Journal of Marketing Channels, 16:169187, 2009 Copyright # Taylor & Francis Group, LLC ISSN: 1046-669X print=1540-7039 online

DOI: 10.1080/10466690802477475

Emerging Economies: Operational Issues in China and India

EDMUND PRATER and PATRICIA M. SWAFFORD
College of Business Administration, University of Texas at Arlington, Arlington, Texas, USA

SRIKANTH YELLEPEDDI
Department of Industrial Engineering, University of Texas at Arlington, Arlington, Texas, USA

This article addresses the current state of the infrastructure and other factors within China and India to consider in making operation expansion decisions. We compare the logistics, telecommunication, and energy infrastructure of these two nations followed by a discussion of their labor productivity, economic growth, and political and cultural stability. We find that China is ahead of India in terms of transportation and telecommunications infrastructure, but India leads in terms of skilled labor for supporting information technology (IT) and complex manufacturing-based operations. While it will be difficult for India to catch up with Chinas manufacturing base, there is a strong opportunity for India to become the back office of the world. We then outline the opportunities and challenges that MNCs may face by investing in these countries and close with advice for managers in making expansion decisions. KEYWORDS business environment, China, global competitiveness, India, logistics, multinational corporation (MNC)

INTRODUCTION
Today, China and India are the focus of international business growth and investment for many multinational corporations (MNCs). MNCs are spending huge amounts of money in their attempt to earn greater returns by leveraging valuable skills developed in foreign operations (Engardio, 2005a). This
Address correspondence to Edmund Prater, Department of Information Systems and Operations Management, College of Business Administration, University of Texas at Arlington, Box 19437, Arlington, TX 76019. E-mail: eprater@uta.edu 169

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development has driven China to become a key manufacturing hub for the world, while India gains momentum in the information technology (IT) sector (Ganapathi, 2004). There are several reasons that help explain why these two countries have gained interest by MNCs. First, their low-cost operation bases have attracted MNCs seeking to expand their operations (Goh & Ling, 2003). Second, China and India having the largest and second largest populations in the world, 1.3 and 1.1 billion people as of 2005, respectively (Asian Development Bank, 2005), thus representing large potential markets. Also, gross domestic product (GDP) has grown over the years with an increase of 9.9% in China and 8.5% in India during 2005 (World Bank Group, 2006). Investment in these countries is not without risk. MNCs making decisions to expand operations into these countries must consider various issues such as infrastructure, logistics, labor, and politics. For example, decades of development have failed to raise the infrastructures in China and India to those found in developed countries. This article presents and compares the current state of these factors within China and India and provides managerial insight for making operation-based decisions. We compare the logistics, telecommunication, and energy infrastructure of these two nations followed by a comparison of their labor productivity, economic growth, and political and cultural stability. Next, we outline the opportunities and challenges that MNCs may face by investing in these countries, closing with advice for managers in making expansion decisions.

INFRASTRUCTURE Logistics Infrastructure

Based on the Asia Pacific Logistics Report 2004 (Ray, 2004), China and India shared 28.8% and 6.4% of the total Asian Pacific logistic market, respectively, as illustrated in Figure 1. The report also reveals that the logistics cost per GDP ratio for China is about 20%, while Indias is 13%. This ratio is much smaller for developed countries. For example, Europes ratio is about 12%, and the ratio is about 10% in the United States. In China, logistics costs represent 10% or more of products retail value, as compared to approximately 3% in the United States. For wholesale items, logistics costs will be up to 30%40% in China, compared to 5%20% in the United States. Infrastructure characteristics for China and India are shown in Table 1 (World Bank Group, 2004b). While China and India have similar rail infrastructure, both countries still lag behind with only 68,000 and 64,000 km of railroad tracks, respectively, while the United States has 225,000 km. In terms of highway construction, India has 3.3 million km, which is twice the amount in China. However, approximately half of the roads in India are unpaved and the total amount of four-lane expressways in India is far behind China. This

