China & India: Trading with Asias Giants (Presentation at a - - PowerPoint PPT Presentation

China & India: Trading with Asia’s Giants

(Presentation at a workshop organised by emita, 7 October 2010, Nottingham)

• Dr. Sumon Bhaumik

Aston Business School

Size of the economy How large is the market?

100% 120% 140% 160% 180% 200% 220% 240% 260% 280% 300% 2 4 6 8 10 12 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP growth (annual %) GDP, PPP (constant 2005 international $, 2000 = 100) Linear trend for GDP in constant 2005 international $ 100% 120% 140% 160% 180% 200% 220% 240% 260% 280% 300% 2 4 6 8 10 12 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP per capita growth (annual %) GDP per capita, PPP (constant 2005 international $, 2000 = 100) Linear trend in per capita GDP in 2005 international $

Income share of highest 10% (2005) = 31.13 Income share of highest 20% (2005) = 45.34 Gini coefficient (2005) = 36.8 Source: World Development Indicators, The World Bank, Washington, D.C.

Growth rate Growth rate

Structure of the economy Is it a services driven economy?

1 2 3 4 5 6 2000 2001 2002 2003 2004 2005 2006 2007 2008 High-technology exports (% of manufactured exports) Research and development expenditure (% of GDP)

Source: World Development Indicators, The World Bank, Washington, D.C.

10 20 30 40 50 60 70 80 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 Manufacturing, value added (annual % growth) Manufactures exports (% of merchandise exports) Manufactures imports (% of merchandise imports)

Value chain Is it all about cheap labour?

• “In the Automotive sector, current capabilities, mainly of medium complexity, include

middleware and application development, sub-assembly design, digital manufacturing and technical and plant simulation. Indian ESPs are expected to move up the value chain to

• ffer services around design automation, integrated system design, hardware and chip

design, etc.”

• “Within Telecom, over the last few years, Indian ESPs have moved up from CAD,

conversion services, embedded software design, etc. to high-end services such as system level capabilities, customised control software and product conceptualisation, etc. Large service providers have been providing design services for telecom products like mobile phones, fixed phones, set top boxes, RFID devices, WiFi devices, switches, routers, cables, etc.”

• “In Consumer Electronics, Indian ESPs have significant coverage of the entire product

development value chain from low, mid to high-end services. ESPs have moved up from services like user interface design and testing, design evaluation, etc. to complete development of embedded components, product conceptualisation, chip design, etc. Some ESPs are mature enough to provide end-to-end services including low volume production.”

Source: Global E&&D: Accelerating Innovation with Indian Engineering (NASSCOM & booz&co, 2010)

Changing capabilities Has the world noticed?

Destination Home country United States Western Europe China India Other United States 19 30 9 13 71 Western Europe 14 10 23 9 12 68 Other 2 2 4 14 29 55 18 27 143

“Think about some of the more recent R&D facilities established by your firm. This can include facilities you are in the process of building or staffing or which are only in the planning phase. Choose one of these that is OUTSIDE the home country and that is both considered to be central to your firm’s current R&D strategy and about which you are familiar. Does such a facility come to mind?”

Source: Jerry Thursby and Marie Thursby: Here or There? A Survey of Factors in Multinational R&D Location (National Academy of Sciences, 2006)

Consumers Who are they and what do they buy?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2015 2025 54 35 24 41 43 36 4 19 32 1 1 8 1 2 Proportion of households Globals (>1000) Strivers (500 - 1000) Seekers (200 - 500) Aspirers (90 - 200) Deprived (<90) (INR thousands)

Source: The ‘Bird of Gold’: The Rise of India’s Consumer Market, McKinsey Global Institute (2007)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2015 2025

42 34 26 6 5 5 12 12 10 3 3 3 8 9 11 17 19 20 2 3 6 5 6 9 7 9 13

Health care Education & recreation Communication Transportation Personal products & services Household products Housing & utilities Apparel Food, beverage & tobacco

Structure of imports What does the world sell India?

Food and allied products 2% Fuel 39% Paper, board manufactures and newsprint 1% Fertilizers 5% Machinery, except electrical & machine tool 9% Electrical machinery 1% Transport equipment 5% Project goods 1% Chemicals 6% Pearls, precious & semi precious stones 6% Iron & steel 4% Non-ferrous metals 2% Gold & silver 8% Professional instruments,

• ptical goods, etc

2% Electronic goods 9%

Source: Economic Survey, Government of India

Growth in imports What does India like to buy?

5000 10000 15000 20000 25000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 USD million Chemical elements and compounds Non-electrical machinery apparatus and appliances including machine tools Electrical machinery Transport equipment

Source: Economic Survey, Government of India

500 1000 1500 2000 2500 3000 3500 0.5 1 1.5 2 2.5 3 3.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 Military expenditure (% of GDP) Arms imports (constant 1990 US$ million - secondary axis)

Source: World Development Indicators, The World Bank, Washington, D.C.

USD million Percentage

Business environment How easy is it to do business in India?

