When Doing Business in China and India, Nothing Is Guaranteed

Last Updated Apr 2, 2008 11:03 PM EDT

Can you make money in India and China? That's the central question of Part II of "Billions of Entrepreneurs." The answer: maybe.

Author Tarun Khanna shows that companies have made money in both countries, but that foreign firms in particular have found profits challenging. In India, local entrepreneurs have developed formidable operations that can make it difficult for outside companies to gain market share. In China, the state itself is the entrepreneurial force (and the state is always hard to deal with) and, because the banking system functions as a kind of piggy bank for local party officials, Chinese businesses can function without profits for longer than most external competitors.

Doing business in China and India demands different behavior. Despite the need for distinctly different strategies for the two nations, Khanna criticizes Western firms for failing to follow a dual-country strategy.

Khanna features a case study of how Microsoft's long path to acceptance in China, which has included giving the Chinese access to its technology (a standard cost of doing business in the country is opening the proverbial kimono), yet as of this year leaves it perhaps 15 to 25 years from making money in the country.

He then looks at the maddeningly different yet equally difficult path that Germany's Metro has had to tread in India (though it does make money).

Though he calls part II the Enterprise section, he might have titled it the Obstacle section â€" for all the talk about the growth potential of these economies, they also have major issues that will vex companies used to working in the West.

This section features a must-read segment on foreign direct investment, notable for arguing that China's FDI levels are overblown, while India's are undercounted. Indeed, Khanna dissects China's friendliness for foreign business. "The Chinese . . . siphon off, through clever negotiations and hardball, much of the value" they may offer to businesses to attract them to China. He makes the sobering assertion "much of the hype about dong business in China is not grounded in facts and figures," and shakes his head at executives who say they must be in China, calling them "uninformed."

There are also sections on the different diasporas â€" China's successful maintenance of ties with those who leave for other lands, versus India's failure to do so, which the country is now trying to change. He documents China's success in improving its vast rural areas, which has seen China make great progress against rural poverty, while India continues to have huge problems with rural poverty. Both struggle to provide basic healthcare for their populaces (though India's excellent high-end medical care has made it become a center of medical tourism). Both face the specter of AIDS (India's AIDS rate is the worst in Asia. China's, fittingly, is hard to quantify).

These represent major potential issues for these countries, particularly China, as its population ages. Will their problems tarnish or even derail what is widely seen as a bright future for these two giant nations? That is the subject of his final section, and my next post on this book.

UPDATE: See the Big Think Breakdown here: China and India Don't Need Us.

  • Michael Fitzgerald

    Michael Fitzgerald writes about innovation and other big ideas in business for publications like the New York Times, The Economist, Fast Company, Inc. and CIO. He’s worked as a writer or editor at Red Herring, ZDNet, TechTV and Computerworld, and has received numerous awards as a writer and editor. Most recently, his piece on the hacker collective the l0pht won the 2008 award for best trade piece from the American Society of Journalists and Authors. He was also a 2007 Templeton-Cambridge Journalism Fellow in Science and Religion.