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FIGURE 1 2003 Asia Pacific market size. Source: Ray, J. (2004). Asia Pacific logistics report 2004. Retrieved from http://www.transportintelligence.com

illustrates a key infrastructure issue that traveling is difficult in India since most paved roads are only two lanes and used by cars, people, cattle carts, and cattle. While India currently has a larger road system, Chinas 110,000 km of four-lane expressways support higher speeds and thus quicker transport times. China has an advantage over India since it has more airports, paved runways, aircraft, and aircraft departures. For marine freight, India has more kilometers of waterways than China; however, China has more ships. Another noteworthy observation is that while China and India have about the same amount of railroads, Chinas rails handle more than four times the volume of Indias rails. To support the increasing volume of rail freight, Chinas State Council approved a rail expansion plan in 2004 that would increase the kilometers to 100,000 km by 2020 (Hayes, 2006). China also leads in terms of its oil and natural gas pipeline construction. Combining these observations with the difference in transportation investment, China has a clear advantage in terms their physical logistics infrastructure.

Logistics Costs
Table 2 shows that over half of the total logistics cost in India is attributed to over the road freight, which occurs primarily on two-lane roads. This helps explain why commercial vehicles in India are able to travel only 250 km per day on average as compared to 600 km in developed countries (Bansal et al., 2002). This can be a serious limitation since it increases the time and

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TABLE 1 Infrastructure Characteristics in China and India China Railroads Total length (km) Electrified Double track km per 1000 sq km km per 1000 people Goods handled (million tons-km) Highways (km) Total length (millions) Paved Unpaved km per 100 sq km km per 1000 people >4-lane expressways (km) Waterways Total length (km) Km per 1000 people Marine trade No of ships (>1000 GRT Total GRT (million) Pipelines Petroleum (km) Natural gas (km) Airports Runways Paved runways Unpaved runways Aircraft Total commercial Mainline airplanes Regional airplanes Aircraft departure Total departures per 1000 people Investment in transportation from 2000 to 2004 (US millions) 67,524 13,362 20,250 19 0.05 1,828,548 1.40 271,300 1,128,700 15 1.08 110,000 11,000 0.08 1764 16.9 9,130 9,383 143 324 165 620 559 61 840,900 0.65 5201 India 63,696 13,771 20,250 7 0.06 381,241 3.30 1,517,000 1,800,000 101 3.16 3,000 16,180 0.01 319 6.3 5,692 1,700 120 232 102 140 125 15 214,300 0.20 1854

Source: World Bank Group. (2005). World development indicator database. Retrieved from http://www.worldbank.org/data (all data in table is from year 2003).

ultimately the cost associated with movement of goods and material via roadways. In Indias road transport sector, vehicle ownership is firmly in the hands of individual truck owners, 67% of whom have fleets of less than five vehicles. A fragmented market increases paperwork costs and efforts to channel resources. The poor condition of roads results in higher vehicle maintenance and replacement that increase operating costs and reduce efficiency. These costs are passed along in the form of higher freight charges. As a result, transportation costs account for nearly 40% of logistics costs. These are serious challenges in that about 65% of goods in India are transported via roadways. Despite all these challenges, the logistics industry contributed a hefty 13% to the countrys GDP in 2003. The logistics market is likely to grow

Operational Issues in China and India TABLE 2 Transportation Contribution to Total Logistics Costs India (%) Road Rail Air Coastal and Inland waterway Pipeline Total
Source: Ray, J. (2004). transportintelligence.com Asia Pacific logistics

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China (%) 14 34 0 50 2 100

52 33 0 8 8 100
report 2004. Retrieved from

http://www.

