HBS professor Tarun Khanna has penned a piece for Global Agenda magazine that looks at the growing economic power of China and India, and at how similarities and differences between the two powers shape how western business interests will deal with them.
What he finds are two huge countries brimming with self-confidence and ready to emerge as players on the world's global stage. They share an understanding about the value of trade, and are harvesting a growing economic relationship with each other as well as expanding to the rest of the world. But differences between India and China—the role of government in business, and the state of financial and technological infrastructure, to name a pair—make them very different potential partners.
"The differences between Chinese and Indian multinationals have several implications for managers in the west," Khanna writes. "Consider just two. First, if they nurture a business model that capitalizes on low-cost talent, they must realize that there is an indigenous capitalist class—especially in India—that does this well already; that is, they must identify some value added over and above just tapping into talent. Where they prevail, and where the local entrepreneurs do, is likely to be a sector-specific story. This is much less of an issue in China, though even here, Motorola and Nokia's besting by scrappy local Ningbo Bird has surely put the western world on notice."
"Second, shareholders of western firms will realize that they can invest directly in Indian companies rather than entrust their funds to U.S. and European companies to then finance operations in India. That is, given the soft market infrastructure in India—especially property rights and access to capital—foreign portfolio investment is more of a viable substitute to foreign direct investment than it might be in China."