Wednesday, November 16, 2005

The China Miracle: It's Still Work In Progress


A Pucca Hut Amidst Residential Complexes Outside Beijing (Pix By Author)

It was probably on one of Shenzhen’s landscaped sea facing promenades, driving back into city from the factories of one of China’s largest computer hardware makers that it dawned on me that we are never going to be like China, not in my generation for sure.

First, to use an analogy, comparing ourselves with China is really akin to running a 100 metre race against Jamaican Asafa Powell (9.77 seconds world record) when the last time you ran competitively was in school or something close to that. It’s a complete waste of time because you will perhaps cover ten metres when Powell will be hitting the finish line.

Going on to speculate whether Mr Powell injected steroids to ensure is win is a further waste of time. Instead, India should look for a different track and field event, like a relay race or even shooting, where we have a ghost of a chance. And yes, we should stop trying to speak about their warts in the same breadth as their success, it only lulls us to further complacency.

Don't Draw Conclusions, Yet

That’s because China, as this writer has concluded in his limited intelligence, is Work In Progress. And in any project that is WIP, you can’t begin drawing conclusions like it was a done deal. At least the Indians don’t have any business doing so.

Of course, China has limited or no religious freedom, you can’t rave and rant against the government like you can on prime time television in India, there are restrictions on who goes where (Houko permits), you can’t pile on to a city like Shenzhen and Shanghai unless you have a job and of course, there is a good chance that if your little house in a big city is coming in the way of `development’, it will be razed down, though you will be given an alternative, possibly 20 km away.

And yet, everywhere I went, I met Chinese who were going about their business coldly and methodically and Indians who while admiring all that the Chinese have achieved, were quick to point out that all this came at a price, that development was only confined to urban China and that no development was worth the price that was being paid. And that seems to be a problem more than a smart observation.

Why Infrastructure ?

“Would you prefer the China model where you get all the glitzy infrastructure but can get thrown into jail for free speech or the Indian model where you have free speech, freedom but not the development ?” asked a recently posted senior Indian public sector banker over dinner at an Indian restaurant in downtown Shanghai. According to him, there was no mix or match, it was either, or.

One wonders. To ask some plan Joe questions. Since most of the amazement centers around infrastructure, why is China building these highways ? Surely, It can’t be because some party members in Beijing want to take summer trips to their villages in the less developed north west China.

Note that China now has over 1.9 million kilometers of highways (we have 58,000 km) and over 30,000 km of expressways. There is a $241 billion plan to connect all provincial cities, large cities with population over 500,000 and small cities over 200,000 with expressways in 30 years. Even today China claims only 99.6 per cent connectivity.

Sunil Mishra, Confederation of Indian Industry’s (CII) man in Shanghai says he has visited 17 provinces (in 23) and over 30 cities in China in the last year or so. His visits are largely to understand, on behalf of Indian business, where the new opportunities lie. He thinks Western China is where Indian businesses should be heading now.

Spreading Prosperity

More importantly, Mishra says, the remotest of towns and cities he’s visited, right upto a place called Khasgar (autonomous region of Xinjiang) in central Asia, bordering Kazhakhastan, the roads are as good as any in prosperous east China. “I was amazed when I visited Urumqi (the capital), not only was there an excellent road network but also five five-star hotels.” This writer struggled for an analogy but would guess its perhaps like saying Guwahati or Kohima had the same road network as Delhi.

So, if China has built and continues to build roads into the hinterland, it wants prosperity to spread and further economic integration. At a point of time, its unlikely to have achieved the final result, whatever that might be, but its better than what it was before. Or, as an Indian bureaucrat in China told me, given the country’s track record of peasant revolts, they have little choice but to reach out to the hinterland quickly. Presumably, Indian politicians live with similar fears, vis-à-vis the ballot box, or do they not ?

Question Number Two. Is the average Chinese better or worse off today ? What do you think ? Okay, do they cower in fear because they might be dragged to Tinamen Square and shot in public view for saying the wrong thing. Not quite. The Chinese we met are affable, open to describing conditions as they are, the processes that drive them, occasionaly admitting to corruption but seem quite happy with their lives.

