The economies of the People’s Republic of China and the Republic of
India have captured a great deal of attention among Multi-National
Corporations (MNCs) due to their rapid growth. According to the
projections of the World Bank, China will overtake Japan as the second
largest economy in the world in 2010, while India is expected to rank
eleventh. Near-term projections by the Organization for Economic
Co-operation and Development (OECD) anticipate annual growth for China
averaging over 10% through 2011, which will make it the world’s second
largest economy by 2010. Growth rates in India of over 8% are also expected.
Long-term projections for both these economies anticipate robust growth
through 2040, with China becoming the world’s largest economy by 2030.
These large, rapidly growing economies provide MNCs with substantial
long-term growth potential. This report summarizes how companies
are attempting to leverage their business strategies across China and India.
In particular, we were interested in identifying the ways in which MNCs are
co-leveraging China and India to achieve supply-side and demand- side
competitive advantage.
China and India represent the largest of what are commonly referred to
as the “BRIC group” of countries. Together with Brazil and Russia, these
four countries are typically regarded as the key emerging markets in
terms of population size, economic strength and political influence. The
BRIC group is in fact an artificial construct created by Goldman Sachs in
2003 as more of a tool for marketing the importance of these economies
to the investment banking community. The label tends to ignore the
rather dramatic socio-economic and geo-political differences among the
members of the “group”.
The purpose of our research was motivated in part because of clear
supply-side and demand-side differences across the markets, and was not
an attempt to examine the validity of lumping BRIC countries together
based on the idea that they are similar and can be approached in a similar
manner. On the contrary, this study points to the significance of the
differences across these countries that can in fact be leveraged in their
own right.
On the supply side, both China and India have large low-cost labor
supplies, are in close geographic proximity to each other. This can
potentially facilitate the bi-directional flow of resources (people and
materials) with unique and differentiated capabilities. These differentiated
skill sets that exist in China and India are indeed a potential source of
co-leveraging, but to date, little co-leveraging has actually taken place.
Instead, MNCs have a clear recognition of country-specific comparative
advantages, but are utilizing these skills within a broader network of
capabilities distributed across multiple countries rather than across
China and India specifically.
On the demand side, both countries are rapidly growing markets with
large consumer bases and quickly expanding middle classes, which are
dramatically increasing their income and purchasing power. The
collective purchasing power of these large and growing middle classes
will result in a shift of the epicenter of many value chain elements for
numerous industries from developed markets to China and India. Global
companies need to recognize this fact and pursue the opportunities
created from serving these markets in order to realize their future growth
potential. What we discovered were highly differentiated product markets
which significantly limit, but do not eliminate, the opportunity to present
a similar product portfolio to both countries.
In sum, China-India-specific co-leveraging has been limited by these
countries’ unique demand profiles, and the perceived higher utility of
leveraging China’s and India’s supply profiles in broader multi-country
capability networks to support global product development and
manufacturing efforts.
While cases were examined across several industries, we chose
to focus primarily on the automotive sector. There are three reasons
for this. First, the automotive sector is the largest manufacturing
sector in both China and India. According to the Society of Indian
Automotive Manufacturers (SIAM) and the Chinese Association of
Automobile Manufacturers (CAAM), the industry comprises over 20%
of manufacturing GDP in both countries. Second, the heavy involvement
of numerous automotive MNCs in both markets made it an attractive
industry to explore for insights. This provides an opportunity to study
actions within and across China and India, as well as to examine using
these markets as a platform for global expansion. Third, findings for the
automotive sector are generally relevant to most other manufacturing
sectors, especially durable consumer goods.
Based on this research, we have identified four emerging themes around
leveraging China and India for global competitiveness:
1. Differentiated demand profiles across markets provide limited
opportunity for leveraging a common product portfolio in both
markets.
2. Differentiated and complementary supply profiles create “islands of
opportunity” for leveraging unique capabilities of the resources
available in each country.
3. Leading global players seek to leverage horizontal capabilities
resident in China or India to achieve a competitive advantage.
4. New pathways to innovation are made possible by leveraging core
strengths derived from the geographies and capabilities of local
partners.
We will elaborate on each of these themes in our future postings.
Click here to view on GlobalAutoIndustry.com's ASIAtalk eJournal
No comments:
Post a Comment