The Indian Economy Blog

April 23, 2007

Global Competitiveness

Filed under: Business — Arjun Swarup @ 5:50 am

Came across this interesting report on a study done by a Harvard institute run by Michael Porter (Institute for Strategy and Competitiveness) which ranks the business competitiveness of nations. The US comes out on top, but of interest is that India is 37 places ahead of China. India comes in at 27, while China has been put at 64 (a drop of nine ranks from the previous year).

According to the study

“Porter and his colleagues found that the Chinese economy has faltered, falling to the middle of the pack at number 64. “China (down nine ranks from last year) continues a downward trend that started in 2002,” they report. “This year’s decline was driven especially by higher levels of corruption, weaker assessment of buyer sophistication, and concerns about labor relations. China also suffers from weak property rights, poor board governance, low quality of management education, and poor access to loans. Overall, it is clear that euphoria about China is moderating as the realities of its competitiveness become more apparent.”

(Emphasis mine).

 ”With a ranking of 27, India fared better, winning praise for recording the highest rate of “dynamism” in improving its competitiveness among low-income countries. “Competitiveness is a dynamic concept,” the authors explain in reference to the addition of this new measure in the BCI. “India’s rapid improvement is visible both in the business environment and in company sophistication.”

1 Comment »

  1. It good to know that india is ahead of china, and chinese economy economy rate is declining, but for future they have been planned. In each and every country the bloody roots cause of decline is poverty , low education, and the other major cause black marketing with political distrubance. Even india such a great county is facing such problem.

    Comment by ajay — April 23, 2007 @ 2:55 pm

  2. but the gap between India and China is still enlarging from almost every aspect…

    Comment by Vijay — April 23, 2007 @ 4:33 pm

  3. unknown to coding coolies, US finds india (in IT) and nice place to make quick buck as well as a trade surplus (in IT)//
    for every $1.7 added by indian IT companies, about $1.3 goes to US..what is not to like.
    ~40 cents is ditributed to coolies who are delirius..but i am hearing bangladesh/vietnam and even china are queuing up for reduce that to 20 cents…
    That is real competition.

    Comment by andiron — April 23, 2007 @ 4:42 pm

  4. And yet…China’s GDP grew at an annual rate of 11.1% during the first quarter of this year.

    Comment by alphie — April 24, 2007 @ 1:57 am

  5. The gap between China and India is always increasing because E.g to lay a road in China, no one’s permission is needed. The commies decide and then anything/anyone that comes in the way is simply demolished and decimated. Am sure no one in India would want that way. A bit slow, but our growth is sure.

    As for “andiron’s” comment, it simply reeks of a case of sour grapes. Am sure he/she is a victim of Bangalored. Hence that reaction. We can understand your feelings “andiron”.

    As for China clocking 11% growth this quarter, its for those people who believe the numbers put up the Chinese govt. There is no independent verification of any numbers that the Chinese govt puts up unlike India where even the foreign institutions/banks comment on the economy. China regularly overstates its growth by at least 20% and thats a known fact.

    For all the China lovers, a simple fact. Do you know that you cannot own land in China? According to the constitution (if any) of China, the land belongs to the state (the commies) and no person can buy it. You can only rent/lease land from the govt. Do you want to live in a country where you have no right over the land that you build your house on? Will you feel rooted to such a country?

    Think about it. The grass is always greener on the other side. Till you make your journey to that “other side”.

    Cheers.

    Comment by Full2njoy — April 24, 2007 @ 5:20 am

  6. Full,

    Here’s the CIA’s calculations for China’s exports over the past 6 years:

    2001 – $262 billion
    2002 – $325 billion
    2003 – $436 billion
    2004 – $583 billion
    2005 – $752 billion
    2006 – $974 billion

    Do the math.

    China also has a rather large trade surplus, whilst India has a rather large trade deficit.

    There doesn’t have to be a trade deathmatch between China and India.

    But it pretty obvious China is far ahead of India economically right now.

    Comment by alphie — April 24, 2007 @ 10:53 am

  7. full2njoy, fi you said is true, how do you explain this?
    http://www.skyscrapercity.com/showthread.php?t=454957

    The house owner was paid about half million$ in the end.

