China and India
I met Robert on an airplane from Shanghai to San Francisco. He is a senior vice president of a large company that has manufacturing facilities in both China and India so we talked about these two countries based on his knowledge of many years working there.
Robert told me that he goes to China about five times each year for the past ten years but each time he saw something new. He said: “China has undergone tremendous growth over the last 20 years if you just look at all the new buildings in Shanghai and Beijing. When I first came to China there were only few tall buildings but today there are hundreds of them. That is one way to look at how much development has taken place. Another way is more people can speak English now than few years ago, especially the young people all seems to speak English well. Today, almost all global companies are doing business here and the business is booming. Another way of looking is the size of Chinese companies. Few years ago, most companies were small as compared with companies in the U.S and Europe but today, they have grown to the same size or maybe bigger. However, the management system there is still needing a lot of improvement regarding how to move from the short term to the long term to continue growing. In the past, their successes were due to their low wages which helped their manufacturing to excel but today as the wages rise, they must focus more on quality, higher profit margin, and apply more information technology to prepare them to compete globally”.
I asked; “I thought Chinese companies are doing well in competition with other global companies”. He laughed and explained: “Not as well as people may think. They based everything on lower prices, lower quality but also at lower profit margin. If they sell more, it will be fine but the market is changing fast and they do not know how to change their thinking. Today more customers are demanding higher quality but they do not have quality products, at least not yet. As the global market is in a downturn, they cannot sell more products so it hurts their profit margins. They have to close many manufactures and many people became unemployed, probably many millions currently do not have jobs. If this continue, there will be major problems so to solve it, they has to turn to domestic consumption. That means selling products for their own people but it means they have to sell at much lower prices which hurt their profits. The lower price model is good to capture the market but with the current situation, it does not work anymore. Because their management system is very rigid, they cannot change fast enough so they stuck.
I asked: “How do they solve this problem?”. He paused for a moment and said: “They will have to adopted a new strategy to focus on higher profit margins. That means they have to do like other large companies are doing in the U.S and Europe. They cannot continue on the low prices, low quality and low profits. They have to use information technology to accelerate their decision making process, improve their products, collect data and analyze them quickly to react to the changing market. With globalization, things happen very quick and without the application of information technology, they will not be successful. The major problem in China is their infrastructure has developed so much, so fast but other things have NOT caught up in the same way. For example, their education system, including school education and education for skilled workers in specialized areas. To advance, they must improve the education system by adding higher quality education programs. That is a very big challenge for their government. In the past, their focus was on building factories, building highways, building industrial parks but not much in “building people”. I think the next ten years will be a problem if they do not have the skilled people to manage everything that they have built. Good things have happened but they do not last if you do not pay attention to them. What they have achieved in the past twenty years is very impressive but there is a major weakness and this cannot be solved quickly. Their people are still being educated in the same way that they have been doing for many centuries: A lot of memorization, cramming for exams, and many theories but no practice. That is why each year about half million students go to study in oversea schools, very few return as there are better opportunities elsewhere than in China.
I asked: “ What's about India, how do you compare China to India?
Robert nodded his head: “India is very different from China. It has not developed the infrastructure like China but it has the English language advantage. Today the software service sector in India is booming and it boost the economy and create many good jobs. I can say that in the past twenty years, most manufacturing jobs are going to China and most software jobs are going to India. However, software jobs pay much higher and that has been very good for India. All the higher paying jobs are created more local jobs and India's economy has improved significantly. The problem in India is that they need to develop the infrastructure if they want to go further. They need to build more buildings, roads, transportation systems, water, electricity, etc., basically they are far behind China in the infrastructures. There is another difference between China and India, in China everything is for export but in India, the domestic market accounts for a lot of things, so there is more domestic-consumption here. Because of this self-sufficient, the financial crisis has much less impact on India than China.
I asked: “What's about Indian business? Are they doing well?”. Robert explained: “ Overall, most Indian companies are integrating closely with the American model or the British model in terms of managing companies. They are adopting a lot of management practices which make it easier to do business there. I think the quality of Indian managers is good, but there is significant shortage of middle level managers in their companies. The success of their software service areas has consumed all their talents so there is not much skilled people to help them to grow in others. Today, India is facing the problem of shortage of skilled managers so they have to expand their business to other countries to find new talents. I believe they are enlarging their influences to nearby southeast Asia countries.
I asked: “What else do you think they need to improve?”. Robert said: “India is a large population country with a “caste society”. It has multi-level classes, in the top class many are living well but there are lower classes who are very poor and do not have anything to live on. This will prevent India from advancing further because about half of the population in India is very poor. Mostly uneducated and they continue their lives as their ancestors have been living for centuries. How to lift these people out of poverty, it will be very difficult because their culture and their belief so unless something change, I am not sure that India will be a fully developed country.
I asked: “From your opinion, both India and China models have problems. What kind of improvement would you suggest?”
Robert laughed: “If India has China's infrastructure then it will go far. If China has the management system like India it will also go far. Basically what both countries need is a good education system. Of course both government know about it and they have spent a lot of money to improve it already but not so successful. Building physical things like factories, highways, airports is easy but building talent requires a different mindset. I believe with globalization, any country that has good education system will go far because the key success factor today is no longer labor power but brain power as we are already in the 21st century or the knowledge age. Most things that can be done by hands are already been done by machinery so the key competition among countries will be in the knowledge and skills of their citizen.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
