s China threat to india?

- Presentation Transcript
IS CHINA A THREAT TO INDIA
Presented by:
Abdul Hameed 0
Honey Balani 03
Manish Kamble
RahulPillai 38
DhirajVinaykia 59
2 ECONOMY OF INDIA
4 Market based system
4 Foreign trade and Ioreign investment as integral part iI Indian
economy
4 Fastest growing economy
4 orld`s second largest labor Iorce
3 ECONOMY OF CHINA
4 Centrally planned Economy
4 Private businesses and capitalism were suppressed
4 Privatization oI Farmland
4 Promotion oI Ioreign investment
4 Flourishing small scale entrepreneurs
4 50 yrs ago, India and China were among the poorest and economically most
isolated countries in the world
How did China and India emerge as economic giants?
5 hat are India & China Iamous Ior today?
Low-priced consumer goods
Call centers & computer engineers
China Economic Fact Sheet
7 India Economic Fact Sheet
GDP- real growth rate:
(2008)
9 (2007)
9 (200)
GDP per capita (PPP Purchasing power parity)
$2,800 (2008)
$2,700 (2007)
$2,500 (200)
note: data are in 2008 US dollars
GDP Composition by sector:
agriculture: 72
industry: 29
services: 537 (2008)
8 Comparing India and China`s Growth Stories
9 Comparing India and China`s Growth Stories
0 Agriculture
Sector
Indian Agriculture
India is an agricultural country
Growth oI service sector is pushing down the contribution oI agriculture
Contributing 72 oI the GDP
Largely depends on monsoon
Provides employment to two-thirds oI the total population
5 oI export earnings
Rural women play a vital role, 50 oI rural labor Iorce
Yields per hectare oI crops in India are very low
2
3 China
Agriculture accounted Ior 0 oI the GDP
33o million- over 45 oI labor Iorce still makes living Irom Iarming
Farming methods have been improved in China
China produces wheat, rice, potatoes, peanuts, millet, cotton
Only 5 percent oI the total land available in China can be cultivated
more than 75 percent oI the total cultivated land is used Ior producing Iood
crops
4 Increases in Output oI Major Agricultural Products
(0,000 tons)
5 Increases in Output oI Major Agricultural Products
(0,000 tons)
INDUSTRIAL SECTOR
7 India`s ManuIacturing Sector
ManuIacturing contributes around 5 oI GDP oI the country
According to CSO data quartely estimate oI GDP Ior manuIacturing stood at
38 billion US $
According to the data the cumulative growth in manuIacturing index Ior
April-June has been 32
In the manuIacturing sector the value oI new project announced in 2nd halI
oI 2008-09 stood at 32 billion US $
8 India`s ManuIacturing Sector
India rank`s among top 2 producers oI manuIacturing value added
products
In Textile it ranks 4th aIter China, US & Italy
In Electrical machinery & apparatus India ranks 5th
India holds th position in basic metals category
7th in Chemicals & chemicals products, 0th in leather & leather products,
2th in machinery & equipment & motor vehicals
9 India`s ManuIacturing Sector
According to CSO the industrial output clocked an annual growth rate oI
8 in July 2009
There are many Companies who wants to make India as their manuIacturing
hub, they are
LG wants to make India its global manuIacturing hub Ior its mobile
handsets
Hyundai has make India the manuIacturing & exporting hub Ior its small
cars Their i0 is being manuIactured only in India & exported to the world
20 India`s ManuIacturing Sector
Luxury brands like Louis Vuitton are looking at India as a manuIacturing
base Ior their products
Skoda Auto plans to make India its regional manuIacturing hub AircraIt
manuIacturing Airbus is considering India as one oI the centres Ior design &
development oI its long haul A350 plane
Samsung plans to invest 00 million US $ in its manuIacturing plant near
Chennai & make it its global hub
2 India`s ManuIacturing Sector
Suzuki too is making India its manuIacturing hub Ior its small cars
According to Investment Commission oI India the manuIacturing sector is
estimated to have 80 billion US $ investment opportunity over next 5 years
ManuIacturing sector is the largest employer which employes 255 million
people oI the total workIorce
Employment growth rate is 278
22 China`s ManuIacturing Sector
Chinese manuIacturing sector accounts Ior 43 oI Chinese economy
Its economy growth in average oI almost 8 every year
Chinese manuIacturing sector ranks 4th in the world aIter US, Japan, &
Germany
23 China`s ManuIacturing Sector
China`s Iast growing domestic market worldwide demand Ior Chinese goods
& the cost advantage China oIIers to manuIacturers are Iueling the growth oI
manuIacturing sector in China
Purchasing Manager`s Index (PMI) which measures manuIacturing activity
nationwide
PMI index rose to 54 points in August up Irom 533 in July
24 China`s ManuIacturing Sector
China has 50 share oI worldwide camera market
& 30 oI Air conditioners
25 oI ashing Machines & 20 oI ReIrigerators
China`s crude steel production rose by 2825
Investment in chemical industry grew by 359
25 SERVICE
SECTOR
2
4 Can be classiIied into 2 types:
4 Old
4 New
4 Old Services includes:
4 Petty Trading
4 Domestic Services
4 Catering and Hotel Services
27
4 New Services includes:
4 Communications
4 Business and legal practices
4 Culture, research and education
28 INDIA v/s China
29 GDP shares by sector in China and India
30 Composition oI Service Sector GDP
3 Service Sector Share over Total GDP
32 Economic Structure and Level oI Development
33 CURRENCIES INDIA CHINA
34 History oI Exchange rate
35 FOREX RESERVES
The Iorex reserves oI the Republic oI China amounted to US$33224 bnat
the end oI Sep`09, showing an increase oI US$82 bnIrom the previous
month
The main Iactors responsible Ior the increase are: The EUR, JPY and
other major currencies appreciated against the US dollar Foreign exchange
reserves denominated in these currencies were worth more in terms oI the
base currency, the US dollar2 Returns Irom Ioreign exchange reserves
management
3 Interest Rates
37 INDIA AND CHINA IN 2020
According to a recent report Irom international economic think tanks, India
and China soon plans to Iorm a trade coalition in Asia and that is projected
to boost 5 oI world trade by near 2020Both the countries India and
China are determined to achieve that and create a huge impact on world
economic bodies
38 THANK
YOU
lndlas exporLers are hlL by hlgh domesLlc LransacLlon cosLs and
an undervalued Chlnese currency


