Another business tour, another pool of opportunities. One more opportunity to explore the potential of a different language, different people… altogether a different region. This time I was flying to a country which in these days considered as India’s biggest competitor in several fields like engineering, production, manufacturing, R&D and now trying to emerge as big threat to Indian IT dominance in the global market.
Yes you guessed it right. I was flying to the land of dragons. Literally like a dragon this country has triggered a big fire in the global economy in recent years. The country which is today in top 5 slots of the most powerful economies of the world. The country whose economy is today world’s fastest growing economy at whooping 10.5 % per year. The only country in the world to have its economic growth in two digits. The country which has even dared to shake US and UK with its share of trade in the international market. The country which is now the centre of attraction of the world for its low cost manufacturing. The country which has challenged not only its neighboring nations but also the countries in far east and far west by proving its good quality production capabilities at low cost in the global market. I think I don’t have to give you any further clues as you must have already guessed that I am talking about the country which has made its ‘made in China’ stamp the world famous. This ‘made in China’ stamp behind almost 40% of the goods traded in the global market has given a nightmare to almost all giant nations including India, US, UK, Germany, Japan, Korea to name few. Fortunately as of today this ‘made in China’ stamp has not yet hit the software or any other IT services industry. But China in preparing itself to jump into it too in a big way in next 10-15 years time span which could be a big threat to India’s dominance in IT sector.How China is preparing itself to jump into software market, how that will affect global IT sector, how Indian software companies should prepare themselves, whether we can look at it as an opportunity instead of threat… all these things I am going to study in my next 5-day visit to Shanghai. How can I find an opportunity in what world sees a threat? This was the main agenda of my business trip to Shanghai, China’s commercial capital.
In short, why China is still behind India in IT and ahead in other industrial areas have some obvious reasons. In simple terms China has got a long coastline and very well developed ports in Hong Kong, Shanghai etc. which is the big advantage for its trading activity. IT services does not require such infrastructure for trading. Also, China has got ample of resources of not technical labors and very few resources of qualified engineers. Because of all this China attracted heavy industrial investments than the IT investment which demands qualified human resources.I have heard a lot about Shanghai from news papers, magazines and people. Many times Shanghai is compared with Mumbai. Well, those are only the heard stories. Now was the time to check the fact sheet of Shanghai and how and why it is always compared with Mumbai. In next 5-days I hopefully will have answers to all my queries.
One funny thing about my tours outside India is that wherever I have gone, I was totally blank about their local language. I could never speak or even understand their local language and it was always a fun dealing with local people like shop keepers, taxi drivers etc. First it was Germany then Muscat and now it’s China. I do not have even a slightest smell of German, Arabic or even Chinese language and I am in a job of developing the software for these languages. It's going to be a challenging task but it will be fun.
In Shanghai
I landed in Shanghai at “Pudong International Airport” at 8:00 pm their local time. Actually my flight from Hong Kong to Shanghai was late by 1-hour because as per captain’s announcement some military activity was going on in Shanghai airport and therefore they were not allowing any flights to land. This resumed in an hours time and I landed in Shanghai 1-hour late but not my luggage. As it was connecting flight at Hong Kong and the gap between two flights was only 40-minutes, I alone could catch my flight. My luggage was transferred by the next flight which arrived at Shanghai after half an hour at 8:30 PM. By the time I collected my luggage and completed all formalities to get out of the airport it was almost 9:00 pm. I wanted to catch the Maglev train to go to my apartment. This MagLev train is the most hyped and ambitious project of Chinese government. But last train leaves from airport at 9:00 pm. By the time I reached the ticket counter, it was already late. Then I took the normal bus from airport to ‘Shang Zing Park’ stop and from there to my client’s apartment by taxi. Its total 45-km distance and took me about 1 ½ hours to reach there as bus stops at several places. I reached apartment at 10:45 PM. The temperature at night was 3 degree Celsius and my hands were freezing. It was very difficult to handle the luggage in such cold.
While traveling to apartment, god knows how many times my bus passed over the flyovers and how many times it went underground. This was my first glimpse at the infrastructure in the city. But as it was night I could not see it very clearly.From next day and for next 3-days I was packed with meeting several people from software companies, IT training institutes, principals of schools and some local businessmen to understand what is happening in Shanghai or in whole China for that matter and to find out if there is any potential for me to get any benefits out of it.
So, I will now tell you how I have seen Shanghai from different angles. In 3-days I have traveled almost 150 kms every day in all directions of Shanghai from central Shanghai city to far interiors of Shanghai keeping my eyes wide open.
