Leveraging China and India for Global Competitiveness UPDATED

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Booz & Company Viewpoint publication from February 2011

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  • 1. Perspective Glenn Hodges Bill Russo Edward Tse Ronald HaddockLeveraging China andIndia for GlobalCompetitiveness
  • 2. Contact InformationBeijingBill RussoSenior Advisor+86-10-6563-8300bill.russo@booz.comGlenn HodgesSenior Advisor+86-10-6563-8300Hong Kong/ShanghaiEdward TseSenior Partner+852-3650-6100+86-21-2327-9800edward.tse@booz.comZurichRonald HaddockPartner+41-43-268-2132ronald.haddock@booz.com Booz & Company
  • 3. EXECUTIVE No two countries excite multinational companies more than China and India. Both are expected to maintain robustSUMMARY economic growth through the next couple of decades. In 2010, China overtook Japan to become the world’s second largest economy1, and according to the Economist Intelligence Unit, it is expected to displace the United States as the world’s biggest economy by 20242. India, already the world’s 11th biggest economy, and with a growth rate only slightly lower than China’s, will also be moving up the world’s economic league table—possibly to eventually rival its neighbor in overall economic size. What many MNCs (multi-national 2. The supply of skills and resources corporations) have yet to do, however, are also very different between is combine the complementary the two countries; bringing these strengths of these two giants. To date, together, however, potentially most international companies have allows for the creation of new focused their efforts on developing their sources of competitiveness that businesses in both countries separately. can be brought to bear in both This report examines how MNCs can countries. co-leverage China and India to achieve 3. Ways are emerging which allow for both supply— and demand—side the effective sharing of the different competitive advantages that can be resources and capabilities of the taken worldwide. two countries. 4. MNCs should be viewing local To do so, however, companies will partners in both countries as have to bear the following key potentially major new sources of findings in mind: innovation. 1. Market demand is very different Between them, these four points between the two countries; the indicate where companies should be opportunities for leveraging a looking to find new sources of growth common product portfolio in both and enhanced global competitiveness. markets are currently limited.Booz & Company 1
  • 4. InTRodUCTIon: In 2003, investment bank Goldman Sachs coined the term “BRIC” more than US$43 billion, a more than 200-fold increase3. AlthoughBEYond ThE to capture what it saw as some the growth of both the Chinese andBRICs important similarities between four of the world’s key emerging markets, Indian economies has played a role in this dramatic rise in trade, the Brazil, Russia, India and China. The Asian Development Bank identifies label proved a potent way of selling the main driver as falling trade the importance of these markets, costs, particularly tariff reductions. particularly their large populations, According to a paper prepared by the economic potential and political bank, reduced trade costs can account influence, to the investment for around three-quarters of the banking community. increase from 1990–2008, rising to nearly 85% of all trade for the 2001- But emphasizing the commonalities of 2008 period4. the BRIC quartet has the drawback of playing down a range of important From a China-India horizontal social, economic and other variations capability-leveraging standpoint, the between the countries. For many implications are substantial. Under businesses, differences on the supply previous China-India trade regimes, and demand sides of their industries the ability of companies to leverage are more important than their the full range of capabilities along the similarities. Indeed, they can often length of the value chain, exploiting be a potential source of significant arbitrage opportunities wherever they competitive advantage. found them, was severely limited. But with the cost of trade falling so This holds particularly true for China markedly, this limitation has been and India, two countries which much reduced. As trade between the have seen their trade relationship two countries continues its rapid fundamentally transformed over expansion, more companies will the last 20 years. In 1990, Sino- recognize and move to exploit the Indian trade totaled less than opportunities for capability leveraging US$200 million. In 2009, it was across the two countries.2 Booz & Company
