English by Qi Lei and Calculations from These Sources by Qi Lei and Stanley Nollen
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47970 The Emergence of the Software and Hardware Industries in China and India New Industries from PlacesNew Neil Gregory Stanley Nollen Stoyan Tenev STANFORD UNIVERSITY PRESS New Industries from New Places New Industries from New Places The Emergence of the Software and Hardware Industries in China and India Neil Gregory Stanley Nollen Stoyan Tenev A COPUBLICATION OF STANFORD ECONOMICS AND FINANCE, AN IMPRINT OF STANFORD UNIVERSITY PRESS, AND THE WORLD BANK Washington, D.C. Stanford, California © 2009 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 12 11 10 09 A copublication of Stanford Economics and Finance, an imprint of Stanford University Press, and the World Bank. Stanford University Press The World Bank 1450 Page Mill Road 1818 H Street NW Palo Alto CA 94304 Washington DC 20433 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessar- ily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development/ The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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World Rights except North America North America ISBN (soft cover): 978-0-8213-6478-9 ISBN (soft cover): 978-0-8047-6281-6 ISBN (hard cover): 978-0-8213-7785-7 ISBN (hard cover): 978-0-8047-6280-9 eISBN: 978-0-8213-7784-0 DOI: 10.1596/978-0-8213-6478-9 Library of Congress Cataloging-in-Publication Data Gregory, Neil F. New industries from new places : the emergence of the software and hardware industries in China and India / by Neil Gregory, Stanley Nollen, and Stoyan Tenev. p. cm. Includes bibliographical references and index. ISBN 978-0-8213-6478-9 (world bank pbk.) — ISBN 978-0-8213-7784-0 (electronic) — ISBN 978-0-8213-7785-7 (world bank hardback) — ISBN 978-0-8047-6280-9 (stanford university press hardback) — ISBN 978-0-8047-6281-6 (stanford university press pbk.) 1. Computer software industry—China 2. Computer software industry—India. 3. Computer industry—China. 4. Computer industry—India. I. Nollen, Stanley D. II. Tenev, Stoyan, 1961– III. Title. HD9696.63.C62G74 2009 338.4’70040951—dc22 2008051221 Cover image: NASA satellite photo of the earth at night. Cover design by Critical Stages. Contents Foreword. xi Acknowledgments . xiii About the Authors. xv Abbreviations . xvii Part I Foundations 1 Context for the Study of the Software and Hardware Industries in China and India . 3 2 A Framework for Understanding Industry Performance Differences . 21 3 The Legacy of China’s and India’s Investment Climates . 31 Part II Software 4 Software Industry Performance in China and India: An Introduction . 55 5 The Influence of Factors of Production on Differences in the Software Industries of China and India . 63 6 The Influence of Management on the Software Industries in China and India . 87 7 The Effects of the Business Environment and Competition on Software Industries in China and India . 115 8 Summary of Factors behind the Success of China’s and India’s Software Industries. 131 Part III Hardware 9 Hardware Industry Performance in China and India: An Introduction . 141 10 The Influence of Factors of Production on the Hardware Industries in China and India . 149 11 The Influence of Management on the Hardware Industries in China and India . 169 v vi New Industries from New Places 12 The Effects of Business Environment and Competition on Chinese and Indian Hardware Industries . 185 13 Summary of Explanations for the Different Outcomes for China’s and India’s Hardware Industries . 209 Part IV Summary and Conclusions 14 Why Software and Hardware Industries Differed in China and India. 215 15 Emerging Trends in the Chinese and Indian Software and Hardware Industries. 