Dr. Joseph Johnson is an associate professor of marketing at the University of Miami, Coral Gables, Florida. His research interests include the measurement of consumer biases in financial markets, stock market valuation of marketing strategy, profitable customization of marketing promotions, and the evaluation of firm performance in international markets. His research has appeared in leading journals such as the Journal of Consumer Research, Marketing Science, the Journal of Marketing, the Journal of the Academy of Marketing Science, and the Journal of Optimization Theory and Applications.
Dr. Eden Yin is a university lecturer in marketing at the Judge Business School, Cambridge University. He received his Ph.D. from the Marshall Business School, University of Southern California, Los Angeles. His principal research interests are new product growth, consumer innovativeness, and the role of network effects in driving the success or failure of high-tech products. He has published his work in Marketing Science, the Journal of Marketing Research, Management International Review, the Journal of International Marketing, and others.
The statistics are staggering. China and India are currently the third and fifth largest economies in purchasing power parity, respectively. Some forecasts suggest that by 2020, China and India will pass Japan’s GDP in purchasing power parity and that by 2050 China will be the leading economy of the world followed by the United States and India. Four hundred of the Fortune 500 firms now operate in China, while 220 of the top 500 operate in India. In 2005, China alone attracted about $1 billion per week in foreign direct investment.
In three decades, China has lifted 400 million people out of poverty, a feat no other country has performed. The pent-up demand for consumer goods is making China and India the hottest markets for everything from automobiles and cell phones to fashion goods and entertainment. This remarkable economic resurgence and the future promise of China and India have made entering these markets critical to the survival and success of many firms.
Despite their similar promise, China and India are different on several dimensions. These differences have profound implications for the strategies firms should adopt in entering and operating in these two countries. In this article, we analyze China and India through a five-dimensional lens: economics, political governance, demographic structure, investor friendliness, and business systems. Based on this analysis, we draw implications for firms on how to enter and succeed in these two vast nations.
Economy. Economically, China and India are driven by different growth engines. China’s growth comes from its dominant state-owned enterprises, which account for almost 50 percent of its economy. India’s growth is grassroots-based and comes from private initiative.
China relies mainly on its manufacturing base while India relies on the software and IT-related service industry. China’s competitive advantage still largely rests on its cheap labor. India’s competitive advantage rests on its English-speaking, educated workforce. China’s growth is fueled by foreign direct investments, while India relies more on domestic savings.
China needs more capital to deliver its growth. Its 8 – 10 percent annual growth over the last three decades has needed 40 – 45 percent of investment capital, while India has grown at 6 – 8 percent with half that amount. India’s lower dependence on foreign markets makes it more resilient toward external shocks. These differences make India’s growth slower but more stable than China’s in the long run.
Political Governance. China’s Communist Party still maintains a tight grip on every aspect of the country. This centrally administered country can move extraordinarily fast to implement a national policy once it is made. China’s fast-moving government is the main reason it has developed a nationwide network of modern infrastructure within such a short period of time. The intertwining of China’s commerce with the government results in corruption and inefficiency.
Unlike China, India is a federally governed parliamentary democracy. The major drawback of this system is the slow speed of delivery. Decision making relies on consensus among political pressure groups and is time consuming and therefore appears to be rather clumsy. The corruption in India’s political structure and its bureaucracy is an additional drag on its growth. In fact, Indians joke that India grows at night when its bureaucrats and politicians are asleep. India’s democratic process, while slowing the country down, allows it freedom of expression. Its celebrated movie industry, Bollywood, is only rivaled by Hollywood in reach and influence in the Middle East and Southeast Asia. India has a freewheeling vibrant media, while the Chinese media, including its Internet, is tightly regulated.
Demographics. China has the largest population in the world while India has a younger population. For decades Chinese families were shackled with a one-child-only policy. This led to a curb on population growth but has resulted in a population distribution that is older than that of India.
India, on the other hand grew unencumbered and trebled its population since its independence in 1947. The distribution of the Indian population is skewed toward youth with most of it below 35 years of age. The bulk of India’s younger population is in the poorer and less educated parts of the country, however.
The Indian subcontinent is a kaleidoscope of linguistic and religious diversity. Indians speak more than 100 dialects , and its people follow almost every religion on Earth. India has a large English-speaking working population. China has a vast migrant population as its booming cities beckon displaced farm labor. India still lives in its villages where over 70 percent of its population resides.
Investor Friendliness. China scores significantly higher than India on investor friendliness. China can efficiently consolidate and synchronize the implementation of nationwide policies. For example, once economic development was ranked as a national priority, governments at all levels in all regions pursued economic growth. They soon realized that an easy way to achieve this goal was to woo foreign capital. Provincial and local governments began improving their efficiency at attracting foreign investment by modifying their local policies to suit foreign investment.
Unlike China, India has not had this lock-step approach to attracting foreign capital. The federal government and state governments can often be at loggerheads on any policy issue. For example, foreign investors who have been cleared to enter India at the federal level may find local governments lukewarm or even opposed to their arrival. The nexus between political leaders, bureaucrats, and local business leaders who fear foreign competition is another deterrent to foreign investment. Thus India has been comparatively slow in attracting foreign investment. Consequently, the economic openness and investment friendliness of India is not as impressive as that of China.
