Title: For now “Chindia” is still mostly about China

Subtitle: Canadian firms like CAE and Magna International, are making faster headway in China than India

 Prasad Choragudi1, the managing director of CAE’s Bangalore, India offices proudly surveyed the 50 employees hunched over their humming computers.  From his glass-panelled central locale, the lack of visible decorations, accoutrements or hierarchical indications, made the facilities look like a low-tech data entry center. But appearances can be deceiving. “Don’t look at the offices,” said Choragudi, said with a smile. “Look at what’s on the computer screens.”

 The comment was revealing. Although the flight simulation technology provider’s India operations are tiny relative to its massive Montreal installations, the same images appear on employees’ computer screens on both sides of the planet. CAE’s Bangalore designers can casually pull on-screen 3-D models of Beijing’s, Dubai’s and Toronto’s airports.  These can then be updated, modified, or re-designed from scratch and sent via fiber-optic cable, to be integrated in CAE’s flight simulator software.

 Though CAE’s India operations are still small, the company’s plans for the sub-continent are anything but. Like much of India’s economy, its commercial aviation sector is booming. And CAE’s Bangalore office, which is adding staff as fast as it can integrate them into operations, is going along for the ride. “We are the number one enabler of CAE’s growth in the India region,” said Choragudi. “And we expect to play an even bigger role going forward.”

Marc Parent2, CAE’s group president (simulation products) agrees. “Indian companies currently have about 200 commercial airplanes in operation, but during the past 12 months (airliners) have ordered about 300 more,” said Parent. “That means that there will be a significant demand for new pilots and simulators.” To help meet that demand CAE is thinking of setting up a pilot training facility in India.  Currently Indian pilots have to fly to other CAE locales such as Dubai, to get access to the company’s specialized training courses. Establishing a local training facility would make it far easier for the pilots and would increase CAE’s chances at maintaining its local market dominance.

That’s important, because the turmoil that North America’s airline industry has gone through since 9-11, has made CAE’s inroads into Asia increasingly crucial. That’s especially true in the continent’s two giant growth markets: India and China, or “Chindia,” as business experts have taken to referring to them.

Both countries have populations in excess of 1 billion, with millions of their citizens moving into the middle class each year. Both also have economies that have seen long-term rapid growth following significant government deregulation initiatives. And both are expected to be among the planet’s three largest economies by the middle of the century. Coincidentally both have seen real GDP growth of close to 10 percent during the first quarter of 2006. But for CAE the best news is that both countries also have obscenely clogged road and railway infrastructures, making them ideal candidates for sustained commercial aviation industry growth. 

Yet despite India and China’s many similarities, so far, CAE’s successes in India pale in comparison with its China operations. CAE, currently has an installed base of seven simulators on the sub-continent, with two more on order by Air Deccan, one of India’s upstart players.  That’s not bad, but it’s not much more than the six new simulator orders worth $53 million that CAE booked in China this year alone. And while CAE is working hard to establish an India based flight training center, it’s had one operating in Zhuhai, China for several years.

CAE is not alone. Despite the massive promise evident in both economies, Canadian businesses are making far faster headway in China than they are in India. Canada’s $36.6 billion worth of trade with China is about 12 times as much as the $2.9 billion worth of business it does with India.  In addition, last year Canadian companies invested about $1 billion in China, about five times as much as they did into India.

 At first glance it’s a bit hard to figure out why Canadian companies are doing so much better in China, --which is ruled by an authoritarian, (on paper at least) communist regime and where English language skills are sorely lacking among the general population, -- than they are in India. India after all is the world’s largest democracy, has a capitalist economy and fluent English is widely spoken among educated, governmental and business classes.

 The reasons for Canadian businesses slowness in embracing India are many and varied, but a good place to start would be the size of its economy, which is about a third as big as China’s ($939.5 billion v. $2.7 trillion). True, the Chinese population distribution is older than India’s, a factor that will become increasingly important in coming decades. But right now, India’s higher birthrate is slowing its economic growth. On the other hand China’s one-child norm gives its country’s women more scope to contribute economically. As a result, its women have easier and earlier access to the workforce than their Indian counterparts, who remain burdened by larger families and religious taboos.

According to Jeff Roberts3, CAE’s group president (civil training and services) China’s faster economic growth, led to a much earlier expansion of its commercial airline industry, which is now roughly five times larger than India’s. The benefits there thus flowed faster, because the country needed to train a lot of new pilots in a real hurry. “We now have the largest private pilot training institute in China,” says Roberts. “Both countries provide good opportunities. They just evolve at different speeds.”

 In fact according to one expert who has extensive dealings in both India and China, a good way to analyse the differences is to focus on the fact that China’s first major deregulation initiatives were presided over by Deng Xiaoping in 1979. However India’s first initiatives by then finance minister (and now prime minister) Manmohan Singh, to prepare India businesses for a globalized economy, were undertaken only in the early 1990s. “India and China track very closely, but I like to say they are about 11 years apart,” says Steve Rodgers4 vice-president in charge of Asia Pacific new business development. “India is right now just where China was in the 1990s, when its economy was just about to take off”.

 Magna currently operates 14 production facilities in China, that last year provided key parts, such as power trains, seating components and mirrors for a good part of the 5.5 million cars and light trucks that were produced there last year, a number that Rodgers expects to rise to almost 9.2 million by 2012. “Asia is a very important market for us,” said Rodgers. “We believe that more than half of the world’s automotive industry growth in the coming years will be in the Pacific basin.”

 Yet like CAE, Magna too has been proceeding slower with its India expansion than it has with its China unit. The company currently operates two engineering centers there, which employ roughly 400 people. But Magna only announced its intention to open up manufacturing facilities in India earlier this year. Yet although Magna is still searching for a good local Indian partner, Rodgers remains convince of the potential. “India will be as a big as China is one day,” says Rodgers. “But it will just take a little bit longer to get there.”

 Ironically China’s authoritarian regime, which many see as a big problem, is likely a big contributor to that country’s success. To put it bluntly, sometimes an iron hand can accomplish things a lot faster than a velvet glove. Despite its communist label, the centralised Chinese regime was able to set up such pro-business measures as its highly touted economic zones, much easier than India’s weak minority government and 14 powerful regional governments could offer anything even remotely comparable. Nowhere is the contrast move evident than on China’s centrally-planned exponentially-expanding highway system, whose growth is currently is dwarfing India’s.

 Yet the contrasting pace of both India and China’s growth doesn’t bother CAE’s Choragudi one bit. The number of employees at the company’s Bangalore operations is slated to double within the next 12 months. And like many Indian businessmen these days he gives off an air of quiet confidence about the country’s inevitable rise. “We like to think things out slowly but surely here,” says Choragudi. “But once we put our minds to it, watch out.”

 Chart: India versus China 

                              India             China

 Population:                   1.04 billion      1.3 billion

GDP*:                         $939.5 billion    $2.7 trillion    

Per Capita GDP:               $865        $2,063

Growth rate**                       9.3%        10.2%

Canadian exports***:                $1.1 billion      $7.1 billion

Canadian imports:             $1.8 billion      $29.5 billion

Canadian investment:                $200 million      $1 billion

 

 

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