    Comment by Dravid — April 24, 2007 @ 12:06 pm

  8. Alphie, no one is denying the fact about China’s trade surplus. Its a known fact that its currency is highly undervalued to undercut competition and to dump goods into other countries. Hence the issue of many chinese exports being slapped with anti dumping lawsuits. No one is even claiming that India is in anyway an economic or military competition to China. That is done only by some armchair economists who want the world to read their next article. China started liberalising its economy in 1970s whereas India started only in 1992. They already have an almost 20 year lead which will take a lot of catching up to do for a country like India.

    David, he is a lucky fellow. Pray how many of you can stand up to the might of the govt’s machinery (any govt’s)? He might have been paid millions of dollars cos he was gritty and held on. Also because his case was well publicised in the chinese internet forums. And the govt didnt want to hurt him in any way and make him a martyr.

    What about the thousands of others who lost their houses and farms so that the Chinese govt could go ahead? There were a reported 70,000 riots in China last year. This is official Chinese govt statistics. The truth is at least double or triple the number. All these riots were by the poor farmers whose lands were simply snatched away by the govt machinery to put up industries.

    Such a thing is impossible in India. Remember what happened in Nandigram? Today the West Bengal govt has even dropped the idea of having an SEZ there. In China, the whole village would have been wiped off and the SEZ would have been built on their graves.

    Ignore the hype, there is a lot of crap in the backyard that doesnt get reported. India has a free press hence you see all the cows roaming on the roads. Try taking such a pic in China and probably you will never come out alive.

    The real test for China is when with rising affluence, its people will start demanding more voice and political, religious freedom. China’s future depends on how good a transition China can manage at that time. Remember Maslow’s theory of needs? Its yet to play out in China.

    Comment by Full2njoy — April 24, 2007 @ 12:44 pm

  9. Full,

    I think China’s leaders are more responsive to the needs of their people than the democratically elected leaders of England and her former colonies.

    When your party’s time in control is limited, the urge is to just loot as much as you can before the people get tired of you.

    The Commies, OTOH, will be in office forever unless they piss off the Chinese people so much they get thrown out of power by force.

    Comment by alphie — April 24, 2007 @ 1:47 pm

  10. Well, i suppose the problem with India is that it has too much of freedom ;) So, everything is taken for granted.

    Comment by Full2njoy — April 24, 2007 @ 4:41 pm

  11. Full2njoy, China only has 5 or 6 SEZs but India has over 200. I heard the villagers were well paid in Shenzhen, China. China opened up its economy in 1979 and India in 1991. but if you go to http://www.skyscrapercity.com, you can see the gap is like 30 years, at least in terms of infrastructure.

    Comment by Dravid — April 24, 2007 @ 6:14 pm

  12. “China regularly overstates its growth by at least 20% and thats a known fact.”
    That’s not accurate. The reality is that China rather likes to understate its GDP under the US’ currency revaluation pressure. China’s publicised GDP is 2.7 trln$, three times of India’s GDP, but the real gap would be larger than that.

    Comment by Vijay — April 24, 2007 @ 6:40 pm

  13. Hmm.. old story about India vs China. Can you tell me something, how many of the Indian companies [not the branches of MNCs] are patenting something from here? 10? 20? Where as the MNCs are getting patents as if there is no tomorrow – in various fields. We have a culture which chokes growth & kills creativity in our Indian cos. which mostly require confirmatory personnel & not people who question things. We are also into low level support & services with maintenance & support projects creating a bulk of revenues for our Indian IT “Giants”! Maintenance projects can be moved across borders in search of little cost, if it can be offshored to India it can be moved to much low cost destination[Urugay/ Vietnam/ Chnia/ Eastern europe] with much ease. Until the time comes, lets enjoy the “IT Boom”!

    Comment by Suresh — April 24, 2007 @ 7:37 pm

  14. Dravid, of course i stated above that its easy to setup infrastructure in China. The govt is not answerable to anyone once they make up their mind. Whether you like the money or not, you have to move. There is no complaints or trying to take court stay order.

    In India, the moment the govt wants to expand a road, temples, mosques, churches and other worship places spring up beside the road. The results are there to see. It then becomes a communal issue. That’s just one of the million reasons why our cities are have lousy infrastructure.

