China, India, and Technology

In the Hutong

The India vs. China thing has become something of a fetish among global executives, business analysts, government officials, and think tankers, and now The Economist.

As a strategic issue, the India/China issue is totally irrelevant. Any senior executive anywhere in the world who is still saying “hmm, should we go with China or India” is out of touch and a danger to his company and its shareholders.

India is given far too much credit for its IT industry, which is a good thing for the country, no doubt, but is not the answer to the country’s ills. It makes up a mere 4% of GDP, and is going to find its long term upside as a mass employer sorely limited as the country runs out of trained graduates. Worse, as we are discovering worldwide, the IT revolution has two distinct phases. In the first, a company creates an industry, first in assembling machines, then designing them, then providing services, then writing software, then designing the whole deal.

In the second, traditional industries in agriculture, manufacturing, and services begin to absorb increasingly sophisticated doses of IT, radically transforming the industry and raising its productivity and profitability. This is where the big payoff comes – when the entire industry is fundamentally changed.

With its English-speaking masses, its technical universities, and a global community of Indian engineers, the company will certainly do well with the first.

But India’s challenge is education beyond this elite, because that is where the nation struggles, and its lack of inward foreign direct investment. Without the inward FDI, traditional industries find making the major investments to transform and modernize their businesses a major, often insurmountable challenge. And without a large pool of labor with an elementary and secondary education, where is the workforce trainable to operate in those modern transformed enterprises? Literacy runs at 57% (vs. China’s 91%), and an appalling 45% of adult women are functionally illiterate in India.

So India is set to hit a wall in this second phase unless it begins redressing some fundamental problems. Building hardware, writing software, and even creating services will only absorb part of the population and make a few sectors globally competitive. China, on the other hand, is already starting to transform its industries.

That can all change in a heartbeat. All India needs to do is begin taking a chainsaw to the license raj, and it will suddenly look like a great bet – even if companies have to provide their own workers with basic instruction. I expect it will happen, but not soon.

BTW – check out Silicon Hutong’s India soulmate – The Sepia Mutiny.


About David Wolf

An adviser to corporations and organizations on strategy, communications, and public affairs, David Wolf has been working and living in Beijing since 1995, and now divides his time between China and California. He also serves as a policy and industry analyst focused on innovative and creative industries, a futurist, and an amateur historian.
This entry was posted in Development. Bookmark the permalink.