fk-1999 ed2 assignment

8/14/2019 FK-1999 ED2 Assignment

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Q.4 Do SWOT analysis of India and China economic Development and make projections

for 2025 of the two economies.

ANS:

Introduction to India and China

Both China and India, have achieved significant economic development in recent

years, they are the emerging giants in Asia. China has enjoyed a high annual GDP growth rate

of 10-12 percent and India has achieved an annual GDP growth rate of 6-8 percent since

1980s. R&D outputs and inputs further indicate that both countries have been very

committed to R&D and their output is quite efficient. Indian and Chinese governments have

played an essential role in transforming their national innovation systems so that they can be

more adaptable to economic development. Comparing India and Chinas GDP growth from

1981 to 2008 reveals that technology has contributed significantly to both countries GDP

growth, especially in the 1990s. The main focuses of both the governments have been to link

the science sector with the business sector and to provide incentives for innovation activities.

Nevertheless, limited financial resources and insufficiently qualified human resources remain

two major challenges for domestic companies in both countries. Balancing import of

technology and indigenous R&D or import of technology.

In 1980, real per capita income stood at $556 in China and $917 in India. The economic

systems suppressed growth left both countries poor. For decades, India and China have

walked labourisly along under ideologies that favoured the government or the invisible hand

of markets.

India and China shifted gears by letting private businesses flourish and opening markets

to trade and investment, in early 1990 and 1980 respectively. Chinas real per capita income

has risen at an average of 8.4 percent every year since 1995, reaching $4,766. The newpolicies have led to rapid economic development. Indias per capita income has risen at an

average growth rate of 5 percent, reaching $2534 since liberalisation. Both the countries have

unleashed great economic energies, but they are not travelling the same development path.

China has followed the traditional route by becoming a centre for low-wage manufacturing

and exporting clothing, toys, electronics and other goods. On the other hand, India

concentrated on services, using its large English - speaking labour force for call centres, data-

processing operations etc.


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Chinas goods - dominated strategy shows better track record in terms of growth rates.

But in long term Indias approach may pay off better. The wealth of nations eventually

depends more on services than industries this can be shown by a reviewing and analysing per

capita incomes around the world.

It is always said that China has performed consistently better than India. The reason

for this is the delay in starting the economic reforms in India. As we know, China started it in

1978, while India liberalised itself in 1992.

However, we can take a few major sectors for consideration they are,

1. Manufacturing Sector:Chinas manufacturing sector is not an unknown topic. All of us know that,

manufacturing sector plays an important role in Chinas growth. Chinese manufacturing

sector is competitive on a global basis that most nations, find China as a force to reckon with

in textiles, consumer durables and, so on. China enjoys a huge trade surplus. Chinas growth

is the result of not only significant investment, foreign and domestic, but by sharp increase in

labour productivity, a growing export based on foreign investment, strong domestic demand

fed by low prices and improved quality of products. The price competitiveness of Chinasproducts is unmatched. The strategy of sales maximisation calls for setting of prices at very

low levels so as to create markets. Textile manufacturing is second largest source of

employment after agriculture. India manufacturing sector is also growing at a fast pace.

Tirupur has gained universal recognition in handicrafts.

2. Service Sector:

Service sector now accounts for more than half of Indias GDP. This sector has gained

at the expense of both agricultural and industrial sectors through 1990s. This rise in the

service sectors share in GDP marks a structural shift in the Indian economy and takes it

closer to the fundamentals of a developed economy. Service sector in India has grown at a

higher rate than manufacturing sector. While Chinas services output rank seventh worldwide.

Its proportion of GDP is still low compared with the ratio in more developed countries. Prior

to the onset of economic reforms in 1978, Chinas services sector was characterised by state

owned shops and regulated pricing. With reforms came private markets and individual


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entrepreneurs and a commercial sector. The whole sale and retail trade has expanded quickly,

with urban areas now having many shopping malls, retail shops, restaurant chains and hotels.

Public administration has still remained a main component of the service sector, while

tourism has become a significant factor in employment and as a source of foreign exchange.