221 References and Other Resources . 229 Index. 241 Boxes 3.1 China’s Early Approach to Science and Technology (S&T) . 49 5.1 The China Brain Drain Problem . 65 5.2 Infosys Technologies: Software Startup with Early Self-Financed Growth . 82 6.1 UFIDA Software Ltd.: Risk-Taking Pays Off . 93 6.2 Tata Consultancy Services: A Hard Alliance as a Springboard to Software Success . 104 6.3 HiSoft: A Wholly Foreign-Owned Enterprise in China . 106 6.4 NRI Founds Software Companies . 111 7.1 SUPCON: Technology and Management Support from the Chinese Government . 117 7.2 Wipro: From Edible Oils to Hardware to Software . 122 10.1 EVOC Intelligent Technology: Access to Flexible Labor and Advanced Technology . 167 11.1 Technology Transfer through FDI: Suzhou. 174 11.2 Huawei Technologies: International Leadership through Advanced Technology and Chinese Government Support . 176 11.3 Moser Baer: An Exception to the Rules . 177 11.4 Siemens: A Foreign-Owned Company’s Success in China. 180 11.5 HCL Perot in India: From Import-Protected Hardware to Software . 181 12.1 Hical: Indian Hardware Supplier . 191 12.2 The Development of the Semiconductor Industry in China: Governments Pitch In. 195 12.3 China’s Hardware Companies Go Global . 206 Figures 3.1 Manufacturing as Percentage of GDP in China and India, 1968–2002 . 37 3.2 GDP Growth in India . 42 Contents vii 3.3 Foreign Investment in India: 1993–2005. 44 3.4 Annual Exports of Goods and Services from India: 1990–2004 . 46 3.5 Average Telecommunications Tariff Rates in China and India . 47 4.1 Software Industry Revenue over Time for China and India . 58 4.2 Software Industry Domestic and Export Sales Revenue over Time for China and India. 61 5.1 Framework for Explaining Labor Productivity and Unit Labor Cost for Firms. 72 9.1 Hardware Market Size, 1991–2006. 141 9.2 Domestic and Export Hardware Markets . 147 10.1 Labor Regulation as a Bottleneck to Business Growth. 152 10.2 Hardware Firm Labor Costs per Employee, 1999–2002. 158 10.3 Real Interest Rates and Fiscal Deficits, China and India . 164 12.1 Factors Identified as Bottlenecks to Growth in China and India . 187 12.2 Infrastructure as Obstacles to Growth. 198 12.3 Growth in Telecommunications Lines in China. 199 12.4 Indicators of Power Supply Deficiency from the Public Grid . 201 12.5 Indicators of Infrastructure Bottlenecks . 202 Tables 1.1 Software Industry . 5 1.2 Size and Growth of the Global Software and Services Industry Worldwide . 7 1.3 Leading Software Services Exporting Countries. 7 1.4 Hardware Industry . 8 1.5 Size and Growth of the Global Hardware Industry . 9 1.6 Size of Firms in the World Bank Investment Climate Survey . 12 1.7 Number of Firms in the IFC Sample . 12 1.8 Main Lines of Business and Production Processes of Firms in the IFC Sample. 14 1.9 Characteristics of Firms in the IFC Sample . 15 1.10 Export Intensity of Software and Hardware Firms in the IFC Sample. 16 1.11 Firm Ownership in the IFC Sample. 17 3.1 China: GDP and Investment Trends . 41 3.2 India: Average Effective Rate of Protection . 43 3.3 India: GDP and Investment Trends . 45 3.4 Comparative Performance, 2004 . 50 4.1 Software Industry Revenues in China and India . 57 4.2 Contribution to Software Industry Revenue by Product and Service Type . 59 5.1 Labor Demand and Supply. 68 5.2 Labor and Management Skill Features of Chinese and Indian Software Firms. 70 viii New Industries from New Places 5.3 Labor Productivity and Value Added by Labor for Chinese and Indian Software Firms . 75 5.4 Explaining Labor Productivity and Value Added by Labor in Chinese and Indian Software Firms. 76 5.5 Differences between Chinese and Indian Software Firms in Determinants of Labor Productivity and Value Added in 2002 . 78 5.6 Wage Rates in Chinese and Indian Software Firms . ..