Mumbai vs. Shanghai
The very first thing I would like to focus on much talked about topic in India i.e. comparison between Shanghai and Mumbai. My 1st question – who compares Mumbai with Shanghai? Shanghainese don’t compare their city with Mumbai. Its we who do it. Shanghainese compare or they like to be compared their city with Hong Kong. Hong Kong is their big brother. Hong Kong is their ideal model. They have big dreams to become like Hong Kong or Singapore and they seem to be working in all aspects to become a big commercial city in China like Hong Kong. It’s our politicians, media who fool public by comparing Mumbai with Shanghai. Well, I don’t completely deny that there are no similarities between these two cities. Of course there are several similarities but they are less in number than the differences between them.
Let’s take one by one...
First of all understand that Mumbai has a long history and importance in terms of financial activities. Mumbai has been financially important city of India from a long long time. Shanghai is relatively recently developed and was ignored for several years by its own government. Shanghai became China’s most important city only recently. After communists take over in 1949, Shanghai was burdened with heavy central government taxation and most of its elements and values were wiped out. Following central governments authorization of economic redevelopment of Shanghai in 1992, Shanghai has not looked back since then. It’s hardly 15 years of starting of economic redevelopment of Shanghai and it has already made magic. Since its economic redevelopment initiated in 1992, Shanghai has seen lot of local and foreign investment coming in which has already transformed this once ignored city into a commercial super power of East Asia in just 15 years time frame.
Now let’s check the similarities between Mumbai and Shanghai.
Both the cities are situated on the coast. The meaning of Shnghai is city on the sea. “Shang” means above and “hai” means sea… the city on the sea. Both Mumbai and Shanghai has got long coastline. Both are big trade ports in their countries. Mumbai’s ‘Chhatrapati Shivaji International Airport’ is the busiest airport in India. Shanghai’s ‘Pudong International Airport’ is 2nd busiest airport in China after Hong Kong International Airport. Both the cities are economic hub of their countries.
Similarity between two cities does not end here. Both cities have large population and lot of immigrants. In numbers, Shanghai and Mumbai have almost same population but Mumbai’s area is 438 sq. km. whereas Shanghai is spread over an area of 6,340 sq. km. So density of population in Mumbai is much much higher than that of Shanghai. Like Mumbai, Shanghai is also cosmopolitan city with lot of immigrants coming from Vietnam, Singapore, Korea etc.
Local transport also in both cities is very similar. Like in Mumbai, Shanghai has fantastic bus transport which connects almost all parts of the city. Shanghai’s underground metro train like Mumbai’s local train is very convenient. In Mumbai we have three local lines – central, western and harbour line. Similarly in Shanghai they have 5 underground metro lines. Taxi service is also good in Shanghai. I traveled in all these three local transport systems while in Shanghai. Apart from these three, Shanghai has one more local transport called MagLev Train short for Magnetic Levitation Train. This is one of the most ambitious projects of Chinese government. This transport project of the government is more of a status project than the practical utility. This train runs on the magnetic force at the whooping speed of 431 kms / hour. At present it connects 35 km distance in just 7 minutes but has very few stops. I missed a chance to sit in this MagLev train.
Both Mumbai and Shanghai are becoming the head quarters of big multinational companies. Recently Alcatel, one of the biggest telecom companies has shifted its headquarters from Japan to Shanghai. Many people doubted the success of Alcatel by its move to shift headquarter to Shanghai 6-years ago. Now as it has been proved wise move several dozen companies including Kodak, DuPont etc. have followed the same move. Shanghai is now the regional headquarter of almost 400 multinational companies.
Like in Mumbai, the person who is brought up in Mumbai for several years likes to be called as ‘Mumbaikar’, in Shanghai also, people like themselves to be called as Shanghainese than Chinese.
Recently when I was in Muscat, I saw lot of richness all around. Muscat was prosperous. People are rich in Muscat even if they don’t work. They don’t work hard but still live very lavish life. May be that’s the effect of oil? But in China it is not the case. Like in India, one has to work hard for the survival; similarly in China you don’t get easy money. One has to work hard and fight strong for the survival. Like in India, there are poor as well as rich people in China as well and the gap between poor and rich is big. Poor people are very poor and rich people are very rich. You can even see the beggars on street and even pocket cutters in the crowded area like in Mumbai.
That’s all! I think the similarities end here between these two cities.
Now look at some of the differences.