at a CAGR of 7% during the next 5 years and is expected to grow from $14.3 billion USD in 2004 to $19.5 billion USD in 2009. The Indian government plans to execute most of its infrastructure projects through publicprivate partnership initiatives to relieve pressure on public finances. It is also removing obstacles to foreign direct investment (FDI) and focusing on free trade agreements with other countries. These actions should promote a more efficient and competitive domestic logistics services market and offer investment opportunities for smart global companies. In China, half of the total cost of transporting freight is attributed to it being delivered via waterways. This outcome is explained by the fact that many firms capitalize on Chinas well-developed waterway infrastructure by using barges to deliver freight farther inland. Costs associated with waterway delivery should drop once the Three Gorges Dam project on the Yangtze River is completed. This project will raise water levels, thus making it accessible for cargo ships carrying even larger quantities of containers than barges used today. Chinas logistics industry is still in its infancy. While there is some outsourcing, most logistics services are handled in-house. There are a few third-party logistics providers, but there is an oversupply of single-function service providers. For example, there are more than 2 million trucking companies in China with overall ownership of 5 to 6 million trucks. Moreover, Chinas logistics infrastructure has developed fast, but it is still not sufficient to support the distribution speeds that Western firms want. As a result, supply-chain-related costs are as high as 30%40% of wholesale prices, compared with 5%20% in the United States (Tanzer, 2001).

Freight Distances
Figure 2 illustrates that the average distance of freight traveling by air in China is higher than in the United States, while the average distance of freight traveling by rail and road is lower. The shortcomings of Chinas rail and roadway system may explain why more freight is being delivered via air. The majority of Chinas road and rail infrastructure is located in the coastal

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FIGURE 2 Average freight distance in 2002 (China versus United States). Source: National Bureau of Statistics of the Peoples Republic of China and the National Transportation Data Archive of the U.S. Department of Transportation.

regions. Until this infrastructure is more developed within the central regions, freight will continue to be flown into these regions. Unfortunately, this increases the logistics cost. Freight distances via water are not compared since the United States has two coasts equating to a much higher coastline than China; however, the number of marine ships and tonnage capacity indicates that a large percentage of freight is traveling via waterways.

Import=Export Comparison
Table 3 shows that China leads India in terms of both import and export values. China is a major exporter of machinery and equipment, textiles, toys, and other sporting goods, whereas India exports textile goods, chemicals, gems, and other jewelry. The type of goods exported plays a critical role in a countrys development. With machinery being required by firms in capital intensive industries, China has a major advantage over India in exports. However, the need to supply raw materials to support these businesses requires that China imports more mineral fuels, iron and steel, and other chemicals, while India imports more crude oil, machinery, and fertilizer chemicals.

Ports and Customs

China has expanded its port capabilities to support exporting. Table 4 shows that Chinas major ports of Shanghai, Shenzhen, and Qingdao achieve higher rankings, with Shanghai and Shenzhen being ranked in the top five ports in the world. Regarding imports, businesses must consider how quickly they can move product through customs. In Figure 3, we see that China is more efficient since goods, on average, pass through customs in 7.8 days versus

Operational Issues in China and India TABLE 3 Import=Export Comparisons (2002) China Import Quantity (billion) Commodities $ 295.3 Machinery and equipment, mineral fuels, plastics, iron and steel, chemicals $ 53.8 Crude oil, machinery, gems, fertilizer, chemicals India $ 1,165 USA

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Crude oil and refined petroleum products, machinery, automobiles, consumer goods, industrial raw materials, food and beverages Canada 17.8%, Mexico 11.3%, China 11.1%, Japan 10.4%, Germany 5.3% $ 687 Capital goods, automobiles, industrial supplies and raw materials, consumer goods, agricultural products Canada 23.2%, Mexico 14.1%, Japan 7.4%, UK 4.8%

Partners

Japan 18.1%, Taiwan 10.5%, South Korea 9.7%, USA 9.2%, Germany 5.6% $ 325.6 Machinery and equipment, textiles and clothing, footwear, toys and sporting goods, mineral fuels USA 21.5%, Hongkong 18%, Japan 14.9%, South Korea 4.8%

