Race to the Top: What Sets China and India Apart?
Published: September 23, 2010 in India Knowledge@Wharton
Despite their challenges, China and India are winning more important roles on the global stage. However, according to management professors Nandani Lynton of CEIBS in Shanghai and Jitendra V. Singh of the Wharton School, India is outperforming China in the number of senior executives at leading multinational corporations. In this opinion piece, they identify five possible explanations for this disparity. China is already addressing some of them, such as gaps in the use of English. Others, like China's inability to work with outsiders, are less susceptible to change. Depending on which factors prove most important, India may have the advantage for some time to come, but it may not take long for China to catch up.
The rise of China and India on the global economic stage in recent years has been nothing short of remarkable. Recent revisions to the original BRIC economies (Brazil, Russia, India and China) report from Goldman Sachs indicate that both countries will likely reach the ranks of the largest economies in the world faster than originally predicted. In fact, China has already arrived, edging past Japan in the second quarter of this year in terms of GDP to become the second-largest economy, although Japan was still bigger for the first half as a whole. Of course, much could go wrong in the years ahead, and each country faces daunting challenges. Yet, the economic trajectories of both countries seem clearly upward. Indeed, in the recent dramatic downturn that hit most developed countries, China and India continued to grow at respectable rates.
The two countries have some similarities, of course, but their histories, cultures, demographics, and economies are, in fact, quite different. We wondered, then, just how those differences might play out and affect the emergence of China and India on the global economic and cultural scene.
We think a useful place to start is by studying how Indians and Chinese have fared in rising to senior levels in leading multinational corporations. We believe this could hold some important clues to how companies from these two countries may globalize in the future.
We gathered data from the top 50 firms of the Global 500 listed by Fortune magazine for 2009. We excluded Chinese (Sinopec, China National Petroleum, and State Grid) and Indian (ArcelorMittal) companies from the list, since they would quite naturally have many Chinese and Indian senior executives, and our focus is more on foreign multinationals. This left us with 46 firms. By reading their annual reports, corporate governance reports, and other leadership information disclosed on company Web sites, we compiled full lists of "executive committee/senior management" and "board members/board of management" for each firm. We examined the profiles of each person on these lists to determine the number of Chinese and Indians in the group. The results: out of a total of 788 C-suite executives, there were 2 mainland Chinese, 2 North American Chinese, and 13 Indians. Of the 590 board members, 4 were Chinese and 6 were Indian.
While the numbers for both countries are still small in percentage terms, it appears that Indians are more frequently represented at senior levels in multinational firms than Chinese.
We asked why this might be the case, and we have developed some plausible arguments to account for the imbalance. In all, we have identified five key differences that may have a bearing on the global roles that China and India may play in the years ahead.
English Proficiency
One obvious difference relates to English language ability, since that is the language of global business. Until recently, relatively few Chinese spoke English, and business in China is largely conducted in Chinese, although both these factors are changing fast. In contrast, the dominant language of Indian business is English, and the prevalence of English speakers is often cited as one of India's distinctive competencies for international business. This has been amply demonstrated in the swift growth of Indian firms in software services and in business process outsourcing in recent years.
But this pattern is changing. While it is true that India has a longer history than China of the widespread English medium education, the level of English spoken by many graduates in China today is excellent, even for those who have never left the country or worked with non-Chinese. Chinese parents often sacrifice one salary to afford bilingual kindergarten and schools for their child. English language classes for adults in China have spawned such corporate success stories as the New Oriental Education & Technology Group Inc. and the Wall Street Institute School of English.
Management Education
A second difference is India's longer history of institutions for higher education in management. India is home to the elite Indian Institutes of Management (IIMs), which are now well known internationally. Indeed, IIM Ahmedabad was developed through a collaboration with Harvard Business School during the 1960's, and IIM Calcutta commenced in the 1950s with help from the Sloan School of Management at MIT. Consequently, India has been producing professionally trained managers for more than 50 years.
In comparison, while leading Chinese business schools like Qinghua University's School of Economics and Management, Guanghua School of Management at Beijing University, and Antai School of Management at Shanghai Jiao Tong University, to name a few, have long and distinguished histories dating back more than 100 years in some cases, China began establishing modern management education only in the late 1980's. That was when the State University of New York at Buffalo started a joint venture program with Dalian and the European Union entered a joint venture with the Chinese to establish CEMI (the China Europe Management Institute), which then moved to Shanghai and went on to become CEIBS (China Europe International Business School), one of Asia's leading business schools.
During the 1990s, many Chinese universities also established business schools, most with one or more Western partners. The Party School is also an important institution for management and administrative development but is still ideologically and politically based.
So we see a clear difference in the histories of management education: more than 50 years compared with about 20 years. One reflection of that difference may be seen in the leadership of major global business schools outside China and India. Two Indians are deans at such institutions -- Nitin Nohria is the new dean at Harvard Business School and Sushil Kumar was recently named to lead Chicago Booth -- and a third, Dipak Jain, is headed to lead INSEAD after several years as Dean of Kellogg Graduate School of Management at Northwestern University. By contrast, there are no Chinese in similar positions at the very top business schools.
