Billions of Entrepreneurs

How China and India Are Reshaping Their Futures—and Yours

Tarun Khanna

• Publisher: Harvard Business Review Press
• Year: 2008
• Print ISBN: 9781422157282
• eBook ISBN: 9781422163276
• Topic: Économie
• Subtopic: Politique économique

China and India are home to one-third of the world's population. And they're undergoing social and economic revolutions that are capturing the best minds--and money--of Western business. In Billions of Entrepreneurs, Tarun Khanna examines the entrepreneurial forces driving China's and India's trajectories of development. He shows where these trajectories overlap and complement one another--and where they diverge and compete. He also reveals how Western companies can participate in this development.Through intriguing comparisons, the author probes important differences between China and India in areas such as information and transparency, the roles of capital markets and talent, public and private property rights, social constraints on market forces, attitudes toward expatriates abroad and foreigners at home, entrepreneurial and corporate opportunities, and the importance of urban and rural communities. He explains how these differences will influence China's and India's future development, what the two countries can learn from each other, and how they will ultimately reshape business, politics, and society in the world around them.Engaging and incisive, this book is a critical resource for anyone working in China or India or planning to do business in these two countries.

Chapter One

Reimagining China and India

The educations of most Americans, even graduates of prestigious Ivy League schools, barely acknowledge China and India. In his 2001 commencement speech, Yale University’s president, Richard C. Levin, lamented, “The Mayor of Shanghai asked me why … every schoolchild in China can identify the author and date of our Declaration of Independence and so few of ours can identify when the Qing Dynasty fell, when the Long March occurred, and when the Communists took power.”¹

How could the 2001 graduating class of this prestigious Ivy League school not know more about China? After all, the Yale-China connection has proved resilient over several decades. Yung Wing, a member of the Class of 1854 at Yale College and the first Chinese to receive an American degree, returned home and established educational missions that sent 100 Chinese boys to preparatory schools and colleges throughout New England. These missions were built on the foundation of a fortune made in India. Elihu Yale, one of Yale’s earliest benefactors, was for some twenty years a member of the British East India Company and had served as the second governor of a settlement in Madras (present-day Chennai in southern India) in 1687. In 1718, Cotton Mather, who represented a small institution of learning, the Collegiate School of Connecticut, approached Yale. Mather needed money for a new building in New Haven. Yale obliged by sending him a carton of goods that the school subsequently sold for 560 pounds sterling, a huge sum in those days, and named the new building after its benefactor.² Thus, Yankee-India trade facilitated Yale, and Yale facilitated US-China bonhomie. So why did Yale’s students seemingly pay so little attention to China and India?

Years ago in Bangalore, when it was better known as a summer residence for the British in colonial India than as the outsourcing capital of the world, my father and mother regularly invoked the names of “Yale,” “Princeton,” and “Harvard.” The American comic book heroes Superman and Batman ruled my childhood imagination. As a teenager, I learned that Wall Street opened doors with money, Hollywood captured dreams on celluloid, and the Americanism, “upward mobility,” had nothing to do with pulley systems. I applied to the American Ivy Leagues as a backup to the hyper-competitive Indian Institutes of Technology (IIT). So, even though I passed the difficult entrance exam to the IIT and was accepted to IIT Madras, I chose Princeton University because it could fulfill my wanderlust.

When I arrived in Princeton in September 1984, I was a curiosity; very few undergraduate students came from India back then, and none of my first-year roommates—talented, ambitious individuals who went on to achieve considerable success—could locate my home country on a world map. One thought it was “right by Arabia,” a remark that made me retire to my bunk bed in tears.

Now, having lived more than half my life in the United States and presently raising my two children as Indian Americans in a western suburb of Boston, I remain puzzled by Americans’ geographical naiveté. My colleagues and friends, who constitute a rather well-traveled and well-informed group of people, still know very little about India. How can this particular demographic maintain a worldview that excludes 2.4 billion of the Earth’s population?

