Demystifying the Dragon - ISB's Emerging Market Club !!!

Emerging Market Club at ISB kicked off today with an interesting speaker series from Professor Ram. Prof Ram has an interest in entrepreneurship in emerging markets and he engaged the whole audience with his vivid description of anecdotes of his experiences in China and statistical data about China / India.

He opened up the conversation by stating that he continues to consider himself a student of China since its nearly impossible to understand a complex country like China in couple of years that he has spent there. Before China, Prof. Ram spent 21 years in India, 20 years in Europe, and 4 year in US. He worked as faculty at IESE Business School in Spain (One of my fav schools). He quoted some of the comments that his colleagues made – pun intended – that he is not qualified enough to teach management if he hasn’t been to China. Prof. Ram added humor to the discussion further when he mentioned that most Chinese, especially older generations, sing Indian songs from the movie “Awara” but they invariably make it sound ‘Chinese’. Further he mentioned that China especially Shanghai offers you infrastructure of developed countries of luxuries of developing countries i.e. Housel hold help!! He reflected that he has noticed three categories of Indians – in large numbers – in China a) Indian Business People b) Indians working in Indian MNC c) Indians working in top positions for US / European MNC. He was intrigued by the third category given that you don’t find similar proportions in India. That is reflective of demand supply and comparative language advantage of Indian Managers to integrate with Global economy.

The discussion became analytical from here on and Prof. Ram showed us several key data elements for India and China, providing his analysis and inference of each. Some of the figures that I noted down include:




* Chinese market is several times bigger than India since income level is higher in China
* Technology Diffusion: China has 10 times fixed landlines, 1.5 times mobiles. 4 times internet users
* Almost all women in China are working, huge labor force. Literacy, Healthcare, and gender equality drove the Chinese economy & were not a result of the growth.

India’s Advantages

1.Democracy – Slow but sustainable
2.Free Press
3.Younger Population – Advantage if employment gets up
4.Economy is dependent on Private Initiative
5.Lower Dependence on Foreign trade (37% vs 62%)
6.Stronger in Pharma & IT ( IT China – 8 Billion vs. 40 Billion)

India’s Disadvantages
1.Literacy
2.Healthcare for masses – Innovate at top but not for masses
3.Gender Equality
4.Fiscal Position – P & L statement
5.Infrastructure – Airports in 2/3 tier better than Delhi. Huge investment in Railways
6.Speed of political decision making
7.Manufacturing Costs – Gap is narrowed, if India moves quickly, we can expand a lot. Labor cost of china is going up as impact of single child is coming up. Labor environmental legislation that increases Chinese cost n leadership things cost based strategy is not sustainable.

Challenges to open business
1.Language
2.Unstructured business environment – Negotiation and Indian people are equipped. American/European are not.
3.Communication in queues – Seating arrangement in Dinner, Chinese will never say no, as they don’t want you to loose face.
4.Networking – Difficult for Chinese do business with stranger. They want to know you first.

Key Trends
1.Composition of Entrepreneurship is changing – More first generation, self motivated, young people opening start-ups on their own choice rather than opportunity driver model earlier.
2.In China, imitation with brief innovation leads to be good enough product to keep international MNC’s at bay. This is primarily due to the language factor e.g. Baidu, Tudou (Chinese Youtube), Dangdand. These companies although providing similar features to MNC, hold around 80% of Chinese market share.
3.In both the countries, growth in knowledge industry that requires less capital is also leading to more first generation entrepreneurs.
4.Growth of PE/ VC Investments in happening India and China. Early stage VC invests more in China than in India because it has higher diffusion of technology (Mobiles, Telephones, and Internet).

In all it was quite an informative and learning experience. I enjoyed the Dragon ride and hope to visit the country in near future. Hearing someone sing Chinese “Awara Hoon” would be pretty cool :P !!