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Title
Using Porters 3 level of thinking, assess if
India or China has the potential for
contributing the world
Abstract
In this paper we make use of literature and empirical evidence to measure the three
level of thinking based on the theoretical framework of Porter's in regards to India and
China. The focus of this paper is to clarify the meaning of international
competitiveness of ,firm and industry level within the context of Porters thesis that
the two superpower compete in international markets to contribute toward the world.
There will be use of Porters Diamond Framework which is not yet so archaic and the
five forces model to project the contribution of China and India which will be backed
up by a BCG matrix.
Factors
India
Communication
With
China
burgeoning
IT
Infrastructure
operations,
logistic
and
in the 3 coming years but the budget infrastructure. The port system is
in
more
command
favored
to
on
basis
the
visa
in
arrival
attitude
Domestic competition:
A tax reform must be on the agenda China currently has better income
foreign investor vs
to equate labor laws and child labor tax rate than India in term of
policy
as
many
nations
boycotting product with the slang where govt manipulate the whole
made in India.
system.
Though consuming roughly an eighth of the worlds oil the worlds biggest single
party rule state economy is stumbling on fast track with an index rate of 7.4% in 2014
and India is rising by 7.5% with a $2trillion mark.
Even if China is to add 2% or 3 %, India is growing 7-8% where the latter is expected
to out-piece China in terms of economic output in 2015 whilst marking its territory as
a superpower when it comes to internal demand.
The
national
model
identifies
country
attribute
determining
classes
the
of
for
national
competitive advantage
of a
Demand conditions,
Related
industries,
Firm strategy, structure and rivalry
Factor conditions
and
support
1. Factor conditions
Porter uses a colloquial style based on logical reasoning which consist of human
resources, physical resources, knowledge resources, capital resources and
infrastructure. These factors when integrated in China and India, support and
complement the system of national competitiveness. They can make or eradicate their
economy.
Indias democracy is a long term asset with population growing two fold than
China which consist of too many middle age worker with low birth rate. Though
China stands at 37th in labour market efficiency its labor force is seen to be going
into a complete diametrical opposite direction which threatens Chinas
qualification to become an empire.
In the 1980s china has lifted the greatest number of people living in poverty in the
shortest time. Proponents may argue that Chinese authority take over farmers
land to build factories with little compensation paid whilst public protestant is
risky. In India as per Non Government Organization the average monthly income
of farmer in India is Rs 2112/$35 per month working 7 days a week, family of 5
members. About 60% of farmers go to bed hungry. Every 30 minute a helpless
farmer commits suicide. As of 2014, a total of 301,438 farmers have killed
themselves since 1995. They have taken the burden of providing cheap food to
1.25 billion people of the nation. Question? Is the race to take over China in the
forth coming decade lays at the expense of an unhappy nation?. The least the
government can do for them is to provide a better life!
In higher education, India stands at 93rd, with China ahead in 65th. However
China is struggling to implement global language English as it is a basic tool for
international communication to interact with the world and boost its economic
prosperity. In contrast India possess Indian MBA with better command of both
oral and written English which threaten its position. However the problem with
India is that only a few selected region have access to the best education system
and the villages are condemned to be low profile labors due to poverty. Why the
Indian government is not developing its labor factor endowment to further
progress the economy. These new formed elite could be a well shaped weapon
against China.
2.Demand conditions
Porter (1990a, 1998a) regards the essential conditions of demand as: a home demand
that anticipates and leads international demand, industry segments with a significant
share of home demand, and sophisticated and demanding buyers.
China cannot sustain India in the next 3-5 years. Really? In the steel industry,
China is god alike figure accounting over 50% of world steel production in 2013
helping to sustain Chinese stock market capitalization around $10 trillion.
Linking Porters industry segment with a share of home demand, the demand for
steel led to a rapid modernization of its economy, construction, infrastructure and
manufacturing industries.To compete, India deploys high value specialist deals in
commodity steel made with the finest grade steel and target certain niches. Indeed
innovation is better imitation.
India has become more specialized in niches service sector (IT) with higher price
quality composition while china has become a major hub of the increasingly
segment global production process. Core competencies is quality vs quantity
respectively
Rivalry
Instead of focusing on flashy story on comparison between two firm strategies, the
rivalry concept will subject on the interconnectedness between economic and politics
influencing competitiveness.
Looking from a distant perspective of rivalry, the technology that has been used
in Chinese space industry is accessible everywhere, this is why Chinese
If India block Chinese investment, the former will be disadvantageous due to the
fact that China brings low cost capital equipment which is 1/3 the price in Japan
and Germany. The 2015 mass entrepreneurship and innovation programme is
contemplating to dedicate resources toward innovation driven growth whereby
Chinese entrepreneurs are having recourse to technological factors, e-commerce
and social media to upgrade their manufacturing innovation capacity. This
innovation drive will pose a serious threat to India as firm are receiving
subsidized financing enabling a R&D spending of more than 150 billion. It is this
assumption that a countrys competitiveness ultimately determines a firms
international competitive advantage that led to the belief that countries like firms,
compete internationally and thus that the international trade engagement of
countries is a negative sum game, as it is in the case of China (Porter 1990).
