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Comparative Study on Industrial Development Process in China and India


Moriki OHARA and Koichiro KIMURA (ed)
Published in March 2009
Edited by Moriki Ohara, M. Vijayabaskar, and Hong Lin Industrial Dynamics in China and India: Firms, Clusters, and Different Growth Paths
Palgrave Macmillan IDE-JETRO Series, September 2011
Chapter 1
Some researchers, who study local fiscal system or fiscal federalism, emphasize the domination of Chinese fiscal system to that of India. According to them, the former is "de jure" federation, and later is "de facto" federation. And from the perspective of economic performance, "de facto" federation dominated "de jure" one. But is it really fair judgment?

Actually, China's economic performance dominated India in the incentive of local economies, but it is accompanied the problems such as the segmentation of financial market and the rent seeking action of local governments in the factor market. During Chinese reform era, the integration of market, especially factor market had not developed enough. Under such regionally segmented financial market, local government had been increasing their revenue, through the bargaining to the central government about revenue, or some rent-seeking action by intervening into the market.

Chapter 2
This paper aims to provide an overview of the skill formation systems (SFSs) of China and India by analyzing various statistics and literature. It reveals that China enjoys much larger semi-skilled labor force than India does. The size of vocational education and training (E&T) is much larger in China and China offers much more training programs for informal sector. Compared to China, India seems to suffer more seriously from the poor quality of E&T. In particular, linkages between training and employment seem much weaker in India than in China which puts emphasis on employability skills. This paper provides possible supply-side and demand-side explanations for the different patterns of skill accumulation and distribution between China and India. For the supply-side explanations, E&T policies and individual incentives for acquiring skills are examined. It points out five key differences in those policies: the nation’s leaders’ views on education and work, linkages between E&T and employment, E&T for informal sector, incentives for improving the quantity and quality of E&T, and the financing of E&T. It seems that individual incentives for skill accumulation are more widely distributed in China than in India. For the demand-side explanation, small-scale demand for skilled workers due to the small-sized formal labor market seems to contribute to the larger skill-wastage of educated and trained persons in India.

Chapter 3
India and China have emerged as two of the world’s fastest growing economies. While China‘s fast growth has been based on rapid industrialization, India’s recent growth has been lead by the service sector, particularly software and information technology enabled services (ITES). China is now speeding up the development of software and ITES, but nonetheless still at an early stage of sector development. China has strengths and advantages for the growth of software and ITES sector such as strong government support, strong infrastructure, a large talent pool, solid platform for cultivating Asian market and untapped domestic market. By leveraging these advantages, China may take different trajectories from India and become unique global outsourcing destination.

Chapter 4
There is a difference in development processes between China and India. Although the Chinese and Indian electrical and electronics industries were both in technological backwardness, it is known that the Chinese local firms have, in comparison with the Indian local firms, grown remarkably through fierce competition among themselves. In this study we will take up the Chinese and Indian TV markets as a representative product in the industries and investigate the subject of competition as a driver in the promotion of local industrial development. In this connection, we will compare market structures to validate our argument. In China, the key property lies in equal competition, as local firms with similar technological capabilities competed amongst themselves to build their unique advantages. By contrast in India, the property lies in competitive inequality, as only a few major firms dominated the market, therefore resulting in the development of fewer advantages compared to China. In addition, we compare entry barriers which form the structures, from a viewpoint of history of institutional changes in the industries.

Chapter 5
In 2008, China has become the second largest automobile producing country in the world. India’s automobile industry is also growing rapidly. In these rapidly growing markets, some indigenous automobile manufacturers are emerging. This study reviews the growth process of rising automobile manufacturers in China and India, namely Chery, Geely, and Tata Motors. Through the comparison of the strategies of these companies, the study concludes that Chery and Geely face the challenge of redefining their purpose of developing original cars and internalizing product and process technology, while Tata’s strategy of developing a very cheap family car has yet to be proved effective.

Chapter 6
In both India and China, indigenous manufacturers have remarkable presence in automotive industries. Then what makes some Indian and Chinese manufacturers perform rather well to keep themselves in competitive position with TNCs and their joint ventures? Through our firm survey, we found deepening of sub-contracting within value chains headed by indigenous makers that focus on original model developments and found signs of intangible asset. This finding is worth mentioning in Indian context where historical argument related to small- and medium-scale industries had captured them as a target of protection and not as sources of competitiveness. Also it is worth drawing attentions in the context of intangible asset theory that have rarely paid attention to intangible assets of incumbent manufacturers of developing countries.

Chapter 7
This chapter compares firm-level capability building system in the case of motorcycle industry in China and India. Observations in Taiwan will also be used to accentuate the contrast between the two. There are two layers of analysis; (1) interfirm mechanism to nurture important suppliers, and (2) in-house mechanism of nurturing their own personnel. As a conclusion, it is shown that the characteristics found in the two levels of observations are complementary factors that comprise a whole firm system. As the interfirm relations, India and Taiwan are forming well-coordinated mechanism of nurturing important suppliers by managing risks among them. But only in China, firms are forming “dispersed” or “isolated” mechanism under which they try to minimize risks by shifting it to others, and to give suppliers pressures to upgrade. At in-house level, in India, firms tend to nurture personnel internally by tapping into stable labor relationship and skill evaluation mechanism. On the contrary, Chinese firms use strongly incentive-oriented wage system which goes along the workers’ high attrition rate. In China, both at interfirm and in-house level, firms and workers have accepted such strong incentive mechanisms, and they seem to have developed their ways to minimize the problems under them. Openness in utilizing social resources both in and outside firms in China, where firms and workers can find variety of transaction partners and jobs opportunities, seem to be one of the key factors that underlie the mechanism.

Chapter 8
Skills Development for Regional Cluster Development: Lessons from Bangalore’s Software Cluster / Aya Okada