I had the opportunity to attend the annual World Trade Day conference here in Denver, this year focused on China and India. Perhaps the highlight was a keynote by John Rice, Vice Chair of GE, who gave an impassioned defense of the global benefits of international trade -- I'm glad I made my post "Profits and World Peace" yesterday before attending the conference or I might be accused of cribbing his ideas -- particularly the positive impact that the development of plants to U.S. standards has on work safety and heath and environmental conditions in developing countries.
Most importantly, I was struck by the similarities in experience through all the presentations by other business people who also have been on the ground in these countries. For today, rather than a narrative analysis of the pros and cons of India and China as places to do business, I thought it would be more useful to share some bullet points that capture the consensus voiced at the conference and certainly consistent with my own experience.
India -- Pros:
- Established system of commercial laws based on British common law (same as U.S.)
- Well established recognition and protection of intellectual property rights
- More innate commitment to product quality control and consistency in manufacturing sector
- Manufacturing facilities adopting 5S and lean manufacturing principles
- Accessibility of current market reform oriented national government
- Universal ability to speak English among professional class
India -- Cons:
- Extremely underdeveloped infrastructure in transportation and energy production and distribution (increased logistics costs can offset some of the benefit of low employment costs)
- High turnover rates among skilled employee base (again, training and retention costs, coupled with rapidly escalating wage rates can offset low base employment cost)
- Bureaucracy, bureaucracy, bureaucracy!
- Not a member of WTO -- protectionist tariffs and prohibitions still inhibit many industries such as multi-brand retailers
China -- Pros:
- Increasingly well developed infrastructure around major metropolitan areas (although advantage declines rapidly across rural expanses)
- Accessibility of markets increasing since WTO membership
- Deeply ingrained capitalistic / entrepreneurial spirit (how this can coexist with a communist political regime may be a good subject for a more in depth later post)
China -- Cons:
- Lax protection of IP rights (indeed in some sectors it seems as if official government policy is to encourage co-option of foreign technology)
- Commercial law still a work in progress
- Inconsistent commitment to quality control in manufacturing and tendency to fabricate quality compliance data -- 5S and lean a long way off
- Increased difficulty in obtaining visas to U.S. to support training of personnel and customer support
- Rapidly expanding consumer class projected to grow to over 200 million people in a few years, reaching 500 million in 10 years (Pro)
- Regionalization in terms of geography (Logistics and ability to access markets) and culture -- more than one market to analyze and service within each country (Con)
- Corruption below the highest levels is a constant and continuing problem (Con)
- Remote management is difficult, particularly given cultural differences -- need to develop reliable local management structure (Not so much pro or con -- just the way it is)
A final observation shared by several of the presenters that I think is critical to understand and factor into any market development plan focused on these two markets -- as the economies develop further, the low cost of labor which currently attracts investment in off shore facilities will disappear as the demand for more consumer goods drives wages higher. One speaker in the technology sector reported experiencing year over year wage increases in excess of 30% in India in an environment where high skill employees were more than ready to jump ship if a better offer presented itself, which is frequently.
If Going Global for your company means going to China or India, while low wage costs may be an attractor in the near term, as underscored by John Rice in his keynote remarks at the conference, for the long haul you'd better have some other reasons driving your business strategy.