india_flag.gifI know the world doesn't always fall neatly into 'either/or' dichotomies. But it's always tempting to frame such questions - famously, the Guardian used to ask sportsmen 'Britney or Madonna?' (Equally famously, Brazilian footballer Ronaldo replied, 'both'.) You might ask BP or Shell? Vodafone or BT? BAT or Imps? And, of course, when we're talking emerging markets, India or China?

Actually I got the chance to explore that question in some detail recently, talking with an Indian friend who has just finished his MBA here. He's wired into his local business community and quite a few of the companies he knows do business with China. Obviously, this perspective could be a little slanted, but I was interested by the comments that were made about the relative difficulties of doing business in each country.

First of all, China has major quality issues. Quite often, a Chinese company will make one 100% perfect prototype, but when it comes to manufacturing in bulk, there are major quality problems. This is even the case in highly quality-conscious areas such as medical supplies. So although China is a cheaper place than India to manufacture, Indian businesses haven't been impressed by what they're getting for their money. On the other hand, the Indian government is trying hard to raise the quality bar. Quality is considered to be a strategic issue, and that's why the government considers it important to police that quality.  India focuses on quality - China on price.

I also talked about investment, and this was very interesting. Indian companies are still constrained by capital, and investments generally follow the business - that is, once you've got a customer contract, you spend money fulfilling it.

In China, on the other hand, investment often works on the 'if you build it they will come' basis - hence the reports of almost empty new city centres. Building strategic infrastructure is one thing - putting up too many office blocks is another. (I can't help remembering the way Russian companies behaved in the mid 1990s - often buying huge amounts of new equipment which then lay fallow as they hadn't got the business they needed to reach break-even utilisation.) It appears that the absence of a credit crunch in China reflects the fact that capital is being inappropriately allocated (which does quite often happen in a non-capitalist system - and sometimes…

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