Population, not free trade, behind China and India booms

An academic paper has challenged widely-held views about the emergence of China and India on to the world stage, one of the most important economic phenomena of recent years.

The reasons for the growth of these countries are usually thought to be globalisation, free trade and high wages in developed countries. But a paper by Professor Paul Sharp of the University of Copenhagen suggests the answer is much more prosaic. Drawing on a study of 19th century America for the Economic History Society's annual conference at the weekend, Prof Sharp said America's emergence in the 1800s was due to phenomenal population growth, not the free trade that was sweeping the globe at that time.

The increase in wheat trade between Britain and the United States in the nineteenth century had little to do with falling barriers to trade, but was linked to a rise in production in the US. This was almost certainly the result of large-scale population growth as immigrants flocked to America and became farmers. Prof Sharp's statistical analysis shows that a 1% increase in US production led to a 3% increase in UK imports. US production increased well over 1,000% in the nineteenth century.

The populations of China and India have been outpacing those of western economies for years, so it should be little surprise that most electrical appliances are manufactured in China or that an increasing amount of software outsourcing goes to India.

Source: Guardian

U.S., Immigrants == Future Entrepreneurs

A new study found that one in four technology and engineering companies founded in the U.S. between 1995 and 2005 had at least one founder who was foreign-born. Many of them were from India and China. Nationwide, immigrant-founded companies generated $52 billion in sales in 2005 and employed 450,000 people. Non-citizen immigrants living in the U.S. also are increasingly being named as inventors or co-inventors on patents.

Research shows that immigrants have become a significant driving force in the creation of new businesses and intellectual property in the U.S. -- and that their contributions have increased over the past decade.

If anyone thinking that U.S. is losing its edge due to immigrants this was proved wrong by study. Infact, advantages the U.S. has, is something unique to be able to bring in the world's best and brightest.

The study also found that:

* Indians were the most dominant ethnic group, heading up 26% of the companies that were founded by immigrants.

* California led the way with immigrant entrepreneurs. There, 39% of tech companies were immigrant-founded. New Jersey was close behind, with 38%, and Georgia and Massachusetts also had a healthy number of tech companies founded by immigrants. Immigrant-founded companies were much less common in Washington, North Carolina and Texas.

* Chinese (either mainland or born in Taiwan) were most likely to set up their companies in California. Nearly half of the companies founded by mainland Chinese and 81% of companies headed by Taiwan-born immigrants were in California. Indian-founded companies were well represented in both California and New Jersey, while British entrepreneurs favored California and Georgia.

* The immigrant mix differed from state to state. In Florida, 35% of immigrant-founded companies were started by people from Cuba, Columbia, Brazil, Venezuela or Guatemala. In Massachusetts, Israelis were the biggest founding group, accounting for 17% of immigrant-founded startups. In New Jersey, Indians headed 47% of the new companies started by immigrants. The researchers suggested that the ethnic clustering of start-up companies reflected the tendency of immigrants to form social and business networks.

* Immigrants were most likely to start companies in the semiconductor, computer, communications and software fields. They were least likely to start companies in defense/aerospace and environmental industries.

* While immigrants are making their mark all over the country, Silicon Valley remains a hotbed of entrepreneurship. Just over 52% of start-up companies there had immigrant founders, with the highest proportion from India, followed by China and Taiwan. By comparison, just under 19% of startups in Research Triangle Park, N.C., another high-tech center in the country, had an immigrant founder.

Immigrant entrepreneurs may be especially attractive to investors since they bring certain advantages to the business equation, For instance, there may be a chance for enhanced revenues because the immigrant's ties to the homeland afford a "pathway to lucrative, larger markets." On the cost side, the immigrant may have access to lower-cost workers, supplies and manufacturing facilities in the home country.

I hope U.S. government will take these fact has input and reflect in Immigration Policies accordingly.

