Can India Overtake China

Can India Overtake China - Can India Overtake China? By...

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74 Foreign Policy What’s the fastest route to economic development? Welcome foreign direct investment (FDI), says China, and most policy experts agree. But a comparison with long-time laggard India suggests that FDI is not the only path to pros- perity. Indeed, India’s homegrown entrepreneurs may give it a long-term advantage over a China hamstrung by inefficient banks and capital markets. By Yasheng Huang and Tarun Khanna AP WIDEWORLD Overtake China? Can India Overtake China? Can India
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July | August 2003 75 W alk into any Wal-Mart and you won’t be surprised to see the shelves sagging with Chinese-made goods— everything from shoes and garments to toys and electronics. But the ubiquitous “Made in China” label obscures an important point: Few of these products are made by indigenous Chinese com- panies. In fact, you would be hard-pressed to find a single homegrown Chinese firm that operates on a global scale and markets its own products abroad. Yasheng Huang is an associate professor at the Sloan School of Management at the Massachusetts Institute of Technology. Tarun Khanna is a professor at Harvard Business School. That is because China’s export-led manufactur- ing boom is largely a creation of foreign direct investment ( fdi ), which effectively serves as a sub- stitute for domestic entrepreneurship. During the last 20 years, the Chinese economy has taken off, but few local firms have followed, leaving the country’s private sector with no world-class companies to rival the big multinationals. India has not attracted anywhere near the amount of fdi that China has. In part, this disparity reflects the confidence international investors have in China’s prospects and their skepticism about India’s commit- ment to free-market reforms. But the fdi gap is also a tale of two diasporas. China has a large and wealthy diaspora that has long been eager to help the moth- erland, and its money has been warmly received. By contrast, the Indian diaspora was, at least until recent- ly, resented for its success and much less willing to invest back home. New Delhi took a dim view of Indians who had gone abroad, and of foreign invest- ment generally, and instead provided a more nurtur- ing environment for domestic entrepreneurs. In the process, India has managed to spawn a number of companies that now compete interna- tionally with the best that Europe and the United States have to offer. Moreover, many of these firms are in the most cutting-edge, knowledge-based indus- tries—software giants Infosys and Wipro and phar- maceutical and biotechnology powerhouses Ranbaxy and Dr. Reddy’s Labs, to name just a few. Last year, the Forbes 200, an annual ranking of the world’s best small companies, included 13 Indian firms but just four from mainland China. India has also developed much stronger infra-
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Can India Overtake China - Can India Overtake China? By...

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