In just 10 years, China has built world-class MNCs that have graduated from making cheap copycats of western products to competing with world's biggest MNCs. And now India is in their cross hairs. Indian companies have a reason to be afraid because they are not going to match the Chinese manufacturers who ride on aggressive pricing, state subsidy, protectionist policies and cheap finance.
Take smartphone-maker Xiaomi. Once considered a cheap copycat, it is now emerging as a leader in India. It plans to diversify into high-margin products such as electric vehicles and fast-track segments such as payment banking. Recently, it made a regulatory filing in India, stating its future game plan.
Given its runaway success in smartphones in a very short period, it can dominate auto and consumer goods segments in coming years.
Xiaomi's regulatory filing exhibits its ambition and the threat it poses to Indian manufacturers. From electric and other vehicles small and big, it also plans to sell laptops, gaming consoles, computer accessories, lifestyle products, network equipment, clothes, toys, backpacks and suitcases, and bath and kitchen products.
Chinese goods have already dominated the Indian market as every home is teeming with Chinese products. While Indian manufacturing is still struggling to take off, China has grown into a manufacturing powerhouse in less than a decade.
To be sure, there are going to be not one but many Xiaomi's.
The Communist regime has taken a range of policy measures to create, protect and nurture Chinese companies. Alibaba, Baidu, Tencent, WeChat and Xiaomi are examples of Chinese companies growing from zero to billions of dollars within a few years. On the contrary, Indian startup sector has yet to show similar scale and success.
Indian automakers cannot take Xiaomi's plans lightly. Chinese carmaker Geely, which initially made Rolls-Royce copycat Geely GE, did begin small but is now a big player. It bought Volvo's passenger car business in 2010, and competes with Audi, BMW and Mercedes. Xiaomi could be another Geely.
Chinese companies have already captured India's telecom sector. They control 51% of India's $8 billion plus smartphone market with brands such as Xiaomi, Oppo, Vivo and OnePlus. India imports telecom gear worth over Rs 70,000 crore annually, much of it from Chinese firms like Huawei and ZTE.
China is India's largest trading partner, with bilateral trade at $71.5 billion, but it is heavily skewed in favour of China. India imports $61.3 billion worth of Chinese products while it exports just $10.2 billion worth of goods to China.
From -$37.2 billion in 2011-12, trade deficit has widened in the last six years to -$51.1 billion
Not just that, there is a qualitative skew too. Chinese exports value-added products like mobile phones, plastics, electrical goods, machinery and parts to India while India exports primarily raw materials to China.
Low wages, subsidies, institutional reforms, foreign investment and a favourable demographic have no doubt fuelled the Chinese growth in the past decade, but the recent explosion of Chinese MNCs can be best explained by its crazy internet boom that has pulled a big majority of its people into formal economy.
In his 2015 book 'China's Disruptors' Edward Tse coined an acronym to identify factors that triggered the entrepreneurial explosion— SOOT, which stands for scale, openness, official support and technology. These factors can be best seen operating together in China's growing digital economy marked by huge people participation, transparency, supportive government policies and, well, technology.
India seems to be ages away from these enabling conditions for growth of entrepreneurs. All this indicates that Chinese MNCs will become a major threat to Indian companies in a few years.
This is the impact of Modi''s visit to China