First, it is important to understand the comparison between India and China’s economy from a business
perspective. China is now the global factory of the world. All the big countries still prefer China as compared to India. But how did this happen? In 1990, China was producing only 3 per cent of the total global output by value, but now by 2018 it is 25 per cent. In 2017, with $23.25 trillion economy, it became the number one economy of the world. After the US, China is now the most powerful. With $2.2 trillion export, China is the undisputed number one leader in export. It is not the case that China is producing only low cost or cheap products — 60 per cent of the total luxury items of the world are produced in China. Every year it sees a GDP growth of 8-10 per cent. Hence, the result- 800 million people below poverty line are now above poverty line in last 25 years.
How has it happened?
Lets find out top ten difference between China and India:
Mass production and dumping
China indulges in massive production and hence creates huge scalability. In whichever country it exports, it first checks the prices of the product, and then produces in such massive volume that it brings down the prices even lower than the price of the product in that country (India), and captures the whole market by dumping products at lower prices. If we compare India before 1991, when mostly ‘anti large industry policy’ existed, focus was more on small scale industries. Small scale was restricted to only small scale, scaling up was an alien concept. The initiative was with a good intention, but did not able to develop the required ecosystem. A business man who cannot scale up the production, cannot reduce the cost and can stick to only option reduction or opting for less manpower. It is actually a misconception that with more manpower, cost will increase, but in reality it decreases. In India, we still do not know how to scale up.
Competitive pricing with reverse manufacturing
Chinese are expert in reverse manufacturing. Big countries focus on innovation of the products, and Chinse take out the knowledge of innovator products. They understand the product deeplyand learn how a copy can be made. With this approach, they save cost of innovation, R&D and IPR. In India, people have less global exposure as they try to restrict limited options and limited space, and so the learning of whos and whys takes a lot of effort. On the other hand, China brings best from the world and develops expertise to create similar product at a lower cost.
Many of us think that Chinese labour is available at lesser cost because its population is more, but that is not the case. Chinese labour is not cheap but highly productive because of China’s high focus on skill development. Their government, industries and localities jointly have given the shape to it. Output per person as compared to Indian labour is 20 to 30 times better. Although the Indian government is working on skill enhancement, it still has a lot of ground work needed to do. This is one of the major reasons why we are not able to compete with China.
Experience and expertise
China is now the most popular global manufacturing destination. Practiced and experienced workers ensure that the overall productivity is high. Meanwhile, India still lacks in automated equipment, capacity utilisation, sustainable supply chain and reliable quality control. People in India still don’t have the experience and the expertise for that. Although manufacturing set-up and a productive eco system is being developed, still that level of understanding and experience is lacking because of fear and again low scalability and strength. In China, the experience and expertise is in their blood. They can make any thing.
Whenever a multi-national client comes to India, at first they feel uncomfortable because of lack of clarity in bureaucracy and government policy. With every new government, policies change. In China, the government is stable, infrastructure is stable, there are no power cuts, no plumbing issue and no flooding issues. To an investor, China looks more stable. There is assurance that work will be done. In India, Make in India is being done forcefully and the actual client are less interested to come because a lot of time , energy and money needs to be put in to manufacture low-cost products.
There is a big difference between China and India’s education system. In China, the number of graduates is more than in India. In China, education system provides updated technology, best management practices and global learning practices. Chinese government encourages their students to go for education in the best universities of the world. This is also one of the main reasons that the Chinese are more updated than Indians. Changing the mindset for education can definitely be a game changer for us. Unless there are consistent efforts to improve education and its system, India cannot compete with China.
Industrial network clustering
China has developed cities as supply chain cities. It means whatever is required to produce single focus products or similar products, every resource gets clustered in that city. Government support is paramount to achieve this, in order to provide training, financing, encouragement, infrastructure arrangement. India has also started this,and we can see that each state is promoting itself as a potential industrial hub, but we still have a long way to go. We need to think how this can be done for API specifically.
Cost of power and availability
In China, power is easily available at cheap price, unlike India. In China, per KW cost is Rs 3 but in India it is Rs 8-9. While the former experiences no power cuts, in India there are many industrial areas where power cuts last even up to 10-12 hours and manufacturer have to rely on generators, increasing the overall cost of product.
World class infrastructures
Infrastructures in China — roads, highways, ports,airports, supply chain — is far ahead of India. Any infrastructure project taken up in China is always with long term, planned with 25-30 years in sight, which reduces the total cost in the long terms In India, there are frequently changing policies as governments come and go, which hinders this process.
Government and industry work in partnership
In China, the government and the company work together in partnership. China works with a combination of corporate interest+ political international interest. In India, political instability does not allow these collaboration.