Editorial Reviews: Planet India

Planet India: How the Fastest Growing Democracy Is Transforming America and the World

Book Description: India is everywhere: on magazine covers and cinema marquees, at the gym and in the kitchen, in corporate boardrooms and on Capitol Hill. Through incisive reportage and illuminating analysis, Mira Kamdar explores India's astonishing transformation from a developing country into a global powerhouse. She takes us inside India, reporting on the people, companies, and policies defining the new India and revealing how it will profoundly affect our future -- financially, culturally, politically.

The world's fastest-growing democracy, India has the youngest population on the planet, and a middle class as big as the population of the entire United States. Its market has the potential to become the world's largest. As one film producer told Kamdar when they met in New York, "Who needs the American audience? There are only 300 million people here." Not only is India the ideal market for the next new thing, but with a highly skilled English-speaking workforce, elite educational institutions, and growing foreign investment, India is emerging as an innovator of the technology that is driving the next phase of the global economy.

While India is celebrating its meteoric rise, it is also racing against time to bring the benefits of the twenty-first century to the 800 million Indians who live on less than two dollars per day, to find the sustainable energy to fuel its explosive economic growth, and to navigate international and domestic politics to ensure India's security and its status as a global power. India is the world in microcosm: the challenges it faces are universal -- from combating terrorism, poverty, and disease to protecting the environment and creating jobs. The urgency of these challenges for India is spurring innovative solutions, which will catapult it to the top of the new world order. If India succeeds, it will not only save itself, it will save us all. If it fails, we will all suffer. As goes India, so goes the world.

Mira Kamdar tells the dramatic story of a nation in the midst of redefining itself and our world. Provocative, timely, and essential, Planet India is the groundbreaking book that will convince Americans just how high the stakes are -- what there is to lose, and what there is to gain from India's meteoric rise.

Introduction: Life on Planet India

I remember the last time the world was talking about India. It was a fleeting fashion moment following the Beatles' trip to Rishikesh. Nehru collars and beads came into fashion, along with paisley motifs in psychedelic colors. Transcendental Meditation became the latest fad for stress relief. Laugh-In replaced Leave It to Beaver as the iconic American show. India was suddenly cool. Countercultural types embraced India as the antithesis of the West, lost to the empty materialism of the famous "plastics" scene in the movie The Graduate. India wasn't backward; it was wise and spiritual. But then the West moved on. Plastics prevailed, and India faded into the background.

My Indian father's family lived in Bombay. Every few years, we prepared for the incredible journey to the other side of the world. We collected precious supplies for our relatives in India: jeans and sneakers for our growing cousins, huge jars of Tang, later giant bottles of Tylenol, plastic bags of California-grown almonds and pistachios. Our family mailed us lists, and we stuffed whatever we could into our suitcases.

Living in Bombay in 1967 and 1968, I felt like I had been exiled from the real world. My grandparents' flat in Juhu, though surrounded by the homes of Bollywood stars, had no television. Across the main road near the apartment building was a reeking slum. The only relief from the paralyzing heat was to sit under a crazily beating fan. Everything was different: the food, the language, the climate, the rules of what could and couldn't be worn, what could and couldn't be said. There was no privacy. From early morning until late at night, I could hear neighboring housewives banging pots, parents screaming at children, Hindi film songs blasting, and bicyclists ringing their little bells.

In the morning the milkman came around with his cow. My grandmother or one of my aunts brought a brass pot down to him and he squatted next to the cow and sent warm streams of milk into the pot. I learned to keep a keen eye on the milkman to make sure he didn't, via a well-concealed tube, water down the milk. We took the milk upstairs and boiled it. While I sipped hot milk mixed with Ovaltine, I dreamed of dragging my fingers through the condensation on the outside of a tall glass of cold milk.

My aunt and uncle live in Gurgaon now, a booming suburb south of New Delhi. They have two refrigerators and buy pasteurized milk in sealed plastic bags. A huge, flat-screen television with cable brings hundreds of Indian and foreign channels into their living room. They keep in touch with family dispersed around the world via e-mail and telephone. Air conditioners in the bedrooms keep the apartment pleasantly cool. A late-model Honda four-door sedan is parked downstairs.

