Business Environment - China vs India

Topics: Economics, Economic growth, Investment Pages: 6 (1641 words) Published: October 14, 2008
Business Environment - China vs India
‘For Australian businesses looking to expand their operations overseas, China is a more attractive location than India.’ To what extent do you agree with this statement? Justify your answer. ________________________________________

In the year 2007, China and India ranked first and second respectively in the list of ideal foreign direct investment (FDI) destinations, according to A T Kearney, a global strategic management consulting firm (The Press Trust of India Limited, 2007a). The two nations, because of their similarities in geopolitical, economic and demographic aspects, are often compared with each other. To determine which one is more attractive for businesses to expand to, this essay will examine the business environment of both countries from the following perspectives: political/legal, economic, socio-cultural and technological.

China and India both have ponderous bureaucracy systems created by history and tradition. Since the opening of China’s market to foreign investors in 1978 and India in 1991, they have been gradually moving from centrally planned economic system towards decentralisation. However, besides their continuous movements in order to provide businesses a better environment, significant problems still exist.

In realising that foreign investments are the key source of the nation’s economic rise, the Chinese government has given special preferences to foreign investors (Financial Express, 2006). This is mostly done through reduction of most favoured nation (MFN) tariff rate. In India, on the other hand, fair competition exists between domestic and foreign investors. Although the Indian government states that it aims to reduce its MFN tariff rate, which currently doubles the rate in China, to other ASEAN country levels, it is in reality a big challenge because a large portion of the nation’s tax revenue comes from customs tariffs (Henley, 2004). Nevertheless, India overall has a better internal taxation system, with lower tax rates and easier ways of payments, according to a report by World Bank, IFC and PricewaterhouseCoopers (The Press Trust of India Limited, 2007b).

China, after joining the World Trade Organisation, is under the progress of developing a more comprehensive and enforceable judicial system to help ease business operations. It is also creating institutions that aim at improving commercial dispute settlement, patents and intellectual property rights protection (Siddharthan & Lakehera, 2005). As a legacy of the British colonisation, India, being the largest democracy in the world in terms of population, already has a well-developed commercial legal framework (Grainger & Chatterjee, 2007). However, the Indian institutions are not functioning efficiently because of poor government regulation in design and quality of implementation. For this reason, doing business in India is, in fact, more costly than in China, especially for smaller firms (Singh, 2007).

One issue that troubles businesses in both China and India at the moment is the complexity in setting up and closing down businesses. Despite the fact that there is no specific statute regulating FDI in India in contrast with China, it has much more excessive regulation of entry and exit than China (Henley, 2004).

Another issue businesses seeking to operate in China and India may need to consider is bribery. According to the Transparency International 2006 Bribe Payers Index, India and China ranked first and second respectively in exporting countries that are likely to bribe their way through to winning contract (Nevin, 2006). This well signals the internal corruption levels of both countries.

Overall, the political/legal environment in China appears to be more optimistic.

China and India are very much similar in terms of pure economic conditions. Both countries have huge market potential. China has a population of almost 1.3 billion and...
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