Burgeoning Indian talent pool in the It sector is estimated to have generated US$ 146
billion in revenue implying a growth rate of 23.72 per cent. Home to 3,000 tech
start-ups it is set to increase its base to 11,500 tech start-ups by 2020. Indian IT's core
competencies and strengths have placed it on the international canvas, attracting
investments from major countries. India continues to be the topmost offshoring
destination for IT companies followed by China and Malaysia in second and third
position, respectively
Now Chinese manufacturer need access to low cost labor and this is why they are also
turning to India because they believe they have a lower pool which is lower cost and
access to market as well. They are being influenced by Made In India which is the
new tag-line under Modi-government.
China argument
Current India GDP is about 1/5 of China. This paper looks 5-10 years ahead but China
is already three decade ahead in term of economic size, infrastructure and social
indicator. The economic fundamental further underscore Chinese reform began before
India but since that time its advantage has been locked in further. At most India can
be a naval power in the Indian ocean. India cannot reverse this first mover advantage.
Geography confirm this point. Even if India were as powerful as China, it is
disadvantage by its tallest mountain range the Himalayas and its neighbors are hostile.
The geography, governance, economic diplomacy and culture are not the same for
both billion people. This make a strategic difference.
In infrastructure, the gap may literally never close. In fact one of the place India most
need investment is power and transportation. India has to invite china to do so these
development as it has fail to do so
If India was to take all of China manufacturing, then perhaps it could catch up but
China is investing $1trilllion in advanced technology sector. It may slow down in term
of economic growth but it is getting richer in term of power and leverage.
It is believed that if you can control the source of information you can control the
independence of people. In china the newspaper, radio and even to the extent of
internet is controlled by the government. Can a country progress without Facebook is
the question. On a political and social foundation, a government is nothing without its
people. So in this race only the one which can answer this 3 question positively will
take the upper-hand in few years.
Over the last 20 years statistics portrayed a large number of primary children in
Chinas education system has decreased by 18% while India has gone up by 58%.
This is the relative pipeline of human capital.India lack the continuity of a competent
government which is unreliable thus plaguing the country. For instance India is now
jobless due to lack of innovation and development. Uttar Pradesh Is So Jobless,
2300000 people applied for 368 Peon Jobs where 200000 applicants were college
grads. There is even skill shortage in many key sector such as logistic and
transportation. There all educated youth can be listed as unemployed.
A lot of china growth model has been based on heavy investment into infrastructure.
However, the problem with this model of growth is that the economy which is
$8trillion have to find $4 trillion yearly to invest. And as Japan was founded with a
very similar economy model till the 1980s, they either either from a misallocation of
capital or has to export the capital out. Referring from the Asian crisis if there is a
misallocation, then the whole growth model comes to a grinding halt. If there is
export of capital like Japan did, then this will lead growth in another country but a
slow down own economy
Industry level
The model of pure competition implies that risk-adjusted rates of return should be
constant across firms and industries. Michael Porter provided a framework that
models an industry as being influenced by five forces which will be applied in context
with China and India. Two main industry will be taken and compared. The IT industry
in India vs the Manufacturing industry in China.
An insight of the model is shown below:
1. Rivalry
A high level of rivalry between existing competitors can influence the profitability of
an industry. It depends on the intensity with which companies compete and, second,
on the basis on which they compete (Porter, 2008, p. 32) In an era of intense
completion for conventional IT services, India is gearing toward commoditization to
take over the IT industry landscape. However there are several firms in the market
China produces about 80% of the worlds air-conditioners, 70% of its mobile phones
and 60% of its shoes but the economy is not as robust as it was. However there is the
danger of production overruns by contract manufacturers and leakage of products
onto the Chinese domestic and overseas markets. The low-cost labor model worked
only for 30 years. Working with the Japanese government, the Indians envision a
series of seven new industrial cities equipped with whats standard in China by
developing infrastructure linkages like pioneer plants, assured water supply, high
capacity transportation and logistics facilities. Does India wants to convince
business leaders of the idea that India can rival China as a manufacturing
center?
Africa has benefited from an inflow of Chinese aid, financing and investment, which
in itself is coupled to trade flows. Africas exports are dominated by oil and minerals
(84 percent of Africas exports to China). Chinas total exports to Africa equal $50.9
billion versus $55.9 billion in imports from Africa which shows that Chinas
bargaining power is huge. Though the Africa export is higher, it results to net losers
from Chinese manufactures export expansion as resources bought was 1/3 its price.