Business Systems. The picture of business systems is mixed: China leads in hard infrastructure while India leads in software infrastructure. In hard infrastructure, China is way ahead of India for a number of reasons:
China today has trains that hurtle at 4430 km per hour. Contrast this with India where poor infrastructure causes 50 percent of its agricultural produce to rot before reaching the market. Both China and India lack domestically owned national-scale distribution chains like Wal-Mart. India has blocked the entry of foreign retailers into the country, and its retailing sector is still dominated by sub-optimally scaled small stores.
India’s advantage lies in “soft” infrastructure. Its financial institutions like banks are slow but reliable. While banks across the world keeled over in the recent financial crisis, not a single Indian bank failed. When compared to the bad loans of Chinese banks, who lent liberally to state-owned enterprises, Indian banks, though not problem-free, are much better capitalized. India has a network of stock markets that allow firms to raise private capital from a large national base.
India also has a functioning though slow-moving judiciary protecting and strengthening the rule of law in the country. The effectiveness of its laws is uneven. For example, its labor laws are antiquated, preventing firms from easily firing workers during an economic downturn. This makes business wary of hiring labor. Consequently, 93 percent of India’s labor force is in the unorganized sector.
Both countries have a mix of sophisticated multinational companies and fiercely competitive local firms. Many Chinese and Indian firms view marketing as a sales-driven activity where they attempt to sell products they manufacture rather than manufacture products that will sell. This is slowly changing, and savvy local marketers are becoming more customer driven. For example, in 2008, the Indian business house Tatas introduced the Nano, a car designed to withstand the torture of Indian roads and priced at $2,500 to fit the wallets of India’s growing middle class. India also has a larger number of home-grown, experience advertising and market research agencies than does China.
Implications for Success
Given these significant differences between China and India, we can draw a number of implications for firms entering and operating in the two countries. We discuss these under two categories: market entry and market development.
Market Entry. The Chinese government is in fact the biggest entry barrier for foreign firms as it controls importations via various regulatory means. However, given the fact that government at all levels encourages foreign direct investments, entry into the Chinese market is not a difficult task as long as the foreign business obtains government support. The difficulties lie at more tactical entry issues, such as location, timing, scale, and so on. Entry into India requires more careful consideration because federal and local governments may differ on their policies toward foreign investments.
In both countries, entry strategies that involve high control (e.g., wholly owned subsidiaries) are more successful than those that involve low control (e.g., licensing). For example, FedEx, which operates as a wholly owned subsidiary in China, is more successful than UPS, which operates as a joint venture.
Earlier entrants enjoy greater success than later entrants. For example, Proctor & Gamble, which entered India much later than Unilever, does not have the market success of Unilever. Pepsi, which entered India ahead of its archrival Coke, also saw greater success.
Familiarity with a similar economy and culture is useful when entering China. For example, the Southeast Asian agribusiness conglomerate from Thailand, Charoen Pokphand Group, is more successful in China than the ag-based firm of North American, Seagram. Surprisingly, even after several decades of international experience, many western firms tend to impose western consumption habits and production methods in emerging markets.
Market Development. The Chinese market can be easily segmented by geography as its eastern coastal provinces are more economically developed and contain much of its affluent urban consumers. India lends itself to a richer segmentation scheme with income, urbanization, religion, education, lifestyle, and social strata as useful segmentation variables. Targeting decision in China and India are fairly straightforward. In China, the four major cities Beijing, Shanghai, Guangzhou, and Chengdu are the four regional economic epicenters. Major brands should target these four cities when they first enter China. India’s five major cities, Mumbai, Bangalore, Chennai, Dehli, and Kolkata are the economic hotspots.
Regarding product positioning, western brands can comfortably position themselves as global brands, as Chinese and Indian customers consider these brands aspirational. However, western brands need to make sure the translations of their brand names, logos, and slogans are appropriate, expecially in the Chinese language and cultural environment. Careful thought must be given to the product’s fit within the cultural contest of consumption. For example, Kellogg’s initially failed to market cold breakfast cereal in India because of the strong Indian taste for hot breakfast foods.
TV commercials should not belittle or challenge well respected Chinese characters, traditions, heritage, and national sovereignty. While relying on English is a good start in India, companies should consider developing local language ads for national roll-outs. Product designs have to be innovative as foreign companies find it difficult to compete with local products on prices. Competitive pressure also arises from the narrowing quality gap between local and western products. For example, Nokia introduced cell phones in India by removing many bells and whistles but adding important features such as dust-resistant polymer covers — an important attribute in the dusty settings in which the phones are often used.
Pricing strategies follow from the product strategies. For both China and India, the price and quality association is rather strong, and western brands are perceived to be more expensive as their quality is perceived to be higher. However, Chinese and Indian consumers are very discerning and carefully weigh costs with benefits. Therefore, firms should rethink their business models; they must rely on low-cost business models to be able to price products within the reach of the customerâ€™s buying power. For example, localizing operations quickly rather than relying on expatriate managers can reduce costs.
In summary, both China and India are rising economic powers. Their emergence onto the world stage is profoundly transforming the global economy in almost every aspect. For western businesses, these two countries offer great growth opportunities and earning potential. Yet successful entry and ongoing operations in these countries remain challenging due to the various obstacles associated with country-specific characteristics and the rapid changes that they are undergoing.