Political and Economic Differences
Thirdly, the lag in the management education timeline may also reflect the differing political-economic realities of China and India. After 1947, the leaders of newly independent India chose a mixed economy as the model for development. While state-controlled firms were ceded certain sectors of the economy, about half the economy was still in the private sector, with profit-driven companies competing in the marketplace. This created demand for the management graduates from the newly formed IIMs, and fostered the spread of management education in India. Management as a favored career choice for young people began gathering steam in the 1970s and has been growing ever since.
By way of contrast, in 1949, at the establishment of the People's Republic of China, the country had been laid waste by invasion and civil war. The Communist Party came to power with an egalitarian ideology and began to rebuild Chinese society. From 1958 to 1962, the unintended effects of Mao's "Great Leap Forward" forced untrained peasants to lead the country into, as it turned out, a rather unsuccessful new industrial and agricultural revolution that resulted in lowered productivity and even famine in many areas. This period was followed by the Cultural Revolution, which interrupted schooling for a decade from 1966 to 1976 while denouncing business and property ownership. In these decades, being a manager or holding a management degree was clearly not an advantage.
Cultural Diversity
Fourthly, we believe culture also played a key role as the social context in each country influenced management development. Indian culture is rather diverse, with a multitude of different linguistic, ethnic, regional, religious, even racial groups that have had to learn to cooperate and coexist in India's noisy democracy. Historically, India received waves of conquerors and colonists who were over time assimilated into Indian society, and there is a long tradition of Indians studying and working overseas. While Indian society can be elitist with influential in-group networks, the workplace, like the society, has become quite inclusive in recent years. In the last decade, the growing services sector, which needed more and more young employees, has served as another leveler across traditional social barriers.
By comparison and rather differently, the Chinese have a relatively more homogeneous, less diverse culture. The country's more monolithic culture, growing from a predominantly Han-Chinese tradition and a deep tendency toward strong hierarchies, does not encourage thinking in new ways or including outsiders. This makes it more difficult to understand new markets, to think creatively, or to accept people who may appear to be eccentrics.The Chinese have a strong in-group focus, meaning that they prefer to work, communicate, and share information with people they know and trust. Outsiders -- who can include people from another department or division even within the same organization, much less from outside the organization or country -- can establish trust only over time. These cultural patterns slow down the appreciation of different ways of thinking and being and thereby also slow the kind of cross-fertilization and cooperation that multinationals tap to boost innovation.
Demographics
Finally, perhaps plain differences in demographics can explain the lower frequency of senior Chinese executives at multinational firms. Given the dearth of Chinese managers who can also speak English, any multinational lucky enough to have them likely wants to keep them in China. A much-quoted McKinsey report from 2005, "Addressing China's Looming Talent Shortage," claimed that China was short some 750,000 managers. The report estimated that China and India have a similar number of college and advanced-degree graduates but in India, 25% of engineering graduates have the level of training that qualifies them to work for an MNC, whereas the number in China was just 10%.
India has plenty of experienced and high-potential managers who can work in English.
Companies send them out easily -- even to China (Dinesh Paliwal, who was head of ABB's pulp and papers division in China in the late 1990's, is one such example). And Indian companies like Hindustan Unilever have long served as an important source of global talent for their parent firm.
The path to the C-suite today emphasizes international experience. Indians have been studying and working abroad prior to independence. That has gathered pace in the last two or three decades. The Chinese were constrained from going abroad from 1949 until the late 1970s and even then Chinese students going overseas were only a trickle until the 1990s. Capable Chinese managers were likely kept in China where they were badly needed and so were done out of many of the international opportunities needed for advancement in global careers.
Fluid Situation
Summarizing, we have identified several plausible explanations for the larger number of Indians compared with Chinese in senior positions at leading global corporations. While we believe these explanations are consistent with the data, we are unable to assert which factors are more influential than others. To make that determination, more research is needed.
It is important to remember, however, that the picture is changing, perhaps rapidly. The longer-term prognosis for how Chinese and Indian firms will globalize will likely depend on which underlying factors have more influence. If the ability to embrace diversity is critical, for instance, then that may shift only slowly since it is based in deep cultural patterns of trusting sameness in China. In this case, India will hold the better cards for some time to come.
If, however, language ability is central, then the pattern will change sooner because the advantage of India's comfort with the English language is being overtaken fast by the Chinese. China today has more people learning English than the total number of English speakers in the United States. Similarly, with the issue of management education, China is catching up fast, with large numbers having already graduated from MBA and EMBA programs.
China and India are both on successful economic trajectories. The data seem to suggest that as of last year, Indians may have had more success in navigating careers at leading global firms. It is possible that this is a pattern that might last for some more time. Yet, depending on the relative influence of specific factors that underlie this pattern, it may not take long for the Chinese to catch up.
