ppt-export challenge

To Outpace China’s Exports

1*Dr. Manika Singla - Project Fellow

Across developing nations there is an ongoing debate and emerging

concern about the:

Threat and opportunity in relation to the rise of China

And the consequent intensification of competition in labour intensive

manufactures

The debate is even more pertinent in case of India, as China and India are

not just similar in population size but also with respect to factor

endowments.

It is important therefore,

To explore the structure of comparative advantage of India and China

And the extent to which the two economies compete with each other in the

global market for exports in manufacturing/value added sector

This paper makes an attempt to develop some insights on the subject.


The dynamics of Chinese comparative advantage has beenanalyzed in several studies, prominent among these are:

Hinloopen and Marrewijk (2004) study & Albaladejo(2003):

Aspect of threat/ opportunity in the context of China'seconomic relations with South East and East Asia

Lall and Weiss (2004):

Chinese competitive threat to the Latin American economies

No Attempt: Competitiveness that Chinese exports may posefor Indian manufacturers and exporters in the globaleconomy.


a. What is the fastest route to economic

development?

b. Why India lagged in performance from China?

c. Can India surpass China?


Assumption:

SME(Small and Medium Enterprises) is a primary indicator

of country’s future economic expansion

As it can effectively disseminate economic benefits to larger

section of society by engaging even low skill laborers

Limitation:

Non-economic factors such as:

a) Human Rights

b) Democratic Empowerment


Highlights:

Comparative Advantage (China):a) Production specific

b) Macroeconomic factor’s

SWOT Analysis (India)

Methodology:

Time Series Line Graphs & BAR Diagrams (2000-2010)a) India's & China's export intensity in international markets

b) India’s potential to capture manufacturing export segment

Research Instrument:

Secondary Data Collection: Newspapers, Journals, WorkingPapers, Web Data


Part One: Comparative Contributions To GDP of India &

China (Comparative Analysis)

Part Two: Factors for China’s Growth Model

Part Three: Emerging Business Avenues For Indian

Exporters & India’s Forecast

Part Four: Policy Implications & Manufacturing Strategy

for India (SWOT Analysis)


To GDP of India &China


Figure 1 Figure 2

9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

200

0

200

2

200

4

200

6

200

8

201

0

120014001900

26004320

5870

390450

620900 1490

0

250325

590980 1420

0

250033005900980014300

0

China

Goods Exports

(BillionUSD)

Merchandise

exports

(BillionUSD)

Manufacturing

Value Added

(BillionUSD)

GDP (BillionUSD)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

480 510 700

910 1160

173068 72

102

138170

0

440 500 780

120179

042 52 78124 188

0

India

Goods Exports

(BillionUSD)

Merchandise

exports

(BillionUSD)

Manufacturing

Value Added

(BillionUSD)

GDP

(BillionUSD)

*Dr. Manika Singla - Project Fellow

As per World Bank data indicated in figures 1 & 2:

GDP for China was reported at 5870 USD and for India at

1730 USD in 2010 indicating an almost 70.5% increase for

which:

Exports including merchandise exports and goods exports as

well as manufacturing value addition plays a major role.

Meaning:

Demand for domestic production of China is highly driven

by merchandise and value added exports


Fig 1.1 Fig 1.2

11

3.892

1.612

1.812

5.308

3.368

2.114

12.888

5.318

81.784

0 50 100

Europe & Central…

Middle East &…

Sub-Saharan Africa

East Asia & Pacific

Latin America &…

South Asia

Economies…

Economies Within…

High-Income…

China (% of total merchandise

exports)

Average

2.862

3.642

5.422

10.254

2.62

5.082

24.822

5.078

68.604

0 20 40 60 80

Europe & Central Asia

Middle East &…

Sub-Saharan Africa

East Asia & Pacific

Latin America & the…

South Asia

Economies Outside…

Economies Within…

High-Income…

India (% of total merchandise exports)

Average


Since 2000, India’s market for merchandise exports in high

income economies and Europe and Central Asia remained

unexplored in comparison to China.

Hence, India can think of exploring the markets for its

merchandise exports in Latin America & the Caribbean,

Europe & Central Asia, Developing Economies within Region

and High-Income Economies in the coming future.


Fig 2.1 Fig 2.2

13

71.036

1.388

5.24

10.91

9.642

0 20 40 60 80

Manufactures Exports

Agricultural Raw Materials

Exports

Ores and Metals Exports

Food Exports

Fuel Exports

% of Merchandise Exports of India

average

90.918

0.664

1.886

3.822

2.438

0 50 100

Manufactures

Exports

Agricultural Raw

Materials…

Ores and Metals

Exports

Food Exports

Fuel Exports

% of Merchandise Exports of

China

average


The world bank statistics indicates that India has succeeded in

competing with China in other segments of merchandise

exports except the segment of manufactured exports.