Today’s economic projections suggest that in less than a generation China and India will become the largest and third largest world economies, respectively, in terms of purchasing power parity, and together they will account for nearly 40 percent of world trade, a position they occupied a century ago and more than their collective 15 percent today. Demographic projections based on current populations—1.3 billion in China and 1.1 billion in India—suggest that within that same period the weight of the world economy will shift from today’s developed nations onto the two emerging countries. Billions of entrepreneurs will ultimately power this transition, and not just Chinese and Indian entrepreneurs who take companies public, but also politicians who lead anew and idealists who force us to imagine better futures. The world’s future is irrefutably tied to that of China and India. Yet the United States is woefully uninformed about the past and present of both countries.

For these reasons, I was privately relieved to hear President Levin admonish the 2001 graduating class about its self-centeredness. His remarks struck me as emblematic of an awakening in American education to the significance of the East, which in turn reflects an awakening in American society.

The annual May Day event in 2005 at the Shady Hill School in Cambridge featured both the performance of an elaborate Chinese lion dance (wushi in Chinese) by the fifth grade and a concert, given by about fifty faculty and staff, of a vibrant North Indian dance, sung to bhangra rock by a Sikh singer Daler Mehndi. The singer now has global appeal, and his albums are available in record stores in nearby Harvard Square. What’s more, the entire fifth-grade curriculum at the progressive then ninety-year-old private school is now centered on China. For the coming years, at least, the school’s immersion method of teaching will allow impressionable ten-year-old minds to absorb information about the Opium Wars, the Silk Road, and calligraphic art as they learn math, literature, science, and geography.

This cultural awareness extends to the public school system. Students at nearby Martin Luther King Jr. elementary school study Mandarin for thirty minutes daily beginning in kindergarten and continuing through eighth grade and write to pen pals in China every year beginning in fourth grade. The school is one of hundreds in the United States named for the 1960s civil rights hero Martin Luther King Jr., a visionary African American who schooled himself in the non-violence theories Mahatma Gandhi developed in India. Teachers are also educating themselves about China. For example, Deborah Linder, a tenth-grade history teacher at Newton South High School in Newton, Massachusetts, spent her February vacation in 2004 on a two-week trip through southern China, a trip organized specifically for teachers by a non-profit organization called Primary Source, with the aid of Harvard’s Asia center.

My student Andy Klump’s transition from complete unawareness of Asia to immersion in China amidst skepticism from his peers, limited support from Harvard Business School for his China aspirations, and nothing in his working-class upbringing to predispose him to his odyssey, is another hopeful harbinger to this awakening to the riches of the East. In fact, his experience likens that of the early American ships that headed to Canton, China, in the 1770s. The destination was seen as uncertain, a journey reserved for the adventurous, especially at a time when American traders had to compete against the more established British.

Klump’s fascination with China was triggered by summer travel through Asia. It was enough to cause him to eschew lucrative high-tech job offers, and instead systematically search for an elusive sales position on the mainland. After daily Mandarin classes and months of late-night phone calls to China, Klump was fortunate to find a summer internship at Intel’s software lab in Shanghai. That summer, as he sought to help disseminate Intel’s technology in the region, Klump’s daily routine consisted of an hour-long bus commute (costing 30 cents) during which he spoke to anyone with whom he could strike up a conversation to supplement his biweekly Mandarin lessons. A fellow traveler once said, “You’re famous because you are the only laowai [slang for foreigner] who has ever come here and said ni hao [hello] to everyone.”

Work in the lab was rigorous, requiring continual interface with the government. The Shanghai government was not the slow bureaucracy he associated with federal jobs. In China, the government demanded performance and held to aggressive timelines. His boss said, “The head members of the local branch of the Communist Party set the deadline and they are reviewing the finished product. You won’t feel so good saying no to a Communist Party member.”

Back in Boston, Klump creatively pitched himself to Dell for work in China, at a time when Dell’s 5 percent market share in the personal computer market was dwarfed by the local giant’s, Legend, later renamed Lenovo. Klump was hired as the first foreigner working directly in sales in all of greater China, with the same quota as his Chinese colleagues.