China has become a top exporter, accounting Ior roughly 0 per cent oI global merchandise
exports This manuIacturing giant presents both an opportunity as well as a challenge It is a
cheap and critical source Ior procuring inputs such as power equipment, auto-components,
electronics & computer hardware, pharmaceutical ingredients and coking coal, besides being an
important export market Ior India
It is also a challenge, as Indian businesses Ieel threatened by cheap import oI manuIactured
goods Irom China
It is, thereIore Ieared that sectoral negotiation in TO, which aims at deeper tariII reductions in
4 sectors (including chemicals and allied sectors, electrical/electronics, industrial machineries,
textiles & clothing) will Iurther open up India's domestic market Ior imports Irom China
Besides, a Iree trade pact with China is also being considered
INDIAS RANKINC
Thus, an understanding oI Chinese competitive advantage in trade will help Indian businesses in
incorporating the China Iactor in their trade and procurement strategy more eIIectively
The orld Bank's ranking oI nations on the basis oI their trade Iriendliness would be a good
starting point It has placed India at 00, compared with China at 50 India's poor ranking as
reIlected in the number oI documents required, time taken and cost involved in export/imports
badly compares with China
In addition to Chinese cost advantage in export-import Iormalities, other Iactors which Iavour
Chinese exporters are: (i) Low real wages and absence oI industrial disputes and lockouts (ii)
Cross-subsidisation oI corporate sector by households through Government-controlled Iinancial
institutions (in a low domestic consumption, high savings ratio, plus high inIlation, low real
interest rates, cheap capital policy environment); (iii) Undervalued exchange rate (iv) Export
restriction on raw materials with limited global supply such as coke, Iluorspar, silicon, yellow
phosphorus and zinc (v) Aggressive policy oI acquiring commodities (iron ores, copper, coal, oil
and gas) assets in AIrica and Latin America ; and (vi) Availability oI government-acquired land,
cheap power and more lenient environmental standards
China will have to depend on exports to maintain its growth momentum and threat oI cheap
Chinese imports will continue to haunt Indian businesses But when it comes to its own market,
China uses several non-tariII trade barriers to restrict access to its domestic market