USA 7.1%, Belgium 6.7%, China 4.6%, Singapore 4.6%, UK 4.6%

Export Quantity (billion) Commodities

$ 44.5 Textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures

Partners

USA 22.5%, UK 5.1%, UAE 5.1%, Hongkong 4.5%, Germany 4.3%, China 4.1%

Source: World Bank Group. (2005). World development indicator database. Retrieved from http:// www.worldbank.org/data

TABLE 4 World Port RankingContainer Traffic (TEUs) Year 1998 2000 2002 2004 Shanghai 10th 5th 4th 3rd Shenzhen 19th 8th 6th 4th Qingdao 31st 19th 16th 14th

Source: American Association of Port Authorities. (2004). World port ranking. Retrieved from http:// www.aapa-ports.org

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FIGURE 3 Customs clearance for imports. Source: World Bank Group. (2004a). PSD forum 2004. Retrieved from http:==rru.worldbank.org=features=psdforum=2004

10 days needed in India. Variance is also smaller in China, with maximum wait times of 14 days as compared to 21 days in India. While the time required for clearing customs is not a factor for some imports, it is critical for perishable items such as agricultural and sea products (Subramanian, 2004). On this matter, China is a clear winner. Overall, China has an advantage over India with its logistics infrastructure. Even so, when transporting physical product, MNCs must pass information of material movement along the supply chain thus relying on a countrys telecommunications infrastructure.

Telecommunication and Energy Infrastructure

Telecommunications is critical in enabling MNCs to share logistics information in a real-time manner. According to Table 5, China exceeds India in its number of telephone mainlines, mobile phones per 1,000 people, and
TABLE 5 Telecommunications and Energy Infrastructure in India and China India Telephone mainlines (per 1000 people) 2004 Mobile phones (per 1000 people) 2004 Internet users (per 1000 people) 2004 Investment in telecommunications from 2000 to 2004 Electric power consumption (kWh per capita) 2003 Investment in energy from 2000 to 2004 41 44 32 14,322 435 7560 China 241 258 73 8495 1379 5359

Source: World Bank Group. (2005). World development indicator database. Retrieved from http://www.worldbank.org/data

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Internet users, thus demonstrating that higher telecommunication penetration has occurred in China than in India. However, China is still far behind other developing countries such as Malaysia and even further behind more developed countries such as Japan and United States. In terms of energy, China consumes more than three times more electric power than India. Accordingly, China has invested more in its energy infrastructure than India. While both countries face energy issues, the Three Gorges Dam project will increase available energy in China, and India has made sizeable investments its energy sources and distribution. To summarize this section, we use Figure 4; a radar chart that illustrates the relative differences between India and China along several key infrastructure characteristics. As stated, China consumes more energy than India; therefore, MNCs need to consider if available energy sources are adequate before expanding to China. Looking at air freight transport, China leads thus indicating China can handle more air freight than India. Similarly, China has a much larger percentage of the population subscribing to mobile phone providers that support real-time communication regarding operations and logistics within China. While China and India have roughly the same percentage of total roads being paved, China leads India in goods transported via railways. Also, China has been more diligent in investing and working with firms to invest in its telecommunications, energy, transport and water and sanitation infrastructure. Based on the distances between pairs of points along each of the six lines, China has a number of advantages over India as a choice for expansion; but there are other factors at play.

