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Friday, March 23, 2007

The Globalization & Growth Paradox

While the china growth sentiment seems to be rampant came across this interesting Mckinsey survey. Try booking a ticket to Shanghai/Beijing/Shenzhen - you will get a feel of the humongous traffic centered on these megacities. While survey results can’t be the ultimate indicator on anything, it generally serves as a good indicator of things to come. Mckinsey recently made a survey of executives in Asia to understand their China sentiments. The sample set surveyed only included those companies that are already doing business in Asia. Some key findings therein are eyeopeners:

• Almost 40% report they do no business in China at all; and
• Another one-third say their revenue would be unaffected if China's growth rate dropped to zero.
• If you operate in china recognize the difference between "earning revenue" and operating: less than 1/7th of the respondents own a manufacturing plant, service facility, or retail store in China and less than 1/10th of them have a joint venture in place in china
• Close to 90% expect to be doing business in China in some form within the next five years.

On competition from China-based companies - Companies based in China are seen as strong, but not overwhelming, competitors; a significant majority of respondents see the basis for that competition as the low cost base that Chinese companies enjoy. Besides the labor-cost advantage, these are not seen as formidable competitors. In production/manufacturing, 27% see china based competitors as strong in services only 11% say the same. While may see expect some correction is bound to happen in the chinese hypergrowth engine, the survey finds that a few things could go wrong there:

• Rising income inequality, 40%
• Poor or arbitrary enforcement of commercial laws and regulations, 26%
• Shortage of talent, 21%
• Weak financial institutions, 20%
• Official corruption, 19%
• And a variety of environmental factors were also cited,

It’s an interesting thing to compare sentiments on china with India.
Finally, the critical areas for investment in China were deemed to be: infrastructure and logistics (72%) and education and training (70%). (Infrastructure & Logistics is an area where the chinese are being seen as strong in general and this sector has seen huge investments in the last 10-15 years.)

Some of the survey results could be a little tough on china – partly, I guess based on the returns business are able to get out of china – the gestation period for getting decent returns are quite high- like in most asian countries, more so in china. Look at the paradox of growth – the more you do, a lot more is expected and in this constant race of improving competitiveness, even those left behind can catch up in realistic terms.

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