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What IC of the BRIC can learn from each other.

What IC of the BRIC can learn from each other

India and China are often lumped together as part of the BRIC (Brazil, Russia, India and China) countries whose rapidly developing economies will have an increasingly profound impact on world affairs. Between them China and India have more than a third of the world's population.

But they've not gone about their economic revolutions in the same way. Far from it. China has in effect become "the workshop of the world", firing up its manufacturing strength to export its wares throughout the rest of the world. In India, a more significant role has been played by domestic demand and services.

All sorts of "stuff" from China is on sale in nearly every country of the world. India is perhaps better known for its more upmarket involvement in the world economy. Its drug companies are among the fastest growing globally and while China might be the "workshop" India is being called "the pharmacy of the developing world".

Then there's Indian engineering with Tata Motors making a success of luxury brand Jaguar Land Rover while providing the lower end of the market with its cheap, no-frills Nano passenger car. Tata also makes buses, lorries and fearsome-looking military vehicles. Now a deal has been struck with Chinese automaker Chery Automobile to produce, initially, Land Rover SUVs and later Jaguar cars at a plant at Changshu, near Shanghai.

In the September 2012 issue of Finance and Development, Murtaza Syed and James P. Walsh say that India and China can learn a lot from each other as their respective developments progress. As giants of the emerging world their effect on the rest of the world can be immense.

They say that China's head start and more rapid growth have put its income levels above India's. As the world's largest exporter, China produces more toys, shoes, car parts, and computers than any other country and employs more than 100 million people in manufacturing. But with the global crisis weakening external demand and population aging set to shrink its labor force, time may be running out on the sustainability of China's growth model.

In India, a vibrant services sector has given the country something highly unusual among emerging market economies: many world-beating private companies in high value-added areas. Companies like Infosys, Wipro, and TCS compete at the top rank of information technology services around the world.

But information technology employment in India is estimated to cover only 2.5 million people, or less than half a percent of the working-age population. And with average income only around $1,500 a year, wages remain low for most. As India's working-age population grows rapidly over the coming decades, more people than ever will enter the labour force. Providing them with good job opportunities will require a host of reforms.

In issue 2 of the 2012 McKinsey Quarterly, Vimal Choudhary, Alok Kshirsagar and Anath Narayanan stress how important it is for multinational companies to adapt to conditions in India if they are to be successful there. During the past 20 years multinational companies have made considerable inroads into the Indian market but many have failed to realise their potential. Some have succeeded only in niches and not achieved large-scale market leadership, while others haven't maximised economies of scale or tapped into the country's breadth of talent.

The most progressive global companies are moving in three directions, involving:

  • creating more globally visible local roles, which may include representation on executive committees;
  • promoting a meritocratic culture by accelerated career tracks, fair and transparent advancement processes, the absence of a ‘glass ceiling' for locals, a performance-based system that motivates self-starters, and differentiated incentives for high performers; and
  • mobility and tailored leadership programmes where structured global rotations for strong performers and leadership development courses are proving to be an effective recruiting and retention tool.

In issue 2 of the 2012 McKinsey Quarterly, Rajat Dhawan, Gautam Swaroop, and Adil Zainulbhai note that other companies forming part of India's Tata Group, such as Tata Steel and Tata Power, have benefited from significant organizational changes that support the companies' operational moves, a lowering of capital expenditures to identify relatively inexpensive designs and specifications for big projects, and the ability to borrow from the successful public-private training model of India's IT service industry.