Can China and India sustain its position as an attractive destination, part 2
In this post I discussed how tolerance of a people influences the overall development of a country and thus also its attractiveness as an outsource/ captive destination.
This article explores a bit the history behind the exclamations that this is the ‘Century of Asia’ and what this again means for Asia as a destination to offshore activities to. First remark regarding the exclamation is that there is no homogenous Asia. Asia is a continent and countries within it develop at different speeds. Vietnam is not China and The Philippines not Cambodia.
Second remark to this is that the ‘Century of Asia’ was for the first time exclaimed in 1905 by the Japanese when they defeated the Russians in a famous naval battle. The second time the term was used was in 1911 when nationalists overthrew the Chinese Empire. After Mao kicked the nationalists out in 1956 there was another opportunity for Asia to become more prominent, but mess ups by the communist government (e.g. Great Leap Forward, cultural revolution) ensured that only in the 70s and 80s Asian tigers like Taiwan, Hong Kong, Singapore and Korea would set Asia on the economic world map.
So I guess it is fair to say Asia is in its second century as a rising star as 1905 is already more then 100 years ago.
In the previous post I mentioned that innovation and a dynamic economy are required to remain at the head of the pack. If you come from very far it is not that difficult to double for example the productivity every decade. It gets hard when trying to get from 90 to 95 percent and at that point you have to rely on the capabilities of an economy to innovate. China had in 1980 a productivity of 5 when putting the productivity of the U.S. at 100. In 2008 it had grown to 20, a big increase (time 4), but still lagging 80 percent on the U.S.
Two of the challenges of China will thus have to address in order to retain its attractiveness are a) bridging the productivity gap b) gets its productivity to grow at least as fast as its wages do. The core challenge is however how to change from a country that copies into a country that innovates.
Japan for example was capable to increase its productivity between 1950 and 1990 to 90%. It did this by absorbing a lot of technology from Western countries, but at the same time forgot to develop enough capabilities to innovate instead of copying. This is reflected in Japan not being able to get to the 100% in the last 20 years, the number to beat. With wages on the rise in both China and India is transforming the economy from a population that executes pre-described activities into one that starts inventing new products and services by themselves one of the key long term challenges to address.
India has in this aspect also some advantages over China (e.g English language skills) but also some disadvantages (in China 90% can read/write, in India 45%). The typical worker in China is also less likely to demonstrate if he/she does not like something, while in India I was warned not go to some area’s a couple of times as a big demonstration/ strike was expected. And in India a demonstration typically means that not a single window in the street used for the march survives.
But if the government facilitates entrepreneurs and researchers, both China and India can become at par with Western countries in say the next 20-25 years and overtake some in another one or two decades. Chinese, Indians and most other Asians are eager enough for it (when did we loose the same drive in Europe?). So my expectation is that both China and India will remain attractive outsource destinations for the next 10-15 years due to their still untapped potential of young eager workers and rise of a new generation of entrepreneurs.
As both develop further it remains however to be seen especially for China whether they fall into the trap Japan went before them: not being able to transform from a copy machine into an innovation engine.
This article explores a bit the history behind the exclamations that this is the ‘Century of Asia’ and what this again means for Asia as a destination to offshore activities to. First remark regarding the exclamation is that there is no homogenous Asia. Asia is a continent and countries within it develop at different speeds. Vietnam is not China and The Philippines not Cambodia.
Second remark to this is that the ‘Century of Asia’ was for the first time exclaimed in 1905 by the Japanese when they defeated the Russians in a famous naval battle. The second time the term was used was in 1911 when nationalists overthrew the Chinese Empire. After Mao kicked the nationalists out in 1956 there was another opportunity for Asia to become more prominent, but mess ups by the communist government (e.g. Great Leap Forward, cultural revolution) ensured that only in the 70s and 80s Asian tigers like Taiwan, Hong Kong, Singapore and Korea would set Asia on the economic world map.
So I guess it is fair to say Asia is in its second century as a rising star as 1905 is already more then 100 years ago.
In the previous post I mentioned that innovation and a dynamic economy are required to remain at the head of the pack. If you come from very far it is not that difficult to double for example the productivity every decade. It gets hard when trying to get from 90 to 95 percent and at that point you have to rely on the capabilities of an economy to innovate. China had in 1980 a productivity of 5 when putting the productivity of the U.S. at 100. In 2008 it had grown to 20, a big increase (time 4), but still lagging 80 percent on the U.S.
Two of the challenges of China will thus have to address in order to retain its attractiveness are a) bridging the productivity gap b) gets its productivity to grow at least as fast as its wages do. The core challenge is however how to change from a country that copies into a country that innovates.
Japan for example was capable to increase its productivity between 1950 and 1990 to 90%. It did this by absorbing a lot of technology from Western countries, but at the same time forgot to develop enough capabilities to innovate instead of copying. This is reflected in Japan not being able to get to the 100% in the last 20 years, the number to beat. With wages on the rise in both China and India is transforming the economy from a population that executes pre-described activities into one that starts inventing new products and services by themselves one of the key long term challenges to address.
India has in this aspect also some advantages over China (e.g English language skills) but also some disadvantages (in China 90% can read/write, in India 45%). The typical worker in China is also less likely to demonstrate if he/she does not like something, while in India I was warned not go to some area’s a couple of times as a big demonstration/ strike was expected. And in India a demonstration typically means that not a single window in the street used for the march survives.
But if the government facilitates entrepreneurs and researchers, both China and India can become at par with Western countries in say the next 20-25 years and overtake some in another one or two decades. Chinese, Indians and most other Asians are eager enough for it (when did we loose the same drive in Europe?). So my expectation is that both China and India will remain attractive outsource destinations for the next 10-15 years due to their still untapped potential of young eager workers and rise of a new generation of entrepreneurs.
As both develop further it remains however to be seen especially for China whether they fall into the trap Japan went before them: not being able to transform from a copy machine into an innovation engine.
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