Dissent Is Tough

Open dissent is not encouraged. There is a definite restraint in expressing views, no one was willing to debate what would happen if the one-child norm was violated, “We can’t do it,” is all at least two young Chinese said. And perhaps that’s where the problem is. Equally, they are not the most comfortable discussing such views with foreigners, which is what we are to them. Indians rise most honourably to such occasions, but the Chinese don’t.

Young Chinese Soldiers On The Great Wall: "From Here, We Are Off To Wal Mart !"

On the famed Shanghai waterfront (The Bund) with its breathtaking view of Pudong’s massive skyscrapers on one bank and classic British heritage stone buildings on the other, young couples hold hands and walk around, absorbed in conversation and each other and in some cases, doing a few more intimate things. This did not look like a communist state where the state would come after you for moral turpitude.

China has a model of growth. It has a communist system which did not deliver economically and is doing so now. That’s to the nation’s credit. I live in a democracy where the roads outside my house are in constant disrepair, because some corporator does not care or is eating money. The model to my mind has worked, in fits and starts. I love my country, I live here, and I am happy I can protest all I want, though fat good it has done me. So, I would rather not point to the warts in China but see the learnings I can take back.

Skyscrapers & Huts

Driving out of Beijing city, in the middle of large clumps of residential complexes, stood small rows of pucca huts (see picture), an indication that prosperity is relative. In other parts, a little away from Shanghai, you can see even thatched houses which look a little unusual considering the quality of road and the kind of vehicles on them. Clearly, there are disparities. And that’s because its WIP, not the final product.

If you want to feel good about India, the place to visit is Beijing’s sprawling Zhong Gun Cun Science & Technology Park. The big names like Oracle and Lenovo are already here and so are mid size software outsourcing firms like Beyondsoft. A clear appreciation for India’s IT success hung in the air. Founder & CEO Wang Bin admitted China had a long way to go, particularly since the people and the skills in that magnitude were not just not there.

But then, he wanted to learn from India. And wanted to explore tie-ups. It did not strike me that he would go home and tell his wife, I met these Indians, they are smart, passionate and they’ve cracked the software business. But oh, they have 350 million people below poverty line, so its okay.

This article appeared in the Hindustan Times, Bombay on 23 November. The writer was part of a CII Young Indians delegation to China and this is his third and also the longest visit to that country.

Wednesday, November 09, 2005

Do IT Clusters Foster Inequality ?

A few months ago, walking out of the Infosys Technologies Bangalore HQ from its main road exit and towards the car parked off the bustling Hosur road, one couldn’t help but notice the little `bazaars’ doing brisk business on the side lanes, mostly with locals. The vendors range from robust young men hawking pots and pans to frail old women haunched over small heaps of leafy vegetables, eking out a surely less than modest living.

The contrast between the dollar riches generated behind the fortified walls of Infosys just metres away or for that matter the scores of other high technology campuses and the living and working standards (it may not be poverty) of the people bordering them has existed for a while, but has rarely been seen as a contradiction, not to us folks living here at least.

The reasons are well known. IT companies have created thousands of high paying jobs, given a terrific leg-up in India brand equity and, collaterally, become a beacon for doing business the right way, individually and collectively. Their detached existence from the immediate environment is, rightly, seen as an imperative for their efficiency and success.

Time For Tough Questions ?

Yet, for all the glory and gains the hi tech companies and the clusters they inhabit have brought to the country, perhaps its time to play devil’s advocate and ask some questions. First, do hi-tech clusters really benefit the local populace and economy over the long term And second, should Indian IT in this regard take a few lessons from manufacturing ?

Former prime minister Deve Gowda’s recent outbursts against Infosys in specific are worth viewing in this context. Whatever his intentions, is Gowda, like all shrewd and perceptive politicians, attempting to bring to the fore undercurrents of discontent that are already flowing in the polity. If so, should not the IT industry find and focus on the basic premise here rather than the battle. And see Gowda’s tantrums as a warning bell of sorts.

Before addressing these points, its instructive to revisit the IT (particularly the big guys) industry’s two-pronged approach to development. The first is to run highly efficient, world class enterprises that create jobs, attract more capital, fuel local GDP and create prosperity. The second arm of the model involves returning the profits generated, or parts of it, in some way to the society.