Shanghai, in spite of being on coast is cold through out the year as it is on north. Average temperature in the city throughout the year in day time is around 12-15 degree Celsius and in night its around 8-10 degree Celsius. When I was there, it was winter and the temperature at night was about 2-3 degree Celsius. Such climate increases the work efficiency as there is no sweating and tiredness. Naturally this increases the productivity of the workers. Well, that is the natural difference between Mumbai and Shanghai and we can not do much about it.
Then comes an attitude and an open minded thinking process of the people. Here Mumbaikar undoubtedly beat Shanghainese. Shanghainese originally by nature are shrude people though it is changing slowly in new generation. Shanghinese are hard negotiators and they generally don’t accept something out of the box so easily and that makes it difficult to sell them something. I have experienced this while talking to Mr. Wader a local businessman in Shanghai. May be it is because of their rigid education system. May be their education pattern does not allow them to think all around. Well again this is something which we can not change.
Now look at the biggest difference which is critical factor for any country’s development. It is infrastructure. Well, well, well, the whole big story can be written on the infrastructural development in Shanghai. In one word it is amazing!
In past 8-10 years Shanghai has constructed several dozens of flyovers. Some flyovers are of 4-lanes, some are of 6-lanes, some are in singlet, some are in pair, some times they run in parallel with each other, some times in two levels one above another and some times even in three levels (look at the photos I have clicked). In old areas also the roads are 3x3 lanes. People say that in old city the roads were not as wide as they are today. But government moved people to other nearby places and demolished everything whatever came in between the road widening process. Thank god they don’t have Mamata Banarjees or Medha Patkars. People in China can not question government. An interesting thing is people here do not own the piece of land or any property for that matter. They never have an ownership on their flat, bungalow, office, factory land or any other real estate property. Government owns everything and it leases it out to the citizens for some time period. The lease period can be up to 70-90 years also after which you can renew the lease contract with the government but you never own the property. Thus government gives you only the ‘right to use’ their land or any other property for whatever period agreed upon but no citizen ever owns it. The advantage of this system is whenever government wants them to move out; they have to without questioning the government as they don’t own anything. That is the reason why China has done such a rapid development in constructing roads and bridges as land acquisition is never a problem for them.Shanghai also has a fantastic local transport. They have buses connecting
virtually all places in the city and even interiors of the city. The frequency of the buses is very good. I don’t remember I ever waited for more than 5-minutes for the right bus to come even when I was in interiors of Shanghai. They have private taxi operators but taxi billing is controlled centrally so passengers never get cheated or harassed by individual taxi drivers. Apart from that they have underground metro which connects virtually all important / busy areas in the city. And the last but not least and most talked about local transport is Maglev train which runs at the speed of 431 kms / hour. I already mentioned about this project. It’s more of status project than the practical utility. To support all this, Shanghai has fantastic roads, flyovers and underground roads.Shanghai also seems to know that if it is attracting so much of foreign investment, there is going to be lot of traffic of travelers and Shanghai seems to be well prepared to handle this load of traffic of travelers. Shanghai is hosting World Expo in year 2010, one of the largest international exhibitions which will attract 50 billion tourists i.e. 500 crore people to Shanghai in the year 2010 alone. And they are taking it very seriously. They are working like anything to tackle to the transport facility of these 500 crore tourists and working on the issues like their stay, food etc. Shanghai already has two International airports and two domestic airports. They are building one more airport to handle this heavy passenger traffic before 2010. Shanghai already has 3 railway stations which connects to other cities. They are building 4 new railway stations. So by 2010 they will have total 7 railway stations to connect to other cities in China. Its existing underground Metro runs on five different lines and the work is already in progress to build 4 new lines underground. So by 2010 they will have 9-line underground metro which will cover about 250 kms area in and around Shanghai. Wait, I have not finished yet. Before this World Expo they will extend their existing 30 km MagLev to 175 kms, which will connect Shanghai to Hangzhou. Before 2010 they will build 1318 kms. High speed railway between Shanghai and Beijing which will reduce existing 12-hours journey between these two cities to only 5-hours and will be capable of traveling 800 crore passengers in a year. Wait, that’s not enough. To cater to passengers’ stay and food problem, they are constructing several dozens of hotels and hundreds of other residential and commercial buildings. You go to any area in Shanghai and you will see lots of constructions going on. It is said that world’s half of the cranes are currently in Shanghai and half of those are on World Expo construction sites. They are also trying to get the permission for their own theme park of Disney Land of 6 sq. km. area in Pudong. And if their bid of Disney Land gets approved, that will be four times bigger than that of Hong Kong and will be the Asia’s biggest Disney Land. And they want it to be done before 2010 World Expo.