  • 5. On the supply side, both China and different, so the opportunity to offer China’s automotive industry is rapidlyIndia have large, low-cost labor similar product portfolios in both transforming itself from a low-costforces, but ones with very different countries will remain limited. Rather source of parts and components to askill sets and capabilities. The than seeing this as a drawback, global powerhouse along the entireclose geographic proximity of the however, MNCs can instead focus on automotive value chain. Vehicle salestwo countries has the potential to the potential that differences between of more than 13 million units in 2009facilitate a two-way flow of resources India and China offer to find new allowed China to overtake the Unitedbetween them. To date, however, sources of competitive advantage. States and become the world’s largestlittle co-leveraging has taken place. car market by volume. Sales for 2010Instead, while MNCs have a clear Although our research embraced a surpassed 18 million units, and therecognition of country-specific range of industries, for this report China Association of Automobilecomparative advantages, they have we are focusing primarily on the Manufacturers projects sales of 25tended to utilize these skills within automotive sector. One reason for million by 2015.broader networks of capabilities this is that what holds true fordistributed across multiple countries the automotive sector is usually India’s already substantial vehiclerather than just in China and India. relevant in other manufacturing market is also growing rapidly. Global sectors, especially durable consumer Insight, a US-based economic andOn the demand side, both countries goods. Another is that many global business research firm, expects Indianhave rapidly growing consumer automotive companies are already vehicle sales to more than double frommarkets. In particular, the Chinese heavily involved in both China and just over 2 million units in 2009 to 4.2and Indian middle classes are both India. This provides an opportunity not million units by 2015. In particular, thedramatically expanding in size and just to study their actions within and country is emerging as a major centerincome. In the coming years, the rise across the two markets, but also to see for the development and manufacturein their collective purchasing power whether any are already using them as of micro and subcompact cars (A and Bwill lead to a large-scale migration of a joint platform for global expansion. segment vehicles).value-chain elements from the world’srich countries to these new markets. But more importantly, in both countries automotive is the largestAt the same time, however, MNCs and one of the fastest growingwill also have to recognize that manufacturing sectors, accounting forbusiness and consumer preferences more than 20% of manufacturing inin many sectors of the Chinese and both countries5.Indian economies will remain veryBooz & Company 3
  • 6. FoUR kEY AREAS After examining and analyzing MNC activities in China and India, to Global Insight, more than 60% of light vehicles purchased in India we identified four areas where are micro or subcompact cars in the companies should focus their searches A and B segments, compared to just for insights that will help them to 15% in China. In addition, a notably maximize value globally as well as larger proportion of sports utility within China and India. vehicles (SUVs) are sold in India than in China (see Exhibit 1). Even within 1. Differences in market demand the same vehicle classes, Indians profiles between China and India. spend less than Chinese for vehicles. Based on income differentials alone, market demand might be expected Because of this difference in demand to be broadly similar in structure. structure, both car makers and In reality, it is very different. This is component suppliers hoping to highlighted by variations in vehicle increase scale opportunities by demand between the two countries. offering common products in both countries are likely to find limited The Chinese, with a strong preference opportunities to do so, though there for sedans, purchase larger vehicles are exceptions at the top and bottom on average than Indians. According ends of the market.Exhibit 1The Demand Profiles for China and India Are Fundamentally Different AUTO MARKET BY SEGMENTS (2009, IN THOUSAND UNITS) 16,000 15,124 2009 China Market Sedans continue to dominate the China market with 2015E 14,000 strong growth, though SUVs are gaining share 2020E Very large market with 12,000 significant regional variation 5,758 in demand patterns 6,000 4,826 4,000 3,291 3,646 Demand shifting from more 2,741 developed coastal cities to 2,210 1,937 lesser developed interior 2,000 1,107 1,141 1,274 1,231 markets 766 582 424 758 709 268 69 274 0 A B C1 C2 D1 D2 E1 E2 MPV- MPV-MPV-MPV- PUP- PUP- SUV- SUV- SUV- SUV- HVANMVAN B C D E C D B C D E 5,500 5,149 India Market 5,000 A and B segments account for the majority share of the market, while other segments remain small Low income levels limit OEM ability to command high prices 2,066 2,000 Poor infrastructure and high 1,500 fuel costs do not support 894 significant volumes of 1,000 medium to large size 458 443 467 500 323 264 274 vehicles 56 77 43 32 7 1 57 13 0 A B C1 C2 D1 D2 E1 E2 MPV - MPV - MPV - PUP - SUV - SUV - SUV - SUV - HVAN B C D C B C D ENote: A—Micro, B—Sub-compact, C (including C1 & C2)—Compact, D (including D1& D2)—Mid Size, E (including E1& E2)—Full Size, MPV—Multi-Purpose Vehicle, PUP—Pick-up truck,HVAN—Heavy VanSource: Global Insight; Literature research; Booz & Company 4 Booz & Company