NEXT
Despite the emergence oI China and Philippines as competitors in the business process
outsourcing space, India | Images | is well placed in terms oI parameters like cost savings,
competency, technical inIrastructure, language and skill pool, according to an industry report by
ICRA
In the BPO Iield, China is perhaps the biggest challenge in the Iuture and the largest threat to
India, and with the largest population and Iastest economic growth, the Chinese have at least two
advantages in the global outsourcing market -- manuIacturing and IT -- the report said
In terms oI outsourcing options, India has a signiIicant cost savings model with multiple
competencies in various areas, an emerging technical inIrastructure, highly rated skill pool with
English language and extensive cultural Iit, the rating agency said
The main disadvantages oI China are lack oI good quality record in soItware, whereas India has
a better image as quality supplier, ICRA said in its BPO industry report
ith low percentage oI Chinese population speaking English and a less mature and relatively
new BPO industry, India stands tall in these areas vis-a-vis China, it said
However, China has certain advantages in oIIering low manpower costs compared to India, and
being close to Japan | Images |, its BPO market is also likely to grow through the Japanese
outsourcing route As India currently oIIers no BPO services in Japan, China will capitalise on
its proximity to it, the report said
The report also mentions the proactive approach oI Chinese government towards BPO sector
"The Chinese government has invested over $54 billion in nine universities to promote English
language and other skill sets," it said, while adding China could also leverage on its strong
manuIacturing base image
As regards Philippines, the disadvantages are low graduate turnout with only 400,000 graduates
per annum which puts it unIavourably with India, poor record on quality vis-a-vis India, and
political instability resulting in lack oI uniIormity in policies, ICRA said
There is also an absence oI multi-location Iacilities in Philippines and the country Iaces the
important issue oI scaling up The largest call centre in Philippines oI AOL has only 800 people
and the size oI the industry there is only $00 million, the report noted India's BPO industry size
is $2 billion
Philippines enjoys advantages in being a Iormer United States colony that helps in emulating US
culture and language, well developed IT skill set, third largest English speaking nation in the
world and large scale technical training programme
Though countries like Australia | Images |, Canada | Images | and Ireland are the other players,
they are not serious competitors to India due to a small population base, ICRA said


#e: Is china is threat 2 indian IT companies
Amidst the buzz in the Indian IT industry, articles started to prop on whether India is a saIe
destination Ior outsourcing The next obvious question is, whether China will use the current
situation to grab a pie out oI the outsourcing dealsYesterday, Mcckinsey has reported that China
has an opportunity to grow its outsourcing industry at this junctureIt cites the reason that, in this
economic crisis, many companies in the world are now looking to cut the costs by outsourcing
their IT operation and China can beneIit by this move Along with this opportunity, the recent
happenings in the Indian IT industry can be a bonus point Ior China

