., maybe determining that match isn’t so simple. There’s tons of information out there, lots of it contradictory, and most big companies have already sorted through it all for their own conclusions. But for a small or midsize company still in the process of considering globalization, we would offer a four-part framework as a way to think through the China-India conundrum. It’s based on the assumption that economies have four ingredients that facilitate success: political stability, infrastructure, local and export markets, and the “human grrr factor”—not a technical term, but you know what we mean. China and India each have some portion of these ingredients. The question is not which has more. It’s which has the right amount for you.

»Political Stability. If that’s what your business desperately needs (say it must make huge capital investments), India is the better fit. Yes, it’s riddled with corruption. But its top team, led by Prime Minister Manmohan Singh, is said to have real integrity.

The downside of India’s form of coalition democracy, of course, is a bureaucracy that moves slowly—as in cold molasses. Meanwhile, China was able to clear a province of 1.9 million people and, within 15 years, complete the colossal Three Gorges Dam, which will generate 18,000 megawatts of electricity annually. But regard for China’s speed advantage has to be tempered.

It is in the midst of a massive experiment, trying to wed economic freedom and political collectivism. Will the marriage last? Maybe, but in the worst-case scenario, its collapse could put foreign investments at risk of outcomes that include confiscation. In other words, the lower your outlay to get started, the more attractive China becomes.

»Infrastructure. By contrast, if infrastructure is what your business needs to succeed, advantage China. It has 10 times as many express highways, for example, and its power costs 40% less. You wouldn’t ever pick, say, Mumbai to build an electricity-devouring aluminum plant to serve global markets. But you wouldn’t be off base to plant your global ad agency, movie studio, or call center there.

»Markets. The edge goes to China when it comes to local markets. Its GDP is almost three times that of India, and it has more consumers with buying power. China’s industrial buyers also beckon, thanks to the country’s manufacturing sector. India has long concentrated on its service sector at the expense of manufacturing. Indeed, India’s only local market advantage could be that it’s easier to enter and survive in because, well, it’s just so much less competitive than China.

As for exports, it’s China again, as the country’s manufacturing productivity and process-improvement skills overwhelm India’s. You can go it alone there, form a joint venture, or do contract manufacturing to feed your global supply chain. Only in high-tech manufacturing does India offer an edge to exporters, but probably not for much longer.

»The Grrr Factor. That’s the mixture of ambition, energy, and passion that magically fuels economic growth. Every business wants as many people with grrr as they can get their hands on. So which country has more? It’s a split decision. China excels at process creativity, India at innovation. But for grrr in general, you can’t discount the sheer ferocity of the Chinese. Obviously, we are talking broadly, and exceptions abound. But our experience is that because more Chinese people are willing to work at such insane intensity, their productivity is difficult to beat.

Still, what good is grrr if the country with more of it might implode?

Which brings us back to where we started. Look, your question is not an either-or. It’s a what-who. What do we need to win, and who can give it to us? Our framework won’t answer those questions beyond a reasonable doubt, but it can start you on the road to globalization. And after that, your only question may be: Why didn’t we start sooner?

This question and answer originally appeared in Business Week magazine on March 19, 2007.

http://www.welchway.com/About-You/Leaders/Going-Global...


China vs. Russia

Everybody’s so excited about China. My company recently signed a joint venture there, but we’re also thinking of moving into Russia. What do you think about its potential?

Everybody’s so excited about China. My company recently signed a joint venture there, but we’re also thinking of moving into Russia. What do you think about the opportunities there?

Your comfort level with doing business in Russia depends on how much stomach – and capacity -- you have for risk. Russia has huge potential for opportunity, but plenty for disappointment too. You could say the same thing about China, perhaps, but it seems to us that by comparison, Russia has less upside -- and more obvious downside.

To start with, let’s look at what’s promising about Russia. Sure, it’s a fraction of China’s size, with its one billion headcount, but with 140 million people, Russia is bigger than every single-country market in Europe, not to mention Japan.

And without doubt, some sort of economic transformation is occurring in Russia. GDP growth has averaged more than 6 percent per year for the past six years. Compare that to France, Germany! Meanwhile, over the last five years, capital spending has averaged annual gains of greater than 10 percent, and personal income 12 percent.

The driver of all this growth has been Russia’s enormous store of natural resources – timber, minerals, and most of all, oil. In fact, Russia has enough oil to make it not only energy self-sufficient, but a significant exporter as well.

The Russia picture darkens, however, when you look at other facts. Something like a quarter of Russia’s economy is underground, riddled with corruption, and impervious to any kind of regulation that makes business fair and transparent. We have railed against regulation in earlier columns as a hallmark of bureaucracy, but as an outside investor, Russia makes a compelling case for the opposite view. You can really come to love regulation when you try to do business in a country that doesn’t have any.

Russia, of course, doesn’t have a lock on lawlessness. China has a veritable army of pirates, and many foreign companies trying to do business there have been stymied (or worse) by what we would consider blatant violations of intellectual property law. Chinese lawlessness, however, is somewhat surreptitious compared to Russia’s, which we would take as a (small) sign that it is less accepted by officialdom.

Two more points of comparison about Russia and China bear quick mention. The first is manufacturing. China’s is thriving. Russia’s factories remain stuck in a state of grim Communist-era disrepair. There just hasn’t been significant investment in bringing these facilities into the 21st century. Meanwhile in China, new factories are being built with an eye toward the future.

The second is social stratification. Russia is cash rich – that oil! – but its distribution of wealth is a throwback to the days of the czars. A tiny number of people have a ton of money; most people, especially those in the vast countryside, have very little. There is virtually no in-between. China, by contrast, has a growing consumer base of more than a 100 million people – almost as large as Russia’s total population. Their purchasing power will increasingly be able to support a healthy, sustainable economy. Now, we don’t want to sound too pessimistic about Russia and too bullish on China. Both countries are in the midst of grand experiments. Russia is trying to create some mix of capitalism and democracy while using a totalitarian approach to fighting both general lawlessness and the scourge of terrorism. China is trying to create a form of society with no antecedent: a market-driven (i.e. free) economy within a Communist superstructure that limits personal freedom. Who knows where either of these works-in-progress will end up – ten years from now, let alone fifty.

But when you come right down to it, China does have an edge for outside investors. It’s bigger by almost a factor of 10, for starters. Second, its culture is more entrepreneurial; in our experience, there are simply more people in China than in Russia who are energized to win, creative, fierce, and ambitious. Third, China provides a more attractive export base, given its broad manufacturing and technology capabilities. And finally, and perhaps most importantly, China is focused on the industries of the future – electronics, medical devices, and other forms of technology. After oil, Russia’s major industries are machine building and metalworking. Those are more yesterday’s stories.

All in, that’s why for us, it feels hard to get as excited about Russia as about China. Still, your company is not unwise to expand there. It could turn out to be very smart. Time will tell.

Time has already told with China. In today’s global marketplace, you have to be there. That’s not true of Russia, even with its expanding economy. But if you have the resources to absorb the risk of doing business there, why not?

This question and answer originally appeared in Business Week magazine on November 21, 2005.

http://www.welchway.com/Management/Strategy/Going-Glob...