China's hardware, India's
software By Anna Greenspan
SHANGHAI - China's cultural sector, like
everything else in the country, is undergoing a
mass construction boom. This is evident in
large-scale projects such as Beijing's National
Grand Theater, a giant egg-shaped complex designed
by French architect Paul Andreu with a
controversial price tag of nearly 3 billion yuan
(US$372 million).
Not to be outdone,
Shanghai's government recently announced plans to
build a "cultural network" to be completed by the
time the
city
hosts the World Expo in 2010. The "network" will
consist of one cultural institution within 15
minutes' walk of any spot in the city and include
40 libraries, 150 museums and 200 community
cultural centers.
Skeptics worry, however,
that these venues are being built with little
regard for their management and content. It's one
thing to have the hardware, these critics contend,
but what China now needs is to concentrate on
software.
Across the border, India faces
the opposite problem. Bangalore, the country's
"silicon plateau", is groaning under the weight of
a crumbling infrastructure. Frequent power cuts
and paralyzing traffic jams are forcing the big
information-technology (IT) companies to look
elsewhere to expand. India has the software, they
complain, but lacks the hardware to sustain it.
Much attention is being paid to the fact
that Asia's giant neighbors, with more than a
third of the planet's population and two of the
fastest-growing economies in the world, are
entering a new era of cooperation. Enthusiasm for
increasing cross-border trade makes much of the
two nations' hardware/software divide.
When Chinese Premier Wen Jiabao visited
India last year, his first stop was not the
political capital New Delhi but the IT hub
Bangalore. In this he was following in the
footsteps of his predecessor Zhu Rongji who, in
his 2002 trip to India, made a point of visiting
the Bangalore headquarters of Infosys - one of
Asia's most successful software companies.
Addressing a crowd of 4,000 IT professionals, Zhu
delighted those present by promoting a new era in
Sino-Indian cooperation.
"You are No 1 in
software. We are No 3 in hardware," he said. "If
we put these together, we are the world's No 1."
Zhu was given a standing ovation.
Speaking
to a similar audience at TCS - one of the only
companies that rivals Infosys in both size and
success - Wen predictably reiterated Zhu's famous
remark: "Cooperation is just like two pagodas, one
hardware and one software," Wen said. "Combined,
we can take the leadership position in the world.
When the particular day comes, it will signify the
coming of the Asian century of the IT industry."
It is no surprise that Asia's giant
neighbors would seek to combine each other's
reciprocal strengths in IT. According to a recent
Forrester report, "How India, China Redefine the
Tech World Order", over the next five years
markets in India and China will account for nearly
40% of all personal computers (PCs) and a
significant share of all mobile telephones sold
worldwide. Production sectors in both countries
stand to gain enormously from this potential
growth.
Yet as vital as these high-tech
trends are, there is more to the idea that India
and China are split along hardware/software lines.
To view the rise of Asia's giants through the
prism of IT reveals an uncanny complementarity
that has emerged between the two nations. India
and China are each weak in precisely those areas
where the other is strong.
In India, for
example, manufacturing remains strangled by red
tape while cities are hobbled by potholed roads
and frequent power cuts. Yet India's world-class
media, free flow of information and democratic
institutions offer a stark comparison with the
authoritarianism and censorship imposed by China.
As critics of such cities as Shanghai note, it isn't
enough to have designer coffee shops: great
metropolises also depend on the "newspapers you
read with your coffee". The rise of Asia's giants
is now, to quote columnist Thomas Friedman, "the
greatest show on Earth". But if both India and
China are to continue growing fast, it is
essential that they start learning from each
other.
China's booming hardware sector -
now among the strongest in the world - was at
least 20 years in the making. The country's
development in the 1980s and '90s coincided with
an intense concentration on the manufacture of
electronic goods. High-tech companies
headquartered elsewhere in Asia soon took
advantage of low labor costs and favorable
investment conditions setting up offshore
factories on the Chinese mainland that would help
power the country's export-led growth. By 2003,
writes Morgan Stanley's Andy Xie, "high-technology
goods accounted for 20% of the total but 40% of
the growth in China's exports".
India's
development, on the other hand, owes much to its
emphasis on software and IT services - by far the
fastest-growing sector in the Indian economy. The
industry was aided by a host of factors including
a large English-language workforce, a handful of
world-class educational institutions and a lack of
needed talent in the West, especially during the
Y2K or "millennium bug" crisis. Today, the Indian
software engineer has taken a place alongside
McDonald's and MTV as one of the foremost symbols
of globalization.
Most of the big players
in India's software industry - such companies as
Satyam, TCS and Wipro - have set up offices in
Shanghai or Beijing. Infosys is set
to expand its presence in China, investing $65
million to build development centers in the
"information corridor" of the Pearl River Delta.
The business strategy is to build up local talent
and expertise, which can then be used not only to
serve customers in the West, but also to reach
important markets in East Asia - especially Japan.
In addition, Indian software companies are eager
to tap the growing Chinese domestic market,
forecast to become one of the biggest consumers of
software services in the world.
Chinese
businesses have been slower to establish bases in
India. The most significant investment so far
comes from Huawei, a Chinese electronics
manufacturer that, seeking to take advantage of
India's software talent, has established a
research-and-development (R&D) institute in
Bangalore. While in India both the production and
consumption of consumer electronics are still
relatively low, the country's vast population and
rising middle class make it a hugely important
potential market.
Building on the growing
Sino-Indian friendship, Chinese companies, which
understand the needs and constraints of customers
in developing societies are well positioned to
take advantage of this vast new opportunity. If
bilateral trade continues to expand, it is
possible that, as Howard French writes in the New
York Times, the near future will see "Indian
employees in the back offices of rising Chinese
corporations, implementing business systems
devised not by Oracle or IBM, but by Indian
companies like Wipro or Satyam".
