Saturday, March 13, 2010

Book Review: The Elephant and the Dragon

The Elephant and the Dragon: The Rise of India and China and What it Means for All of Us

Author: Robyn Meredith

ISBN: 978-0-393-33193-6

By: W.W Norton & Company Inc.

Copyright 2008, 2007 by Robyn Meredith


The Elephant and the Dragon is a sobering and historical look at the rise of India since 1991, and the rise of China since their own economic reforms in 1978. Meredith explores the intricate political, cultural, and economic reforms that have gone on in both countries over the last 30 years. Frequently she tries to illustrate what life was like for people at every level of society. The Elephant and the Dragon intermingles facts about salaries, GDP, and living conditions alongside heartbreaking and heartwarming stories of both economic success stories, as well as those who still struggle to find economic salvation since the adoption of western economic philosophies.

The book is laid out in an interesting way, as it goes chapter by chapter alternating between China and India as it peels back another layer of the story for each country as it progresses. At the same time, it compares and contrasts the two powers even as it moves forward to unveil more of the story.

China is revealed to be the manufacturing powerhouse that all of us have come to expect in the age where “Made in America” has become “Made in China.” Notably, China’s rise to power has been facilitated by a number of factors. The rise can be attributed to four major factors. First is that China was an economic copycat of Singapore. Following on that model, the system of economic development started from the ground up (literally). They worked to first develop their infrastructure, and that in turn has allowed manufacturing progress to occur over time. Businesses have roads to rural areas that they can rely on. While electricity and other resources are scarce, they are far more advanced in many areas than those in India, and other developing countries. The third thing which spurred China’s economic growth is the discovery of the supply chain model (affectionately titled the “disassembly line by Meredith). This model, developed in part by Li and Fung allows for a distributive model, very unlike the Henry Ford assembly lines of old. The supply chain model allows for individual pieces of a finished good to be produced on different lines within the same factory, or different factories in the region, or even different factories around the world. They are then brought together under one roof for a last time and assembled. This flexibility has allowed factories to specialize in making one item. Meredith mentioned a factory which makes thousands of varieties of doll eyes. Meredith follows the production of a sweater from an upscale clothing designer in America, and shows the flow of the raw materials and the production process from start to finish. The fourth thing that has assisted China’s economy in its rapid expansion is the authoritarian nature of their government. Whereas Indian’s government has struggled to implement many reforms because they are beholden to the voters at every step of the way; for better or worse, China’s government has sole authority to dictate the path of development. While this system is unbelievably corrupt, it can also be very efficient. The government uses many of its resources to build infrastructure, spending far less on social programs for its people than other countries. Additionally, they would not think twice about displacing any of their citizens for the sake of progress. This has allowed their infrastructure to grow at an unchecked pace, and has made the area very enticing for outside companies due to cheap wages, and efficient transport means. Even if outsiders have to “grease the wheels” of some local and national government officials to get what they need, it still ends up being far cheaper to manufacture their goods in China.

India (the “Elephant”) is portrayed as just that. It is slow and plodding in its economic growth, but it is building up a head of steam. India’s path to economic reform started much more recently. In 1991, the government finally realized that if it did not fundamentally change its economic model that its citizens would starve. The country was simply too large to be self-sustaining. India had largely cut itself off from the rest of the world. It had created high tariffs on imports so that foreign goods were impossibly expensive for the average Indian, completely eliminating the market for foreign goods. The problem was that while this gave Indian companies the advantage in serving the large population of its own country, the lack of competition made the companies inefficient and complacent. They were dinosaurs which were not prepared for the economic tidal wave that started in 1991. For a long time, one of the biggest arguments for not revising the economic model was that allowing foreign companies in to the country would put many local companies out of business. Indeed it did have that effect. However, the net effect for Indians has been positive, not negative. Even though some lost their jobs in those companies, there is now a large middle class made up of call center workers, computer programmers, and other white collar workers which can do jobs for less than a third of what they might cost in America. Companies are offshoring jobs by the hundreds, often using the American workers to train their Indian successors. Many in India argue that America’s economy is incredibly versatile, and that while this shift may cause many American’s to have to shift jobs, or perhaps even find new careers, that Americans have always had a natural agility for doing that sort of thing. While there has been tremendous prosperity in India, the differences between the modern western offices of Bangalore and the slums of Dharavi are striking. Due to the large population, and the lack of labor based progress in India (mostly due to the lack of infrastructure) the main job growth is only possible for the educated in India. Many Indians, especially those living in slums, are miniature entrepreneurs, selling goods to each other. The fact that there are people who are too poor to live in a slum, is the most troubling aspect in my view. Due to the democratically elected government, the challenge is to translate this economic prosperity to the masses, otherwise the government will keep changing until someone does. If that task falls to the wrong person, it could unravel much of the progress that has been achieved this far.

The Relevance:

This book is very relevant not only to our forthcoming journey to India, but also to our lives as we evaluate the job market going forward. I find myself with an engineering degree, and while I had opportunities to work, many of the jobs that I am qualified for are quickly moving to India where qualified people will work for much less than I would accept. I find it necessary, especially in my situation, to diversify my experience to try to set me apart. Indeed the global push that India in particular is putting on America is one of the reasons that I decided to pursue my MBA. America’s struggling economy (suddenly not the rock solid example of prosperity and the right way of doing things) has caused many people to reevaluate the way they look at things. As companies continue to look for ways to save money, more and more jobs will find their way abroad.

Where Meredith Falls Short:

Meredith falls short of her most important goal. While I believe that there are many benefits for American’s to the rise of both of these large companies, she doesn’t illustrate in enough detail exactly how it effects Americans, and more importantly, why we shouldn’t be extremely worried about this economic shift. Perhaps we aren’t as worried as we should be. It seems that this entire book should be a glowing bible of evidence as to why we should be incredibly worried. To her credit, by the end, Meredith does point out areas which America needs to continue to excel in, such as education, research, and cutting edge technology.

Where Meredith Excels:

Meredith excels in her attention to detail, and research, both personally and factually. Her anecdotes about conditions in factories, slums, and rural zones make it obvious that she has actually been to many of these places. She also does a good job of laying a clear groundwork for what both the elephant and the dragon need to do going forward to be successful. I thought she gave a great summary of the position of the militaries of both countries, as well as their positions relative to America. It was interesting to see the direct ties between the way that we are doing business, especially with China, and how that is helping them have the manufacturing technology and monetary resources to start competing with us in this area. It means that America will have to continue to spend large amounts of money on its own military in order to continue to stay ahead of China.

My Recommendations and Closing Thoughts:

I would recommend this book to anyone who has had their job offshored. I think it is an important read for any businessperson especially in the service sector, or in a manufacturing business. It will help them understand the sometimes strange inner workings of these two countries, for both political and cultural reasons. It is a good read for any American who wants to know exactly where most of our consumer goods come from, and where the service comes from when those consumer goods aren’t functioning properly. Overall, an important read, especially for the forthcoming trip, and for our futures as business leaders.

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