Excerpts of India Power Talk with Prof. S RamaKrishna Velamuri

by | Oct 19, 2020 | Video Excerpts | 0 comments

“Many founders of companies, even companies that have been successful, fall into the trap of not building management teams. They need to rely more on systems and processes rather than ad hoc decision making.”

“I believe that the potential is for India and China to achieve about $500 to $600 billion in bilateral trade in the next five to six years.”

“In order to be considered literate in China, you need to be able to read about 1500 Chinese characters. So the standard for being considered literate in China is actually quite high… They have made huge investments in upgrading their public universities.”

“At a very basic level, it’s still very hard to do business in India. I have to give credit to the recent governments for having improved India’s ranking in the ease of doing business. But on the ground, it’s still not easy to do business in India especially in the manufacturing sector.” 

“People from many parts of the country complain about harassment, extortion, so on and just the complexity of the laws is still very great. One of the biggest problems in India continues to be land acquisition… Power availability has been a problem although it’s been improving in the last few years. Our labour can be much more difficult to manage than for example the labour in China.”

“The most competitive manufacturing sector in India, which is the pharmaceutical sector, has not enjoyed market access (in China)… I think the Chinese side should probably work a little harder to make it possible for India to sell its pharmaceutical products in China which will be very good for the bilateral trade of both countries and also very good for the Chinese citizens who are craving for affordable medicines.”

“One of the things that’s happening in China is that the costs are going up. In coastal China today labour is more expensive than in Malaysia for example. So for many Chinese companies, if we can create a hospitable environment for them to manufacture in India, they would love to come to India and produce in India and then export from India to the markets… we only need to strengthen the trust between the two countries.”

“We can’t change geography and we have a 3500-kilometre border that we share with China. So decoupling with China is not an option for India. If we want to build an Asian century, the two countries will have to learn to work with each other… I hope the leadership of the two countries can figure out a way to work with each other so that the relationship between the two countries can fully blossom.”

Summary

  • China had four important advantages with respect to India. The first was that they had a more educated workforce. The second was that they had a healthier population. The third advantage was that they were a more equal population in terms of gender equality. And the fourth advantage they had with respect to India is that China has very low levels of social stratification.
  • Between 2008 and 2016 China almost tripled its R&D expenditure. In those eight years, India increased its expenditures by about 20 per cent.
  • China’s expenditures on R&D currently are about $600 billion which is roughly 2.2 per cent of the GDP. $600. India’s expenditures are about $63 billion or about one-tenth of China’s. We spend 0.6 per cent of our GDP on R&D.
  • When you have two large economies as neighbours they tend to trade more with each other than countries that are geographically distant from each other. As long as we can manage our differences, there is great potential in India and China collaborating.
  • China is a world leader in consumer tech but they are lagging significantly behind the United States when it comes to Enterprise Tech. And obviously this is where India can make a great contribution to China.
  • In infrastructure, the Chinese can help India a lot both in terms of quality of infrastructure and cost. Whether it’s railways, whether it’s tunnels, whether it’s roads, whether it’s highways. In the manufacturing sector too they’ve got much experience.

Before 1990, China accounted for about one per cent of global value-added manufacturing but today accounts for nearly 30 per cent. A majority of global brands carry the ‘Made in China’ label and stamp. There are multiple reasons and enough statistics available that explain why China is the world manufacturing powerhouse. The two most debated questions the COVID-19 pandemic has raised are: ‘Who will win the race for making a successful vaccine’ and ‘Which country will be the next manufacturing hub’. The question is, what needs to be done by India to reach a competitive level in manufacturing. Most importantly, should India compete or collaborate?

Professor S. Ramakrishna Velamuri from the China Europe International Business School (CEIBS) has lived and taught in China for 13 long years. When I ask Professor Velamuri to share his experiences in China, he reveals, “I have been an ex-pat now for about 37 years in total and I’ve lived for about close to 25 years in Western Europe. About four years in the US where I did my PhD and the last 13 years in China. The 13 years that I’ve lived in China have been really wonderful.”

A most debated question today is how did China rise so quickly. “China started a program in the 80s. What they broadly referred to as the reform and opening up,” reveals the professor. “China had four important advantages with respect to India. The first was that they had a more educated workforce. The second was that they had a healthier population. The third was that they were a more equal population in terms of gender equality. And the fourth advantage they had with respect to India is that China has very low levels of social stratification. In China, there is a belief amongst the people that if you educate yourself and if you work hard you can progress upwards on the social-economic ladder.”

