China & India: Trading with Asias Giants (Presentation at a - PowerPoint PPT Presentation

China & India: Trading with Asia’s Giants (Presentation at a workshop organised by emita , 7 October 2010, Nottingham) Dr. Sumon Bhaumik Aston Business School

Size of the economy 12 300% How large is the market? 280% 10 260% 240% 8 Growth rate GDP growth (annual %) 220% 6 200% GDP, PPP (constant 2005 180% international $, 2000 = 100) 4 160% Linear trend for GDP in constant 2005 international $ 140% 2 120% 0 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Income share of highest 10% (2005) = 31.13 12 300% Income share of highest 20% (2005) = 45.34 280% Gini coefficient (2005) = 36.8 10 260% 240% GDP per capita growth (annual 8 %) Growth rate 220% 6 200% GDP per capita, PPP (constant 2005 international $, 2000 = 180% 100) 4 160% Linear trend in per capita GDP in 2005 international $ 140% 2 120% 0 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source : World Development Indicators, The World Bank, Washington, D.C.

Structure of the economy Is it a services driven economy? 90 Manufacturing, 80 value added 70 (annual % growth) 60 50 Manufactures 40 exports (% of merchandise 30 exports) 20 Manufactures 10 imports (% of 0 merchandise 2000 2001 2002 2003 2004 2005 2006 2007 2008 imports) 6 5 High-technology 4 exports (% of manufactured 3 exports) Research and 2 development expenditure (% of 1 GDP) 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source : World Development Indicators, The World Bank, Washington, D.C.

Value chain Is it all about cheap labour? • “In the Automotive sector, current capabilities, mainly of medium complexity, include middleware and application development, sub-assembly design, digital manufacturing and technical and plant simulation. Indian ESPs are expected to move up the value chain to offer services around design automation, integrated system design, hardware and chip design, etc. ” • “Within Telecom , over the last few years, Indian ESPs have moved up from CAD, conversion services, embedded software design, etc. to high-end services such as system level capabilities, customised control software and product conceptualisation, etc. Large service providers have been providing design services for telecom products like mobile phones, fixed phones, set top boxes, RFID devices, WiFi devices, switches, routers, cables, etc. ” • “In Consumer Electronics , Indian ESPs have significant coverage of the entire product development value chain from low, mid to high-end services. ESPs have moved up from services like user interface design and testing, design evaluation, etc. to complete development of embedded components, product conceptualisation, chip design, etc. Some ESPs are mature enough to provide end-to-end services including low volume production. ” Source: Global E&&D: Accelerating Innovation with Indian Engineering (NASSCOM & booz&co, 2010)

Changing capabilities Has the world noticed? “Think about some of the more recent R&D facilities established by your firm. This can include facilities you are in the process of building or staffing or which are only in the planning phase. Choose one of these that is OUTSIDE the home country and that is both considered to be central to your firm’s current R&D strategy and about which you are familiar. Does such a facility come to mind?” Destination United Western Home country States Europe China India Other United States 0 19 30 9 13 71 Western Europe 14 10 23 9 12 68 Other 0 0 2 0 2 4 14 29 55 18 27 143 Source: Jerry Thursby and Marie Thursby: Here or There? A Survey of Factors in Multinational R&D Location (National Academy of Sciences, 2006)

Consumers Who are they and what do they buy? 0 1 1 100% 2 1 4 8 90% 19 80% 41 32 Proportion of households 70% Globals (>1000) 60% 43 Strivers (500 - 1000) Health care 100% 7 9 13 50% Seekers (200 - 500) 5 90% 6 36 2 Education & recreation 40% Aspirers (90 - 200) 3 9 80% 17 30% Deprived (<90) 54 6 Communication 19 20% 35 70% (INR thousands) 8 24 20 Transportation 10% 3 60% 9 0% 12 3 Personal products & 50% 11 2005 2015 2025 12 services 6 3 40% Household products 5 10 30% 5 Housing & utilities 42 20% 34 Apparel 26 10% Food, beverage & 0% Source : The ‘Bird of Gold’: The Rise of India’s Consumer Market, McKinsey tobacco 2005 2015 2025 Global Institute (2007)

