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Reimagining China and India
Lots of books have been written about modern China and India, but nearly all deal with one or the other — not both. HBS professor Tarun Khanna set out to fill the breach with Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours (HBS Press). The two countries together are home to roughly a third of the world’s population, and both are undergoing rapid social and economic transformation. Yet most Americans, asserts Khanna, are “woefully uninformed about the past and present of both countries.” He chose to write a comparative book to better illuminate their similarities and differences. Says Khanna: “What China is good at, India is not, and vice versa. The countries are inverted mirror images of each other.”
Understanding these differences opens the door for Indian entrepreneurs to take advantage of China’s strengths, and for Chinese entrepreneurs to reciprocate, something that has taken root. Annual trade between the two countries has raced from near zero several years ago to more than $20 billion last year. For their part, multinationals can profit from learning how best to work within the constraints of each country and how to link the two in “corporate symbiosis,” something few have yet to master, says Khanna.
Do multinationals lack the knowledge about China and India they need to do business there?
Absolutely. But perhaps more fundamental and harder to tackle is the common misconception that these countries are too unfamiliar for us to really grapple with. Getting over that barrier allows one to invest in acquiring the knowledge that’s necessary. There’s really nothing mysterious about either country. That’s one of the things I hope comes through in the book. Everybody is behaving in predictable ways once you understand their circumstances and historical context.
Do multinationals treat India and China largely as sales opportunities?
Yes. I think most multinationals traditionally have gone to these countries seeing them as big markets to sell into. And even the most storied multinationals in the West have, by and large, fallen flat on their face. There are some exceptions, but not a huge number.
I have a theory of why this is the case. If you come in and say, “I need to sell you soap,” you may have better soap, but there’s plenty of soap already available. So it’s not really clear what you bring to the table, and that’s a much more difficult sell.
The benefits to the host country are far more palatable if you set up manufacturing operations from there because that immediately generates something that is scarce — employment and hard currency. And that’s transparently of value, so nobody’s going to oppose it.
Are China and India capable of creating domestic firms that can compete successfully on an international scale?
There already are at least 20 companies in the two countries that I would consider to be absolutely world class. And there’s a pipeline of perhaps 200 to 300 more that are likely to emerge in the next five to ten years.
Is entrepreneurship distinctively different in India and China?
The fundamentals of entrepreneurship are strong in both countries, and that’s what’s propelling both forward. But the context from which these companies are emerging is so different. It’s not that the raw stock of entrepreneurship is different in either country. But the ways in which Chinese and Indian entrepreneurs — whether they are businesspeople, social or even political entrepreneurs — have to negotiate internal constraints are quite different. In China, the government typically is the entrepreneur. You cannot be an entrepreneur without also being part of the Communist Party, whereas in India, entrepreneurship is entirely in the private sector, far away from the state.
So it’s important to understand the political and social fabric of China and India, not just financial markets and industry structure?
Entrepreneurship in India and China is not just about taking companies public. It is also about finding ways around all manner of constraints, many of which originate in social customs and depend on the political lay of the land. For example, whether you can get out of a failing business depends on whether it’s OK to shut down facilities, which depends on political and social realities as much as on economic factors. And you might only be able to start a business if you are in a group that can access capital.
Do the internal constraints you mentioned include differences in availability of information?
Access to information is a fundamental societal construct. In China, information is biased but noise-free. What do I mean by that? It’s noise-free in the sense that you get a very clean story; it’s just that the story’s probably wrong. And the reason it’s wrong is that there is a strong incentive for many of the things going on in China to be concealed — not just from outsiders but from insiders as well. The outward projection is one of stability, cleanliness, and order.
India is the opposite. Information in India is unbiased but noisy. In other words, what you get is a cacophony, and it assaults the senses. But nobody is willfully or wantonly distorting the truth. If you piece together different opinions, you will get an approximation of what’s really going on.
Do differences in property rights have an impact on economic development in the two countries?
Yes. In China, whenever there is a conflict between societal interests and private property rights, government will err on the side of society’s interest. In India, when that conflict exists, government will inevitably err on the side of private rights. What that means in China is that if I have to build a road and there are homes in the way, the people in the homes are out of luck. Whereas in India, the government is out of luck because the homeowners will go all the way to the Supreme Court and hold things up until the third generation of their descendants. This difference explains why China can build cities overnight, and India can’t even build highways.
You write that the world’s center of economic gravity is shifting from the West to Asia. Should that shift be of concern?
I tend to see this as a very positive-sum game, not a zero-sum game. It just means that the world economy gets to fire on more cylinders, not just U.S. and European cylinders.
What I worry about, and what was a motivation to write this book, is that without a clear picture of what’s happening, then you descend into fear- mongering, into protectionism, and into some of the nonsense rhetoric that I hear on TV. The book is my attempt to speak to a broad audience and to begin to clarify what’s really going on.
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