But, can China really pull deals that are being outsourced to India? here exactly does it stand
in the Outsourcing Industry? As oI today, Chinese IT sector is relying heavily on the projects
Irom the booming manuIacturing industries in china and also Irom the neighboring Japan Since,
China's manuIacturing sector (the heart oI its economy) has slowed down due to less demand in
exports, the government has identiIied the outsourcing industry as the next engine and has vowed
to pull Ioreign money to China through outsourcing Also, it has planned to improve the small
sized company to grow Irom its current proposition by awarding them projects and by building
cities and towns dedicated to the outsourcing industry But when it comes to projects Irom US
and Europe, Chinese companies were working on low-end applications and testing projects
hen western companies releases products, Chinese companies were asked to test them beIore
the deployment Now, things are getting changed Companies have started working on mid size
application development projects which is very much essential Ior developing domain
knowledge and Ior getting bigger deals Today, many oI these developments projects comes to
China Irom Japan and KoreaAlso, iI things improve, China can be a good alternative to
companies that wants to de-risk their outsourcing strategyEarlier today, SAP North Asia
chairman joined NeusoIt, the biggest Chinese outsourcing company He is expected to overlook
the International business NeusoIt in its website has called graduates and proIessionals to
undergo its SAP training programThe Chinese companies are desperate on getting multinational
deals to prove their expertise All they need now is, one success story in a complex enterprise
project, which will trigger the next wave in its IT industry

Now, as a competitor to India, China has a long way to travel to catch up deals that are destined
to India Having understood the booming manuIacturing sector in china, Indian companies like
TCS, InIosys, Satyam has setup shops in china to pull projects Irom the Chinese Industries
Some Indian companies even bought the small sized Chinese companies, to understand the
market and to merge themselves into the Chinese culture These companies serve as a
threatening competitor to the home grown companies Also, though Chinese companies get
projects Irom the western clients, the development work is more oI product type (like networks,
embedded systems etc) For eg: the biggest outsourcing company NeusoIt, according to its
website, oIIers IT services on Network support, back oIIice, data center and asset management
But, to thrive as an Indian competitor, the companies should get projects that are executed in the
in-house IT department These kind oI ADM(Application, development and Maintenance)
projects generates money and also help in acquiring Iurther development projects It also helps to
gain knowledge in that particular business Another important Iactor where China has both
advantage and disadvantage is 'cost' The per hour rate oIIered by Chinese is less than India's rate,
about 30 less But there are lot oI hidden costs which includes communication issues (More
time, more rate), knowledge transIerring time, data security protection and regulatory issues
These issues demands a completely new strategy Ior the western companies to kick start its
outsourcing plans

The happening issue in the Chinese industry is, the number oI skilled proIessionals with good
experience Though, the number oI computer graduates is more than India, the experienced
proIessionals are Iare less and that prevents them Irom acquiring the big pie Chinese companies
are badly in need oI senior project managers and they are looking outside China to recruit or
poach them More than 80 oI the IT proIessionals in China are with less than 5 yrs oI
experience ( 42 with less than 2 yrs) This was the situation with India, Iew years ago But as
the market grows, may be in another 0 years China will compete heavily with he Indian clients
At the same time, India would have produced more experienced proIessionals with higher
domain (Finance, Retail, Telecom etc) and architecture experience But you cannot compare the
China's current stage with India's early years Indians' entrepreneurial approach helped to create
thousands oI small soItware companies, which later helped to produce skilled proIessionals
Also, the Y2K problem deIinitely served as a break pointThough, Chinese are growing in a
steady phase, backing oI Chinese government is so strong that it can be a great trigger orking
under the multiple government projects in various domains will deIinitely improve their skill
level

II Chinese grow in the current rate, there are more probable chances oI India and China
collaborating more in the Iuture IT industry There are two main reasons: ) Indian IT
proIessionals knowledge and global experience will be a great asset Not using it will be a great
mistake or it cannot be ignored 2) Indian companies presence in China Today, Indian companies
like InIosys and TCS have good reputation in Chinese markets For example, the website
wwwseecococom is a hub Ior the IT pros in china Here they discuss about their company,
Salary etc Already, InIosys is third in the satisIaction survey and even Satyam is ranked among
the top 0 Here,it should be noted that, Indian companies are now only in the investment stage
In Iuture, you can see a great level oI cultural mixture in these companies

