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Saturday, July 31, 2004The rise of China and India is the most important economic force in the world. Together, they account for 40% of the global population of working age and 18% of the global economy, on the basis of purchasing power parity (PPP). For two decades, their economies have been growing twice as fast as the rest of the world. On present trends, it will take just two decades before their share of the global economic pie will match their share of the global population. Indeed, in a decade, China's economy should surpass that of the US and India’s should be bigger than Japan's (using PPP). Some Key excerpts from the report authored by Andy Xie and Chetan Ahya are: Over the next 10-15 years, we see the development models of India and China converging. Both low-cost countries will be driving forces in the trade of goods and services, with their exports possibly rising from a combined 12% of the global total today to 20% by 2010 and 30% by 2030. (Our calculation internalizes euro-zone intra-regional trade.) Such an outcome could result in a restructuring of the global economy, in several ways. Neither India nor China is self-sufficient in exhaustible natural resources — with a few exceptions in the case of India — and rising demand for such relatively scarce commodities will make them more expensive. With both countries having vast pools of low-cost workers, that will inevitably depress prices for manufactured goods and tradable services. While that might lower wages in some industries in other countries, consumers across the globe would have greater purchasing power.
If the Indian economy grows 8 percent annually, and if Indian households mimic their Chinese counterparts' propensity to own cars relative to incomes, then in a short span of four years India's car market may more than double to rival China's 2003 total of 1.76 million units.In the worst-case scenario -- in which the $575 billion economy expands no more than 6 percent a year, and Indians are more reluctant than the Chinese to splurge on new cars - it will still take only eight years before India becomes the world's fourth-biggest passenger-car market after the U.S., Japan and China.
On Problems in India-- Almost three-fifths of the power India generates yields no revenue because of theft and distribution of free electricity to farmers. That means industrial power users pay rates that are among the highest in the world, and are double of Chinese levels. That's a big drag on India's export competitiveness.
-- High customs tariffs in India, amounting to 15 percent of the value of goods imported into the country, curb consumption. In China, where tariffs are only 3 percent of the value of imports, Consumer durables are a third cheaper than in India.
-- India's labor productivity in manufacturing industries is in disarray because of the country's neglect of basic education. In an eight-hour shift, a Chinese worker produces 35 shirts. An Indian worker manages 20.
India and China are creating new rules for global manufacturing and services output dynamics.Surplus labor in China has already had a major impact on global inflation, and India has an increasing role to play in influencing this trend.China has already achieved a 5.9% share of the US$7.5 trillion global goods export market. India, with its more recent entry into the services export arena, has built a 1.6% share of the US$1.7 trillion global services export market. We estimate that India's share has reached almost 2% (closer to 5% in the outsourcing market) of the US$450 billion global IT services market. It is likely to follow a similar trend in the IT-enabled business process outsourcing market of US$775 billion, where it currently has a share of only 0.5%. Global companies are best poised to benefit from India and China's greater annexation of overseas product and service markets. Indeed, most of the growth for such companies could come from the industrialization and globalization of India and China.
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