From the rooftop terrace of my aunt and uncle's flat, I can see buildings going up everywhere, the little tarps of the migrant construction workers dotting vacant lots. Women in full gathered skirts and flowing half-saris, arms covered with bangles up to their shoulders, carry loads of freshly mixed cement in baskets on their heads to the men who transfer the burden onto their own heads before scrambling barefoot up rickety scaffolding to deliver the wet mass. Near the tarps, a child runs crazily next to an old tire he urges forward with a stick. Beyond him, a Citibank office tower rises into view.

On a recent trip to India, I sat in the new Bombay domestic airport waiting for a flight on Kingfisher Airlines, whose slogan is "Fly the Good Times," my laptop propped on my knees. I typed in the code from the card I had just bought from a Tata Indicom kiosk and immediately got a strong wireless connection. On the way to the airport from the old family flat in Juhu, I had passed forlorn groups of destitute families, huddled under an unfinished highway overpass on thin mats of filthy cotton, the little babies naked and snot-nosed. It was the kind of scene that profoundly shocks first-time visitors to India and to which I have never become immune.

As I checked my e-mail in the gleaming terminal among the Indian and foreign businessmen and families waiting for one of the many flights departing for every part of the country, I thought about the India I lived in forty years ago and India today, and I wondered where India would be forty years from now.

"'Where are we headed with our billions?' That is the question India is asking itself," a friend told me in New Delhi over a drink. It is a question the entire world should be asking.

Half my family is Indian. During most of my lifetime, India changed, but did so almost imperceptibly. Then, suddenly, the changes began to come with dizzying speed. With each arrival, I felt I was watching time-lapse photography. No democracy in history has undergone a transformation of India's magnitude or velocity.

Traveling the length and breadth of the country, I witnessed the churning of India's incredible metamorphosis. I interviewed hundreds of people who shared their visions of India's future, most utopian, some grim, with me. I talked to the people in the culture industries who are reimagining India's ancient stories for a new global audience. I met businessmen who are dedicated to including the poor in India's booming economy, even as they take their companies global. I listened to household servants, taxi drivers, farmers, and street vendors talk about their daily struggles, their frustrations, their faith that their children's lives would be better. Everywhere, I was stunned by the pride, the bullishness, the sense that this moment belongs to India. I caught a glimpse of India's future, its possibilities and its perils, and in that future I saw our own, for as goes India, so goes the world.

The World in Microcosm

No other country matters more to the future of our planet than India. There is no challenge we face, no opportunity we covet where India does not have critical relevance. From combating global terror to finding cures for dangerous pandemics, from dealing with the energy crisis to averting the worst scenarios of global warming, from rebalancing stark global inequalities to spurring the vital innovation needed to create jobs and improve lives -- India is now a pivotal player. The world is undergoing a process of profound recalibration in which the rise of Asia is the most important factor. India holds the key to this new world.

India is at once an ancient Asian civilization, a modern nation grounded in Enlightenment values and democratic institutions, and a rising twenty-first-century power. With a population of 1.2 billion, India is the world's largest democracy. It is an open, vibrant society. India's diverse population includes Hindus, Muslims, Sikhs, Christians, Buddhists, Jains, Zoroastrians, Jews, and animists. There are twenty-two official languages in India. Three hundred fifty million Indians speak English.

India is the world in microcosm. Its geography encompasses every climate, from the snowcapped Himalayas to palm-fringed beaches to deserts where nomads and camels roam. A developing country, India is divided among a tiny affluent minority, a rising middle class, and 800 million people who live on less than $2 per day. India faces all the critical problems of our time -- extreme social inequality, employment insecurity, a growing energy crisis, severe water shortages, a degraded environment, global warming, a galloping HIV/AIDS epidemic, terrorist attacks -- on a scale that defies the imagination.

India's goal is breathtaking in scope: transform a developing country of more than 1 billion people into a developed nation and global leader by 2020, and do this as a democracy in an era of resource scarcity and environmental degradation. The world has to cheer India on. If India fails, there is a real risk that our world will become hostage to political chaos, war over dwindling resources, a poisoned environment, and galloping disease. Wealthy enclaves will employ private companies to supply their needs and private militias to protect them from the poor massing at their gates. But, if India succeeds, it will demonstrate that it is possible to lift hundreds of millions of people out of poverty. It will prove that multiethnic, multireligious democracy is not a luxury for rich societies. It will show us how to save our environment, and how to manage in a fractious, multipolar world. India's gambit is truly the venture of the century.