Considering the Pros and Cons, China cannot be deIinitely ignored in the outsourcing industry
So is India e will see India gaining domain and execution expertise over the years and China
growing on technical side So,it is not India or China It is India and China AIter all, dragon and
elephant can never Iight against each other
Is cbina is a tbreat to india in softwares?
There`s no doubt about China`s competitiveness in the IT sector, considering its hardware and
telecom markets are much bigger than India`s And even in soItware, China has a huge captive
domestic market, as compared to India`s relatively tiny domestic market There are some other
alarming Iigures Ior India: the ratio oI China`s IT spend to its GDP is nearly 5 times that oI
India`s II India`s current growth rate in IT doubles, it would still take us 25 years to catch up
with China, and that only iI China`s growth rate remains stagnant D-Link`s Naik has evolved a
Iormula whereby the Indian IT industry will have its cake and eat it too

Frankly, these numbers do seem to put a huge question mark over India`s much talked oI aim oI
becoming an IT superpower

) Large domestic market
But, rather than throwing in the towel, there is a school oI thought developing in India which
believes that the Indian IT industry can convert this apparent Chinese threat into an opportunity
Nasscom president Kiran Karnik is one oI the main votaries oI this opinion He believes that
while China will always remain a Iormidable competitor, a policy oI engagement rather than a
policy oI isolated approach would perhaps be a better strategy First, it would give Indian
companies a door to enter the Chinese domestic market which is today dominated by MNCs
Plus, Indian IT companies based in China can address other East Asian markets like Japan and
Korea This view is also endorsed by Noshir Kaka, principal, McKinsey & Co

It is a well established Iact today that Indian IT Iirms have an excellent opportunity waiting to be
tapped in the

Chinese domestic market, which is estimated to be Iour times the size oI India`s Also, with
China becoming a part oI the TO, local banks in China will soon be Iorced to start upgrading
their technology As local players have not been able to provide the required expertise and
technology in the domestic IT market, the Chinese market is currently dominated by MNCs This
in itselI oIIers an excellent opportunity Ior Indian IT Iirms, whose development expertise is no
way inIerior to these MNCs

Another important aspect is the growing purchasing power oI the China`s 3 billion people
which in turn is creating a strong massive base to build domestic technology companies China is
also expected to be the largest market in the world by 2004 Ior mobile phones and digital
cameras, and the second largest Ior PCs aIter the US A key reason why India is miles ahead oI
China in soItware exports is due to the simple Iact that the eIIorts oI Chinese soItware Iirms were
spent in addressing the huge domestic market (estimated to be worth $2 billion)

But things are about to change, as China wants to emulate India`s success in the soItware sector
and become a major global Iorce China has initiated a series oI measures, which include plans to
set up specialist IT training institutions on the lines oI our IITs and Chinese Iirms are Iollowing
the same strategy India`s IT majors did (bagging projects based on price) beIore going on to
become soItware majors
InIosys` Murthy believes China is an opportunity since its IT industry cannot even provide Ior
domestic needs

Yet, there is a bigger opportunity Ior Indian IT players in China One, according to InIosys
chairman N R Narayana Murthy, is that Chinese Iirms cannot meet the Iull demand Irom the
Chinese domestic IT industry, resulting in the government allowing Ioreign Iirms like MicrosoIt,
Oracle and IBM to operate through joint ventures In addition, Kaka Ieels that Indian IT Iirms
can take advantage oI the Iact that China oIIers Indian IT Iirms lower trade barriers, lower taxes
and excellent inIrastructure No wonder InIosys is on the threshold oI setting up Iacilities in
Shanghai to tap the Chinese domestic market

2) indow to Japan
The second premise Ior looking at China as an opportunity is that it can provide Indian
companies a gateway to Japan, a market hitherto virtually untouched This logic is signiIicant as
currently, Japan is the world`s second largest economy-estimated to be worth a gigantic 70
percent oI the entire Asian market and which contributes approximately percent to the total
outsourcing global market There is obviously a huge gap to be Iilled as only Iour percent oI
India`s soItware exports go to Japan