3. Agriculture:

China has around 300 million farmers in the agriculture industry. China is worlds largest

producer of rice. It is one of the largest producers and consumers of agricultural products. It is

seen that, all arable land is used for food crops in China. China is one of the principal sources

of wheat, tobacco, soybeans, peanuts, potatoes, tea, corn etc. Agricultural exports, such as

vegetables and fruits, fish and shellfish, grain and meat products are exported to Hong Kong.

Yields are high because of intensive cultivation.

India ranks second in worldwide farm output. Agriculture and allied sector accounted for

16.6% of the GDP in 2007, employed 60% of the total workforce and despite a steady decline

of its share in GDP. It was an old saying that Agriculture is the backbone of Indian

economy, and still plays a significant role in the overall socio-economic development of

India. Yields per unit area of all crops have grown since 1950, due to the special emphasis

placed on agriculture in the five year plans and steady improvements in irrigation, application

of modern agricultural practices. Provision of agricultural credit and subsidies since Green

Revolution in India.

INDIAN GROWTH FACTORS

Consumerism of the Middle Class

The rapid growth in outsourcing has created good jobs in India. As the Indian economy

has become more robust, the emerging middle classsome 300 million strongis now in a

much better buying position. That includes being able to buy automobiles, cell phones and

other luxury items that they could not have afforded before. For instance, in 1999 India had 2

million cell phone subscribers. Today, that number signs up every month. Five years ago

Indians saved 30% of their income; today the savings rate is 18%. This additional disposable

income makes the Indian middle class an attractive consumer market for all the worlds

manufacturers. Cell phone companies, banks, car manufacturers and insurers are all looking to


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sell their products to the growing middle class. And, more disposable income means more

flexibility when it comes to travel. The recent deregulation of the Indian airline industry

makes flying cheaper-both domestically and internationally.

Moreover, Indias GDP (gross domestic product) increased by 8.2%. Advertisers and retailershave quickly gotten on board with this economic boom. Shopping malls are popping up in

major cities. With only a handful of malls in existence only three years ago, its anticipated

that there could be 100 malls in and around New Delhi alone within the next several years.

Poverty Affects Education

While its middle class is indeed growing, India is still one of the poorest nations on earth,

with as many as 70% of its people living in poverty and having a per capita annual income of

only $500. In just two decades, Chinas people have become twice as rich as Indias. India is

a nation striving to be a global leader in brainpower and produces four times as many

engineers annually as does the U.S. But it struggles to provide adequate education for its

poverty-stricken youth. Education is the ticket out of poverty, says New Delhi economist

Surjit Bhalla. In 2001, an education law was passed to help boost enrolment and graduation

rates.

Public education was to be free and compulsory for all children. Increasingly, Indian parents

want their children educated, particularly in English and computing.

The Affluent Indian Market

With the middle class gaining economically, so too are the elite Indian upper class. It was

estimated that there were 61,000 Indians whose financial assets exceeded $1 million in 2007.

That number rose 22% from the previous year, thanks to stock market gains and solid

economic growth.

Louis Vuitton, Zegna, Porsche and Bentley are among the cachet brands being purchased

by affluent Indians. And theres a sort of turf war between the super rich and the regular

affluent. Indias super rich are buying luxury goods to maintain their distinction from the

merely affluent and showcase their place in Indian society. The super rich status is bestowed

on only the top 1,000 families in the country. Their high end taste is derived from travels to

other Asian destinations such as Singapore, Thailand and Hong Kong.


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Foreign Investment Is Now Welcome

Another key component of the Indian economic boom is the influx of foreign investment

into the country.

Taking the media sector, for example. New Delhi changed the rules barring foreigners

from the media sector. Now, foreigners can hold up to 26% of Indian news media companies

(radio, television, newspapers). In the past 18 months, Indian media ventures have raised $3

billion in foreign funds and an additional $250 million is expected to be added later this year.

Although progress has been made, investors are still holding back due to shortcomings in

Indias infrastructure, according to a study by KPMG. The electricity is unreliable.