There are two aspects to the second arm. Most if not all the time and effort expended for this is intermediated either individually or through trusts. For instance, Infosys’ CFO Mohandas Pai drives Akshay Patra, a successful, privately funded mid-day meal scheme that has its genesis in Bangalore but is now a nation-wide effort. Infosys and Satyam Computer both have independent trusts that work with villages in their respective states and do commendable work.

We Want A Quick Flow, Not A Trickle !

So, it cannot be said that IT companies or their employees are not working for or with society and the like. But it could be stated that the “We believe in the trickle down theory” corporate approach may not mesh well with a polity that is increasingly demanding gratification here and now. “There is no patience for trickle down. In this age, inequity cannot be tolerated for more than a day,” says Boston Consulting Group India chief Arun Maira.

A chance meeting recently with German politician (Member of European Parliament) Dr Jan Christian Ehler threw up some interesting thoughts. According to him, from a government-state point of view, every Euro spent on overall infrastructure had brought back greater gains over time than have hi-tech clusters, at least in Germany. His argument; hi-tech clusters do not work over the longer term, at least in isolation.

This writer tried to follow that thought up with Harald Bathelt, Professor of Economic Geography at University of Marburg (also in Germany). Bathelt, who has studied clusters in many parts of the world, says the front and back linkages between knowledge clusters and their environment are very weak. “They are good for the economy but in many ways they are cathedrals in the desert,” he says.

Onus On Government As Well

Whose problem is it ? Tough to answer that because hi-tech clusters can grow `accidentally’ or be strategically driven. The government may be involved at genesis or a later stage of development. A good example of the former is Tidel Park in Chennai while Whitefield in Bangalore or Hi Tech City in Hyderabad reflect the latter.

In a short term politicians may well demand: what has a certain industry has done for the local economy ? The answer to that lies with both. For the government, the challenge is to de-risk quickly. Says Bathelt, “A single industry focus is not healthy, there can be changes in world markets, business cycles and so on. The Swiss government focused too strongly on the watch industry and everyone suffered when there was a downturn.”

So, instead of being seen as only working for IT, governments must visibly work on creating multiple enabling environments. The Karnataka government’s current focus appears to be to de-risk Bangalore rather than the industry. So while its good news that fresh IT investments will go towards Mangalore and Mysore, what is also perhaps required is a conscious, visible attempt to draw in investments in other sectors here.

The Big Perception Game

The need to do this has not escaped planners now or in the past. Andhra Pradesh has prepared exhaustive plans for massive job creation in the textiles industry, Maharashtra even wants to develop wine ! Unfortunately, this is a bigger perception game than reality. So, while a strong automotive cluster is blooming near Mysore (thanks to Toyota), not much will be written or talked about it.

On the flip side, for sure no one will ask what Toyota has done for Karnataka or Hyundai for Chennai, because, intrinsically, these industries have built stronger linkages with the local environment, unlike IT. And they don’t work out of glass buildings ! Which brings us back to the questions posed earlier, particularly since onus will often rest more on industry than on government.

Maira says IT ought to take a few lessons from manufacturing. He quotes his own example, working with Telco (now Tata Motors) in the late 60s and 70s. “Before we built the plants near Pune, then managing director Sumant Moolgaonkar (regarded as the architect of the company's truck business) built a training school and planted trees, showed the local people what the company would do. We also realized that villagers who sold us land did not want money as much as they wanted jobs and a future for a family member.”

Build Schools & Equity ?

Maira says for every glass fortress IT companies erect, they need to build bands in between with schools, clinics that attract ordinary people, not the high skilled workers that will drive their enterprises. “We built a training school in Telco which by the way did not guarantee jobs in Telco. But it gave the people vocational training and the confidence to go elsewhere,” he says.

This is not an argument that goes down well with most IT industry folks, as this writer knows it. There is one solution perhaps. That is to take a walk outside their campuses on Hosur Road and talk to the old lady selling vegetables. And see in her eyes whether she has benefited from the billion dollar balance sheets. She has not. And one day she will be Gowda’s biggest weapon.

This article appeared in the Bombay edition of Hindustan Times on Tuesday. The author can be reached at

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