Illustration: Luo Xuan/GT
There is no doubt that China has made remarkable progress in becoming an innovation-driven economy. The Global Innovation Index 2016 ranked China 25th in the world and first among upper-middle income economies. In this respect, China is once again a role model for emerging economies on how to effectively formulate policies and allocate resources to achieve national goals. As Chinese companies strive to climb higher up the innovation ladder, they should think about engaging more deeply with India in order to leverage its huge talent pool, as their Western counterparts have done for a long time.
Many Chinese companies have already done very well in exploiting market opportunities in India. Lenovo is competing head-to-head with HP and Dell for market leadership in the Indian PC and laptop markets. Chinese smartphone brands - Xiaomi, Lenovo, Oppo, Huawei, Vivo, Gionee and others - account for approximately 50 percent of the Indian market. And equipment suppliers such as Huawei, Shanghai Electric and Harbin Electric have had a strong presence in India for many years. Recently, Alibaba, Tencent, Fosun and many others have made significant investments in India. However, Chinese companies have not yet exploited India's most valuable resource - its abundant supply of qualified and cheap human capital.
Why, one may reasonably ask, should China leverage the Indian talent pool when it produces the largest number of science and engineering graduates in the world?
First, China's strength has traditionally been in hardware whereas India's has been in software. With the increasing need for greater integration between hardware and software for Industry 4.0 and the Internet of Things, the talent pools of the two countries are highly complementary. For example, one Western multinational I recently interacted with has nearly 3,500 employees in India, most of them software engineers, who design its medical devices, which are then produced in its factory in China and sold all over the world.
Second, Indian talent is significantly cheaper than Chinese talent for a number of reasons.
Third, India will have a significantly younger population for the foreseeable future (currently, the median age in India is approximately 10 years lower than in China). This is ideal for knowledge-intensive industries, which typically hire large numbers of fresh university graduates and groom them.
Finally, due to both superior English language skills and historical factors, Indian software engineers are more accustomed to developing solutions for global markets, whereas Chinese engineers have been more focused on their domestic market. Middle and senior managers from India's knowledge-intensive service sectors have also demonstrated their managerial capabilities in international markets, and can help Chinese companies to internationalize their operations.
Several Western multinationals in the most knowledge-intensive industries already have larger workforces in India than in their home markets. The first Western multinational company to set up an R&D center in India was Texas Instruments in 1985. According to the India Brand Equity Foundation, at the end of 2015, there were approximately 1,200 multinational R&D centers in India employing more than 320,000 people, of which nearly 50 percent were based in Bengaluru. Approximately 42 percent of the 500 highest global R&D spenders have centers in India, and this percentage is increasing. Product engineering services sector is one of the highest growth areas in India, with a compound annual growth rate of approximately 23 percent since 2003. In addition to the R&D activities, data from NASSCOM, India's IT trade association, show that India has between 2.5 million and 3 million workers in IT services, employed by both Western multinationals (such as IBM Global Services, Accenture, Cognizant and many others) as well as Indian ones (such as Tata Consultancy Services, Infosys, Wipro, HCL and Mahindra-Satyam). India's IT service exports brought in $110 billion in the 2015-2016 financial year.
Huawei is one of the few Chinese companies that have successfully leveraged India both as a market as well as a resource base to achieve global competitiveness. It was an early entrant into India, in 1999, and currently employs more than 6,000 Indians, its largest workforce outside China. According to multiple sources, Huawei is the market leader in India's mobile infrastructure equipment market. It also has R&D facilities and has set up a large global services center to provide support to approximately 30 markets in Asia, the Middle East and Africa.
One of the challenges for Chinese companies is that most of them are in the early stages of their internationalization processes. Many may not yet have the experience or ability to manage large R&D and software development centers in India. To overcome this barrier, they could in the first stage partner with Indian service providers until they become more knowledgeable about the country and its practices. Whichever modality they choose, there is no doubt that the time is ripe for more Chinese companies to also look at India as a valuable resource base that can be leveraged to drive China's global competitiveness.
The author is professor of China Europe International Business School. firstname.lastname@example.org