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%

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

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
Attribute	China	India
Population (in billion)	1.3	1.03
Literacy Rate	82.00%	54%
Area	9.6 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	2000-01	2000-01
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)	22	7
PC Penetration/1000	13.2	6.2
PC Sales (in mn units)	7.2	1.74
Internet user base (in million)	22.5	3.5^
International Bandwidth	7.5 Gbps	1 Gbps
Telephone Lines (in million)	160	34.5^
Telephone Lines/100 people	12.3	3.45^
Mobile Phones (in million)	130	6.2^
^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