Leveraging China & India for Global Competitiveness: An Introduction

October 23, 2010

By Glenn Hodges and Bill Russo

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


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


We will elaborate on each of these themes in our future postings.

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