FIGURE 4 Radar chart comparison between China and India. Source: World Bank Group (2005). World development indicator database. Retrieved from http:==www.worldbank. org=data

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The poor transportation infrastructure and fragmented logistic service is a bottleneck in both Chinas and Indias economic development. In 2004, logistic costs accounted for 21.3% of GDP in China and 13% of GDP in India, which is high when compared to 8.7% of GDP in the United States. It is easy to see that weak transportation and logistics infrastructure not only affect the competition of their product, but also increases product lead time. In China, logistic time accounts for 90% of product lead time, compared with 40% in developed countries. To be globally competitive with countries such as the United States, India and China must improve their transportation facilities. China needs to drastically improve its road and rail transport, whereas India should improve in almost every transportation mode. Indias quickest option is to open up its skies for more foreign competition making air freight a viable option and improving its overall logistics infrastructure (Jonghe, 2003). Also, according to the Asian Council of Logistics Management, India can save up to $5 billion every year through improved logistics management across all categories. For MNCs, the challenge in both countries is leveraging the current transportation infrastructure and logistics industry to achieve competitive benefits.

NATIONAL COMPETITIVENESS
From the previous sections, it might appear that China is the clear choice for international business growth. There are, however, other factors to consider. In this section, we discuss additional factors such as labor productivity, economic growth, and political and cultural stability.

Labor Productivity
Competitiveness is determined by the productivity with which a nation uses its human, capital, and natural resources. Productivity depends on the value of products and services as well as the efficiency with which they are produced. To attract outside investment, countries compete in offering the most productive environment for businesses in an effort to increase their nations standard of living. The monies that domestic and foreign firms invest in a nation, coupled with the productivity of that nations workers, increase the GDP. The greater the productivity of a nation, the greater the return on capital that firms can realize by working in that nation. Figure 5 illustrates the comparative labor productivity performance between Japan, India, China, and other Asian Pacific countries. Japan has the second-largest economy in the world with a high GDP per employee; unfortunately, it has a low growth rate. Korea, which is representative of newly developing countries, is in the middle with a moderate GDP per employee and moderate growth rate. While both China and India have a

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FIGURE 5 Comparative labor productivity performance. Source: Economist Intelligence Unit. (2004). Database retrieved from http:==www.eiu.com

low GDP per employee, China has a higher growth rate of approximately 7.5%, compared to Indias growth rate of approximately 3.3%. Another environmental aspect of a country is its labor laws. One indicator to consider is the rigidity of employment within the country. Based on survey responses, the level of rigidity of employment in India scored 62; in China it scored 30, and in the United States it scored 3 (World Bank Group, 2005). The higher the score, the more rigid the employment policies; therefore, firms that exercise varying levels of output should be aware of these differences, as it will impact their ability to vary their workforce level. With respect to the labor environment, China has achieved better performance than India in recent years and has therefore attracted worldwide attention by MNCs looking to expand their operations (Bardhan, 2003).

Economic Growth
Each year, the World Economic Forum issues its Global Competitiveness Report that presents growth competitiveness and business competitive indices and rankings along with a narrative of historical events and their effects. The Growth Competitiveness Index is composed of three component indexes: the technology index, the public institutions index, and the macroeconomic environment index. These indexes are calculated on the basis of both hard data and survey data. Hard data are obtained from various sources while the survey responses are obtained via the Executive Opinion Survey.