Structure of imports What does the world sell India? Food and allied products 2% Electronic goods 9% Professional instruments, optical goods, etc 2% Gold & silver 8% Non-ferrous metals 2% Fuel Iron & steel 39% 4% Pearls, precious & semi precious stones 6% Chemicals 6% Project goods Paper, board manufactures 1% and newsprint Transport equipment 1% 5% Machinery, except electrical Fertilizers Electrical machinery & machine tool 5% Source : Economic Survey, Government of India 1% 9%

Growth in imports What does India like to buy? 25000 Chemical elements and compounds 20000 Non-electrical machinery apparatus 15000 USD million and appliances including machine Percentage USD million tools 10000 3.5 3500 Electrical machinery 3 3000 5000 2.5 2500 Transport equipment Military 0 expenditure (% of 2 2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 GDP) Source : Economic Survey, 1.5 1500 Government of India Arms imports (constant 1990 US$ 1 1000 million - secondary axis) 0.5 500 0 0 Source : World Development 2000 2001 2002 2003 2004 2005 2006 2007 2008 Indicators, The World Bank, Washington, D.C.

Business environment How easy is it to do business in India? Days US$ 50 1400 45 Lead time to export 1200 40 (days) 1000 35 Lead time to import 30 800 (days) 25 600 20 Cost to export (US$ per container) - 15 400 Hours secondary axis 50 275 10 Cost to import (US$ 200 5 45 per container) - secondary axis 0 0 40 270 Procedures to 2005 2006 2007 2008 2009 35 enforce a contract 30 265 (number) Procedures to 25 register property 20 260 (number) 15 Time to prepare and pay taxes (hours) - 10 255 secondary axis 5 0 250 2005 2006 2007 2008 2009 Source : World Development Indicators, The World Bank, Washington, D.C.

Business environment The politics of land • “In a meeting held with the Hon’ble Chief Minister of West Bengal, Mr. Buddhadeb Bhattacharjee and Minister in Charge, Department of Commerce & Industries, Mr. Nirupam Sen, Mr. Ratan N. Tata, Chairman, Tata Sons & Tata Motors and Mr. Ravi Kant, Managing Director, Tata Motors, expressed their extreme anguish at the heightened level of agitation and hostility by the opposition parties …….. resulting in a concern for the physical security of their staff, contractors and vendors. Threats , intimidation and instances of assault and general obstruction in one form or the other have been the order of the day. It was therefore with great regret that Mr. Tata and Mr. Ravi Kant conveyed to the Chief Minister that in the interest of the projec t’s success and viability and in light of the opposition’s continued agitation, there was no option but to move the project out o f the State of West Bengal. Mr. Tata and Mr. Ravi Kant expressed their deep appreciation of the State Government’s efforts to facilitate and support the NANO Project.” ( Source: http://www.tatamotors.com/our_world/press_releases.php?ID=392&action=Pull ) • “The Rs 54,000 -crore project, billed as India's single largest FDI, failed to take off due to stiff opposition from farmers to part with their land. The project now delayed for five years as it had signed an agreement with the government in 2005 to set up a plant with an annual production capacity of 12 million tonnes. Recently, the environment ministry had asked the Orissa government to "stall all activities" related to the Posco project citing violation of green norms in land acquisition. The world's third largest steelmaker, Posco, requires a total of 4004 acres of land in the Jagarsinghpur district of mineral rich Orissa. Most of the required land falls under the green cover. The steel minister asked Posco to give adequate compensation, job opportunities, education and annuity to the people from whom land is acquired.” ( Source: http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/steel/Posco-to-get-land-soon-for-Rs-54000-cr-project- Virbhadra-Singh/articleshow/6537335.cms)

Business environment Availability of skilled labour 35 30 25 20 15 10 5 0 Percentage distribution of 15-29 population with formal vocational training (2004-05) Source : India Labour Report 2009 (Table 3), A report by TeamLease (www.teamlease.com) and IIJT (www.iijt.net )