    Vijay, yup the Yuan is highly undervalued. That’s one reason why they are able to keep the cost of production of goods so artificially low. Also the wages are not determined by the market forces but by the govt.

    A friend of mine was sent from Singapore to Guangzhou (China) for a project for 3 months. His company was setting up a factory there. During his interaction with the managers there (local chinese), he realised that they were paid a pittance for their work (a manager in a factory is paid approx 2000 yuan which is around Rs 10k) whereas my friend (also a manager level cadre) was paid almost 10 times the amount. My friend was under strict instructions from his bosses in Singapore not to reveal his salary to the locals there. Lest they were afraid that workers might be demotivated or maybe they could revolt.

    FYI – The company iam speaking about is a massive US based conglomerate which has operations in India too. But in India, the company pays the market rate (which is almost 5-6 times what an average manager earns in China).

    It seems the Chinese govt has no qualms with its citizens being ripped off by all these MNCs who setup shop in China. That’s why i find it funny when people in India equate the people working in BPO/IT related firms as “cyber coolies”. If they compare them to the poor workers of China, i wonder what will they be known as.

    Its a long race. But if you ask me where i invest my hard earned money for my future. Its India. Period. Even though i live in Singapore which is the financial hub of Asia.

    Suresh, over a period of time, the Indian companies will scale up. Relax. Rome was not built in a day. No one invests in India or China because they love them. They invest simply because the future market lies there, the cost of production is low, there is abundant supply of cheap and good labour. As affluence grows in both these countries, the cost of doing business increases, these companies move to some other cheaper country (maybe Africa, who knows)

    Phew, cant believe i wrote such a long post. Sorry ;)

    Comment by Full2njoy — April 24, 2007 @ 8:05 pm

  15. Full2njoy, some of your points are good but some are baseless. I don’t want to lead this post into India vs China comparison but I want to give credit to China’s economic growth and the benefit it brings to its average people. Check this out,
    http://www.bankresearch.org/economicpolicyblog/2006/05/minimum_wage_ch.html

    minimum wage in China’s manufacturing sector is between two to three times that of India! Data from where your friends stayed, Guangdong

    the minimum wage level in Chinese “sweat shops” is much higher than in India where unions have bargaining power in the legislative process of labor laws.

    according to IMF data, typical monthly wage for manufacturing workers in China is almost 4.7 times that in India By by Deloitte and Touche “India and China: The Reality Beyond the Hype”
    http://www.deloitte.com/dtt/cda/doc/content/US_ChinaIndiaReality_Research.pdf

    Comment by Vijay — April 24, 2007 @ 8:54 pm

  16. Vijay,

    My example was just my friend’s experience. I accept that i can’t paint the whole situation with one brush. As for the wages part, its very easy to generalise by money conversion which research websites / professionals are so good at.

    A good example is going to a barber to get my hair cut. It costs me Singapore $10 (280 rupees) per haircut. In Hyderabad, India i can get it done for 20 rupees (less than 1 singapore dollar). The Singapore barber’s contribution to the GDP is 280 rupees whereas the Indian barber’s contribution to the GDP is 20 rupees. Whereas both of them are doing the same job and with the same efficiency and skill. Does it mean that the Indian barber’s contribution to the economy is in any way inferior to the Singaporean one? Its the typical mentality of converting dollars into rupees. Things are not so simple.

    So, all this comparison documents made by the “armchair economists” are simply hogwash. Just to sell their logic and paper. Dont read much into them. Its like the scientists coming with a study that drinking a cup of coffee can keep you healthy. The next day his colleague comes out with another study that says that coffee can increase your blood pressure leading to stroke and even death. Its just a case of “the glass is half full or half empty”. Its how you look at it.

    Forget the Indian labour unions getting you a higher pay. The Indian manufacturing industry is today in a mess simply because of the poor labour unions that are inefficient and corrupt. That is one reason why NASSCOM doesnt want the unions to enter the IT/BPO field.