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Based on the Global Competitiveness Report 2006 depicted in Table 6, the growth competitiveness indices of China and India in 2005 have not varied much, with China ranked just one position higher than India. China dropped three positions in ranking partly due to efforts by the Chinese government to restrain growth in credit, which resulted in higher inflation. Indias movement up in ranking is attributed to its higher technology index score, which resulted from its level of foreign direct investment (FDI; World Economic Forum, 2006). While India enjoyed 5.3 billion USD in FDI during 2004, China enjoyed 54.9 billion USD in FDI (World Bank Group, 2006). The Business Competitiveness Index represents microeconomic factors and when paired with the growth competitiveness index, it offers a more complete picture of the economy. Its captures two dimensions: the sophistication of company operations and strategy and the quality of the overall national business environment. According to this index, China ranks lower than India, thus indicating that India has achieved higher levels of sophistication and quality in its economy. The economic competitiveness of a nation is dependent on two factors, the ability to export and the ability to attract FDI. Figure 6 shows that China has a slightly higher GDP per capita than India and it has a much larger growth rate. Based on the previously mentioned FDI figures for 2004, China also has been more successful in achieving higher levels of FDI. The recent increase in FDI values in China and India are in part due to significant increases in cross-borders mergers and acquisitions. For example, from 2003 to 2004, mergers and acquisitions doubled in both China and India to record high values of $6.8 billion and $1.8 billion, respectively. For the first time, China tops the list of countries for cross-border mergers and acquisitions (United Nations, 2005). Two important reasons why China is attracting so much FDI center around its population and its changing climate. With its population and growth, China is the largest untapped market in the world, thus the potential rewards are higher for the long term investor. Also, the Chinese, in spite of their outmoded political system and occasional rhetoric, have shown a tremendous determination to change with the times. Population and growth are also reasons for the increases in FDI in India. On the flip
TABLE 6 Global Competitiveness and Business Competitiveness Indexes Country Finland United States China India Growth competitiveness ranking (score) 2005 1 2 49 50 (5.94) (5.81) (4.07) (4.04) Growth competitiveness ranking 2004 1 2 46 55 Business competitive ranking, 2005 1 2 57 31

Source: World Economic Forum. (2006). Global competitiveness report 2006. Retrieved from http://www.weforum.org

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FIGURE 6 Comparative economic performance chart. Source: Economist Intelligence Unit. (2004). Database retrieved from http:==www.eiu.com

side, India and China must maintain this economic growth rate in order to ensure available jobs for the increasing population. For instance, if India grows at less than 6% per year, by the year 2050, its economy would be only $7.3 trillion, just 2.6% of global GDP (Engardio, 2005b).

Political and Cultural Stability

Governments must balance nationwide macroeconomic demands with microlevel industry demands. One serious problem that India faces in balancing these demands is formulating cohesive developmental goals with clear priorities. While China leads India in political and cultural reforms, it lags behind India in the ability to politically manage conflicts. This is the result of democracy in India acting as a safety valve for the smoldering tensions, which is in sharp contrast to the communist rule in China (Bardhan, 2003). While China has been increasing its investment in infrastructure, its economic development has primarily focused on coastal areas resulting in large budget cuts for inland areas. In India, all states receive approximately equal budgets due to representation by the state members in the parliament. With logistic infrastructure being one of the major challenges in India, the government has improved its competitiveness standing by spending the equivalent of 13% of its GDP on logistics each year, as compared to 17% by China (Vijayraghavan, 2001). Another key variable when assessing governments in India and China is the corruption and the transparency of government. Based on the Global Corruption Report 2006 (Transparency International, 2006), Indias

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Corruption Perception Index (CPI) is 2.9, same as 10 other countries ranked in positions 88 to 97 of the 159 surveyed countries. China did better with a CPI of 3.2 and ranking of 78. Another report, the World Business Environment Survey (World Bank Group, 2004b) revealed that management in India spends about 16% of its time dealing with public officials on regulations and administration as compared to 10% in China. The unstable political situation and regulation in China, in spite of being an open market, is still a concern for MNCs. MNCs must acknowledge that China is not a constitutional country, thus an act or product that is legal today may be illegal tomorrow. Longterm political stability is better in India but there is still a problem with bureaucracy and corruption. Lastly, firms must work with the government to start business thus firms need to know how long it will take to start their business. In India, it takes an average of 71 days versus 48 days in China as compared to only 5 days in the United States (World Bank Group, 2005). While government transparency is still questionable, China has a slight advantage.