  • 7. But what explains this difference in improved its overall road 2. Differences in China and India’sdemand? Analysis of socio-economic infrastructure in Tier 1 and 2 cities, capability and resource profilesdata suggests that only around half and now also has more than 65,000 offer major potential for thethe difference in the Chinese and kilometers of mostly new expressway development of new sources ofIndian personal vehicle markets can for drivers to enjoy. In contrast, competitiveness.be explained by differences in wealth. India has only 200 kilometers of As a result of historical policyAnalyzing the two countries by total inter-city expressways and the vast decisions and regulatory forces, Chinahousehold earnings would suggest majority of Indian roads remain in and India have highly differentiatedthat either Indians should be buying poor condition, including those in supply profiles. China’s industrialmore cars or Chinese buying fewer: major cities8. The net result is lower structure can be traced back to thewhile China has three times as many four-wheel personal vehicle utility for decision made by the governmenthouseholds in the four socio-economic Indian consumers compared to their more than 30 years ago to openclasses able to afford cars (broadly Chinese counterparts. the Chinese economy to foreignspeaking, those earning $6,800 or investment. Its first step down thisover—see Exhibit 2) compared to Over time, there is potential for road was the creation of a handfulIndia6, its personal vehicle sales vehicle demand profiles to become of special economic zones (SEZs),outstrip India’s by six times. more similar. Indian incomes will rise the primary purpose of which was and India’s road infrastructure will to attract technology, capital andFuel cost differentials almost certainly improve. In China, the government is management expertise from overseas.play some role in explaining this likely to create further incentives to Since then, refinements to this policydifference, with gasoline costing purchase A and B segment vehicles. have driven dramatic increases inaround 50% more in India than For now, however, demand will capacity and efficiency in almostin China7. But likely a far bigger remain highly differentiated between every major manufacturing sector,factor are differences in the quality the two countries, with the Chinese including automotive.of Chinese and Indian transport set to continue buying more vehiclesinfrastructure. Although China has per capita than Indians, and at higher In contrast, India’s manufacturingmany rural areas where roads remain average price-points. scale remained intentionally limitedin poor condition, it has dramatically to reflect the goals of internalExhibit 2The Majority of Chinese and Indian Households Are Socio-Economically Marginalized, but a Large Car-BuyingPopulation Exists 2010 COMPARISON OF CHINESE & INDIAN HOUSEHOLD SOCIO-ECONOMIC CATEGORIES* Expressed in Constant 2005 US$ China India Upper & Upper 3,300,000 Middle Class 7 5 0 ,0 0 0 > $35,000 There are three times as many households in China as India in Middle Class the major car-buying 6,600,000 $11.600 - $34,999 1,900,000 socio-economic categories Lower Middle Class 24,600,000 8,700,000 $6,800 - $11,599 Lower Class 46,500,000 20,400,000 $ 2,700 - $6.799 Marginalized 343,800,000 224,500,000 < $2,700Note: Based on 2005 AMAI socio-economic categoriesSource: Canback Dangel CGIDD Database; Booz & CompanyBooz & Company 5
  • 8. self-sufficiency laid down in the requirements that all foreign car Vishnu Prakash told the press in Newdecades immediately following the makers must partner with a local firm Delhi that India was interested inend of British colonial rule in 1947. and restricting their ownership stake to obtaining Chinese investment in itsUntil 1991, production was heavily a maximum of 50%. This has limited infrastructure sector.11)regulated by the “license raj”, which the participation of MNCs in exportingdetermined what and in what quantities complete vehicles from China. 3. Sharing resources and capabilitiescompanies could produce things. across China and India In contrast, the Indian government All companies can gain competitiveServices, however, were largely has clearly stated its desire to advantage by sharing their coreignored by officials and left make India the global hub for the strengths across both countriesunregulated. This offered both development, manufacture and export and partners—a process we termIndian entrepreneurs and MNCs an of A and B segment cars. Hyundai “horizontal capability building.”opportunity to capitalize on India’s in particular has augmented its Only recently, with the lowering oflow costs, strong educational system Indian sales with exports. In 2009, trade and other barriers between theand English-language ability to its exports from India accounted for two countries, has it become possibleprovide highly competitive back- nearly two-thirds of all India’s 441,000 for MNCs to start thinking whetheroffice services such as call centers, IT vehicle exports9. (China, in contrast, such possibilities might be availableand engineering support to businesses exported 370,000 vehicles in 200910. between China and India.outside India. As a result, India became Though the absolute volume is similar,the global center for the outsourcing of as a percentage of vehicle sales, India Until now, companies havethese services. is exporting more than six times the concentrated on developing the low- proportion of vehicles as China.) cost manufacturing opportunities inThe two countries have also had both countries separately, achievingdifferent approaches to developing Over time, government policies in scale by looking to serve theirtransport, communications and both China and India will likely respective domestic markets. Thispower infrastructure. China has reduce the differences