Poorly maintained roads and ports, as well as corruption and bureaucracy, make

transporting goods difficult. Pockets of excellence do exist, such as the campuses built by the

big software firms. While China is way ahead in this area, a more positive attitude by the

Indian government toward foreign investment is helping India start to catch up.

Indian CompaniesShedding Traditional Business Practices

With all of the changes happening on the Indian economic scene, the biggest change of

all is expected to be the internal business practices of Indian companies.

Until now, Indian companies have conducted business almost exclusively in India, selling

products and services to Indian customers and managing a workforce comprised almost

entirely of Indians.

Reaching out to the worldwide marketplace means that Indian execs must now learn to

deal with a multi-ethnic, multi-cultural workforce and consumer. And to compete globally,

they will need to focus on employee issues, corporate social responsibility and ethics. Indian

companies, which had a very small presence in foreign locales just a few years ago, have

inked 62 overseas deals worth $1.38 billion so far this year, buying up a variety of foreign

outfits, from engineering design house INCAT International in Britain to Valeant Pharma in

the U.S. That compares with just $202 million in deals in 2006.

SWOT OF INDIA


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Huge domestic market: Opportunity for MNCs for sales

Huge natural gas deposits found in India, natural gas as a fuel has tremendous opportunities

Vast forest area and diverse wildlife

Huge agricultural resources, fishing, plantation crops, livestock

Threats

Global economy recession/slowdown

High fiscal deficit

Threat of government intervention in some states

Volatility in crude oil prices across the world

Growing Import bill

Population explosion, rate of growth of population still high

Agriculture excessively dependent on monsoons

CHINESE ECONOMY

Developing new businesses and managing operations in China require an in-depth

knowledge of business practices and conditions. In this context, notably comprehensive

factors and issues with important influence on plant location decisions are going to be

examined. Since China's economic development has serious imbalances in its vast territory,

the best sites for plant location will also be explored based more on regional infrastructure and

local skill levels than on cost-based factors alone. In addition to these explicit considerations

of China's environment for investment, implicit concepts in Chinese society that have strong

influence on the businesses' success are also discussed to further aid managers in decision

making.

Companies today can no longer pay attention solely to their domestic market, no

matter how large it may be, because the U.S. market does not belong to U.S. companies alone.

In the foreseeable future, the Chinese will be the next tough competitor that U.S. businesses

are going to meet. With the economy growing at a 10% annual rate, China, is waking and

opening its doors to provide investors with opportunities and access to the largest market in

the world. China's transition into a predominant world power is only a matter of time. The

strategic implication is that going to China today will ensure surviving in the U.S. tomorrow.

Since 1978, in India the industrialisation process was less rapid and widespread than

in China, but the services sector, which in 1978 was already relatively larger than in China,


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increased relatively faster than in China in terms of value added, but not as regards

employment.

Both in India and China labour productivity of industry (including construction) and of

services was much higher than the labour productivity of agriculture. Therefore the transfer ofmany employees from agriculture industry and services has contributed to the pace of

economic growth. The possibility of young school leavers to enter industry or services rather

than remaining unemployed or underemployed in agriculture, thus gaining much higher

incomes or wages, was even more important.

However, in India most people moving from rural to urban areas could only find jobs

in industry or service activities, earning much less than people working in the formal sector of

the economy. The Chinese government instead tried to hinder the possibility of moving from

rural villages to urban centres by means of legal and administrative restrictions. Many

workers left the rural areas creating a great reserve of precarious jobs in the cities, although

the government tried to improve the conditions of life in rural areas encouraging the

expansion of industrial and services activities through locally controlled public firms, private

firms and joint ventures with foreign multinationals, all strongly contributing to

industrialisation and to rapid economic growth. The expansion of these firms with foreign

multinationals, made up for the decline of large state firms and led to a rapid increase inindustry and services, which contributed to almost 80 percent of the increase in total

employment in 1978-1995 period and to a substantial share of the increase in 1995-2008

period.

In 1980 the main industrial sectors were the traditional ones: textiles, clothes, food and

beverage, bicycles etc. with a limited presence of some scale intensive sectors such as steel,

chemicals and fertilizers. Electricity and telecommunication services were uncommon and

unreliable and residential constructions were curtailed, with very small and crowded

apartments in the cities. In 1995 and much more by 2007 the situation had radically changed.