OPPORTUNITIES AND CHALLENGES India

In spite of India lagging China in terms of its infrastructure and global competitiveness, India has gained attention for other logistics issues. A study involving measurements regarding cost, people skills and availability, and business environment revealed that India is more highly preferred over China in terms of its educated workforce, management talent, rule of law, and transparency (Kearney, 2004). During the 1990s, India built one of the largest infrastructures for technical education. As a result, India is now home to the second largest population of English speaking scientists, engineers, and technicians in the world and has become the hot spot for MNCs to outsource service-based operations, mainly IT companies and banks. India views its IT skill as a profitable export industry (Kearney, 2004). Also, these skills have attracted firms such as Intel and Citigroup to locate their design centers and call centers in India. MNCs can leverage this opportunity and bypass Indias poor physical infrastructure, long custom clearance times, and poor transportation efficiency in India that would limit manufacturing efficiencies by focusing on expansions that use IT-based e-commerce methods. Although services represent a much larger and faster growing segment of the economy in India, manufacturing is also expanding rapidly in India. India has been making strides to improve its infrastructure and it does offer a skilled labor force for manufacturing firms with complex processes or producing complex products. India is well-suited for low volume production or complex industrial goods; thus, when Cummins compared the benefits of lower production cost at their plant in India to the lower logistics cost of

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exporting out of their China plant, they decided to produce and export engines from India (Engardio & Arndt, 2005). India has yet to solve many of its social problems associated with its rapidly growing population, its government corruption, its increasingly polluted environment, its international rivalry with Pakistan, and its rise of religious rivalries due to a largely diversified population (Goh & Ling, 2003). Thus, MNCs considering expansion into India should ensure that their scenarios include these factors so the trade-offs among the benefits and financial risks can be assessed.

China
China has the advantage of better physical logistics than India and the government has plans to expand its physical infrastructure. In addition, global transport and logistics companies are investing billions in infrastructure, acquisitions, and operations to take advantage of Chinas soaring economy that remains one of the fastest growing economies in the world. The power behind the growth is manufacturing, which provides more than half of Chinas GDP. Heavy industries such as steel and chemicals are a mainstay of the Chinese economy. Economic growth has also allowed China to overcome some of its social problems in recent years. While growth in China has been beneficial to the country, it has created a number of new problems. One is the social inequity between the growing urban middle class and the rural poor. The other key problem is a deteriorating environment that is evident since seven of the worlds 10 most polluted counties are in China. Although numerous deaths are attributed to air and water pollution, government is still poor in enforcing environmental laws (Engardio, 2005b). It also faces international problems in its relations with India and Taiwan (Felix, 2002). While it offers huge opportunities, this market is still one of the most difficult to tap. Regulations, culture, weak infrastructure, and an undeveloped industry are just some of the problems that companies are facing. Without a basic understanding of the country, its markets, its logistics sectors, and its potential partners, doing business in China is impossible. The foremost challenge for MNCs is the unbalanced economic development (Felix, 2002). The recent access and modernization of China stems from the former leader Deng XiaoPings focus on coastal provinces like GuangDong, FuJian, ZheJiang, JiangZu, and Shandong. Today, foreign trade within the coastal area is reported to be over 80% of Chinas total foreign trade and nearly 55% of Chinas GDP. The GDP per Capita at the coastal cities are over $1500 USD, while the figure for the west and southwest areas like Qinghai, Gansu, Tibet, Yunnan, and Guangxi are lower than $600 USD. Such unbalanced development provides both opportunities and challenges for MNCs. To address this imbalance, the Chinese government set a countrywide strategy of Go West to develop the western area. There will be large

