Wednesday, March 5, 2014

Chinese Manufacturing and Indian Service

The Ministry of Commerce in China recently announced, that the nation has toppled the US and taken the crown of the world’s largest merchandising trader.  Much of this achievement is based on an extraordinary success in manufacturing. China has clearly established its name for its manufacturing prowess. Half its gross domestic product is accounted for by manufacturing. Its plant and factories, churning out huge quantities of washing machines, refrigerators and mobile phones, cater to the insatiable demand of consumer goods in China and also cater to the global appetite for cheap goods. China is the largest trading partner of 120 countries, including India, and with most of them enjoys a favorable balance of payments situation because of successful export of its merchandise. China hence has developed capabilities to efficiently produce these goods not just to meet its own demand, and export to the whole world.

There are several factors which provided a fertile ground for the development of China’s manufacturing industry. China's manufacturing strength is due to its entrepreneurship, good infrastructure and efficient supply chain. The manufacturing boom also occurred at the cusp of huge urbanization, when millions of young Chinese villagers were free and eager to move out to supplement their meagre agricultural income and willing to work as cheap labour in factories. But the manufacturing industry also owes a debt to the fact that as a people, the Chinese are prone to follow instructions, stick to processes and work in a disciplined manner - exactly what manufacturing calls for.

On the other hand, services, though growing healthily, remain a weakness of the Chinese economic model. The Chinese tend to apply the same uniform standards and processes to services, which they employ to manufacturing. This often results in a sub-optimal offer, as services intrinsically have a higher variability in its demand. A three star hotel in China will nearly uniformly provide you clean rooms and sheets, a functioning television and a passable restaurant – but seldom anything more.  The Chinese service model is based on the principles of assembly line of the manufacturing process. The service is divided neatly into different processes and a standardized delivery of a basic quality is designed for each element. Standardization rather than customization is the goal. Airport staff at boarding gates in Chinese airports play recorded "thank you" messages while they scan the boarding cards. “If you have to thank every customer, why not have a recording to spew it out than leave it to the whim of fickle humans,” the Chinese think. 

Indians on the other hand are free-spirited, creative creatures of their own whim and will. They need variety and opportunity for creativity and extemporisation. Manufacturing is stifling for the Indians - it is the creative, on the feet servicing which is their forte. Unlike China’s manufacturing dominated GDP, it is the services which reign supreme in India, accounting for more than half its GDP.

The Indian service model, is based on the concept of customised service, which results in more tailor-made and specific solutions for the customer, often resulting in a higher level of problem solving and satisfaction. However, the Indian service also embodies a high level of variance.
 A three star hotel in India will show high variation with a quality of facilities and service which could, on one end rival a five star hotel, and on the other hand offer barely liveable accommodation.
Additionally, the Indian model is vulnerable to the whims of fancies for the people who are providing the service.  If you are lucky, you will be greeted with a beaming smile, solicitous attitude, and made to feel like a king. On a bad day (her bad day, which soon becomes your bad day too) you may be scowled at and blamed for interrupting her well-deserved rest.
But most of all, her behaviour and attitude will be based on what she feels the particular customer deserves. Coming from deep notions of a class based society, the behavior will often depend upon at what level or class of society does the person behind the counter pegs you at. Hence, if you are neatly dressed, exude an air of confidence and sophistication, you may be greeted with a smile. On the other hand if you present a bedraggled appearance and are classified as ordinary riff-raff you may be treated with perfunctory callousness. While flexibility is an asset for Indian service, extreme variability is a weakness. Indian model could do with a bit of standardization and learn from the highly homogeneous, low variance output of the Chinese

In this context India's software industry is clearly vulnerable to competition from China. In the long run Chinese are likely to prove themselves to be better in writing code than the Indians - though Indians may still hold an edge in the systems analysis and design. Surely this presents an obvious opportunity for cooperation and collaboration between the two countries.

Written by Ashok Sethi
Ashok is the Managing Director of GfK (a Global provider of market research and consumer insights) in China