HISTORICAL FOOTPRINT

Businesses from mainland China experienced a major disruption of their international activities in 1948, when almost all private and foreign-owned businesses were nationalized, and international trade links have been severed. This historical anomality has only been remedied gradually after the start of reforms and opening of the economy in the 1980s, and the ‘go global’ initiatives in the 2000s. However, at this time, businesses lacked human capital experienced in international management (Meyer & Xin, Reference Meyer and Xin2018), and had to develop international business expertise mostly from scratch. My personal – non-representative – observations of interactions between mainland Chinese and African business persons suggest high awareness of their synergies, yet considerable tensions in interpersonal interactions, presumably caused by their lack of experience of cross-cultural settings.

In contrast, Indian companies did not experience such radical disruption. During colonial times, Indian businesses developed an international footprint, which had a lasting impact in terms of the formation of business groups and international business ties. Indian entrepreneurs have a long history of migration especially to countries sharing the inheritance of the British empire. During the early years of independence in the 1950s, economic policy favored domestic development over international trade, but never fully cut of external ties. Policy makers also promoted solidarity among post-colonial countries, and thus probably the first foreign direct investment (FDI) from independent India was a textile mill in Ethiopia in 1959 established by the Birla Group (Pradhan, Reference Pradhan2017). As Xie et al. (Reference Xie, Chen and Wang2022) emphasize, Indian businesses in Africa thus draw on a long tradition and an extensive diaspora that help bridge cultural differences.

However, the Chinese diaspora is also extensive and has developed since the 15th century when Chinese merchants established trading relationships and settlements across South East Asia (Brook, Reference Brook2013; Mills, Reference Mills2020). This diaspora has played an important role in the early stages inward investment to China, despite ideological tensions between communist rule in China and the political affinities of the diaspora community. Some studies also suggest that the size of the Chinese diaspora played an important role for Chinese outward investment, especially by private firms and in real estate (Buckley, Clegg, Cross, Liu, Voss, & Zheng, Reference Buckley, Clegg, Cross, Liu, Voss and Zheng2007; He, Bennet, & Jiang, Reference He, Bennet and Jiang2022). Moreover, recent patterns of Chinese migration are often associated with entrepreneurs setting up businesses abroad, such that the diaspora again becomes a major enabler of international trade and investment.

Thus, both countries have historical business ties and diasporas that may facilitate business. Yet they are based in different parts of the world, and in the case of China faced major disruption from 1948 to the 1980s, that are only gradually rebuild.

BUSINESS–GOVERNMENT RELATIONS

The largest players in the Chinese economy are controlled by entities of the state, and the largest investors aboard in terms of capital invested are also state controlled (either directly through ownership, or indirectly through political ties). Private firms play an important role too – but many of them actually face severe challenges at home. Many of the leading private investors in the mid-2010s however suffered major setbacks recently, leading to a wave or divestments and restructurings. In fact, both HNA and Anbang had to go through bankruptcy procedures because they overstretched themselves financially (Hale, Reference Hale2021; White & Yu, Reference White and Yu2021).

State-ownership shapes the pattern of outward investment, at least in China, in multiple ways, including access to resources and alignment with government policy agendas (Cuervo-Cazurra & Li, Reference Cuervo-Cazurra and Li2021; Estrin, Meyer, & Pelletier, Reference Estrin, Meyer and Pelletier2018). Thus, many outward investment projects focus on acquisitions of natural resources or of technology, rather than competing in foreign markets. This influences, for example, the geography of outward FDI as inter-governmental diplomatic ties facilitate investment decisions, especially by state-owned enterprises (Li, Meyer, Zhang, & Ding, Reference Li, Meyer, Zhang and Ding2018). For Africa, Li, Newenham-Kahindi, Shapiro, and Chen (Reference Li, Newenham-Kahindi, Shapiro and Chen2013) show the patterns of interactions between governments and businesses in the mining and infrastructure sectors: Framework agreements including project funding are negotiated between national governments, and then Chinese authorities allocate the projects to Chinese firms (primarily state-owned ones).