In other words, China has gained comparative advantage inmanufacturers exports in comparison to India.

This demonstrates that India needs to find its potential in

labour intensive manufacturing in order to compete in global

markets.


Fig 3.1 Fig 3.2

15

2.24

4.05

2.5

92.425

17.68333

333

0 50 100

Textiles and

Clothing

Food; Beverages

and Tobacco

Machinery &

Transport…

Other

Manufacturing

Chemicals

% of Value Added in Manufacturing in

China

average

9.736666

667

10.9

19.82666

667

41.6

17.66666

667

0 10 20 30 40 50

Textiles and Clothing

Food; Beverages and

Tobacco

Machinery & Transport

Equipment

Other Manufacturing

Chemicals

% of value added in Manufacturing in

India

average


Value added contribution of China in GDP beats Indiatowards industries belonging to other manufacturing

Leaving other industries belonging to chemicals,machinery, food and textiles in which India has attained amuch better position.

That means there’s an opportunity for Indians to explorenew areas of manufacturing such as value added segments(food processing), indigenous production (handicrafts),engineering goods, biotechnology, organic farming, autoparts etc.


China’s Growth Model


The GDP per capita; PPP (US

dollar) in China was last reported at

7535.50 in 2010, released in 2011.

In 2008, the same was reported at

5970.81 in China in comparison to

India at 2946 USD

This indicates China’s growth of 60

percent which was almost the

double of India’s growth rate at 30

percent.

18

2300

2800

3500

4700

5970

7535

15001670

2000

2500

2946

0

1000

2000

3000

4000

5000

6000

7000

8000

1995 2000 2005 2010 2015

GDP Per Capita, PPP (US $)

China

India


Macro Economic Factors:

1. Political Influence of China.

2. Liberalization of the Market.

3. Foreign Direct Investment.

4. Export Competitiveness.

5. Cross- Currency Valuation.

6. Logistics Performance Index.

7. Manipulation of Intellectual

Property rights.

8. Special Economic Zones (SEZs).

7. Infrastructure Development.

8. Technological Developments.

9. Govt. Incentives to

Manufacturing Sectors.

10. Capital Markets.

11. Special Support to State

Owned Enterprises.

12. Industrial Production.

13. Strategic Locations.


Production Specific Factors:

1. Vendor Base Development.

2. Low Cost Business Environment:-

Labor Productivity & Input Costs.

Capital & Borrowing Cost.

3. Company Management Capabilities.


For Indian Exports


1. Indian Jewelry.

2. Textiles Industry.

3. Tourism.

4. Automobile.

5. Social Ventures

6. Software.

7. Engineering goods.

8. Franchising.

9. Education & Training.

10. Food Processing.

11. Corporate Demands.

12. Ayurveda & Traditional

Medicine.

13. Organic Farming.

14. Media.

15. Floriculture.

16. Toys.

17. Healthcare Sector.

18. Biotechnology.

19. Energy Solutions.

20. Recycling Business.


June 2010 Deloitte's study ranked top five countries inmanufacturing competitiveness as: China, India, Korea, theU.S. and Brazil

BRIC concept: Russia and Brazil will be the major exporterof raw materials while China and India with their low costsand other numerous advantages will export the manufacturedgoods and services.

The drive behind India’s higher growth rates will be threethings called as DRG factors:1) Demographics.

2) Reforms.

3) Globalization.


Global trend to manufacture and source products in low-cost countries

(LCCs).

India can — and should — aspire to become one of the three largest

exporters of manufactured goods among LCCs by 2015.

For this, India has to increase its share in world manufacturing trade from

0.8% to 3.5% by 2015 in order to increase its :

GDP growth rate.

Jobs in different segments of manufacturing sector such as:

1. Apparel.

2. Auto components.

3. Specialty chemicals.

4. Electrical and electronic products etc.


To outpace Chineseexports from domesticand global markets


STRENGTHS

English Proficiency

Government Support

Cost Advantages

Strong Tertiary Education

Process Quality Focus

Skilled Workforce / Demography

Entrepreneurship

Reasonable Technical Innovations

Reverse Brain Drain

Existing Long Term Relationship

WEAKNESSES

Positioning & Brand Management

Infrastructure

Cultural Differences

Sales & Marketing

Legal System Bureaucracy

Poor Globalization Skill


OPPURTUNITIES

Creation of global brands

Resource Based Sectors

Chinese domestic & export

market

Leverage relationship in

Middle East markets

Indian Domestic Market

Growth

Exploring New Segments of

Manufacturing

THREATS

Internal Competition for

Resources

Over promise / Under

Delivery

Regional Geo-Political

Uncertainty

Rising Labor Cost

Competition from Other

Countries

Corruption / Piracy / Trust


1. Infrastructure development.

2. Increase in domestic savings & investments.

3. Prioritizing labor law reforms.

4. Overcome from internal security threat.

5. Focus on primary & secondary education.

THE GOVERNMENT NEEDS TO REMOVE FOUR BARRIERS

TO EXPORT-LED GROWTH:

1. Stimulate domestic demand by reducing indirect taxes and import duties

2. De bottleneck ports and accelerate power reforms

3. Encourage the development of several manufacturing clusters

4. Accelerate labor reforms and facilitate skill development


The dumping of “one hour technology” inferior products(fans, toys,

watches, mobile etc) has become threat to Indian industry and is the one of

the main cause of dampening labour intensive export market.

As China followed a path of Capitalism through FDI, India also need to

have a solid political foresight and realistic economic strategy to face the

internal challenges and widen its scope of manufacturing base with a view

to make its place in international markets.

Strategy for India:

A Strategy to make India a manufacturing hub in global competitive export

segments through - harnessing the global opportunities and managing the

key economic resources effectively, is prerequisite for economic

development.


India needs to roll out innovative and effective economic plans like:

Agriculture – Be a Food Base for the World

Producing the value added food, medicinal plant, aromatic oils & bio

material for the global market.

Manufacturing – Realizing the existing labor cost advantage & labor

flexibility

Reforming the tax structure and labor laws

Supporting with modern infrastructure

Infocom – Capture huge market potential & natural advantage of huge

talent pool (Technologically Savvy and English- Friendly)

Offering cost benefits of the technology to customers


Water & Energy Resource - Change the landscape of agriculture,

hydroelectric power & alter the economics of the continent.

Effective water management

Exploration of oil and gas

Investing in Physical and Professional infrastructure –

Significant investments in air ports, ports & harbors and roads

Professional resource development like education & research

Attracting the Global savings – To support the global leadership

Encourage FDIs

Harness domestic savings and investing the same in right channels

Creating a new World mind set – In living with continuous uncertainty

in the new scenario

Adapting to knowledge explosion

Rediscover the hidden potential to innovate, create and collaborate.


Answers to ResearchQuestions


An FDI driven Approach

Development of Homegrown Entrepreneurship

Efficient Banking & Transparent Capital Markets

Stronger Infrastructure to support Private Enterprise

Fuller Utilization of Resources

Organic Growth

Absorption of New Technologies from Abroad


Uncertainty in the markets

Inappropriate receptors (production organizations) to absorb foreign

technology

Poor quality of the industrial partner having trading orientation instead of

industrial orientation.

Inability to mobilize the resources effectively

Less developed employment-intensive manufacturing

Weaknesses in infrastructure and administration

Labor market rules

Poor regulatory quality and government ineffectiveness

Weak banking system

Commercial banks are still largely state-owned

Political resistance to selling the state banks or allowing foreign banks to

enter the Indian market


As per analysts, India may deliver more sustainable progress

than China’s FDI-driven approach in many ways:

Full utilization of its resources through organic growth

Open-economy model (initiation of major liberalization measures)

Relatively favorable demography

Well-developed private sector

Relatively entrenched legal system

Stable democracy

Potential for policy improvement

Large opportunity to raise the investment rate


Dimaranan Betina, Lanchovichina Elena, and Martinr Will, 2007, “China,India, and the Future of the World Economy”, Policy Research WorkingPaper 4043, The World Bank Development Research Group, August.

Wilson Dominic and Purushothaman Roopa, 2003, “Dreaming withBRICs: The Path 2050”, Goldman Sachs, Global Economics Paper no:99, October.

Dooley, Michael, David Folkerts-Landau, Shunming Zhang, “InequalityChange in China and (Hokou) Labour Mobility Restrictions,” NBERWorking Paper No. W10649, July 2004.

Eichengreen, Barry, Yeongseop Rhee, Hui Tong, “The Impact of Chinaon The Exports of Other Asian Countries,” NBER Working Paper No.W10727, September 2004.

Hertel, Thomas and Fan Zhai (2004)."Labour Market Distortions,Rural-Urban Inequality and the Opening of China's Economy" WorldBank Policy Research Working Paper 3455, November 2004


The main data sources used in the study are:

The UN Commodity Trade Statistics

WITS, a Trade database of UNCTAD

DGCI & S Trade data

Asian Development Bank Database

India Trade Database of Centre for Monitoring Indian

Economy

WTO Database on Tariff Schedule

PRC General Administration of Customs, China's Custom

Statistics

Reserve Bank of India Data Base


38

Dr. Manika Singla

(Project Fellow – UGC Major Project)

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ppt-export challenge