Views from the sidelines by Venkatesh Krishnamoorthy
Recently, China surpassed Japan to become the second largest economy in the world. "China surpassing Japan to become world's second biggest economy—but not the second strongest," said the headline on a recent article on the website of the People's Daily, the party's flagship newspaper to quote a Wall Street article. The World Bank estimates that more than 100 million Chinese citizens—nearly the size of Japan's entire population—live on less than $2 a day, the article points out. One of the key points of the article is that “The notion of Japan as a center of creativity and innovation—in hybrid-engine-powered cars or 3-D videogames—contrasts with its image 20 years ago as a copycat that mimicked design and technology pioneered elsewhere, and then outpowered the original makers with superior manufacturing.”
Martin Jacques, in a TED talk, “Understanding the Rise of China,” gives some interesting facts to the Western world unable to grapple with the growth of the Chinese economy.
The key takeaway is the Chinese have the ability to execute huge projects and if you may think it is a recent trait, it is not. Chinese have a tradition of executing big projects. So Chinese have the ability to take on the world, concludes Martin Jacques. But if you closely look at China, the economic growth is not powered by innovation, unlike in the US. It could be attributed to the Communist polity and its structured program of selectively opening up the economy and in driving growth in select sectors.
Innovation and the US economy
Innovation is a key driver of the US economy. Its unmatched consumption is matched by innovation in several domains such as science, technology, and institution building. When technology gave way to globalization, the US industry reached out to the rest of the world in search of services for cost advantage, benefitting many economies in the process. The US-led outsourcing phenomenon spread to Europe, and India became a prominent and hot destination for IT services for both the US and West European companies and corporations, and some service providers won government projects also. When the US economy is slowing, its impact is felt in the economies that rely on outsourcing of work from the US, especially India. The slump in the IT sector growth in the past few quarters is attributed to low demand from the US and Europe as a result of the Global Financial Crisis and also to competitive pressures.
IT sector and Nano
Prof. Vivek Wadhwa, the Duke University professor engaged in entrepreneurial research, undertook massive research on why the IT sector in India is growing despite its weak engineering educational system. He found out that the IT sector captains undertook massive retraining of its employees to help them acquire superior technological and management skills. Importantly, he points out that India scores over China in its ability to innovate despite low spending on R&D. These are healthy pointers to an aspiring global power that is likely to surpass China eventually. The IT sector has evolved from a pure play labor arbitrage services to build top notch consulting and niche R&D services capability. The KPO sector’s growth was a result of this reasoning that the IT and BPO sector cannot remain top notch if only labor arbitrage is focused upon. Knowledge arbitrage was given a push when competition from other economies were hotting up. The IT services sector has made immense contribution in inventing a global delivery model and in showcasing the ability of the Indian IT industry to leverage its technology workforce to provide quality services to leading corporates and industries across the world.
The IT industry is now focused upon building a product portfolio and in creating leading product companies in India. Tata Nano is one example of an innovative product that closely matches the customer need in India. Similarly, if India is focused upon building innovative solutions to its own population, the reach of such solutions is global. Emerging economies are in the same league as India in terms of the problems they face and the solutions they need. So if entrepreneurs focus upon the needs of customers in India like the Nano did and then scale it to emerging economies, we could set path as an innovative economy driving growth and prosperity.
If India and its empowered entrepreneurs manage to find solutions to inequality in development (by inventing solutions leveraging technology) and development not reaching poorer sections of the society, the same could be applied to other economies. China is predominantly agrarian economy and so too is India. But in both countries agriculture is not the driver of growth. If we could balance agricultural growth with innovative solutions to other pressing needs, sustainable growth will become a reality.
Entrepreneurs can only drive the innovative economy in their ability to find scalable and customizable solutions to the problems faced primarily by India. Social entrepreneurship activism gives a lot of hope in that it will play a significant role in bridging the haves and the have-nots divide.
The next wave is the innovation wave in the Indian entrepreneurial system and it is imperative that a supporting ecosystem is built to drive innovation.