In contrast, the largest players in Indian business are business groups, with central roles of families, who maintain more arms-length relationship to the changing governments of the country. Many business groups have been operating over several generations of a family such as Tata or Birla. The globally most visible Indian business group is Tata, which includes three of the largest Indian MNEs: TCS, Tata Motors, and Tata Steel (Table 1). The Tata group has undertaken several strategic-asset seeking acquisitions in the UK (Meyer, Reference Meyer2015), i.e., acquiring organizational competencies abroad with the intention to transfer them back to home country operations, integrate them with existing capabilities, and thereby laying foundations for enhanced competitiveness both at home and in new foreign markets. After acquiring JLR from Ford, Tata Motors gave it high operational autonomy and supported its investments. On this basis, JLR successfully rebuilt its UK manufacturing operations and grew its emerging economy market share. However, to the best of my knowledge, successful catch-up strategies by Indian companies remain – so far – rare.

Table 1. Indian MNEs ranked by foreign sales 2021

Sources: Author's compilation from company's annual reports. Employee data are from Forbes (2022).

The experience of Tata Motors has been inspiring many Chinese entrepreneurs.Footnote ^[2] For example, Geely acquired Volvo (also from Ford) along with other car brands, managed them relatively autonomously, and gradually used their overseas competencies to strengthen their core brands in China. Known as springbording in China (Luo & Tung, Reference Luo and Tung2018), this strategic objective became a popular objective among Chinese entrepreneurs, and received ideational and financial support from state banks. Yet, managing the reverse knowledge transfer often proved more challenging than the initial acquisition of the firm abroad.

While Indian political leaders promote Indian business aboard, such involvement is far less strategic and long-term than that of the Chinese government (Pand & Mishra, Reference Pand and Mishra2021). Instead, Indian outward investment relies on the private sector rather than government guidance, and thus is more similar to their peers in Europe, or in South East Asia. The potential trajectory for growth only marginally intersects with that of Chinese state-controlled enterprises.

SECTORS AND PROJECTS

The international competitiveness of Chinese businesses (and thus China's large surpluses in its trade balance) has been driven by its manufacturing sector. Initially, this competitiveness was leveraging abundant low skill labour; in recent years, however, ‘cheap’ labour has become scarce, and Chinese manufacturing has been competing with a combination of upskilled labour, organizational competencies in managing large numbers of people, and in physical infrastructure such as railways, roads, ports and airports. Recently, the manufacturing prowess has been strengthened by a number of springboarding acquisitions in Europe and North America. Overall, and contrary to Li et al. (Reference Li, Lewin, Witt and Valikangas2021), I believe that these assets created over the past two decades are difficult to replicate for India, or other emerging economies, at least in the short run. Thus, any catch-up is likely to be slow.

Most large Chinese outward investments in terms of capital investment are either in mining or in infrastructure projects, motivated by the desire to secure the supply of natural resources for the growing Chinese economy. The UNCTAD list of the top 100 non-financial MNEs contains ranked by foreign assets contains nine Chinese companies and no Indian companies (Table 2). Of the nine companies, four are in oil and gas operations and have major extraction projects abroad. In contrast, India's major oil and gas sector companies have only a very small share of their operations abroad (Table 1).Footnote ^[3]

Table 2. Chinese companies in the UNCTAD top 100 non-financial MNEs

Source: UNCTAD, World Investment Report, Appendix 19.

Note: Only companies with foreign assets of over US$ 45 billion are included, hence Tables 1 and 2 are not directly comparable.

Most investments by Indian MNEs are in conventional market seeking projects. Four Indian IT software and service companies have become major global players in their industry. Tata Consulting Services (TCS), Infosys, HCL, and Wipro earn more than 90% of their sales outside of India (Table 1). These services are typically generated in India and transferred via digital channels. Yet, to engage directly with clients, they also set up service delivery centers in Europe and in the Americas. In contrast, China's giants in the digital economy, Alibaba, Tencent, and Baidu, are dominating the domestic market with their technological prowess, yet they are small players outside of China, notwithstanding some significant entries in other emerging economies. Li et al. (Reference Li, Lewin, Witt and Valikangas2021) are correct that Indian companies are likely to take advantage of concerns regarding data security in China. Yet, this is primarily grounded in the competencies Indian businesses have already established as information technology providers.

Another sector where Indian companies have developed particular strength is pharmaceuticals, especially generics. This sector accounts for many outward investment projects (Bhaumik, Reference Bhaumik, Tithe, Wilkinson and Budhwar2017) and is a major source of affordable medications to developing countries, notably in Africa (Horner, Reference Horner2022).

Chinese and Indian companies in some incidences also complement each other. For example, Airtel Africa – the telecommunication operator owned by Bharti Airtel – relies extensively on Huawei to provide the network infrastructure powering its mobile networks across Africa (Nayak, Reference Nayak, Peng and Meyer2023).