    China is where it is today because it sustained 10% growth for 30 years. India has just touched 8% or 9% for past 2 years. We have a long long long way to go. But as for who will sustain the growth, it will be India for sure. Demographics is one, a proper law and order structure in place, institutions are in place and most importantly the power is in the hands of the people. China is yet to experience all these. The real test for China is yet to come. That is when people get richer and then they start to demand their pound of flesh politically.

    Btw, iam in no way denying China’s growth and the great hardwork their citizens have put in to achieve that. What rankles is the absolute disdain for the Indian growth model by these so called “economists”.

    I think the author of the blog must be annoyed that we are hogging the messageboard ;) Apologies.

    Comment by Full2njoy — April 25, 2007 @ 5:43 am

  17. Full2njoy, reagarding your comments,
    1. Chinese worker’s monthly wage is much higher than India’s to outside world but still the production cost is lower, is there something we should think about?
    2. China’s living cost is not as high as Singapore and not much higher than India’s, which means their living standard is way ahead of India. There’s a scientific way to measure this, Human Development Index, people can check where these two countries are on,
    http://en.wikipedia.org/wiki/List_of_countries_by_Human_Development_Index
    3. The correct statement should be, China already sustained 10% growth for 30 years, The real test for India is yet to come.
    Period.

    Comment by Vijay — April 25, 2007 @ 7:33 am

  18. 1. Cost of production is low cos they manage to have economies of scale. Same like how Wal-Mart manages to sell you goods at much lower cost than your neighbourhood mom&pop store. Because they make money by selling volumes. Yes, its something we should learn.

    2. Of course, 30 years of 10% growth does have positive impact on the quality of life. We in India have a better life than what our parents had. Rite? That means there has been some growth somewhere. Of course not at the pace that we would have liked to.

    3. Well, the biggest challenge to any govt or country is managing the people’s aspirations. That’s more difficult to handle than building physical infrastructure. Whether the whole thing will implode or a smooth transition will lead to an even bigger growth is something that is to be seen.

    Comment by Full2njoy — April 25, 2007 @ 9:21 am

  19. Commenting totaly irrelevant to the post, but are there posts related to the housing/real estate market in India.. or any comparison of that of USA?

    I am a student trying to read articles about the all time low in US housing, and boom in Indian..

    Comment by Amrita — April 25, 2007 @ 9:39 pm

  20. Chinese have very capable people managing their economy. In my opinion, the chinese government is structured like the management team on a corporation. To advance in the hierarchy, a person has to impress their bosses and peers, who are very smart people. The people who get to the top will usually have the ability and insight to know what is good for their country.
    It is hard to get a similarly good leadership in a multiparty election system where half the voting population is illiterate and can be manipulated easily. We do have a good leadership now, and should consider ourselves lucky. It was not always like this..
    However, our population will not vote for economic growth because even 10% growth is not easily perceptible in the short term. They do vote for inflation, so our govt is willing to sacrifice growth to bring down inflation.

    Production cost cheap in China because their currency is cheap. They keep their currency cheap by buying foreign currency aggressively. This should normally cause inflation, but they somehow manage it (probably by creating manufacturing capacity fast. This is my biggest mystery.)
    We can’t buy too much dollars because it will lead to inflation, and our economy dont have the momentum to absorb it yet.. (my guess).
    In my opinion, growth for developing economies is all about the momentum. The chinese have it, and we are slowly getting there.

    Comment by muttan — April 26, 2007 @ 6:06 am

  21. Full2enjoy.. thanks for clarification. Yes, I agree Rome was not built on a day.. but it needed constant care from people who could risk their time & resources constantly waging war against barbarians & also innovated at that time. In Indian companies innovation is little or nonexistent & since they are in IT service the scope of innovation narrows down considerably. I can appreciate innovation in India based MNCs, not our homegrown giants.

    Also, grass roots innovation in India is still absent or very little. We have one of the advantages compared to china: Proven low cost auto accessories manufacturing destination [Tata's Indica & their 1 lakh car]. In almost all other cases we have been beaten by Bangladesh & Srilanka [Textiles] Vietnam[Textiles & Electrical Manufacturing], Russia[High end secure software], Brazil[Agriculture]. Well, I rest my case :)

    Comment by Suresh — April 26, 2007 @ 8:06 pm

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