200 400 600 800 1000 1200 1400 5 10 15 20 25 30 35 40 45 50 2005 2006 2007 2008 2009 Lead time to export (days) Lead time to import (days) Cost to export (US$ per container) - secondary axis Cost to import (US$ per container) - secondary axis 250 255 260 265 270 275 5 10 15 20 25 30 35 40 45 50 2005 2006 2007 2008 2009 Procedures to enforce a contract (number) Procedures to register property (number) Time to prepare and pay taxes (hours) - secondary axis

Source: World Development Indicators, The World Bank, Washington, D.C.

US$ Days Hours

Business environment The politics of land

• “In a meeting held with the Hon’ble Chief Minister of West Bengal, Mr. Buddhadeb Bhattacharjee and Minister in Charge,

Department of Commerce & Industries, Mr. Nirupam Sen, Mr. Ratan N. Tata, Chairman, Tata Sons & Tata Motors and Mr. Ravi Kant, Managing Director, Tata Motors, expressed their extreme anguish at the heightened level of agitation and hostility by the opposition parties …….. resulting in a concern for the physical security of their staff, contractors and vendors. Threats, intimidation and instances of assault and general obstruction in one form or the other have been the order of the day. It was therefore with great regret that Mr. Tata and Mr. Ravi Kant conveyed to the Chief Minister that in the interest of the project’s success and viability and in light of the opposition’s continued agitation, there was no option but to move the project out of the State of West Bengal. Mr. Tata and Mr. Ravi Kant expressed their deep appreciation of the State Government’s efforts to facilitate and support the NANO Project.”

(Source: http://www.tatamotors.com/our_world/press_releases.php?ID=392&action=Pull)

• “The Rs 54,000-crore project, billed as India's single largest FDI, failed to take off due to stiff opposition from farmers to part

with their land. The project now delayed for five years as it had signed an agreement with the government in 2005 to set up a plant with an annual production capacity of 12 million tonnes. Recently, the environment ministry had asked the Orissa government to "stall all activities" related to the Posco project citing violation of green norms in land acquisition. The world's third largest steelmaker, Posco, requires a total of 4004 acres of land in the Jagarsinghpur district of mineral rich

• Orissa. Most of the required land falls under the green cover.

The steel minister asked Posco to give adequate compensation, job opportunities, education and annuity to the people from whom land is acquired.”

(Source: http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/steel/Posco-to-get-land-soon-for-Rs-54000-cr-project- Virbhadra-Singh/articleshow/6537335.cms)

Business environment Availability of skilled labour

5 10 15 20 25 30 35

Percentage distribution of 15-29 population with formal vocational training (2004-05)

Source: India Labour Report 2009 (Table 3), A report by TeamLease (www.teamlease.com) and IIJT (www.iijt.net)

Corporate landscape With whom will you do business?

Company Business lines Top executive Adani Enterprises Private merchant port, Coal trading, Edible oil manufacturing, Power transmission Gautam Adani Axis Bank Financial services Shikha Sharma Bharat Heavy Electricals1 Electrical equipment

• K. Ravi Kumar
• Dr. Reddy's Laboratories2

Pharmaceuticals G.V. Prasad HCL Technologies3 IT services Vineet Nayar HDFC Bank Financial services Aditya Puri Hindalco Industries Aluminium, Copper Kumar M. Birla Infosys Technologies IT services

• S. Gopalkrishnan

ITC Tobacco, FMCG Yogesh Deveshwar Jindal Steel & Power4 Steel Naveen Jindal JSL Steel Steel Sajjan Jindal Kotak Mahindra Bank Financial services Uday Kotak Larsen & Toubro Construction, engineering services A.M. Naik Mahindra & Mahindra Commercial vehicles Anand G. Mahindra Sterlite Industries Metals & minerals Anil Agarwal Tata Consultancy Services IT services

• N. Chandrasekharan

1 State ownership 68%, FII ownership 15%, Operates in 23 countries 2 Overseas markets including USA, UK and Germany account for 82% of sales 3 Projects include critical software for flight test of the Boeing 787 Dreamliner 4 Completely integrated vertically, from coal and iron ore mines to steel mills

Source: http://www.forbes.com/lists/2010/37/fab-50-10_Asias-Fab-50-Companies_Company.html

Indian corporates In what are they investing overseas?

25000 50000 75000 100000 5000 10000 15000 20000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Flow (US$ million) Stock (US$ million) - secondary axis

Source: UNCTAD (http://stats.unctad.org/fdi/ReportFolders/)

Automotive, 26, 7% Steel, 9, 2% Metals and minerals, 7, 2% Petroleum and natural gas, 13, 4% Information technology, 160, 43% Telecom, 5, 1% Chemicals, 24, 7% Other, 35, 9% Pharma and health care, 51, 14% Consumer goods, 41, 11%

Source: Athukorala, Prema-Chandra (2009), “Outward foreign direct investment from India,” Asian Development Review, vol. 26, no. 2, pp. 125-153 (Table 5)

Flow, US$ million Stock, US$ million (sector, number of deals, proportion of total)

What does all these mean?

• Large and growing consumer base
• Export opportunities for engineering and chemical industries
• Investment opportunities for skill and R&D intensive companies (or

units of companies)

• Local experience likely to be quite useful
• Local companies increasingly global and professional, but with

strong family ties

• Local companies increasingly investing abroad to develop

capabilities and market presence