Chapter-4
 

Leveraging China and India for Global Dominance

The Qinghai-Tibet Railway, which started operations on 1^st July 2006, is the first time in history that the Tibet Autonomous Region has been connected by rail links with other parts of China. It is also the world’s highest plateau railroad running on the “roof of the world” with about 960 kilometers of the track located 4000 meters above sea level, the highest point being 5072 meters above sea level. GE supplied the locomotives for these trains. Bulk of the engineering work for these locomotives was done at the company’s John F. Welch Technology Centre in Bangalore, India with guidance from senior engineers in Erie, Pennsylvania.

Like many of its other products and services, Apple’s iPod transformed the music distribution business. It was also the first major product to be introduced by Apple since the Macintosh and its various versions. While Apple’s CEO Steve Jobs and his colleagues led the overall design, bulk of the work on the iPod was done in India and China. Apple outsourced the “brains” of the iPod (a microprocessor) to Portal Player, a Silicon Valley based semiconductor company. Portal Player’s engineers in Hyderabad, India and Silicon Valley worked around-the-clock to design the chip. The chip itself was manufactured in Taiwan. The final assembly of the iPod took place in China.

In December 2007, GlaxoSmithKline, the U.K. based pharmaceutical company, announced that it would invest over $100 million over the next twelve months to build a major neuroscience research center in Shanghai, China. Once up and running, the center would be responsible for virtually all of the company’s research on neurodegenerative diseases. Explaining this decision, Moncef Slaoui, head of the company’s R&D operations, noted: “For us, China is not about outsourcing and cheap labor. We don’t want to give them the crumbs. It’s about different science. We will link our fate to their fate. Within five to ten years, we will be moving from ‘made in China’ to ‘discovered in China.’”

In late 2007, Cessna Aircraft Company, a subsidiary of U.S. headquartered Textron announced that it will outsource the complete production of its Cessna 162 SkyCatcher model to China’s Shenyang Aircraft Corp. Jack Pelton, Cessna’s president, explained that, without partnering with Shenyang, Cessna probably would not have started the SkyCatcher program. Outsourcing to Shenyang would enable Cessna to sell the planes for $109,500 each i.e., $71,000 less than what it would have cost at the company’s factories in Kansas.

As these examples illustrate, the comparative advantage of China and India has broadened considerably beyond cheap labor to also include leading edge talent in some of the world’s leading edge industries as well as home grown innovation in technologies, products, processes, and even business models. In this chapter, we begin by outlining the potential opportunities for competitive advantage that China and India offer to any multinational enterprise. We then examine what the enterprise must do in order to convert the potential into reality.