What about China’s education policy vis-à-vis India, I ask. “In China, even during Chairman Mao’s time, he unified the country in terms of a single language which is Mandarin Chinese,” Prof. Ramakrishna answers. “He made sure that everybody could read and write. In order to be considered literate in China, you need to be able to read about 1500 Chinese characters. So the standard for being considered literate in China is actually quite high. Their school education system is very very rigorous. They have made huge investments in upgrading their public universities.”

Strangely, people have not spoken too much about the technological development of China. The speed of adoption of technologies in China has caught the world by surprise. “India and China have leapfrogged some generations of technology,” the professor points out. “For example, both have pretty much leapfrogged the fixed-line telephone technologies. We moved almost directly to mobile. Because China did not have a strong technological history and their youngsters were very educated, they eagerly adopted technology. The 80s coincided with the PC revolution. The 90s coincided with the mobile revolution. From 2000 to 2010 broadly speaking, especially the second half, was the smartphone revolution. And from 2010 to 2020 it has been a convergence of digital technologies. China has very optimally adopted all the technologies that we spoke about.

“The second reason for the creation of giants like Alibaba or Tencent – China has created its own technological ecosystem which you don’t see. In China, the market leader for search is a Chinese company called Baidu which is parallel to Google. In China, the social media giant is Tencent which is a combination of Facebook and Whatsapp. With the WeChat super app, they combine Whatsapp and Facebook and Paypal or other payment apps. Then you have e-commerce giants such as Alibaba and Taobao which is more of a c2c platform, or Tmall which is a b2c platform and then you have another very big giant which is called JD.com which is like Amazon. They have homegrown giants in each vertical. These companies have been able to grow to a very big size without really stepping out of China but they are not really strong outside China. The only pure technology company (and I’m not including the hardware companies here) from China that has been able to create a global footprint is Bytedance which is the parent company of Tick Tock.

“The reality is probably that India did not really have a technology policy. We just drifted into the situation where we are today. One advantage that Indian tech companies have is that they are better integrated with the global technology ecosystem. Google, Facebook, Amazon and Walmart have very sizable back-end operations in India.

“The other reason why China has been successful is that they’ve been able to create an ecosystem within the country and that combined with the market size has allowed their companies to grow. I don’t want to suggest that the market is not competitive. The government has not protected these companies in any way because competition in China is brutal. It’s just that Baidu has not faced real competition from Google. Tencent has not faced real competition from Facebook and so on, but why is that? Facebook has not been allowed to operate in China. So that’s the protection which the government offers companies. But it’s different in different verticals. Google was operating in China. It was there when I first went to China in 2007, but then the Chinese government requires technology companies to have their servers inside the country. And Google was not willing to comply and so they left the country. As far as Amazon was concerned or eBay was concerned, there were actually no barriers for them to operate in China. I think they were just outwitted by more nimble local competitors. eBay was outwitted by Alibaba completely.”

Since the Chinese government was very proactive in protecting and supporting the local companies, how much did the Chinese government invest in technology compared to India, I want to know. “After the global financial crisis, most developed countries cut back on R&D,” reveals Prof. Ramakrishna. “Whereas between 2008 and 2016, China almost tripled its R&D expenditure. In those eight years, India increased its expenditures by about 20 per cent. In the last 12 years, this is where China has really caught up with the rest of the world in cutting-edge areas such as artificial intelligence, big data, internet of things, blockchain, etc.”

I am still keen to know how much is the government expense on innovation. Whether it is education, or judiciary or other departments such as public sector department or the infrastructure department. “China’s expenditures on R&D currently are about 600 billion dollars, including public and private,” informs the professor. “$600 billion (adjusted for PPP) is roughly 2.2 per cent of the GDP. India’s expenditures are about $63 billion or about one-tenth of China’s. We spend 0.6 per cent of our GDP on R&D.”