In Search of a New Paradigm

"Our biggest challenge is the challenge nobody has solved in the world: how to grow equity," Mukesh Ambani, chairman of Reliance Industry, India's biggest company, told me. Can liberal democracies forge a global market economy that is environmentally sustainable and reduces inequality? The United States has failed to achieve this. While it has proven its capacity to generate vast wealth, the so-called Washington consensus has advanced corporate interests over the welfare of average citizens and small businesses, exacerbated gaps between the affluent and the poor, and operated with stunning disregard for the environment. America's prosperity is dependent on overconsumption of the world's resources -- with just 6 percent of the world's population, the United States consumes 30 percent of the earth's resources. And it produces a disproportionate share -- 25 percent -- of dangerous greenhouse gases.

American technological, economic, and strategic dominance is being challenged for the first time since the fall of the Soviet Union. Ironically, the communication and information technologies that propelled America to the forefront during the 1990s are now contributing to the erosion of American dominance. These technologies have created a world where time and space are compressed as never before, where ideas, money, services, and people are constantly in motion, freed from the constraints of national boundaries.

The process of globalization spurred by these technological innovations...

Excerpt. © Reprinted by permission. All rights reserved by publisher.
Source: Amazon

Wage Inflation...not to Worry

Widely acknowledged by the outsourcers themselves and until now kept at bay by strong growth, the continual increase in salaries at top Indian companies (tech specially) is changing from annoyance to a present danger. Indian companies are no longer merely competing with one another for the best and the brightest, they must also compete with other MNC opened shops in india.

Why its not to worry? because:

• The rising costs will turn away the benefits of India. Even if the wage inflation rate continues to grow at the present rate, then only in 2032 will there be an overlap with the rates of U.S.
• wages paid to workers in India represent such a small percentage of total costs for companies that operate there, a 15% increase in salaries results in no more than a 2% rise in prices charged for IT services, says Narayanan. That's well below the current U.S. inflation rate.
• IT suppliers in India, for example, are lowering their costs by moving to 'tier two' cities--away from traditional high-tech centres- and opening delivery centres in other countries.

RBI is keeping eye on it - the wage disparity between the U.S. and India remains vast, and it's going to take many years of double-digit inflation in India for that to change. till then relax.

but our worries are : Remaining in position of low-cost workfoce is NOT something great and to be proud of. heap low-cost IT work which only means the nation will remain a poor developing country for another decade or so.

• The cost of outsourcing to India is the cost of maintaining a sufficient stable quality of product from India.
• Wage inflation isn't the issue here - staff stability is. As wages go up, and the supply of qualified labor goes down in India, the job hopping that will occur will be as bad there as it was here in the early 90's. This will have a further deleterious effect on product quality and quantity out of India.
• This will put almost instant pressure on margins for companies. They will have to work incentives and bonuses just to get key staff that are trained and up to speed on key client projects to stay on board.
  

The timeframe will be compressed. It's not going to take India as much time. Witness the evolution of the middle classes in the Asian Tigers in the 90's. It didn't take long for China to start robbing Malaysia, Taiwan, and Thailand of manufacturing business that made its way originally from Mexico.

In other words, India's future as the tech industry's top outsourcing hub rests not so much on whether it can continue to offer the lowest costs--that seems probable--but whether it will produce enough skilled graduates to ensure that the work is done at acceptable quality levels.

Tata-Corus deal closed, so What that means..??

India's Tata Steel has won the bidding war for Anglo-Dutch steelmaker Corus Group with an $12.1 billion auction offer that trumped Brazilian rival Companhia Siderurgica Nacional.

