Market Magnet



Should the issue of China versus India be limited to software exports? Not
really. If there were a benchmarking exercise to determine penetration of
information technology in a country, there would be many parameters. Why is this
comparison necessary? For two main reasons–one, if you are in a global race,
you need to know what the others are doing; and two, success begets its own. So
a lead that anyone else builds up contributes to his accelerated growth in the
future.

What are the benchmarks?
n According to a
Gartner study completed in 2001, the size of the Chinese hardware industry in
fiscal 2000 was over eight times that of its Indian counterpart. China had
hardware sales of $16 billion, against India’s $2.2 billion

n In that year (which is now a distant memory), the growth rate for
China was 18%, against a much slimmer number of 6% notched up by India

n The percentage GDP spend on IT in China is around 1.1%. India’s
corresponding figure is 0.8%

Why
do we make comparisons? For two reasons–one, in a global race, you need
to know what others are doing, and two, success begets its own

Shyam
Malhotra

n The difference in the number of units sold is equally dramatic–PC
sales in China were pegged at 7.2 million units, while India trailed with 1.7
million units. The total for the planet–140 million units

n Computer penetration in China was 13.2 per 1,000, against 6.2 for
every 1,000 people in India

n The telecom scenario was even more stark–China had
130 million mobile phone users and 160 million fixed-line connections, higher,
incidentally, than even the United States

n Mobile phone usage in China was growing at 30 million
a year, while fixed lines were jumping by 20 million a year. In contrast, India’s
installed base of mobiles (as of October 2001) was 5 million, and fixed lines
totaled near-35 million

These are huge differences and the size of any market is a
huge determinant of its magnetism for further investments. In other words, to
grow by using foreign investment, a country has to first demonstrate its market
size by spending more. Sounds like a paradox? Perhaps, but that’s the way
world economies work. Money gets attracted to growing markets. Take the United
States. Because it spends freely and is considered a strong economy, other
countries invest there. According to reports, India keeps something like $50
billion in US securities. China keeps $150 billion. These are investments into
the US that help its economy grow. In a manner of speaking, India and China
invest more in the US than the other way around. India–in the 11 years from
1991 to 2002–has cleared FDI worth only $11.3 billion from US companies and
entities.

Effectively, what that means is China’s market magnet is
much bigger than India’s–no wonder, then, that investments are flowing in.
Intel proposes to spend $100 million on a microprocesser assembly plant at
Shangai. IBM is investing $300 million in the same area. Dell has moved its
PC-making facility from Malaysia to China. The Shenzen province plans
investments worth $5 billion to boost its integrated circuit industry. Toshiba
makes TVs on the Chinese mainland and Sony makes its

China:
Fact File
Capital Beijing
Population 1.3
bn
Government Communist
People’s Republic
PresidentJiang
Zemin
Head
of State Council
Zhu
Rongji
Official
Language
Mandarin
Chinese (though people in different provinces speak a wide
range of dialects and minority languages. A few senior
government officials speak English)
Ethnic
Composition
The
majority is Han Chinese though there are over 55 other ethnic
groups, including Tibetans and Uighurs of the sparsely
populated Western regions of China

Playstations there. Even
Microsoft plans to invest $750 million in China in areas covering software,
research, training, academic and hardware, among others. By contrast, India has
cleared foreign investment worth $75 million ( Rs 3.735 billion) in computer
hardware in the 11 years between 1991 and 2002! The actual investment inflow is
not known for this sector, but the overall percentage of actual inflow versus
clearances given is about 26%. India has been obviously partial to it software
industry–FDI clearances in the same period for software are about $3.5
billion.

Not surprising, since that has been India’s thrust area and
its success story. The world agrees and invests. And that fuels growth. By
contrast, China’s growth is hardware-centric and that is more capital
intensive. It will, therefore, attract more money. China today threatens to
become the hardware powerhouse of the world. With inexpensive manpower and a
determined government–which is building class infrastructure at competitive
rates–this process can only accelerate.

To make it even more attractive, the investment is not only
an export platform. There’s a domestic market, which is also available, one
that is growing the fastest in the world. The IT sector in China is expected to
double in size to $242 billion in five years, accounting for 3% of the GDP. So
the investor gets double benefits–not only can he service his own markets at a
cheaper rate, he also gains access to new markets. India’s software-led thrust
is completely export-led–the domestic market benefit is conspicuous by its
absence.

The catch-up prescription, therefore, is very clear–develop
domestic markets and bring in a hardware focus. The Chinese dragon is not
limiting itself to hardware. Why should the Indian elephant limit itself to
software?

China
VS
India

AttributeChinaIndia
Population
(in billion)
1.31.03
Literacy
Rate
82.00%54%
Area9.6
million sq kms
3.3
million sq kms
Total
GDP
$1
trillion
$500
bn
GDP
growth (CAGR 1990-2000)
10%6%
Per
Capita GDP (at 1998 prices)
$735$495
Total
Exports (in billion)
$249
in 2000
$47
in 2000
Share
in World Trade
3.40%0.80%
IT
Industry Figures
2000-012000-01
IT
spending as % of GDP
1.10%0.80%
IT
Industry turnover (in billion)
$121$10
Hardware
Exports (in billion)
$16$2.20
Software
Exports (in billion)
$1.20$6
Installed
PC Base (in million)
227
PC
Penetration/1000
13.26.2
PC
Sales (in mn units)
7.21.74
Internet
user base (in million)
22.53.5^
International
Bandwidth
7.5
Gbps
1
Gbps
Telephone
Lines (in million)
16034.5^
Telephone
Lines/100 people
12.33.45^
Mobile
Phones (in million)
1306.2^
^Figures
as on date
Sources:
Industry & Dataquest

There are many things that can be done to promote hardware
and make the market magnet stronger. Make it affordable, increase application
availability, promote usage in key areas of government, enhance the

infrastructure required to make hardware work, and more. There’s nothing
dramatically new about these ideas. There’s nothing innovative about them
either. What then is missing? For some reason, the development of a large
domestic market and a thriving hardware industry does not seem to be on anyone’s
priority list. Yes, there are infrastructural issues, but we seem to have given
up on them even before trying. Who should take the lead? The government? Even in
software, the government stepped in only when the success had already been
achieved. The industry? The sad fact is that the hardware industry has got lost
in the din of software exports.

The author is Editor-in-Chief of Cyber Media, the publishers
of Dataquest

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