Because of upcoming World Expo 2010, you see lot of things happening around you when you are roaming in Shanghai.
This is the kind of infrastructure they are building and building very rapidly. Remember, China is no more a sleeping dragon. Dragon now knows what is to be done and how it is to be done to become the economic super power of the world. What tigers are doing? It is time now to wake up before it’s too late.
Apart from just infrastructure, to do a business in any city one has to consider other factors like procedure of setting up and running an office legally, its operating cost, cost of manpower, taxation laws, size and potential of the local market, attitude of the local people, support from the government, risk factor and finally ROI (return on investment). In my 5-day visit I tried to understand these factors with the help of about 10-15 different people I met there. Let me briefly tell you about each of these factors.
Setting us a business in Shanghai
Setting up an office in Shanghai is almost similar to doing so in India. The procedure, documentation etc. is almost similar but less hectic than in India. The response time of Shanghai government is very fast and cheap. When I talked to the local businessmen in Shanghai to find out how I can setup my presence in Shanghai legally, they said I just need couple of documents, roughly Indian Rupees 40,000/- and my company gets registered in Shanghai within maximum of 15-days. Shanghai Municipal Corporation is very efficient and they want more and more foreign companies to set up their shops in Shanghai. I remember incorporating my company here took me about 45-60 days with tones of documents. It seems to be fairly simple and quicker in Shanghai.
Operating cost in Shanghai
In one word, it is high. Remember that though China is considered as cheapest destination to do the business, its not true in all areas of China. China is very very expensive in the east coast area as it is reaching to saturation. All companies want to setup their shops on east cost to take an advantage of the biggest and advanced port they have got in Shanghai, Hong Kong etc. for the cheaper logistics cost. Thus east cost areas including Shanghai are getting crowded and the costs are rising day by day. Believe me, China will no more be cheapest destination in next 10-15 years time.
First of all to run your shop you need a space. In China as I told earlier also, you never own any property. Government owns all properties and they just lease it out. To have your office running in Shanghai, you can sign a lease agreement with the government for tenure of up to 70 years maximum after that you can renew it. The cost of renting an office in Shanghai Centre or downtown is very expensive these days. The cost is average of Rs. 50/- per sq. mtr pr day. Electricity supply is good and consistent. People say that they have not seen power down in last 10 years. Electricity rate for companies is about Rs. 6-7 per KW
Cost of man power is also becoming expensive in Shanghai. First of all you don’t get ample of technical engineers from the local resources. All foreign companies who have setup their offices in China; have non Chinese people on managerial or technical posts. Bus Local manpower can be used for non technical jobs. But Shanghai is preparing to change this picture. With 50 higher education schools, 18 advanced vocational schools and several dozens of technical institutes setup up in past few years, Shanghai is all set to give 600 technical personnel per 10,000 people. White collar professionals in Shanghai costs almost similar to those in India. Average salary of white collar professionals or managerial level personnel is around Rs. 50,000-60,000 per month. Not even the cost of labor is cheap in Shanghai. Average factory labor cost in Shanghai is Rs. 16,000/- per month. It is expensive as compared to its neighboring countries. Same factory worker costs around Rs. 10,000 in Manila, Rs. 8,000 in India, Rs. 7,000 in Bangkok and Rs. 5,000 in Batam in Indonesia. If you setup your shop or factory in the west zone of China this cost is almost half there but then you miss out the benefit of port on east. Chinese government is promoting its initiative called “Go West”. It wants companies to setup their factories in the west zone of China as everybody is putting their presence in East it is becoming crowded and west being totally undeveloped. So government is offering lot of benefits, incentives to companies who are willing to setup in west region of China. But in spite of that companies are not going west because then they increase the cost of logistics for trading their goods across the places.
Conclusion
Well, it’s not correct to come to conclusion from the study done in just 3-4 days. But the picture is very clear. China’s east zone is getting more and more saturated and therefore the cost of workers, cost of properties and so the overall living cost is increasing day by day. East zone cities in China like Shanghai, Hong Kong etc. are no more the cheapest destinations in the world to do the business. In terms of infrastructural development China is several years ahead of India. In terms of Government’s response time in any development for people’s benefit, China is way ahead of India. Nothing comes in between the development of the nation when its done in China. We definitely lack in this system. Apart from these differences, I don’t see major differences between India and China. Rather what I feel is, if we improve upon our infrastructural development and if our government can be quicker in taking decisions and implementing them, we can definitely over take China in economic growth.