In recent years, China has expanded its trade and investment relationship with Africa
where loans are mostly granted at non-concessional rates. Though improving or
strengthening the bargaining power of African governments, can be a little
disadvantageous, in the mining contract all the risks were borne by the country, and
none by the Chinese whereby they would receive a fixed royalty payment. No matter
how many minerals there are under the ground, and no matter what the price was, the
Africa would transfer a fixed amount of money every year. This can be deemed the
result of an asymmetric bargaining power.
5. Availability of Substitutes
There are no substantial substitutes to IT services. Substitute is not the appropriate
word but rather availability and speed of innovation is a concern. Application
development is fast morphing into app-development and there is the need to adapt and
incorporate new technologies in India. Engagement models looms over the IT industry
that needs to reform and re-invent itself rapidly (Jain 2014). However Japan is posing
as threat to India rise to a superpower in the field of technology. Recently a
Dimensional Elevator, which could transport from one floor to the other in the blink
of an eye was successfully developed and now operational in Japan. The problem is
that China has stronger ties and economic relation with Japan than India which could
halt its growth. Chinas manufacturing sector is a crucial cog in the wheel of the
economic progress and accounts for 43% of the Chinese economy. According to
Justin Rose and Michael Zinser Indonesia, India, Mexico, Thailand then China comes
next with lowest manufacturing cost (M.zinger 2015). The reason is manufacturing
plants are now being erected and engineers are placing bets for 25 years or more in
the future.
6. Complementary Products
Complementary product refers to the impact of related products and services already
in the market. India and China being non member of IEA (International Energy
Agency) have in recent years ploughed funds into their own SPRs (Strategic
Petroleum Reserve) . Though China dont have the luxury of salt caverns they have
recourse to more expensive storage above ground in tanks with an estimated capacity
of 33 million barrels.A statement from CLSA, says that spending money on
developing an SPR is all part of Chinas plan to be treated seriously as a global
superpower. If youre going to be a superpower, youre going to have to have the
reserve, It helps you become part of treaties globally. If another superpower, during
energy events, asks for a release of reserves then China can now take part.
This new force depends on the industry. But in regard to China and India,
Government as an additional force would be more appropriate and convergent due to
the fact that these two superpowers have a complete contrast in governmental control
-state vs democrat.
Conclusion
To refresh the memory, the Global Competitiveness Report highlights all major
factors which have already been discussed throughout the essay in relation to Michael
Porter Theory. Lets face reality. According to this report India is likely to take over in
the next 3-5 years. A wishy-washy concluding note would be India has more potential
for contributing to the world because of its growing labor force, literacy rate,
investment in infrastructure, global trade mark made in India.... However India is
the largest democracy. Politics and corruption goes in hand. Poverty is spreading like
Ebola. Does the Modi-reform guarantee more business in India thus contributing to
the world? If a military war erupts between India and Pakistan would it still be able to
hold the reign. These are factors to be analyzed! Now in regard for China. Some
would immaturely advocate that China is adopting innovation than imitation, it is the
the largest exporter in the world, its infrastructure is unrivaled, first mover advantage
backed by international experience and so on. BUT lets analyze on a logical and
economic basis. China does not consider India as a threat nor a rival. Why? Because
it has major priorities. A potential conflict (Sino-American war) with the United State
is menacing to the extent that warship are are patrolling on the borders of US territory
following a depreciation in the Chinese Yuan. This is going to be Asia greatest fear
and probably the start of WW3.
According to me the potential to be ahead for world contribution for these two
country depend on 5 question:
What do you mean by ahead. We are focusing too much on economic. What
about military aspect, environment or even socio cultural?
Which country value is more Influential? China or India is not a country but a
brand!
Which Country citizens are more happy?
Which country are attracting more people to immigrate?
Does being ahead mean robotisation and automation will boost world output at
the expense of losses of job and more poverty. Or in a second scenario will being
ahead be at the expense of pollution. We all know the history of Chinas pollution
during earlier decade! Will history repeat itself?
By thinking outside the box, the the third side of the coin show a better alternative.
What if India stop trying to grow as rapidly as China and these two powers put aside
their theory issue and forge a solid alliance? According to a recent report from
international economic think tanks (IETT) , India and China soon plans to form a
trade coalition in Asia and that is projected to boost 65% of world trade by near 2020.
At about 40% of people would be prosperous thus solving world problem as they have
complementary resources. Imagine 2 billions manpower and one alliance. India and
China are already in BRICS, New development Bank and also with Asia
Infrastructure Investment bank, the former is one of the founding partners. So, these
two combined will be a push to reform financial architecture whereby both can put
pressure on World Institution.
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