Economic instability is another concern. From early 2007 to early 2008, manufacturing costs in southern China, where many multinationals have set up shop, have increased by as much as 40 percent. A rapid increase in the cost of raw materials and energy as well as new labor laws and environmental regulations are the chief reasons. India’s labor costs have thus far been relatively stable, so a company can offset China’s higher wages with its Indian presence.
Finally, intellectual property risk can be mitigated by disaggregating and distributing core research and development and core-component production across China and India as well as other countries. Consider the case of a European manufacturer that sells machinery to construction contractors. Burned by seeing its former Chinese partner produce copycat versions of its products, the company has divvied up the production of subsystems between India and China. Such an approach still permits the company to benefit from low manufacturing costs in each country but minimizes the extent to which the company’s design blueprints and manufacturing processes are exposed to local partners or job-hopping local employees.
By 2025, it is highly probable that China–India economic ties (composed of trade, investments, and technology linkages) may be among the five most important bilateral relationships in the world. The rising dragons and tigers from China and India will be one set of beneficiaries. And multinationals that take advantage now of openings in China and India simultaneously are likely to find themselves equally rewarded.
Anil K. Gupta, the Ralph J. Tyser Professor of Strategy and Organization at the University of Maryland’s Smith School of Business, is coauthor (with Vijay Govindarajan and Haiyan Wang) of The Quest for Global Dominance: Transforming Global Presence into Global Competitive Advantage, 2nd ed. (Jossey-Bass, 2008).
Haiyan Wang is the managing partner of the China India Institute.
This article was adapted from Gupta and Wang’s forthcoming book, Getting China and India Right: Strategies for Leveraging the World’s Fastest-Growing Economies for Global Advantage (Jossey-Bass, 2009).