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Manufacturing in China comes to 40% of a more than $12 trillion GDP. That's why some call it the world's factory. South of the border in India, the business process management sector earned $30 billion in revenues in fiscal 2016-2017 and ranked as the largest industry of its type worldwide, news website BGR India says. It’s on track to reach at least $50 billion in revenues by 2025. No wonder India's dubbed the world's back office.
In 2014, Chinese President Xi Jinping first floated the idea of fusing the world’s second and soon-to-be fifth largest economies because factories need back offices and vice versa. They also happen to be the biggest countries in the world by population.
A year later Indian Prime Minister Narendra Modi said the same. Their ideas are faltering, however, because each country wants to do it all. "While [India and China] could be complementary, conflict could arise because India seeks to be a manufacturer, not just a downstream services back-office provider," says Sameer Lalwani, deputy director for the Washington-based Stimson Center think tank’s South Asia program. China wants to do more back-office outsourcing, too.
Here’s how the economic fusion might work:
India's agenda
India’s status as a leader in back-office services usually refers to software services that help run businesses along with call centers for foreign multinationals. Indian Prime Minister Narendra Modi’s government is looking to export more to China, possibly services as well as textiles and farm products.
Among the possible clients are Chinese factories that are more intent on making things than managing customers or suppliers, the sort of thing back-end software does. Some of India’s top names are InfoSys, Flatworld Solutions and 4D Global.
In fact, Chinese smartphone developers Oppo and Vivo indicated in this Indian media report last year they were planning to move cloud services to India. The report did not estimate how many jobs would be created or give other details.
China is accommodating
China is moving to accommodate India this year on trade, a follow-up to months of effort by both sides to heal a territorial rift of mid-2017. That accommodation could set the scene for more factory-back office tie-ups.
China appears “at least nominally committed” to easing a trade imbalance with India that favors Beijing , Lalwani says. For things to keep going, he says, China should open more sectors to Indian exports. India, in turn, would need to improve its regulatory environment and make it easier to do business.
Each country wants to be like the other
A stronger factory-back office pairing could help stoke travel between the two countries, India's STIC Travel Group Chairman Subhash Goyal said earlier this month. Travel might bloom if India allows easier access to Chinese tourists, business consultancy McKinsey & Co. says in this report.
But broader, multi-sector economic linkage might not happen any time soon.
That’s mainly because China, rich in its own IT firms that are seen by Beijing as a key source of GDP growth, wants to be more of a back office. In 2006, China set out to cultivate at least 1,000 large or mid-sized outsourcing firms with international qualifications, auditing firm KPMG says. In the northeastern Chinese city Dalian, for example, multiple firms do call-center work for Japanese multinationals.
Now India also wants to do more manufacturing. Its four-year-old "Make in India" plan would raise manufacturing’s GDP share from 16% to 25% by 2025, in turn bringing in foreign investment and offering jobs to a largely impoverished population.
“The notion of India as the ‘world's back office and China as the ‘world's factory’ to power the engine of global economy has been around for nearly two decades but has not taken off mainly because India and China want to be both the world's back office and the world's factory too, not just one or the other ,” said Mohan Malik, professor at the Asia-Pacific Center for Security Studies in Honolulu.
