China Forum -- Larry Hotaling On Chindia (China + India)

Larry Hotaling was the final first day speaker at the China Forum.  Mr. Hotaling (who I have heard described as an "operations genius") spoke on "China/India: The Collaborative Future is Here."  Mr. Hotaling heads up Global Diligence, Ltd., a Hong Kong based market entry and operations consultancy whose tag-line is "Your Bridge to Asia." 

Mr. Hotaling began by talking about how much more difficult it is to start doing business in India than in China. he also noted that India's infrastructure is much poorer than China's and how if you have more than 100 employees in India, you will need government permission to fire anyone.   

Hotaling said manufacturing companies must deal with both China and India.  Though this is going to be a requirement, Chindia as he and others are starting to call it, is also "an opportunity."  A company's tasks should be done where the company can secure the best resources at the best price:

1. Product definition will be in the United States or the European Union (EU).
2. Product design and tooling will be in India.
3. Tooling build will be in India or China.
4. Product manufacturing will be in China and/or another low cost country like Vietnam. 

Hotaling then compared China and India using a whole slew of different factors.  For more on this, check out Mr. Hotaling's 41 page Powerpoint presentation here.  I generally agreed with Mr. Hotaling's assessment of China and India, but I disagreed with his brief assessment on the state of the two country's legal systems.  Mr. Hotaling described China's legal system as "poor" and India's as "excellent (British Model)."  I would describe China's legal system (and this is for business only and only in those parts of China where most foreign business is conducted) as fair, and improving.  But that is just a quibble. 

Where I think Mr. Hotaling is wrong is his describing India's legal system as excellent because it is based on the British model.  The way to judge a legal system is not on its model, but on its reality.  China has some of the most modern, most clearly written, and most thoughtful corporate and IP laws in the world.  China's legal systems' problems arise not from the systems on which it is modeled, but from poor implementation.  I think the same is true in India.

China and India are ranked dead even in 70th place in Transparency International's 2006 corruption ranking (coincidentally, three of the BRIC countries -- Brazil being the third -- were tied at 70th).  The fourth BRIC country, Russia, was ranked 121st.  India's judicial system is notoriously slow, perhaps the slowest in the world.  It is also my understanding that India has yet to sign on to numerous international treaties relating to IP protection, including the Madrid Protocol on trademarks, which China signed more than ten years ago.  I note also that India, unlike China, prohibits foreign law firms.  My sense is India's legal system deserves a ranking of "fair," maybe "good," but not "excellent."

After Mr. Hotaling spoke, I talked with two forum attendees about their companies' willingness to outsource design and engineering to India.  My theory was that Midwest [U.S.] manufacturing companies (most of the attendees) would oppose sending such tasks overseas because they are considered the "heart of their business" and to do so would also mean laying off their friends.  If a two person survey can be deemed conclusive, I was flat out wrong. 

Both people with whom I talked (one was head of engineering and the other was a high level executive) told me they thought outsourcing such work would allow their companies to take on more work and would, if anything, increase company jobs.  One said that securing overseas engineering help would reduce turnaround time and allow his company to secure more projects.  Another said his company was already maxed out on the engineering and design side and bringing in more engineers and designers from outside the company would allow it to expand. 

Chindia's coming.  Or, if we are to include Vietnam, should that be Chindiam?