A signiIicant gainer in the Japanese market is China, which has been a Iavoured partner Ior
Japan`s soItware imports The synergy is easy to Iathom One, Japanese is the second language
taught in the northeastern parts oI China, where most Chinese companies are located Also, most
Chinese programmers are Iamiliar with the double byte system used to generate Chinese and
Japanese characters Location wise also, China oIIers a great advantage to Japanese companies
looking to outsource their projects Due to these synergies, it comes as no surprise thereIore that
Japan continues to be China`s largest trading partner

Though Indian IT Iirms have established bases in Japan (the list includes the likes oI ipro,
InIosys and TCS and L&T InIormation Technology), it remains a tough market to crack The
reason primarily being that Japanese companies have traditionally resisted external help relating
to their IT systems But a gradual change is happening The Japanese economy, which is in the
throes oI recession, is slowly but surely catching on the outsourcing mantra in a big way
According to industry estimates, spending on IT outsourcing is likely to exceed $5 billion in
2005 These Iigures are roughly one third oI the market size in the US

Since China is a natural trading partner Ior Japan, it makes more sense Ior Indian companies to
set up base in China by Iollowing a strategy oI partnerships with local players who have
knowledge and expertise about local markets Since the Japanese culture is not as open as US
culture, tapping the Japanese market will undoubtedly require a lot oI patience But as experts
say, once bonds are established they stay Ior a long time Hence, it makes even more sense Ior
Indian companies to tie up with Chinese players as China has been a long-time preIerred trading
partner Ior Japan

Also, India`s edge over China could come Irom the Iact that it has a good record in quality and
protection oI intellectual property rights Global soItware majors are wary oI outsourcing their
projects to Chinese companies as China has a terrible record in soItware piracy And on the
quality Iront, as oI December 200, India had 3 companies at the SEI CMM Level 5 assessment
out oI 58 organisations worldwide, while China had none It is thus a win-win situation Ior both
Indian and Chinese companies as organisations who were earlier wary about Chinese Iirms but
wanted to avail oI the cultural and locational synergies, can now do so in the case oI a Indo-
Chinese tie-up

3) The hardware angle
Even the hardware sector could gain Irom China`s traditional strengths in this segment K R
Naik, managing director oI D-link India proposes that Indian companies should set up hardware
manuIacturing Iacilities with technology know-how Irom companies both in mainland China as
well as Taiwan Most oI the very Iew manuIacturing Iacilities in India today deal merely in
assembling, and unless they replicate the Chinese model oI hardware development, the MAIT-
E&Y estimate oI $2 billion by 200 in hardware will only remain a pipe dream Naik`s Iormula
Ior success: Form a JV with a Chinese hardware major, procure the technology expertise, the
R&D set up and then do actual manuIacturing in India 'You can even supply to the Chinese
market, as our labour Iorce is not only cheaper but much more intelligent, he adds

The key part oI the strategy Ior Indian IT Iirms is to Iorge partnerships with Chinese Iirms and
participate in the country`s explosive growth Some Indian companies have already done this
NIIT, Ior instance, has seen huge demand Ior its courses due to its unique English and Mandarin
courses As Kaka says, 'Going Iorward, Indian soItware companies can outsource their work to
Chinese companies to boost productivity, while maintaining a strategic relationship with the
client

Indian soItware companies have an exponential opportunity to be tapped in the Iield oI telecom
soItware Currently, major telecom players in China like Zhongxing and Huawei export their
telecommunications equipment to India, while Indian IT Iirms develop the requisite soItware Ior
them That`s a great example oI combining China`s strengths in hardware manuIacturing with
India`s strengths in soItware ith InIosys receiving the green signal to set up a branch in China
and Satyam too likely to jump into the Iray, the Iuture seems bright Ior Indian IT companies in
China hile it is in the best interests oI Indian IT companies to view China as a Iormidable
competitor, the opportunities Iar outweigh the threats Perhaps the question should be rephrased
Irom, Is China as a threat?` to Is China as a land oI opportunities?` For India Inc`s sake, we
sure hope it is