China and India are undoubtedly the economic phenomena of this generation. Both are in the midst of an economic transformation that is startling in its scale and scope. Both are criticised – China, for still being an autocratic, undemocratic regime, India for not doing enough for its poor people – but there is no doubt that they are currently the most interesting (and for some, the most unnerving) economies in the world. Both countries are the subject of the moment in boardrooms and business schools around the globe.
What is China’s greatest achievement? It has become the workshop of the world, manufacturing pretty much anything you can think of. From the two major ports of Hong Kong and Shenzhen, one container leaves for export every second of the year – and that’s less than half of China’s export total. But China’s true triumph may lie in something else: in bringing hundreds of millions of people out of poverty.
The Atlantic Monthly magazine recently dedicated a special edition to understanding China. James Fallows, a top correspondent, spent a great deal of time in the economic heartland, visiting the factories where more than 100 million Chinese workers toil and talking to insiders about what China is really about.
One of his observations: “For all the billions of dollars given in foreign aid and supervised by the World Bank, the greatest good for the greatest number of the world’s impoverished people in at least the last half century has been achieved in China, thanks largely to the outsourcing boom.”
But let us be in no illusions: outsourcing is a capitalist phenomenon, and capitalism does not have great immediate rewards for those at the bottom of its food chain. In China’s factory towns, Fallows observed the monthly pay rates to be US$ 110-155. That may soon be one-tenth of America’s minimum wage.
The attraction to all the world’s brand-owners has been obvious: outsource your manufacturing to China and beat your costs into the ground. Does China get much out of this? Fallows estimates that a generic laptop costs US$ 1,000 in the US – but just $30-40 of that stays in China, with the factory owner and his workers. For a high-end Ethernet cable that retails for $30 in the US, the Chinese company gets just $2 per piece.
This, of course, is very good for America: for consumers (sometimes) and for shareholders (always). But is it also good for China? Fallows wrote that he was surprised to see that it is. True, the environmental problems created by the factory boom are enormous. True, millions of people earn seemingly very little and work long 12-hour shifts. But this was also the case with Britain and America when they built their great industries, their factory towns and, ultimately, their middle classes. Fallows noted that the Chinese woman working in a factory town may be better off than an American on minimum wage: she can save much of what she earns, and feels she is on the way up. The American can’t, and doesn’t.
So China, where the world outsources manufacturing, and India, where the same happens with services, are on an upward curve. Yet both would recognise that they can only truly benefit by bringing more high-value work within their borders. Here, India may have the advantage. China has some way to go in becoming world-class in high-end activities like management, design and branding; India is already there. Global companies are teeming with Indian CEOs and executives – but very few Chinese. It may be some time before China can come out of the low-wage low-cost model.
Yet a recent development highlights India’s own problems. India’s bureaucracy – its notorious ‘licence raj’ – is proving very difficult to dismantle, and analysts say this remains the biggest stumbling block to investment. In November 2006, Intel Corp said it was waiting for India to formulate a policy before deciding on plans to start manufacturing in the country. Four months later, it announced it was building a $2.5 billion microchip plant in north China instead. This is not just an assembly line: it will have many high-end engineering and design jobs, exactly what China and India need.
The lessons for Kenya? The key thing is obvious: we must stay engaged with the world at large. We must be open for business, and must provide a business-friendly environment that brings work to Kenya. The clever thing to do, as China and India are doing (and Singapore and South Korea did before them) is to use foreign technology and expertise to get on to the ladder.
How fast we move up that ladder is up to us. We need a generation of Kenyans who understand high-end work: engineering, finance, design, marketing and top management. For that, we need leading-edge education and exposure. We must in time be able to capture true value within our borders, not provide it for others. We must learn from the world, so that someday we can be the ones doing the teaching.
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{ 9 comments… read them below or add one }
I think that what separates us from India and China is that despites all the issues that ail them they have a sense of self and how it relates to the world. Having visited both countries I was amazed at how even though they were third world countries like Kenya with all the same problems. Both countries were looking far into the future and could see how their role in it which despite the corruption and all the other ill motioned in your article they had better planning and cohesive for site. In Kenya we are incapable of a vision that goes beyond PNU and ODM and whose time it is to “eat”. Our 30 year development plans are hollow and stock full of clichés. At the peril of sounding like a self help/ Ophra/ love your self pulp psychologist we in Kenya need to ask ourselves who we are and what that means to us and the world in general.