Potential
trade between Indian software and Chinese hardware
is not limited to the sphere of IT. China's growth
has depended on a deliberate concentration and
mass investment in the country's hardware. The
skyscrapers, roads and bridges featured in images
of the "New China" extend well beyond the "model
cities" of Shanghai, Beijing and Guangzhou.
Relative to that in most developing countries,
China's basic infrastructure - water, electricity,
communication and transportation grids - runs
smoothly and efficiently, despite inevitable
stresses.
The manufacturing sector
accounts for 46% of the Chinese economy. The "hard
goods" produced in what is now known as the
"world's factory" are shipped to consumers across
the world, who are finding the "made in China"
stamp on everything from computers to clothes.
India's development, on the other hand,
has followed a process of "soft"
industrialization. Focusing primarily on service
industries, India can now boast capital markets
and a banking and legal system that are all more
advanced than those of its faster-growing
neighbor.
Companies such as Infosys are
betting on this "software gap". Though at present
the amount spent on services is limited compared
with the amount spent on hardware, large Chinese
companies, particularly in such areas as finance,
will inevitably grow ever more reliant on the IT
services that Indian companies can provide. "We
believe Chinese banks are in the same state that
Indian banks were in 15 years back," said K S
Suryaprakash of Infosys. "We rode that curve in
India and we believe we can ride it here."
Similarly the National Institute of
Information Technology - the oldest and largest of
India's private IT education firms - which has
been working in China for more than five years,
aims eventually to train hundreds of thousands of
Chinese not only in the area of programming but
also in such high-value skills as project
management, analysis and system design. They will
thus help China assimilate such "soft" skills as
the ability to work in ambiguous situations, to
create structure where none exists, to solve
problems in a largely chaotic environment, and to
handle projects with flexibility and creativity.
On both sides of the border, people are
paying more attention to their neighbor's
strengths and weaknesses. India has been abuzz
with China hype for years. Newspaper articles,
magazine columnists, government officials and
private entrepreneurs are all obsessed with the
dragon next door. "China holds a strange
fascination," claimed techno-theorist Madanmohan
Rao, "because to see another country like us grow
so fast and so spectacularly has just left
everyone spellbound."
In particular, it is
becoming increasingly clear to most Indians that
the backward state of their "hardware" - both in
manufacturing and infrastructure - is an enormous
drag on their economy and one of the primary
reasons they lag so far behind their northeastern
neighbor. No matter how strong its growth, the
relatively elitist software industry cannot hope
to provide work for millions of rural poor.
India's development thus crucially depends on
reviving its manufacturing sector.
Middle-class Indians have also become
intolerant of their shoddy roads and unreliable
water and power supplies. In response the
government has recently begun a huge
infrastructure push, which includes a plan to
"widen and pave some 40,000 miles [64,000
kilometers] of narrow, decrepit national highways,
with the first leg, budgeted at $6.25 billion, to
be largely complete by next year," according to
New York Times reporter Amy Walden. "It amounts to
the most ambitious infrastructure project since
independence in 1947 and the British building of
the subcontinent's railway network the century
before."
At the same time, Chinese are
becoming ever more aware that there is a gulf
between their country's futuristic technology,
well-paved streets and glistening skyscrapers and
the lack of flexibility and independent creativity
in the culture. "We have the hardware, but not the
software" has become a cliche among urban Chinese.
In Shanghai, goals for growth all concentrate on
improving the "software environment of urban
development" the 2010 Expo website proclaims.
There is a countrywide emphasis on educational
reform, improving human resources, strengthening
the legal system and developing cultural sectors.
The fact that India has thrived in
software while China excelled in hardware is no
accident. India's greatest advantage is its
political freedom, which has allowed the
creativity and free flow of information that
software requires. Its most powerful limitation,
on the other hand, has always been an economy
strangled by state control. The strength of
software is that it has been able to flourish
outside this constraint. The virtual nature of the
technology is far too futuristic for slow, archaic
government bureaucracy ever to get a real grip on.
Thus for many years the Indian state was incapable
of regulating software for the simple reason that
it could not understand it. Moreover, since
software development doesn't require massive
capital investment - there is no need to set up
large factories or purchase expensive machinery -
the industry grew despite India's lack of economic
liberalism, which so hindered the growth of its
hardware sector.
The situation in China is
precisely the reverse. The country's recent rise
stems from the policies of economic reform and
openness implemented by Deng Xiaoping. It thus
countered India's political freedom with relative
economic freedom, which encouraged foreign direct
investment and ensured that manufacturing centers
could be established quickly and operate
efficiently. In addition, the Chinese government
was able to provide the security and help
companies desire when putting up the massive
investment required to set up factories that
produce hard goods.
Chinese hard
industrialism also has a negative advantage. It
benefits from avoiding the great weaknesses of
Chinese authoritarian rule. Entrepreneurs who
concentrate on manufacturing do not run the risk
of censorship, or have to worry about crossing
politically sensitive lines.
The
hardware/software divide thus stretches from the
economic to the political sphere. To merge these
two sides would clearly be a very potent
combination. Yet for this to occur, India's "soft"
power with its focus on services, the free flow of
information, a strong civil society and resilient
democracy must acquire the discipline, focus and
determination to implement the pro-growth policies
that have allowed China to boom. Across the border
meanwhile, China's traditionally rigid
authoritarianism must soften enough to allow for
the innovation, creativity and flexibility that
the next stage of development requires.
Anna Greenspan writes on the
rise of Asia's giants, China and India. She can be
reached atanna_greenspan@hotmail.com.
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