between process has typically involved aninvested heavily in all these areas, the relative advantages of the two MNC sharing its technological,and as a result has a transport and countries. China is investing heavily managerial and marketing expertiselogistics infrastructure able to support in engineering education and with a Chinese or Indian partner inthe movement of raw materials and some key projects, perhaps most return for gaining access to low-costcomponents on the one hand and notably the development of electric production and an understanding offinished products on the other. India, vehicle technologies and supporting local market conditions.by contrast, continues to lack the infrastructure. This is an area whereinfrastructure to support a robust Indian companies’ know-how and Adding a China-India dimension tomanufacturing sector. experience could benefit China’s such operations, however, can allow development, for example through a company to take its business aIronically, while China has become Indian engineering companies whole step further. General Motorsthe world’s biggest exporter overall, expanding their businesses into China (GM) is one of the handful ofgovernment policies in India have via contract engineering contracts (a companies which is already goingpositioned the latter country to process that has already begun). down this route. Its principal Chinabecome a major vehicle exporter. operation is a joint venture with At the same time, India is investing Shanghai Automobile IndustryWhile China’s export-driven more in infrastructure, which will Corporation (SAIC). The two havegrowth has created many of its increase its capacity to support worked together successfully tomanufacturing strengths, obtaining a large-scale manufacturing. Chinese create a market-leading company.duty-free export license continues to companies with experience and GM’s growth within China, however,be difficult. Moreover, its automotive know-how gained from their own is constrained by the fact that likepolicies have been principally aimed country’s massive infrastructure all foreign auto makers it can onlyat developing a strong industry development effort could contribute to operate as part of a Sino-foreign jointcapable of meeting domestic demand, India’s efforts in this area. (Indeed, this venture, with its stake restricted to anot one aimed at serving the world. may be imminent. In late 2010 Indian maximum of 50%.This is seen above all in its continuing External Affairs Ministry spokesman6 Booz & Company
  • 9. Rather than accepting that this company in its US homeland, thanks development costs, with a limited shareownership limit should hold it back, to its Asian partnerships, and retained in the US in order to provide aGM has instead worked with its especially its market-leading position learning platform for engineers there.partner, SAIC, to find new sources in China, the potential exists for GM A French electrical equipmentof growth. Most pertinently for the to be “reborn” as an Asia-centric manufacturer runs a similar model,purposes of this paper, the GM-SAIC growth company. with development work for eachJV has established a separate joint product allocated across a globalventure with a third company, Wuling 4. New pathways to innovation are R&D network spanning fourMotors, to produce mini-vans based made possible by leveraging core countries (France, Mexico, China andon a Wuling low-cost platform that strengths derived from the country- India) according to the capabilitiesitself utilized engineering expertise specific capabilities of resident in each location. India isfrom GM’s Shanghai-based PATAC local partners. a center for software developmentEngineering Development Center. Sold By allocating engineering resources and systems engineering, whereasunder the Wuling marque in China, the across developing and emerging China’s focus is on electro-mechanicalventure achieved sales of 1.1 million markets, MNCs are unlocking new engineering. Its China JVs are alsounits in 2009. pathways to innovation. Engineering a key center for the development of resource allocation decisions are low-cost products, initially sold intoGM and SAIC are now planning being determined by a combination the Chinese domestic market but alsoto introduce this mini-van to India. of national strengths and a desire to marketed worldwide through theirSince the Wuling brand would not achieve scale in key markets. parent’s global distribution network.be appropriate for India, the mini-vans will be sold under the Chevrolet During our research for this paper, A different model has beenbrand. Furthermore, the SAIC-GM we observed “hub and spoke” deployed by a major global aircraftjoint venture will also benefit from product development systems in manufacturer, which primarilyGM’s localization of diesel engine which engineering resources were allocates engineering resources byproduction in India, with the coordinated through a central home current market importance and futureinauguration in November 2010 of country hub and engineering tasks market potential. For this reason, itsan engine plant at Talegoan in Pune were allocated to various countries product development resources arewith an annual capacity of 300,000 (including the home market) located in the US, Russia, China andengines. largely in line with their national India. Unlike the first model described