As China and India become increasingly wealthy and dynamic over the next 20 years, Dr. Wendy Dobson believes they will change the way the world works.
“It’s probably the most amazing transformation in human history,” says Dobson, co-director of the Institute for International Business in the University of Toronto’s Rotman School of Management and a former associate deputy minister of finance in the Canadian government. “After living in India in the 1960s and visiting China in 1978 at the beginning of that transformation, I never thought that in my lifetime they’d make the kind of progress they have.”
Those early experiences inspired her to write Gravity Shift: How Asia’s New Economic Powerhouses Will Shape the 21st Century, describing how the world’s economic centre of gravity will shift from the Atlantic advanced economies to China and India by 2030.
The fact that these markets are so big means that smaller Canadian companies may have difficulty finding niches they can exploit, says Dobson. So consortiums where companies work together become important.
“We have the Canada-China Business Council and the Canada-India Business Council, which are in the business of developing networks among Canadian firms and helping with connections and market research. The Canadian trade commissions that are part of our embassies in both countries can also help with that process.”
So what are China and India looking for, and what can Canadian companies deliver? Dobson says that while China and India have labour in abundance, we have natural resources. We buy truckloads of consumer goods from China and information technology services and expertise from India while they buy our potash, fertilizer, coal and oil.
There are certain areas where Canada is a substantial manufacturer–the auto industry being one–but the comparative advantages in that industry in cost and efficiency will be in Asia, says Dr. Dobson. She sees our advantage as further up the value chain in what she calls head office activities–research, development and design, the brain activities that can be done only close to the consumer. Distribution and after-sales service must also be tailored to North American customers.
Environmental services provide enormous opportunities for Canadian firms, says Dr. Dobson. China has been so focused on investment that 50% of its GDP goes into infrastructure, housing and manufacturing for export. That has produced serious environmental degradation, says Dr. Dobson, citing Chinese students who tell her that the price of their growth and increase in income is that they “can’t see the sun.”
“When they turned off the factories in order to clear the air for the Olympics in Beijing and Chinese people could see the sun, that was a catalyst to create a push from below for clean growth,” says Dr. Dobson. “So that will be a major priority in China’s next five-year plan.”
Dr. Dobson tells of one mayor in a province south of Beijing who is so taken with green technology that he’s vowed to show how to transform an existing city into a green city by replacing polluting industries, energy and transportation with green sources.
“They have the vision, but not yet the technology,” says Dobson.
A related major opening for Canadian business is China’s need for energy technology such as smart grids. Since China is reliant on oil and gas imports, it will be very interested in any opportunity that reduces them.
“Wind power is a big deal in China,” says Dr. Dobson. “There are wind farms all over China but many of them are not yet connected to the national grid. Smart grids would allow that kind of feed-in.”
Shale gas, recently discovered in North America, is another game changer that Canadian companies could move on. “It’s possible that China has very large supplies, but again they don’t have the technology.”
Dobson warns Canadian companies that China’s private sector is shaped by a sometimes-shaky legal framework. When it comes to the enforcement and interpretation of laws and legal contracts, there’s a lot of elasticity and opacity in China, she says.
“You’ve got to have somebody by your side who knows how to evaluate those dimensions of transactions,” says Dobson. “China is still an autocracy run by the Communist Party with about 75 million party members stretching from Beijing into the villages and hamlets in the rural areas. Personal relationships–not just with your business partner, but the local cadre of the Communist Party–are very important. That’s why you’ve got to have that person at your side.
“In India, there’s much more in common in terms of the framework since it’s a parliamentary democracy.”
The first step for Canadian companies is to start with a broad view and then dig into the opportunities. Small and medium-sized companies should look for joint venture partners or alliances.
“The idea of making a plan in Canada and going over there to sell it is absurd, especially in China, says Dobson. “You need to understand how different and unique China is because of 5,000 years of civilization, history and tradition. It’s not the United States.”