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Indian firms need to assess competitive advantage before entering China: Anil K Gupta

Jul 08 2014, 02:57 IST
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SummaryAnil K Gupta is the Michael Dingman Chair in Strategy and Globalization at the Robert H Smith School of Business...

Anil K Gupta is the Michael Dingman Chair in Strategy and Globalization at the Robert H Smith School of Business, University of Maryland at College Park. Widely regarded as one of the world's leading experts on globalisation, Gupta has authored six books, including The Silk Road Rediscovered, his most recent, by Wiley. In an interview with Saikat Neogi, he says over the next 10 years the economic relationship between India and China would be driven much more heavily by investment than by trade. Excerpts

How do you see trade and investment linkages between India and China growing over the next 10 years?

By 2025, China and India will rank among the world’s four largest economies. As a direct result, the economic ties between them will rank among the 5-10 most important bilateral ties. Qualitatively, I predict three major developments. First, over 10 years, their economic relationship would be driven much more heavily by investments than by trade. Second, as India’s infrastructure becomes modern, Chinese companies will start to look at India as not just a market but also a manufacturing and export hub. It is even likely that, given the rapidly rising labour costs in China, some Chinese companies may start manufacturing in India to export back to China. Third, as Indian and Chinese companies make acquisitions in third countries, they’ll find themselves deeply engaged in each other’s markets via this indirect route.

What kind of value will Indian companies create for shareholders and investors by investing in China?

Indian companies have to be very careful in deciding whether, where and how to invest in China. Obviously, you want to enter a growing sector rather than a declining one. However, companies have to examine deeply whether or not they will have a competitive advantage when they enter China. Chasing an opportunity without a competitive advantage can rapidly destroy shareholder value. Many Indian companies are world-class in terms of management capabilities and far stronger than their Chinese counterparts. If they can combine these capabilities with world-class technologies, it is easy to see how Indian companies can enter almost any high-growth Chinese sector and succeed. This is the essence of the Tata Motors/Jaguar Land Rover story in China. This model can be replicated in other sectors open to foreign players.

For long-term wealth creation, what are the threats investors should be cautious of?

Indian companies must not assume that because they are big and successful in India, they

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