His classmates’ reactions? “You have got to be joking! You are graduating from Harvard Business School and accepting a job that pays less than my 24-year-old sister earns. No one in their right mind would make such a decision.” Even more appalling to his classmates, Klump, who spoke Chinese with the fluency of an eight-year-old, had spoken to his direct manager in China for a total of twenty minutes, was the only laowai in the one hundred–person Beijing office and the three hundred–person China sales force, and had signed on in the midst of the SARS debacle when it was unclear whether an epidemic would unfold on the mainland or not.³

In China Klump soon learned that his manager’s version of leadership was to emphasize the importance of hitting his quarterly quota of half a million dollars in sales—to be done in only ten weeks because the holidays cut short that particular quarter—and to convince him that “there is no such thing as strategy. You need to erase that word from your brain. Strategy only exists for the folks who run this company. You are here to execute. Now pick up the phone and execute.” Klump’s first execution in rudimentary Mandarin resulted in the phone being slammed down on him, and in his mentor’s tough-love assurance that failure to reach $50,000 in sales by weekend would diminish his career prospects.

After hitting just 21 percent of his first quarterly quota, Klump comfortably exceeded his next quaterly quotas. Who would have predicted this? Klump strode up the ranks of the all-Chinese sales force. He had a four-million-dollar quota for all of China with eight salespeople reporting to him, and learned the art of persuading them to do his bidding. A number of his clients offered him lucrative positions. After three years Klump had taught himself to communicate with customers, to work with and motivate mainstream Chinese employees even as a laowai, and to appreciate the role of government as a customer, regulator, and even as entrepreneur.

Klump, Deborah, the Shady Hill School, and the Martin Luther King Jr. School are at the forefront of those who are preparing for a new global reality. Overall, however, the West’s understanding about the East remains pretty dismal.

A powerful sign that Americans tenaciously hold onto a worldview that excludes a large portion of the Earth’s population is the media’s minimal coverage of China and India. For most of the past 150 years, less than 2 percent of the major stories in any given year in the New York Times have been on China or India.⁴ Interest today, by this measure, has risen to 4 percent, nearly as high as it has ever been in the past century. What coverage there is today is largely culinary (lo mein, chicken curry), literary ( Jhumpa Lahiri, Yu Hua), cinematic (Bruce Lee, Jackie Chan, Bollywood), or tourist oriented (Great Wall, Taj Mahal). Alarmism is also popular; for example, certain television pundits regularly blame American unemployment on outsourcing to China and India, even though objective data suggest that the effect of outsourcing on Western workers is insignificant.⁵ Such cultural stereotyping and scaremongering reveal the West’s minimal understanding of the East.

Consider Harold Isaacs’s 1956 book, Scratches on Our Minds: American Views on China and India.⁶ A journalist for Newsweek magazine, Isaacs covered the Chinese revolution and World War II–related events in the China-Burma-India theater. To illuminate the “Vagueness about Asia,” which he deemed the “natural condition even of the educated American,” Isaacs asked 181 Americans—leading academics, businessmen, diplomats, journalists, and missionaries—open-ended questions about their impressions of China and India. Two-thirds of respondents had positive images of the Chinese, describing them as intelligent, attractive, and decent. These impressions were largely based on popular novels like Pearl S. Buck’s The Good Earth that portrayed Chinese characters favorably. American views of India were influenced by Rudyard Kipling’s poem Gunga Din, whose main character, the water bearer whom Kipling portrays as admirable but native and therefore a lower form of life, was the Indian best known to Americans after Mohandas Gandhi. Feeding this negative imagery was Katherine Mayo’s best-selling and scathing critique of Hinduism, Mother India, which ensured that antipathy toward Indians was at a level deeper than that prompted by policy differences. In 1982 the prominent American scholar John King Fairbank characterized Indians as “timorous cowering creatures, too delicate to fight like the Chinese … and they never smile at anyone,” whereas the Chinese “are vigorous and smiling, the greatest contrast to the lassitude and repression of the Indians.”⁷

Americans’ ideas about India are even more striking given that the United States had long-standing commercial and cultural links with India. By some estimates, between 1795 and 1805 the United States traded more with India than with all continental European nations put together. Despite these links, Americans interpreted the art and curios they bought from India as the work of heathens, so that India was ensconced in the American mind as the once-great civilization in terminal decline.