While in 1978 textiles in China had been by far the most important sector in the terms of the

percentage of total value added, since the mid-1990s the electrical and non electrical

machines and chemicals surpassed textiles. The growth in production qualities of the goods

produced by modern industrial products such as PCs and mobile phones was much faster than

for textiles and most other traditional sectors.


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Residential and non residential construction was booming, especially in big urban

centres. Richer provinces built a relatively good network of public and private infrastructures,

but pollution, congestion and energy dependence from abroad were also rapidly rising.

The rapid growth in household electrical appliances, telecommunication, and then C,steel, means of transportation and finance led to the rise and consolidation of a middle and

upper middle class, concentrated mainly in the great urban coastal zones. Thus social and

economic inequalities strongly increased. In particular there was a marked increase in overall

inequality indexes, such as the Gini index. Thus leading to a strong rise in regional

inequalities among provinces.

SWOT OF CHINA

This outlines the strengths, weaknesses, opportunities, and threats of mainland China from

cultural, demographic, economic, social, political, and legal perspectives.

Strengths

National strength since reform in 1978.

Accelerated economic development.

Increased comprehensive national strength.

GNP increasing an average of 9% annually and ranked third in the world.

Lower wages than Japan and Taiwan.

Source of valuable competitive advantage, providing growth and higher margins.

Good shift from U.S. for manufacturing traditional (labour-intensive) products.

Chinese allow compensation, trade, or cooperative development for ventures.

Large Population Base and Potential Customers

Per capita consumption is low, but with a large population, opportunity is incredible,

especially for low-end products.

Also represents large future potential as buying power is increasing rapidly. Strong

materialistic outlook, as citizens abandon the original collective party doctrine.

Large consumer base as well as a low labour cost factor.


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Favourable Government Policies

Committed to economic growth at the national policy level.

Overseas-funded enterprises are granted equal status as domestic enterprises for taxes,

sales, transportation, purchase, distribution, and operations.

Weakness

Bottlenecks

Hard to control distribution of products.

Some disorder in the financial sector.

Energy, transportation, and important raw materials have remained issues slowing the

growth of the nation.

Surplus labour in rural areas and impoverished farm lands

Agriculture lacks staying power.

Production in cities has displaced rural workers.

Average inflation is 15%, and surplus labour has resulted in rising unemployment andinequalities in income distribution.

Outdated equipment and technology.

Wage growth has not kept pace with inflation.

Employees need customer service training.

Roads are jammed with thousands of bicycles, buses, trucks, and taxis.

World Bank calculates East Asia needs to invest between $1.2 to $ 1.5 trillion dollars in

roads, ports, telecommunications, and power systems during the next decade.

Lack of electricity, fuel, and raw materials.

Lack of modern pollution control.

Sewage, industrial waste, and pollution are growing problems, and China is home to four of

the world's ten dirtiest cities.

College and University student enrolment of 2% is less than the 8% average of other

developing countries.


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180 million illiterates or semi-illiterates over the age of 15.

Average schooling term nationwide is only 6 years.

Little concept of maintenance or quality control.

Employees could lack the productivity and innovation to guarantee continuous growth.

Shortage of construction funds for expansion of infrastructure and industrial production

capacity.

Transactions are often at a premium over the official exchange rate quoted by the State

Administration of Foreign Exchange Control.

Short supply of energy in some industrial markets.

Only a small group of certified practicing accountants in China.

Lack of modern financial reporting makes the economy less attractive to foreign investors.

Lack of a legal structure similar to those we understand in the U.S.

Opportunities

Direct Investments or Joint Ventures

To provide advanced technology that can be mastered by the Chinese.

Easy-to-target bottleneck industries of energy, communication, and transportation. Equity

and contractual ventures provide quicker access to the market.

Partners in China can help with the bureaucracy, customer base, and distribution.

Financing Infrastructure Projects.

Opportunity to increase the available electricity to more than 120 million rural citizens

without electricity.

