After the gunfire at the Taj Mahal Hotel in Mumbai had died down on November 29th, a reasonable sense of calm had finally been restored across India. The terrorist attacks lasted almost 60 hours. When they were over nearly 200 people were dead, including tens of foreigners.
The attacks were also a heavy blow to Mumbai’s ambition to become an international financial center. Many foreign investors closed their offices there, realizing that India has many problems. As a country with many races and religions, India has never developed a cohesive value which is essential to guarantee a consolidated nation. Consequently, the nation is always in the state of split. From time to time, clashes and conflicts erupt, especially between the Hindu majority and the 140-million-people Muslim community.
The terrorist attacks coming along with the global financial meltdown were already inflicting heavy losses on India, especially on its pillar industry, the outsourcing service sector. In the first half of 2007, India’s outsourcing service suppliers signed on for 48 projects for a total of above USD5.5 billion. In the first half of this year, however, they only secured eight similar contracts for a total of a mere USD767 million. Analysts at Forrester predict that US financial service companies are likely to cut IT investments in India by 15%-20% next year.
Despite numerous problems, the occasionally turbulent India remains a global focus as the only country that can match China in terms of development speed. In the past three years, India’s annual GDP growth rate has remained above 9%. Although the rate may drop to 7% this year, the overall growth is still remarkable.
China also has many problems at the moment. This year, its GDP growth rate will slip below 10%, and probably to 8% next year. This year’s early journey home for tens of millions of migrant workers ahead of the annual Spring Festival is a disturbing sign that major economic trouble is looming in China’s manufacturing industry.
The two countries have ascended the economic ladder by specializing in specific sectors of the global economy. Both nations have benefited immensely by embracing the surging relocation of the world’s manufacturing and service industries respectively. For a long time, business has been good. But that is changing rapidly.
Amid the global economic chaos, the financial crisis is certain to hammer GDP growth drastically across Europe and North America. China and India will remain the only two big economic powerhouses to maintain at least 7% GDP growth. However, the two countries are no longer content with the positioning that has been imposed on them till now. Instead, they are accelerating their presence in each other’s dominant areas to become more versatile global contractors.
For instance, China is vigorously developing its outsourcing service industry. Dalian, a coastal city in the northeast of China, has even laid out an ambitious target to become a global outsourcing center. Meanwhile, India is quickly becoming proficient in high-end manufacturing. At present it has already gained an edge in the auto and pharmaceutical industries. Both the dragon and the elephant aim to become a two-in-one supplier rather than specialists in only one field.
A growing competition has just kicked off between China and India, but it will escalate as the financial crisis deepens, which might not be a bad thing. “The competition between China and India will invite more multinational companies into the two countries. In this way, local companies in the two countries will have more opportunities to copy the successful models of international players,” observed Liu Jiren, Chairman and CEO of Neusoft, at a recent business forum. “Of course, we have also learned much from our Indian counterparts.”
Chinese companies, meanwhile, could learn about globalization strategy from Indian companies. Tata Consultancy Services (TCS), India’s largest outsourcing service supplier, has recently acquired all the offshore Business Process Outsourcing (BPO) operations of Citigroup in India - much to the envy of some Chinese outsourcing service suppliers. Currently, TCS has four global delivery centers in China, which are committed to the Asia-Pacific markets. In fact, the largest bank in China has contracted out some of its IT systems to TCS. Revenues from the US market now account for less than 50% of TCS’s total.
Indian manufacturers also have a relentless determination to expand globally. Last March, Tata Motors Limited acquired Jaguar and Land Rover from Ford Motor Company for USD2.3 billion. Tata is also eyeing GM’s Hummer brand.
When the global steelmaking industry was flourishing, a large Chinese steel maker planned to acquire European steel giant Arcelor, but was brushed aside by Indian giant Mittal due to hesitation. Many Chinese companies that have acquired foreign companies in the hopes of improving their global operations remain mired in mediocrity. Unlike Tata and other Indian companies, many Chinese companies are still struggling with global expansion.