INDIA AND CHINA: ATTRACTIVENESS AND RISKS TO A BUSINESS

India and China: Attractiveness And Risks To A Business

India and China: Attractiveness And Risks To A Business

China versus India

The two most populated countries in the world, China and India, are also two of the world's fastest-growing economies. (Trade and Development Report, 2005, 762) However, though foreign direct investment (FDI) in research and development is becoming increasingly important components of the economic growth of both countries, the composition and quantity of this investment differ greatly. "China's break-neck economic expansion has made the country the most favored destination of FDI, attaining a record of US$60 billion in 2004" (Hayet Sellami, 2006, 45-78, 45-78). "FDI has contributed to China's growth not only in terms of capital, but also through transfers of technology and expertise and the building of business relationships" (Hayet Sellami, 2006, 45-78). In contrast, India lags far behind, having received only US$5 billion in 2004. (Hayet Sellami, 2006, 45-78). The country's poor infrastructure is only one factor behind India's inability to expand further and faster. Another is that India's awkward and restrictive laws have banned FDI in retailing and restricted it in economically important areas such as aviation and insurance. (Mead, Richard. 2005, 62)

In terms of research and development FDI, however, though developed countries remain the main destination, latest numbers suggest this may be changing. A recent survey of the United Nations Conference on Trade and Development (UNCTAD), for example, notes that the global trend in FDI has shifted in recent years towards R&D in developing countries, with China and India first and second on the list. (UNCTAD, 2005, 23-54 , 23-54 ). Of the 885 R&D-oriented FDI projects announced in the Asian regions in 2002 to 2004, 75% (723) were concentrated in these two large economies. The accumulated research and development investment of multinational corporations in China reached approximately US$4 billion in June 2004, and the number of foreign-affiliated research and development centers climbed to above 700 in 2004 (UNCTAD, 2005, 23-54 ).

Internationalization of research and development involves research and activities in sectors where protection of intellectual propriety rights (IPR) matter, such as pharmaceuticals and software, which represent the two major sectors of multinational corporations research and development in India. "There are IPR issues in China and in India, but China has a reputation in this domain and the Chinese government is trying to make sure that the infrastructure is implemented" (UNCTAD, 2005, 23-54 ). Though many complain about the protection of intellectual property rights in China and the country's foggy regulatory environment, surveys still indicate that investor's rate China highly. According to UNCTAD, 87 percent of the MNCs surveyed ranked China as the world's most attractive place to do business, with India in third place after the US (UNCTAD, 2005, 23-54 ). Microsoft and IBM have R&D centers in China and IPR issues have not scared them away. (P. Lasserre. 2003, 72)

While cost saving matters, many multinationals have expanded research and development in China primarily for strategic reasons such ...