comparative advantages. above in which a certain level ofBeyond India, GM and SAIC are engineering is being conducted inalso looking at selling the Wuling However, the desire to develop certain a given country, this company hasminivan in Latin America and other markets’ sales potential also played a specific portion of each of itsemerging markets, using the scale of a role in determining engineering aircraft developed in each country.the Chinese and Indian markets to resource allocation. A major This requires a more complete setkeep costs low. American equipment manufacturer, of engineering capabilities to be for example, distributes engineering resident in that country. In China,GM now has the ability to leverage development tasks across different engineering resources are also beinglow-cost platforms and assembly, countries according to their level of outsourced and brought in from othereconomies of scale and access to the capability. For its highest level, the US countries. Approximately 15% ofChinese market through its SAIC- remains the center for 90% of work, the engineering being done in ChinaWuling partner. SAIC, meanwhile, with China taking responsibility for has been outsourced and is largelybenefits from having a partner able the other 10%. Although India’s being conducted by Indian nationalsto access new markets in India and capability in this area exceeds working in China for this company.beyond through GM’s worldwide China’s, the work was dispatcheddistribution networks, further helped to China because of the latter’sby being able to put their joint- importance as a market. Most of theventure products under the globally company’s lower-level engineeringrecognized Chevrolet brand. work has been allocated to low-Although GM remains a troubled cost countries in order to reduceBooz & Company 7
  • 10. FoUR hIGh- By scrutinizing each of the four themes described above, companies India for competitive advantage (see Exhibit 3).LEVEL can determine which opportunitiesSTRATEGIES FoR might apply to their situation. The potential for leveraging demand-side These strategies result from the kind of decisions that companies make toLEVERAGInG and supply-side opportunities across pursue demand-side (Theme 1) andChInA And China and India will vary across industries. Based on these two factors, supply-side (Theme 2) opportunities in China and India.IndIA we suggest four potential high-level strategies for leveraging China and Exhibit 3 A China-India Leveraging Strategy Should Be Determined by the Degree to which Demand- and Supply-Side Opportunities Exist LEVERAGING STRATEGIES Supply-Side Opportunities across China / India Cost & Capability Co-Leveraging Leveraging Increasingly High Independent Market Operations Leveraging Increasingly High Demand-Side Opportunities across China / India Source: Booz & Company8 Booz & Company
  • 11. Strategy 1: Co-leveraging or innovations with high market a lack of leverageable assets in one orWhere the potential for leveraging potential in one or more markets. the other country limit opportunitiesboth demand- and supply-side Given that the demand profiles for to pursue a co-leveraging strategy.opportunities across both countries most products is very different in the Similar to the co-leveraging strategy,is high, co-leveraging may apply. two countries, this will be the strategy market leveraging requires aCo-leveraging calls for an explicit adopted by many companies. Implicit thorough understanding of the targetrecognition that optimizing is that either China or India will markets, as well as appropriateopportunities across China and India provide a ready market for the output branding and distribution efforts towill directly lead to competitive from the supply-side investments, realize its potential.advantage or substantially contribute though external market opportunitiesto that objective. On the supply side, may be as large or larger. As in Strategy 4: Independent operationsan effort will be made to maximize the case of co-leveraging, cost and The fourth strategy, independentthe collective China-India value chain capability leveraging requires an operations, is appropriate whenby allocating resources appropriately appropriate investment strategy and mutually supportive demand- oracross both countries. On the demand organizational structure in order to supply-side opportunities cannot beside, it is critical that the company be maximize its potential. found in China and India. This doescapable of delivering to the heart of not necessarily imply that companiesthe market in both China and India. Strategy 3: Market leveraging cannot benefit from establishingIn most cases, this will require a very Our third strategy is market supply-side and / or demand-sidelow-cost position, which can best leveraging, in which a product or line operations in both countries, onlybe achieved through the allocation of products can meet customer needs that there is limited potentialof resources across China and India. at achievable price points in both for creating value by leveragingCompanies looking to co-leverage markets, thereby unlocking massive opportunities across the two markets.China and India will also need both scale opportunities and the potential The primary advantage of developingbranding and distribution strategies for substantial revenue and profit. As independent operations is that noappropriate