Photo: Reuters
Photo: Reuters

Opinion | We must focus on China for ideas as well as markets

The excessive dependence of our big export industries on markets in the West is fraught with risk

Twenty years into what has been called the Asian Century, it is quite clear where global trade is headed. Yet, Indian companies remain focused on the West. A recent discussion paper, The Future Of Asia: Asian Flows And Networks Are Defining The Next Phase Of Globalization published by McKinsey & Co., states that Asia is increasingly the centre of the world economy and, by 2040, could account for more than half of global gross domestic product (GDP) and about 40% of global consumption.

This shift comes on the back of increasing integration and regionalization in Asia, with 60% of the goods traded by Asian economies being within the region. We are seeing what Parag Khanna, managing partner of FutureMap, in his latest book, The Future Is Asian, calls “Asianizing". As he explains in an interview, “If you want to be a successful global company, you cannot make the statement, ‘I am a successful global company’, unless you are a big deal in Asia." (mck.co/2VswOEf)

Sadly, India continues to be among a handful of nations such as Bangladesh, Pakistan and Uzbekistan that have historically had low integration with the rest of the region. Even the best Indian companies have made little effort to seriously explore Asian markets, especially China and Japan. India’s biggest export sectors, such as auto components, textiles and IT services, are concentrated in the US and Europe. According to data from the Automotive Component Manufacturers Association of India (ACMA), in 2018-19, Europe accounted for 33% of India’s exports of components, followed by North America. Nor has India’s most export-oriented industry—IT services—been able to crack the Asian puzzle. The US is its top destination, with the UK next.

This kind of concentration is fraught with risk. In the past, once-promising export sectors such as garments saw growth disappear once their primary markets, the US and Europe, imposed higher tariffs. What’s more, both these markets are going through an upheaval and uncertainty surrounds business prospects. In Europe, Brexit looms. In the US, despite protestations of bonhomie between the world’s two big democracies, the Donald Trump administration’s tweaks of the H-1B visa programme suggest difficult days ahead for Indian IT firms at a time when they also face competitive headwinds.

According to the World Trade Organization’s World Trade Statistical Review 2018, while India’s share in information and communication technology services exports globally fell from 47% in 2008 to 42% in 2017, Ireland logged the best export performance among top traders in 2017 (up 20%), mostly as a result of rising exports of computer services, which now account for almost half its service exports.

With decades of experience in global markets, back-end systems and processes configured to meet the most exacting standards, Indian IT companies need to be at the forefront of any concerted push into Asia, which, with Japan and China, is now home to the second and third-largest IT services markets in the world. Admittedly, access to both markets has been difficult, partly because of language and culture issues, but also because of significant non-tariff barriers.

China’s exports to India account for nearly 80% of the two-way trade between the countries, while in case of Japan, the figure is 60%, though that is partially offset by massive Japanese investment in India.

For various reasons, India hasn’t been able to exercise much influence on Chinese imports. Thus, India imports 90% of its bulk drugs from China, though it accounts for just 20% of the volume of global generic drug exports.

While Indian telecom firms seem keen to use the beleaguered Chinese company Huawei’s hardware, they have no access to China’s vast mobile telecom market, worth nearly $200 billion this year with some 1.5 billion subscribers.

There is another reason why Indian companies need to look at China. Chinese companies are evolving new marketing models that Indian companies could gain from. In a recent Harvard Business Review article (bit.ly/2GOyMYJ), Kimberly A. Whitler, an assistant professor of marketing at the University of Virginia’s Darden School of Business, writes, “Chinese marketers have developed a unique approach tailored to China’s mobile-first consumer. It relies on the creation of shareable, viral content and the presence of dominant, channel-straddling media giants. It is faster, cheaper, and in some respects more effective than the traditional Western marketing paradigm."

After years of aping Western models of business, it may be useful to consider a structurally different archetype, one that is rooted in an entirely different culture with behaviour patterns that don’t necessarily follow those of Western consumers.

In the face of a bruising trade war with the US, China has been looking to win other markets for its production surpluses in various sectors by negotiating trade barriers. The Indian government has rightly held out on negotiations for the Regional Comprehensive Economic Partnership trade pact on the grounds that its own demands for lower duties and easing of restrictions on the cross-border movement of professionals need to be addressed first.

This may be as good a time as any to press the Chinese to give Indian companies access to such markets as IT services, auto and pharma. The companies, in turn, must be ready to do battle in the land of the dragon.

Sundeep Khanna is a former executive editor of Mint

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