Why is India’s manufacturing output so small relative to the size of the Indian economy and in comparison to the service sector that India offers, I wonder. “So just to share with you some data points,” the Professor reasons. “Our population is about 18 per cent of the global population. Our GDP is about 7.75 per cent of the global GDP. Our manufacturing output is about 3 per cent of the global manufacturing output. So our manufacturing sector is very small relative to the size of the economy. There are multiple reasons for this. One reason is that at a very basic level it’s still very hard to do business in India. I have to give credit to the recent governments for having improved India’s ranking in the ease of doing business. But on the ground, it’s still not easy to do business in India especially in the manufacturing sector. The central government is generally very progressive when it comes to the manufacturing sector and the policies but ultimately it is the state governments that actually step in and interact with manufacturing industries on a regular basis. Unfortunately, people from many parts of the country complain about harassment, extortion, so on and just the complexity of the laws is still very great. One of the biggest problems in India continues to be land acquisition. I think the availability of land is still not a smooth process in spite of the good intentions of both the central government and the state government. It’s not a smooth process yet. Power availability has been a problem although it’s been improving in the last few years. Our labour can be much more difficult to manage than for example the labour in China.”

A large part of the Indian economy comprises of SMEs, MSMEs and startups of which we have the largest pool. They contribute not only in terms of the manufacturing output but also employment for the country. What would the Professor advise them? How would he compare the SMEs of China versus the SMEs of India? “There is a very strong aspiration for growth in China. With many Chinese entrepreneurs, I found that that appetite is almost insatiable. They want to keep growing. And the dream of every Chinese entrepreneur has been until now at least to list his or her company on the US exchange or on Nasdaq. I find that in India many business people, even successful business people, once they reach Rs 300-400 crores or Rs 3 to 4 billion in revenues, they say that’s good enough. And they shift their attention maybe to more community service or more spiritual pursuits. The second thing I would say – and this is advice that I give to SMEs all over the world – is that if you want to grow and if you want to crack the growth ceiling you need to do two things essentially right. You need to first build a strong management team. The second thing which goes hand in hand with the first point is to rely more on systems and processes rather than ad hoc decision making. Very often SME founders associate delegation with loss of control. That somehow constrains their growth.”

Last year the Indian Prime Minister and the Chinese President met in Chennai when many of the foreign policy experts said that both these nations should collaborate and not compete. What was his take on this? “I totally agree that we should collaborate,” the professor insists. “I think both countries are very fortunate to be neighbours. When you have two neighbours that are so large, there are many studies that show that neighbours trade more with each other than countries that are geographically distant from each other. But neighbours also have more conflicts with each other. As long as we can manage our differences, there is great potential in both countries collaborating. I believe that the potential is for both countries to achieve about $500 to $600 billion in bilateral trade in the next five to six years. And I’ve actually written in the Chinese media saying that it’s a problem for India and for China that the most competitive manufacturing sector in India, which is the pharmaceutical sector, has not enjoyed market access. I think the Chinese side should probably work a little harder to make it possible for India to sell its pharmaceutical products in China which will be very good for the bilateral trade of both countries and also very good for the Chinese citizens who are craving for affordable medicines.

“Another area of collaboration is the IT services India has. China is a world leader in consumer tech but they are lagging significantly behind the United States when it comes to Enterprise Tech and this obviously is where India can make a great contribution to China. In infrastructure, the Chinese can help India a lot both in terms of quality of infrastructure and cost. Whether it’s railways, whether it’s tunnels, whether it’s roads, whether it’s highways. In the manufacturing sector in general they’ve got so much experience. And one of the things that’s happening in China is that the costs are going up. In coastal China today labour is more expensive than in Malaysia for example. So for many Chinese companies, if we can create a hospitable environment for them to manufacture in India, they would love to come to India and produce in India and then export from India to the markets. So there’s great potential for collaboration but I think we need to strengthen the trust between the two countries.”

What would be his message to India, I inquire. “We should engage with China,” advises the professor. “It’s very important because we can’t change geography and we have a 3500-kilometre border that we share with China. So decoupling with China is not an option for India. If we want to build an Asian century, the two countries will have to learn to work with each other. And on the ground if you see when I bring Chinese participants to India, they connect to India in very very deep ways. They are very impressed by what they see in India. Similarly when Indians go to China. In Shanghai, there are several thousand Indian professionals working in China. They’re so happy working there. We all feel very appreciated by the Chinese people. On a people-to-people level, there is tremendous chemistry. I hope the leadership of the two countries can figure out a way to work with each other so that the relationship between the two countries can fully blossom.”

About the speaker

Prof. S Ramakrishna Velamuri

CEIBS

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