for the two markets and an previously noted, such opportunities common structural or coordinatingorganizational structure that ensures an are not easily realized in many mechanisms are needed to address theoptimal allocation of resources. industries due to China and India’s two markets. The major downsides very different demand profiles. Except are the limited opportunities forStrategy 2: Cost and capability for companies targeting niche luxury economies of scale and possibly aleveraging markets, a market leveraging strategy reduced ability to identify innovationsIn cases where there is a high will require a low-cost position, and with high application potentialpotential for supply-side cost in many instances innovative product beyond individual markets.arbitrage, but limited demand-side solutions.opportunity, we recommend cost andcapability leveraging. This strategy It may sometimes be the case thatis focused on maximizing specific while an appropriate low-costvalue-chain opportunities across structure is achievable throughChina and India in order to secure substantial investment in either Chinaa superior low-cost position and/ or India, tariff and transport costs orBooz & Company 9
  • 12. MAXIMIzInG Although all four of the strategies outlined above could deliver could extend beyond the China-India geography.ThE ChInA- considerable value to a MNC,IndIA aggressive co-leveraging has the greatest potential to increase On the demand side, it is essential to identify market opportunitiesAdVAnTAGE competitive advantage. To maximize that can maximize scale economies the gains from a China-India while minimizing cross-market co-leveraging strategy, companies product adaptation. Given the income should focus on the following three differentials between China and India, essential elements: this may involve developing low-cost • Realizing all supply-side arbitrage solutions for the Chinese market possibilities. which can be readily converted into middle-market solutions for India. • Maximizing scale with minimal Maximizing scale will reduce the product adaptation. variable cost structure and allow for lowest-price positions for a given • Pursuing the application of a content level, which in turn will drive “frugal” mindset. more scale. On the supply side, assuming such The final element is the creation of a opportunities exist, successful “frugal” value chain, able to deliver co-leveraging requires the ability comprehensive solutions that meet the to identify then realize arbitrage needs of customers of modest means opportunities for key value chain at the lowest possible price point. elements, or ideally, across the entire value chain. This involves moving beyond lowest-cost engineering solutions With the recent reduction in tariffs to the development of a “frugal” between China and India, as well value chain. In order to find unique as improved China-India transport solutions which meet customers’ and logistics links, the potential for product, sales and service needs at realizing substantial China-India very low price points, the overall arbitrage has greatly increased and is cost structure of any value chain likely to increase further in the future. has to be minimized. Achieving this Of course, these arbitrage activities calls for scrutinizing every element10 Booz & Company
  • 13. and sub-element of a value chainto see where cost reductions can bemade. But beyond this, it also calls China-India Strategy Checklistfor minimizing both up-front andtotal ownership costs for customers. The potential for realizing supply-side and demand-side opportunitiesThe kind of model commonly found across the China-India geography varies greatly across industries andin developed markets, where low even within industries. The following checklist will help determine thefront-end pricing is compensated for appropriate strategy for your company:with expensive after-market service Demand-sideand parts, is not viable in China orIndia. Customers in these countries • Are there common customer needs across China and India that can beare generally adept at discerning addressed with similar product and service offerings?such value propositions. They either • Can you envision a common product/service offering that will hit thereject them outright or find ways of heart of the market in both countries, leading in turn to greater scalecircumventing them (e.g. using local opportunities?rather than OEM repair shops once aproduct is out of warranty), costing • Do you understand the price-points needed to hit the heart of thecompanies both initial sales and market in both China and India with this offering?revenues from servicing or spare parts. Supply-sideCompanies that can (a) achieve • Are there cost arbitrage opportunities across China-India or are thesubstantial supply-side arbitrage lowest cost factors of development and production largely resident inopportunities, (b) maximize demand- one of the two countries?side scale with minimal adaptationcosts, and (c) develop frugal value • Are such cost arbitrage opportunities large enough to outweigh tariff,chains, should achieve sustainable cost logistics and coordination costs?advantages over their competitors. As • By realizing cost arbitrage opportunities across China-India, can youwell as leading to significantly greater deliver a product/service meeting customer needs with a cost structureprofitability in China and India, the that allows you to achieve the required price points profitably?lower costs and greater scale achievedwithin these markets should provide Generala platform to explore other emergingmarkets in Asia and beyond. • What changes in assumptions and mind-set would be required to pursue the most appropriate China-India strategy? • What changes in company structure and operations would facilitate success? • What new skill sets and personnel would be needed to drive successful implementation?Booz & Company 11