What this means to Tata Steel?
with the trade barriers having been lowered, though not eliminated, most businesses have to align/ benchmark themselves against global practices. National beliefs, markets and boundaries have a role in shaping corporate strategy. But there are other forces as well - customers, technology, investors ! For many of the people in these the national borders, increasingly just mean additional/ specific documentation to be undertaken

For the tata’s this would mean that they would have about 50% of their revenues come from international customers/ operations. For a group which is as diversified and integrated into India as Tata, this is a significant change in their perceptions of business opportunities. Being a global company, does have advantages, but also different benchmarks and expectations. The next 5 years would show whether they have been able to graduate from an Indian Group to a Global group, keeping their core-values intact.

What this means to India?
A decade back, when pessimists thought that opening up of Indian economy will lead to the opposite result - all Indian companies being bought out by maruding foreigners but for the past few years, India Inc. has been looking abroad and lots of great buys have happened.

Tatas themselves have led the pack (with the acquiring of Tyco, Tetley, Daewoo’s Truck business and now Corus), like how they did in the last century - whether it be starting a premier institution - IISc & TIFR or starting aviation industry, steel production, Motors, Sofware services/Outsourcing (TCS)

It seems the phenomenon is spreading throughout, whether it is Pharma, Software/ITeS, Steel, Electronics, Beverages/FMCG… Even public sector companies like IOC and ONGC are refreshingly aggressive in this business. In the future, I would like to see mammoth companies like Indian Railways, SBI (and other group of Indian banks are much healthier than most Asian banks), BSNL, Power Corporations to be removed off their Shackles and enter the world economy in a big way.

and Interesting trend to notice.. Now, India's FDI outflow is MORE than inflow. For long, Indians have obsessed about the amount of inbound FDI, especially when compared to China (India has received less in FDI inflows since 1991 than China will receive this year alone). Interestingly enough, with Tata-Corus deal and if Videocon takeover of Daewoo Electronics does go through, India’s FDI outflows will, for the first time, exceed FDI inflows. Effectively, the projections for 2006 are that India will receive $9 billion in inflows while outflows stand at $19 billion, spread across 100+ deals, turning India into a net exporter of capital (to be precise though, a lot of the external acquisitions are not funded by domestic capital, but from foreign sources). At the very least, the investment bankers among you, especially those working on outbound M&A deals, can expect a big, fat bonus this year.

We have just started as a trickle and it doesnt take a long time to become a flood, as all the individual droplets are getting bigger and their distance is getting smaller. I hope the Indian govt doesnt do any stupid things, as often as they do in the past, and be a silent pusher of Indian companies into the global arena.

Certainly interesting times ahead both for Tatas and India.

Making Globalization Work by Joseph Stiglitz

An bold new insight about globalization from its one of the closest observers and toughest critic, Noble Prize winner-Sir Joseph Stiglitz .

Books draws equally from author's academic expertise and his time spent on ground-0. Its very innovative and more practical vision for a successful and equitable world. Stiglitz focuses on policies that truly work, offering fresh new thinking about the questions that shape the globalization debate, including a plan to restructure a global financial system made unstable by America’s debt, ideas for how countries can grow without degrading the environment, a framework for free and fair global trade, and much more.

Stiglitz reveals that economic globalization continues to outpace both the political structures and the moral sensitivity required to ensure a just and sustainable world. And he makes plain the real work that all nations must undertake to realize that goal.

Recently The Hindu organized Lecture in Chennai, India about Making Globalization Work. you can find audio files of those interesting speech and Q&A below:

Introduction by N. Ravi, Editor, The Hindu (9.13 mins)
Lecture; Part 1 (8.48 mins)
Lecture; Part 2 (10.00 mins)
Lecture; Part 3 (5.18 mins)
Lecture; Part 4 (3.32 mins)
Lecture; Part 5 (7.02 mins)
Lecture; Part 6 (7.33 mins)
Lecture; Part 7 (10.08 mins)
Lecture; Part 8 (5.23 mins)
Question Time; Part 1 (11.23 mins)
Question Time; Part 2 (13.15 mins)
Question Time; Part 3 (16.42 mins)

Another interesting Q & A with Joseph Stiglitz - Click here