International Business the Objective of Thesis

" (Veeramani, 2004)

Stated as contributors to the export success of China are those as follows:

1) Favorable exchange rate;

2) Low wages;

3) Availability of labor;

4) Large domestic market;

5) Huge volume FDI inflows etc. (Veeramani, 2004)

India is not far behind except the gap existing in the FDI volume into China and India, which remains a large gap. The FDI for India has been of much less importance as compared to China except in view of information technology. Sinha (2007) states: "In short, while the multinationals mostly engage in the export activities with China, they target the domestic markets in India." (Sinha, 2007) the following chart shows that China is 'above average' in goods while India is 'above average' in services.

Source: India and China's Developmental Paths (2008)

The differentiations of multinational behavior likely include "the relatively high trade barriers in India (which encourages market seeking FDI) and rigidities in India's labor market (which discourages export promoting FDI)." (Sinha, 2007) Noticeable shifts are noted in both India and China "away from agricultural and mineral resource-intensive goods towards other goods." (Sinha, 2007) During the period 1980-84 and the period 2000-2003 it is related that the "combined share of agricultural and mineral resource-intensive goods declined from 58% to 35% in India and from 35% to 12% in China." (Sinha, 2007)

Patterns of Comparative Advantage According to Commodity Groups

Source: Veeramani (2004)

Sinha states that in both India and China, the comparative advantage "...lies primarily in unskilled labor-intensive goods, which is in accordance with their relative factor endowments." (Sinha, 2007) the result is that both India and China holds the least of all comparative advantage in technology-intensive goods however both have gained in terms of comparative advantage in human capital and technology-intensive goods however, when compared to India "China holds a comparative advantage in a large number of unskilled labor and technology-intensive products." (Sinha, 2007)

Share of India and China in World Exports by Commodity Groups (% averages)

Source: Veeramani (2004)

SUMMARY & CONCLUSION

The country of China presents a better picture for investment by Australian firms because China's market is more flexible than is India's market making the process of reallocation within an industry a smoother process.Additionally reallocation of resources from inefficient to efficient firms within the industry is much slower in India due to existing barriers and specifically as stated by Sinha due to prevention of retrenchment by legislation in India. The market in China is characterized by:

1) Favorable exchange rates;

2) Low wages;

3) Availability of labor;

4) a large domestic market; and 5) a large volume of FDI inflows. (Veermani, 2004)

Generally, export activities are a choice in view of China while domestic markets are targeted in India. There are existing high trade barriers in India which discourages the promotion of FDI. As noted by Sinha (2007) and related in this study, "China holds a comparative advantage in a large number of unskilled labor and technology-intensive products." For these reasons, China's market is the best choice for Australian companies to gain market entry and to attempt investment through FDI.

Bibliography

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Das, Dilip K. (2006) the Chinese and Indian Economies: Comparing the Comparables Journal of Chinese Economic and Business Studies, Volume 4, Issue 1 February 2006, pages 77-89 Routledge Taylor & Francis Group Abstract Online available at http://www.informaworld.com/smpp/content~db=all~content=a743880372?back=%2e%2frelated%7edb%3dall%7econtent%3da713684741%7efirst%3d1%7evaa%3d0%3fbookmark%3d1&words=&hash=

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Veeramani, C. (2005) Specialization Patterns Under Trade Liberalization. Indira Gahndi Institute of Development Research. Online available at http://www.gdnet.org/fulltext/Veeramani_trade_liberalization.pdf

Sinha, Swapna S. (2007) Comparative Analysis of FDI in China and India - Can….....