China versus India: Market Comparison
The globalisation of a company goes always along with a great amount of opportunities but also with many risks. India and China are both very interesting countries to move into.
India became democratic after gaining independence from Britain in 1947. From then, up to the early 1990s India has had a mixed economy, which was identified by a lot of state-owned businesses, centralized planning, and subsidies. This lead to a dramatic constriction of the private sector. During this time it was really hard for the private sector to expand because they needed a permission of the government to do so. Sometimes the companies had to wait for month to get the allowance for normal business activities such as expanding production or hiring a new director. Additional there where high import tariffs, production quotas, very strict labour laws, highly restricted foreign investment and price setting by the government, instead of by the market, which made impossible for the private sector to get stronger and almost very hard and unattractive for foreign investors to go into the Indian market.
In 1991, the government recognized that it could not go on like this and created a high-flying economic reform programme. The industrial licensing system got removed and areas which where reserved for the stated-owned companies got opened up to the private sector. Also foreign investors where welcome now. Foreign ownership of 100 per cent was still only allowed under certain circumstances but foreign equity stakes, up to 51 per cent, got permission without any problems. In addition, raw material and a lot of industrial goods could be imported for free and the maximum tariff for imported goods was cut down from 400 per cent to 65 per cent. The plans of the government to privatize the state-owned turned out to be not as successful as it should have been because of a strong communistic opposition. In 1999 only 60 of the 300 state-owned businesses went over into private hands.
All these reforms have been very successful, India managed to grow 6.1 per cent in the 1990s and in spite of the global economic slowdown they still managed a growth of 5.5 per cent in 2002. The foreign investments rose from $150 million in 1991 to $ 5 billion in 2002.
But still the political opposition has slowed down further import tariff reductions because they fear India to get flooded from cheap Chinese products as soon as the barriers get lowered again. The strict labour laws have not been loosened yet and some products are, according to the actual law, only allowed to be produced by a small company.
China is one of the countries which turned despite a communist government, from a command to a mixed economy. In 1949 the people's Republic of China was founded by the Chinese Communist Party under Mao Zedong. Under his leadership of almost 30 years to 1976 the GDP already had an average annual growth 6.7 per cent with was mostly due to...