Friday, February 17, 2006

An attempted explanation of the growth of Indian and Chinese economies

I don't think that we need to envelope the reality in some form of theory or bind it to some equation to make it progress our understanding when it comes to explaining the befuddling contemporaneous supernova like expansion of Indian and Chinese economies.

Circumstances have presented India and China with ripe conditions that have combined with readily available inputs in these countries to produce certain synergistic effects, for both these countries as well as other economies.

What seems to be happening is the application of the concept of core competencies actuated by the downward pressure on prices and increased competition brought about by loosening of trade barriers, particularly in the western economies. It is something similar to the tectonic shift brought about in the US car industry by the smaller, cheaper, better engineered and more fuel efficient cars produced by the Japanese.

Western countries are experiencing negative population growth rates or population growth which is more or less levelling out. As a consequence, labour market in these countries is suffering from the gaping yawn in supply and demand which has pushed labour rates up. This dynamic combined with cheaper and better quality products flooding into their markets, thanks to globalization, from poorer and more populous economies resulted in offshoring certain stages of production to locations where they could be done cheaply and efficiently.

This has seen China become the manufacturing hub for the world and India become the darling of BPO and IT cost cutting evangelists in the west. China doesn't have the advantage of a large english speaking workforce as India and has by natural selection come to don the mantle of the behemoth of manufacturing which by its nature is a back room, customer contact deprived phase of production.

India by its long and negative symbiotic association with the British has a very sophisticated english speaking workforce compared to China and has become the natural choice for the offshored customer contact rich stages of production wherein it has now built a critical mass of experience and expertise.

Western economies are facing the unpalatable dilemma of choosing between either letting more and more immigrants from poorer countries to plug the divide between their supply and demand of labor or to jettison cost intensive functions to places where they can be done cheaper.
Political and self preservation motives of the original inhabitants of these countries have seen these economies walk the tight rope trying to balance their ethnic mix and assuage the fears of its natives of being overrun on one side with the economic imperative of staying competitive in a globalized market without boundaries on the other side.

Needless to say that India and China have emerged as beneficiaries in this circus even though their growth is fuelled by feeding off the scraps that have been thrown to them by the
hemmed in western economies.

However this growth will not last for long as other hungry and developing countries snap at the heels of India and China helped as they are by uncertain and fortuitous advantages of language and population. These countries need to build centers of excellence in research and innovation to keep the mad dogs of economic opportunism at bay.

1 comment:

crapsoul said...

Very Nice(Lice in chinese) article....keep it up mate