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 The Beijing Olympics are intended to dazzle and for the most part they do. At this writing China leads all others in gold medals won so far. The country intends for this spectacle to showcase its emerging strengths as an economic and political power. Yet there are signs that everything isn't as it seems. For example, the pretty girl who won fame by singing "Ode to the Motherland" during the opening ceremonies turned out to be miming. Wearing a red dress and pigtails Lin Miaoke charmed international audiences but, according to reports by the BBC, the song was, in fact, sung by seven-year-old Yang Peiyi. The authorities felt the nine-year-old Lin was prettier and the show's musical director said Lin was used in the ceremony because "it was in the best interests of the country."
Yet China's economic power is real enough. The country is set to overtake the U.S. as the world's largest producer of manufactured goods four years earlier than expected, according to Global Insight, a Waltham, MA forecasting advisory firm. Next year China's share will reach 17 percent of world manufacturing value added as compared to 16 percent for the U.S. In 1990, the country accounted for fewer than 3 percent of world manufacturing output. According to a story in the Financial Times, "The expected change will end a 100 years of U.S. dominance. It returns China to a position it occupied, according to economic historians, for some 1,800 years up to 1840, when Britain became the world's biggest manufacturer after its Industrial Revolution."
In order to understand China and to some extent China's rival as an emerging economic power, India, one could see both undergoing a kind of renaissance. Nearly two millennia ago both regions were considered the most scientifically and technologically advanced societies. China invented gunpowder and the compass; India introduced the concept of zero and negative numbers. As recently as 1820 the two represented something like half the world's GDP.
In their soon to be published book. "Getting China and India Right," Anil K. Gupta and Haiyan Wang argue that we are in the middle of a fundamental transformation of our economic and political landscape. Despite protectionist bumps and halts the world is becoming increasingly more multipolar and economically integrated. Over 50 percent of growth in world GDP derives from emerging markets. China's GDP is expected to become the world largest by around 2030. In 2007, China was the third largest producer of motor vehicles in the world after Japan and the U.S. It's expected to become the world's largest by 2015. In 2000 there were only three companies from China and India in the ranks of the world's top 500 companies by market capitalization. By the end of next year the number is expected to reach 50.
Nor is this lost on companies adjusting to the new market realities. With an estimated 500 million mobile subscribers, China was identified by Nokia in 2007 as its most important market. Wal-Mart noted that China (and ultimately India) may be the only places where the giant retailer can build a revenue base as large as the U.S. Airbus and Boeing are looking to China as its biggest customer for commercial aircraft by 2020. Total investment banking revenues from activities related to debt and equity markets and M&A activity in China from $328 million in 2003 to $1.6 billion in 2006 and $2.2 billion in 2007.
But as Gupta and Wang underscore, China is not merely a market one might sell into. It and India are also emerging platforms for innovation and competition. In 1998, Microsoft established in Beijing its largest research center outside its corporate headquarters in Redmond. It has already established itself as one of the largest China-based filers of patents with the U.S. Patent and Trademark Office. The center has become central to Microsoft's new technology programs such as a next-generation user interface that would allow users to interact with computers using speech and expressions.
In addition, the authors of "Getting China and India Right" point out that we will soon see the emergence of national champions, the likes of which will be more fearsome than Toyota and Sony were for Japan or Samsung and Hyundai are for South Korea. Most everyone is familiar with India's titans such as Wipro, Infosys, and Tata. China's global champions are equally diverse. For example, Huawei is China's leading telecommunications equipment company and is the most globally competitive rival to Cisco Systems. In 2007 it reported revenue of $16 billion, a 45 percent increase over 2006. Over 60 percent of Huawei's revenue comes from outside China.
Home appliance maker Haier Group is another dynamo. Three years ago in made an aborted attempt to buy Maytag. At $14 billion Haier is the fourth largest appliance maker in the world.
China like India still has enormous challenges. Both are more than just countries or regions; they are continents with a vast and complex internal structures and contradictions. For one, both countries must deal with the highest kevels of income disparity in the world. China now boasts at least 42 billionaires. India reportedly has 53. But China's Gini coefficient (a measure of income inequality within the country) rose from .41 in 1993 to .47 in 2004. The Gini coefficient for the U.S. is .46.
There is at least one major difference between China and India. The latter is a functioning democracy with a notable tolerance for religious and cultural diversity. (India has 22 official languages.) It's been 19 years since Tiananmen Square. China is no longer a totalitarian state in the mold of Mao or Stalin but there is little room for personal freedom. The Communist Party rules absolutely, and while it accepts market forces and economic investment there is little room for accountability of its political leaders or much in the way of hope for the aspirations of the 60 percent or more of the peasants that lie at the bottom of the economic pyramid. Just as it tries to manipulate its image to the world with a pretty pigtailed girl, China has a firm hand on levers of personal expression with respect to its citizens.
Gupta, a professor of Strategy and Organization at the Smith School of Business and Wang, managing partner of the China India Institute point out that most CEOs are well aware that the center of economic gravity is changing. Not withstanding this "very few truly grasp the magnitude and pace of change." And few still have figured out what these developments mean for the future architecture of their company. In "Global Enterprise 2020," an article Gupta and Wang wrote for Chief Executive last June, the authors argue that "less than one-tenth of Fortune 500 companies have even close to a robust strategy for either China or India, let along both." Obviously not every enterprise will make it if they don't change this.
Scholars that retail the inevitability of China's rise and the U.S.'s decline are two-a-penny. "Getting China and India Right" sticks to the economic and business sphere and doesn't reach for any geopolitical conclusions, which is just as well. During the 1980s the "inevitability" of Japan's supremacy was a given among the academic community just before Japan's property and financial market imploded and spent nearly a generation in retreat and stagnation.
One constraint the authors do not dwell on is the lack of experienced top management skill in China, something Chinese business leaders privately admit to but don't say much about in public. This can be remedied only in part by expanding business school education within the country. The worldwide trading system into which China has by measures integrating itself is based on liberal values of open access, free inquiry and open education. At some point China will face the need to reform its internal political structures to allow its middle class to embrace this external system or it will face higher and higher friction costs in dealing with the world business system.
Nonetheless, U.S. business will need to change its current mindset as well. Many still view foreign markets as an add-on supplement to domestic business. Few have internalized the fact that three-fourths of world GDP lies outside the U.S. and that the emerging economies are growing, at least in the case of China, three times faster. Thus it is sensible to cultivate a more intimate understanding of markets like China and India for our own well-being and prosperity.  | 