Bicycle economy will move to market for 4.2 million cars in the future

Chrysler has a China Concept Vehicle made of recycled plastic planned to sell for about

$5,000.

Tariffs cut on computers, semiconductors, and telecommunications equipment and other

information equipment to boost competitiveness.


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Substantially eliminate technology trade tariffs for the $1 trillion of information technology

produced each year of which 50% is exported.

Threats

Long-Run Success

Effectiveness of investments in China will only be evident in the long-run and policies

make it hard for non-China companies to make money.

Reporting and Accounting Standards unclear responsibilities.

Corruption is widespread at township, county, and even provincial levels

Lack of protection of intelligent property.

Slow government approvals for operations.

Differences over human rights, trade, and nuclear weapon non-proliferation.

Trade deficit reached a high of $4.73 billion in September 1996

Failure to reform and privatize state enterprises has slowed competitiveness in both heavy

industries and high tech.

The state enterprises take 70% of bank lending and yield overproduction, inefficiency, and

wasted funds on misguided property and financial investment.

Entrepreneurs are forced to raise funds from local governments, friends, or foreigners due

to lack of access to capital.

Strict advertising rules that ban superlative claims and comparative advertising.

Differences in dealing with government controlled media.

Still some open discrimination against foreign advertisers and discriminatory pricing

policies, although slowly improving.

Rapid internal changes in Chinese society.

Rising jobless rate, social unrest, and nonperforming state enterprises.

Bringing China's mixed market and centrally planned economy into World Trade

Organization GATT.

Risk from further market-oriented reform.


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Revelations between the central Chinese government and fast growing provinces.

Changes to a single currency, length of workweek, and tax system as well as unclear

responsibilities

INDIA AND CHINA BARRIERS FOR GROWTH

The security dimension is affected by all of the other dimensions and is impacted by

decisions that are made in each of them. The security of a nation-state, a people, a region, and

the international system results directly from political, economic, military, and social policy

decisions. In the history of globalization, many factors have contributed to the development of

security measures, such as the two World Wars, the Korean War, the Vietnam conflict, and

the development of nuclear weapons. Each of these developments contributed to global

instability, which led to transnational reactions, and in turn to measures that fostered further

stability. In addition, the development of the UN and the end of the Cold War also contributed

to the stabilization of the international system. Many systems put in place to create economic

security, such as the IMF, the World Bank, and APEC, are still influential.

In reality, the security dimension rests at the heart of each of the other dimensions.

Survival is key, and without political security, you cannot have guaranteed social security;without environmental security, you cannot necessarily ensure political or social survival. For

instance, the foundation of the WTO provided economic security for some, while the 1st

World Climate Conference of the World Meteorological Organization (WMO) in 1979 dealt

with environmental-security issues. Likewise, the creation of the European Union (EU)

provided economic security and later dealt with military and defence issues in the

development of the European Security and Defence Policy (ESDP). The attacks of September

11, 2001, brought security issues to the forefront for the US and a few other countries, but the

launch of the so-called War on Terror has arguably worked against fostering stability for all

and has only created new avenues of insecurity.

The spread of disease also lends itself to creating insecurity in many parts of the

world. The first pandemic occurred in 1918 with the Spanish Flu, which killed between 20

million and 40 million people. Today, the world grapples with SARS, bird flu, and

HIV/AIDS, and the widespread insecurity that all of these issues create. With germs and

diseases spreading faster than they have ever before due to urban living and modern


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transportation, what may have once been easily contained has evolved to a global threat if not

taken seriously.

The security implications in the historical milestones of globalization can be found in

every event in our timeline. Somehow, each event triggered a reaction that was based on somekind of human survival, whether it is through war, political coalitions, cultural diversity and

understanding, the founding of economic trade relations, or the preservation of language,

literature, or human rights. At the heart of each of these events is the survival of the human

spirit and thus each in its own way has contributed to the security dimension in the modern

globalization debate.

PROJECTIONS FOR 2025

By the year 2025, India will contribute 12.2% to global economic growth, while China

will emerge as the worlds second largest consumer market according to a new study.