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It is very true that what separates success from failure (individual, organisational, national) is often a clear sense of identity. In Kenya the only identity we (regardless of skin colour – this applies equally to our wahindi and wazungu) truly espouse is the ‘village’ one – the one that makes us suspicious of (Kenyan) outsiders, but ready to embrace and mimic anything international. Is there a clear sense of what we are, what we stand for, what we want to be? No ‘leader’ can give us that.
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We lack urgency. We lack ambition. The fibre-optic cable link will be a game-changer for Kenya, but its now delayed by another 12 months to Q1 2009 if not more and I’ve not felt a sense of urgency about why we require it.
Every yr, funds are returned to Treasury yet our infrastructure remains below par even for a 3rd world nation.
Look at the sugar industry-given 4 years and its only this yr with a couple of months before Feb 2008 that they are asking for an extension.
China is running after every resource they can get their hands on even when growing at 10%+ for the last 3 decades.
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TBH, I also fail to understand why we make such little noise about the fibre-optic link delay, the various telecomms licensing fiascos, the apparent impossibility of extending our road network.
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Good observation and research, we look forward having a similar Kenya to China and India. Kindly update through e-mail.
Thank u and enjoy ua day.
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If I may add, another thing that separate China and India from other developing countries are the people’s spirit. “Yes, we can” spirit is very important in running — not walking — forward to the future. I’ve seen a lot potencies in many countries, either the people or the natural resources, are wasted because they think they can not do it. Frankly, I’ve hardly heard factories in China said “No, we can not do it”. They will try and try to improve themselves.
J.C. Carvill
Email: support@cosmosing.com
http://www.cosmosing.com/jeanclaudecarvill/index.php
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Thanks for your great articles. I love reading them. Keep it up!
No country can develop without good,strong and wise leadership and opinion shapers, whether they have resources or not. The road to development is replete with many disastrous rulers masquerading as leaders, in many countries.
We are economically moving ahead, but only financially.We accept the lowest standards any time we are faced with hard choices. Economically instead of having buses we would rather have ‘matatus’; instead of shopping centres we would rather have kiosks, and instead of building new houses we would rather encourage extensions to create new opportunities. Many starting employees have to contend with mediocre services. Imagine if we went for good buses, shopping centres and new houses. For a start, these would ensure that we build thousands of highly skilled human resource in these and related industries. While building others indirectly.
Let us not talk about telecommunications and infrastructure for now.
We also need strong and independent lobby groups, business leaders and opinion shapers to keep upping the stakes fo the country and government. China, India, whether intentionally or by default, have had leaders or groups of leaders who have decided to break barriers and use their resources, human, mineral resources and finance, for the benefit of their country.
But no administration moves without some pressure. It is a dinosaur and a prick on its foot takes thousand of years to get to the brain. You need a volcano pressure, administered.
As we have been told, we cannot solve the current problems with the same mindsets that built them. We need leaders who have vision and are ready to pay the price to see them through.
We have to intentionally agree to remove any stumbling, blocks from our minds, otherwise along the way, we will fall and be back where we started.
We need to be also wise, positive,proactive and of high integrity.
Mark.
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Having been in India for the past 5yrs & with the continous observation of the trend in economic growth: for Kenya to catch up or even make an upward trend we need to be broad minded. In India there is no specialisation; none is confined to a particular field. The whole nation is striving to gain whatever handy knowledge & experience there is for contemporary growth. Pple don’t think in terms of mine & thine but a community considers the growth & development of every individual in it; there are no weaklings. This leads to collective bargaining & enhances uniformity in economic growth. No venture is left unexploited & no trade too casual for anyone. The same applies to China so we have a choice & a task.
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I contend that the underlying success of these upcoming powerhouses is not just the economic boom per se, but the role that culture in all its facets plays in unifying the nation and creating a sense of self-belief and identity in its people. Through whatever means, people in these nations and those in the Tiger Economies have not let western brainwashing take center stage in their lives, but blended western thought with their own and developed a concoction well worth its salt. Can I thus theorise that a binding national culture is the key to Kenya’s economic development?
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