I chose to write a comparative book because I believe that we can better understand China’s choices when juxtaposed against India’s, and vice versa. There are historical similarities—they each underwent their first significant unifications in approximately 200 B.C.E., under the Mauryas in India and the Han dynasty in China. The British humiliated India for two centuries, and China endured its own century of humiliation. Both countries were scarred deeply. Both countries underwent radical political shifts at roughly the same time: China became a modern state in 1949, when Mao Zedong took power. This was just two years after Jawaharlal Nehru assumed leadership of independent India in 1947. Mao and Nehru were the architects of visionary plans for their respective new countries; two enormously influential leaders whose very different choices had very different consequences, despite many similarities in size, proximity, and antiquity. These surface similarities, yet starkly different paths, make the past five decades represent a kind of petri dish for social scientists, where we can learn something profound about how societies develop.

Mine is an attempt to illuminate contemporary vagueness about what’s happening in China and India. I argue that despite the flux and largely positive economic changes in each of the two countries in the last decades, the “iron frames” that gird these changes are radically different. China features a top-down model of development, with an omniscient Communist Party articulating a central direction and circumscribing all but marginal dissent. Local Party officials have increasing economic autonomy, which they have used to amazing effect, but only within a context of more severely constrained political centralization. The Party political line simply must be toed. India exhibits greater heterogeneity and pluralism, manifesting itself to the outsider as chaos, but also enabling productive ferment on the ground. An inefficient market, but a market nonetheless, results from competition at multiple levels in providing services, competing for talent, political horse-trading, as the media jostles for attention in undisciplined fashion. While China courts foreign capital and has only recently and reluctantly acknowledged the private sector, its internal opacity and lack of private property rights emasculate its internal markets in comparison to the parts of India where competition is allowed to run amuck. On the other hand, its unconstrained fiat allows it to override coalitions that might block material progress in a way that India just cannot. The pros and cons of the two countries’ approaches differ.

In this book, I uncover China and India—Hangzhou and Hyderabad, Qingdao and Bangalore, Dalian and Chennai—to show the radical underlying differences between China and India. Westerners might be able to reimagine these two vibrant contemporaries and interpret their current events in the context of their respective rich, ancient, and varied histories. I hope to answer, among other things, many questions that naturally occur to a curious modern observer of these countries, such as these:

Why can China build cities overnight while Indians have trouble building roads?

Why does China prohibit free elections while Indians, in free and fair elections, vote in officials with criminal records?

Why do the Chinese like their brethren who settle overseas while Indians apparently do not?

Why are many Chinese so unhealthy, but healthier than Indians?

Why are there so few world-class indigenous private companies from mainland China despite the creation of a juggernaut of an economy?

Why has China out-muscled India in their common backyard?

Why was China “Indianized” in the past while India shunned China?

Why do the Chinese welcome Indians to China but Indians do not reciprocate?

The different paths taken by the two countries have another profound implication, only now becoming manifest: China and India together could have a stronger impact on each other and the world than either country could alone. What China is good at, India is not, and vice versa. The countries are inverted mirror images of each other. This complementarity creates grounds for an economic cooperation that has already begun, as native entrepreneurs tap into each other’s backyards in a reprise of their long-term historical cooperation rather than their recent four decades of hostility. This mutualism is there for the world to benefit from, not only for native Chinese and Indians.

Given India’s official ascendance to the nuclear club and China’s massive deployment of resources to build a navy, security analysts and political scientists rightly emphasize the wariness with which the Himalayan giants glance at each other. But these analysts and academics wrongly ignore the potential of mutually beneficial economic ties, especially when each country is more squarely focused on feeding its poor than on building military muscle.

Certainly, the pundits’ favorite issue, of who “wins,” China or India, misses the point. I say this despite having co-authored “Can India Overtake China?” some years ago, an article that triggered this present intellectual odyssey.⁸ I have come to realize that the real issue is that the differences between the two have created a jointness...

Table of contents

• Cover
• Copyright
• Dedication
• Chapter One: Reimagining China and India
• Part I: Foundations
• Part II: Enterprise
• Part III: Future
• Acknowledgments
• Notes
• About the Author