India versus China

I believe that the current economic slump will cause more economic harm to China than India in the near term. One of the reasons for this line of thought is because China is mostly the 'manufacturer' for the world whereas India distinguishes itself as the 'service provider' of the world. As we have known that over the last 20-30 years, the computer 'revolution', the phone 'revolution' and the travel 'revolution' has changed the way we, the people of the world, deal with each other and made all of us more integrated and hence more easily 'service oriented".

Compared to 50 years ago, more companies have opened and succeeded in the 'service providing' retail industry sector than any other. For example, coffee chains, hotel chains, tourism related companies, airlines, insurance sector, banks, health care, cafes, supermarkets, telecom companies, software and outsourcing industries are all in the service sector and all of them have come out of nowhere in the past 50 years. And by the way, in today's world, most of them are necessities more than anything else. If they are not for some people, they will become so, in the next couple of years. This continues to create additional demand on an almost daily basis. If such industries have cropped up in the last few decades in addition to manufacturing or in support of manufacturing, then more such companies will get created and succeed in the future. Another distinct advantage of the service industry is that some of them do not have to be geographically close to the consumer, i.e. outsourcing, tax return specialists, research in almost every industry, telecom, insurance among others, thus saving on long term expensive fixed costs and providing them flexibility of adapting to changes. With the advent of health care tourism in places such as Thailand and India and coming up in Dubai in the near future, service oriented industries will continue to prosper, partly due to exchange rate benefits in the emerging markets and wait list problems or availability of sufficient providers in their home countries. I also believe that any company CEO is more than willing to 'outsource' business keeping in mind the bottom line in order to maximise profits, which is the most important reason a corporation exists.

Over the long term, however, I believe that both countries will become superpowers over the coming decades, at least economically speaking, while politically they may share some of the burden of international decision making.

Despite many issues in both India and China that are emerging market economies, it has been rightly pointed out in the NYT article that both countries have grown using different models and are yet successful.

2009 may be an opportune time to invest slowly and in selective companies or industries in each of them.

A very interesting read.

The Next World Order
By GURCHARAN DAS
Published: January 1, 2009