  • 14. ConCLUSIon Few companies are currently pursuing China-India co-leveraging strategies. be seen in joint ventures between MNCs and local companies that Those that are, such as GM through its focus on reaching beyond the market partnerships with SAIC and Wuling, on their doorstep. In these cases, are generally doing so with assets MNC technology, distribution and such as technologies, platforms and brand strengths, combined with brands developed in other markets. local-partner low-cost product However, as the Chinese and Indian development and manufacturing, has economies continue their rapid growth the potential to provide a powerful and expand their ties through ever platform for global success. greater bilateral trade, we anticipate many companies will explore the Our findings are also relevant for an untapped potential of strategies aimed important, broader manufacturing at leveraging China-India demand-side theme: continual year-over-year and supply-side opportunities. Doing so cost reductions, largely driven by could prove highly attractive to China- relocating sourcing and assembly to or India-based companies with limited low-cost countries. operations outside those two countries. This study points to the fact that new Companies that place a premium trade regimes have opened previously on developing the skills required unavailable arbitrage opportunities to implement such strategies could across the entire China-India value be well-positioned to identify and chain that could further this trend. develop substantial opportunities to The existence of such opportunities streamline their cost structures, find is already providing cutting-edge new sources of innovation and grow companies with the ability to lower their economies of scale. And, of their cost structures, enhance their course, those companies able to gain innovation capability and generate superior supply-and demand-side increased revenues and profits. Those positions in both China and India will firms that do not develop the capability almost certainly be more competitive to exploit such opportunities are likely globally. to find themselves at an increasing disadvantage in terms of cost and For now, companies are primarily innovation to those that do. While leveraging their differentiated skill this study focused on China and sets in China and India as part India, similar opportunities across of global efforts rather than at a other rapidly emerging markets with regional China-India level. The liberalized trade regimes should ultimate expression of country/ be explored by companies seeking company capability leveraging can competitive advantage.12 Booz & Company
  • 15. Endnote 6 Canback Dangel data and Booz & Company analysis1 Organization for Economic Co-operation and Development(OECD) 7 www.nationmaster.com2 Economist Intelligence Unit, April 9, 2010 8 National Highways Authority of India3 International Monetary Fund Direction of Trade Statistics (DOTS). 9 Society of Indian Automobile Manufacturers.4 Douglas H. Brooks and Benno Ferrarini, “Changing Trade Costs 10 China Association of Automobile Manufacturers.between People’s Republic of China and India,” ADB EconomicsWorking Paper Series, No. 203; Asian Development Bank; May 11 Comments to the press on December 14, 2010 in New Delhi.2010.5 According, for their respective countries, to the Society of IndianAutomotive Manufacturers on the one hand and the ChinaAssociation of Automobile Manufacturers on the other.About the Authors Ronald Haddock is a partner at Booz & Company basedGlenn Hodges is a senior in Zurich. He joined the firm advisor with Booz & Company in 1994 in New York and wasas well as a Professor of subsequently based inManagement & International Booz & Company’s offices in Business at Walsh College in Shanghai, Mumbai, and SeoulTroy, Michigan. He has more for more than 10 years. He hasthan 20 years of industry consulted in the industrials,experience. Most recently, he consumer, materials, andserved as an executive technology sectors on topicsresponsible for strategic related to competitiveness,planning with Chrysler LLC. operations strategy, and manufacturing.Bill Russo is a senior advisorwith Booz & Company as wellas the Founder and Presidentof Synergistics Limited. He livesin Beijing and has more than 20years of experience in theautomotive industry, mostrecently serving as VicePresident of Chrysler’sbusiness in North East Asia.Edward Tse is Booz &Company’s senior partner andchairman for Greater China,specializing in definition and implementation of businessstrategies, organizationaleffectiveness, and corporatetransformation. He has assistedseveral hundred companies—headquartered both within andoutside China—on all aspectsof business related to Chinaand its integration with the restof the world.Booz & Company 13
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