The study conducted by Economist Intelligence Unit (EIU) and sponsored by

networking leader Cisco Systems, surveyed 1,656 executives from 100 countries and

conducted in-depth interviews with executives, analysts and policy makers in late 2005. The

study was conducted in order to understand long-term demographic, economic and corporatetrends and assess likely changes to the global economy. The study covered eight key

industries - automotive, consumer goods & retailing, energy, financial services, healthcare &

pharmaceuticals, manufacturing, public sector and telecoms.

According to the study, India will continue to be one of the fastest growing

economies. By 2025, the study predicts India as a trading nation will record the biggest jump

in world ranking - from 24th to 10th.

In addition, India, China and the US will jointly contribute $1 trillion dollars to the

global economy by 2025. The next 15 years will see Asia, particularly powerhouses India and

China, outpacing the rest of the world in Gross Domestic Product (GDP), wages and

consumption.

Propelled by fast growth in India and China, Asia will increase its slice of the world's

GDP from 35% in 2005 to 43% by 2025. India's share in the global GDP will rise from 6.2%

in 2005 to 8.8% in 2025.


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the powerful Germany and US. The report is the third in a series of five yearly forecasts of

global trends published by the US National Intelligence Council (NIC), a group of senior

Intelligence analysts who report to the CIA Director. The report is by all counts a truly upbeat

assessment for India and China, Barring an abrupt reversal of the process of globalisation or

any major upheavals in these countries, the rise of these new powers (China and India) is a

virtual certainty, it says.

The report says that while most forecasts indicate that by 2025 Chinas gross national

product (GNP) will exceed that of Western economic powers except the US, Indias will have

overtaken or be on the threshold of overtaking European economies.

But the rise of India will also present strategic complications for the region, the report

suggests. India will be an economic magnet for the region, and its rise will have an impact not

only in Asia but also in Central Asia, Iran, and West Asia.

As India's economy grows, Governments in Southeast Asia Malaysia, Singapore,

Thailand, and other countries may move closer to India to help build a potential geo-political

counterweight to China, it says.

At the same time, India will seek to strengthen its ties with countries in the region

without excluding China.

The Indian economy has been stumbling behind in most measures like overall GDP

(gross domestic product), the amount of foreign investment and the per capita income.

But some experts believe that India might overtake China as the fastest growing economy,

citing the following factors:

India will be hard-pressed to accelerate growth rates to levels above those reached by

China in the past decade. But Chinas ability to sustain its current pace is probably more at risk

than is Indias; should Chinas growth slow by several percentage points, India could well

emerge as the worlds fastest-growing economy towards 2025.

CONCLUSION

However, the path to glory is strewn with pitfalls and problems for both India and

China, least of all their own rivalry that lurks just beneath the surface. Their rise will also be

resented by other declining powers and those left behind in the developing world.


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For India, as with China, the main dangers are within. They may stumble and

experience political and economic volatility with pressure on resources i.e. land, water and

energy supplies are intensifying as they modernise.

India faces stark choices as its population increases and its surface and ground water

become even more polluted. There is also the growing problem with AIDS. The report,

however, says widening income and regional disparities in India will not be incompatible with

a growing middle class and increasing overall wealth. There are now estimated to be some

300 million middle-income earners making $2,000-$4,000 a year. Although much of Western

and South India may have a large middle class by 2025, a number of regions such as Bihar,

UP and Orissa will remain underdeveloped.

Although India has clearly evolved beyond the 2-3 per cent Hindu growth rate, the

report warns a legacy of a stifling bureaucracy still remains. The country is not yet attractive

for foreign investment and faces strong political challenges as it continues with reforms.

Indias working-age population will continue to increase well into the 2025s, whereas,

due to the one-child policy, Chinas will diminish and age rapidly.

India has well-entrenched democratic institutions, whereas China faces the challenge of

reconciling an increasingly urban, middle-class population with an authoritarian political

system.

India possesses working capital markets and world-class firms in some important

high-tech sectors, which China has yet to achieve.

The report says several factors could weaken China s prospects, especially risks to political

stability and challenges facing its financial sector as it move towards a fuller market

orientation.

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