(April 28, 20080) — In the past, many Western businesses have concentrated on India and China as sources for low-priced parts or finished products to import into their economies; however, this is changing.
More and more we see businesses focusing on China and India as marketplaces in which to sell their technologies or products that are manufactured locally and sold locally.
Businesses following this strategy must have something right, because now the prime minister of India, Mammohan Singh, and China's president, Hu Jintao, have been meeting to discuss direct-trade collaboration between the nations.
While the level of trade today is relatively small, India already is complaining about the trade imbalance, with China selling more to India than India can export to China. And it's a familiar story. India exports raw materials and partially finished materials to China, while China, with its more developed manufacturing base, exports expensive value-add finished goods, such as electronics, to India.
Along with trade, the discussions between the two countries this past week centered on other very significant topics — mainly the development of electricity-generating capacity. (China plans to build 30 new nuclear power stations over the next 20 years.) This would require trade in coal, much of it very dirty and polluting, but nevertheless essential to the power-generating capabilities of both countries.
Another point of discussion has been the establishment of a free-trade relationship between the two nations. Free trade would be a little more challenging because India imposes fairly significant tariffs on Chinese imports to protect its local manufacturing capability, and because of India's reluctance to allow Chinese companies to open up shop there due to the lingering anger over the war fought between the two countries in the 1960s.
If the tone of these meetings and the topics under discussion sound more like the venue for Western nations than these two emerging nations, then let it be a warning to us that the rate of organization and growth is indeed rapid. For those companies seeking new markets, the strategy of designing in the U.S. and manufacturing in China or India could hold considerable allure. Integrating China and India into a single manufacturing solution with two alternate destinations for finished products also holds possibilities.
As it is still difficult to truly understand how large the emerging middle class of either country actually is, we should forget about the middle class. Instead, the focus should be on the “purchasing class,” the people with sufficient discretionary income left over at the end of the month to allow them to purchase these manufactured products to increase their quality of life, after they have paid for life's basics.
That is where so much of the United States' business opportunities actually lie. The fact that today you can sell into a growing economy, while also bringing the same products back into the United States, makes going global even more compelling.
Hemmings is chief executive officer of Pacific Rim Alliance Ltd., based in Ann Arbor, Mich. PRA provides on-the-ground analysis and support of Asian business options for U.S. and European firms, from offices in the U.S., England, Australia, China and India.