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construction projects of cross highways and railways stretching from JiangZu to XinJiang. Initially, the objective of the rails was to move imports; now the objective of the rail expansion plan is to link the western areas with the eastern areas (Hayes, 2006). Also, long pipelines and electricity lines are also under construction to provide the needed power. Another challenge for firms is the increase in business nationalism in China in recent years. China has an ambition to develop its own standard on the next generation mobile phone platform, forcing Microsoft to open its source code. They have also developed their own cell phone standards (so-called GSM 3.5) as a way of forcing manufacturers to build to their standards rather than international standards. To avoid any potential backlashes, MNCs should consider issues such as these before establishing branches in China. Lastly, Chinese firms and people prefer to know and trust the people in which they may have business dealings (Jiang & Prater, 2002). Businesses must make genuine efforts to develop trust with Chinese firms and be patient since developing quanxi (friendship with implications of continued exchange of favors [Pye, 1992]) takes time. MNCs that rely on local Chinese suppliers spend a great deal of time dealing with quality and limited capabilities issues, which often also results in monetary investment with these suppliers (Millington, Eberhardt, & Wilkinson, 2006). Key recommendations for MNCs to be successful in their distribution and logistic operations in China are to seek deep knowledge of the market, focus on value, streamline distribution and logistics and manage risk effectively.

CONCLUSION
For the decision makers in the MNCs, logistics is a critical factor when choosing offshore subsidiaries. From the previous tables and figures, China has an advantage over India, but there are many other critical factors to consider. First, Chinas biggest asset is its strong manufacturing base while India has an opportunity to build itself as the back office of the world. India needs to develop a stronger global network and implement political, cultural, and economic reforms backed by actions on the ground. It is strategy implementation, not formulation, that holds the key to success. Chinas development strategy is also pragmatic compared to that of India. China is running short on natural resources and is trying hard to solve its energy problems. India has an edge over China as China faces long-term problems such as its English-speaking skills and relative transparency allowed by its communist government. Chinas problems are seen as related to its pursuit of a socialist market economy despite calling for private investment (Dollar et al., 2003). Second, both India and China have ambitions to develop their economies, but their political conditions are not as well developed and stable as in the west. Although India has a very structured legal system on paper,

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things move very slowly in practice. In China, where the judicial system is less structured, things seem to move faster. In general, we see the requirement of greater political support for deepening the economic reforms in the central government of both China and India. It is a favorable investing climate with both economies on track for growth of 4%7% per year. Both governments are realizing that their current transportation systems have serious deficiencies and are highly inefficient. Both governments are realizing that reform is an essential prerequisite for the economic development (Ganapati, 2003). MNCs should keep a close watch for expert groups or special committees set up by different ministries. This is because they aid the government in decision making and carry tremendous power. Also, MNCs should pay close attention to understanding the regulations and political situations in each country to reduce its risk. Third, the social aspect of both India and China cannot be disregarded. We looked into how the changes in economies impacted their society and found that the benefits of the economic growth are mostly confined to large cities. For China, the growth is concentrated around the coastal provinces like Shanghai and Guangdang; in India, it is concentrated in major cities like Mumbai, Delhi, and Bangalore. As this trend continues, we foresee social unrest taking place in both China and India due to a greater divide between rich and poor. In conclusion, both China and India will address their challenges of economic development, social change, and national security that face them in the years ahead. It will be a struggle to balance capitalist profit against rural need, environmental damage against development, and military spending against domestic priorities, but we foresee both of them doing it successfully. By accounts in the last 2 decades, Chinese economic performance has been much better than that of India, but it really depends on the nature of the business that the MNC is wishing to operate in these countries.

REFERENCES
American Association of Port Authorities. (2004). World port ranking. Retrieved from http://www.aapa-ports.org Asian Development Bank. (2005). Labor markets in Asia: Promoting full, productive and decent employment. Retrieved from http://www.abd.org Bansal, A., Bhandari, A., Liu, Z., Thompson, L., & Vickers, P. (2002). Indias transport structure: The challenges ahead. India Transportation Infrastructure Blueprint 1: Main Report. Bardhan, P. (2003). Crouching tiger, lumbering elephant: A China-India comparison. Retrieved from http://globetrotter.berkeley.edu/macarthur/inequality/papers/ Bardhan Crouching.pdf de Jonghe, L. (2003). The infrastructure challenge in India. Retrieved from http:// www.adb.org/Documents/Speeches/2003/ms2003073.pdf

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