China and India are both ancient civilizations with history dating back over 5000 years. With ingenuity, vigour and pioneering spirit, the Chinese and Indian people have made a major contribution to human progress by creating two splendid civilizations. A glance through their time-honoured past vividly reflects the originality, greatness and profound richness of the two. During the last two centuries, the two Asian giants fell far behind the rapidly growing economies of North America and Western Europe. At the beginning of nineteenth century, China generated about one third of world’s total output and India about one sixth (calculated at common international prices). The situation looked completely different by the mid-twentieth century with China and India’s share plummeting to 5 and 3 percent respectively. At the time of respective independence in mid twentieth century, China became a Communist nation and India became the world’s largest democracy. Despite differences in political ideology and framework, both the nations chose socialist economics. With the fear of subordination to foreign economic interests after having gone through colonialism through the nineteenth century, both the nations perceived capitalism as inefficient and unjust. However, both failed to reach sufficiency through the socialist model. Even till 30 years later, neither country even began to regain their deserved position. However, a lot has changed since then, particularly after the implementation of reforms and opening-up program pioneered by Deng Xiaoping in 1978 for China and by Manmohan Singh for India in 1991. Both the nations have started to play catch up with Western economies, with China doing far better than India. Between 1980 and 2000, Chinese economy grew at 9.5% a year as against 5.7% in India. In fact, Chinese real GDP grew faster than any other economy in the world over these two decades. China has undergone a profound transformation. In a short span of 26 years from 1978 to 2004, China’s GDP increased from US$ 147.3 billion to US$ 1.6494 trillion. The foreign trade has risen from US$ 20.6 billion to US$ 1.1548 trillion and foreign reserves increased from US$ 167 million to US$ 610 billion. Basically, China has replicated the East Asian success story of nations like South Korea and Japan.

India today is where China was in 1993 (in absolute GDP terms). As against China’s growth through rapid industrialization, an increasingly deregulated labour market and international competitiveness, India’s growth has been services-oriented and almost jobless. On top of that India’s gross national savings as percentage of gross national income at 22 percent are half that of China. India’s trade in goods as a percentage of gross domestic product at 21 percent is less than half of China’s. In 2003, China’s single year foreign direct investment of US$ 54 billion was far higher than India’s cumulative stock of foreign direct investment at US$ 30.8 billion. While elite education is well developed in India, India’s illiteracy rate is five times higher than China’s. Over 97 percent of all Chinese children have passed primary education as against about 50 percent in India. In terms of infrastructure, the story is far more accentuated. Having already developed a formidable lead, even now China is spending eight times as much as India does on infrastructure. Even as a share of GDP, it is spending three times as much. Although I am a very proud Indian but my every visit to China, be it to a large city like Shanghai or Shenyang or to a small city (albeit, there’s nothing small in China or India!) like Hangzhou or Ningbo, has mostly evoked two emotions, i.e. sheer admiration for China and shame for us Indians. On a relative scale, our Banglorification sounds absolutely empty.

Overall, China has not only saved and invested far more, its exploitation of global opportunities has been far better. There are lots of stories about China’s imminent collapse through political implosion or economic malaise from things like over 40 percent of bank loans being considered bad. However a more likely scenario is that with its population being more educated and skilled, its socio-economic transformation being more profound, it is very likely that China will regain its status as the world’s largest economy between 2020 and 2025. President Hu Jintao declared at Fortune Global Forum in May 2005 that China is looking at quadrupling its GDP to US$ 4 trillion with a per capita income around US$ 3000 by the year 2020.

The idea here is not to undermine the progress India has made over last two decades. It is only to humbly urge our leadership, both political and corporate, to spend some quality time studying China model and find the answers for: How and why has it happened this way?

The Case Study of Market Development for Swiss Watches The story is very similar to the one on socio-economic development. China today, including Hong Kong, is the largest market in the world for Swiss watches. Even excluding Hong Kong, it is the largest market for many leading brands in the world. There are about 400 retailers in China for whom more than 75% of revenue comes from Swiss watches, whereas India has only 40 such retailers. The average size of watch retail stores in China is 3000 sq ft as against India at 800 sq ft. Moreover, out of the Chinese retailers selling Swiss watches, 32 of these stores are above 4000 sq ft in size, whereas in India there is not even a single such shop above 2000 sq ft. There are about 120 stand-alone boutiques for leading Swiss brands in China as against only 18 in India, half of which belong to TAG Heuer, a new entrant in the Indian market. An obvious reflection of this infrastructure advantage is that the average revenue per shop in China is more than 8 times that of Indian watch shops.

How and why has this happened?
Is it because India still has much higher tariff on import of watches? Have the Swiss companies been biased towards investment in China? Have some Swiss watch brands given a pass to India while investing heavily in China? Although answers to all the above is yes, the real answer lies somewhere else. China watch trade has undergone a major transition over last 10 years. A large amount of capital has been injected in creation of Swiss watches retail by state companies as well as ethnic Chinese retail companies from Hong Kong. The two state-owned companies, Sunlian and Harmony, have become the leading players in East and South China respectively. Similarly, Time City, Emperor and Oriental Groups from Hong Kong have opened 55 shops between them selling primarily Swiss watches. To top these, Xinyu, an erstwhile distributor of leading watch brands, lead by a charismatic entrepreneur called Cheung Yu Ping has developed a retail chain. This chain with more than hundred shops has already become Asia’s largest. This major investment in creation of high quality watch retail infrastructure by local private as well as state-owned enterprises coupled with investment from Hong Kong based companies is the chief variable that has made China market so big. These players are the ones who have built Swiss watch brands in China and not the other way around. It is true that reduction of Indian tariff on imports will certainly fuel the growth of Swiss watches business in India. It will even bring larger revenue collections for India in terms of indirect as well as direct taxes. The tariff rationalization would certainly excite the imagination of Swiss brands towards Indian market as till now India has been quite low on relative priority.

However, much of the job has to be done by Indian watch trade. First of all, they have to start thinking big. The so-called retail chains of India, i.e. Johnson & Co with 3 shops, Watches of Switzerland with 4 shops, Marcks & Co. with 2 shops or even the new entrant Ethos with 5 shops are a mere shadow of their Chinese counterparts. We just think and play too small. Given the history and heritage of some and experience of others, they have far larger potential. The story of Harmony Group is an interesting one and can bring some analogy for India’s leading watch brand, Titan. Till few years back, Harmony Group generated 95% of its revenue from sale of its leading brand in the country called, Fiyata. Noticing a sharp increase in consumption of Swiss watches, Harmony diversified its portfolio to include retail of Swiss watches. Today, more than 60% of its revenue comes from this new activity. “If we had not diversified well in time, we would have gone from the leading player in the market to a marginal one” says Miss Fang Juan, General Manager of Harmony Group. I genuinely believe Titan has the key to catapulting Indian watch market to another level. Titan revolutionized the Indian watch market in 1980’s so much so that leading brands of that time, HMT and Allwyn are biting dust today. Time has come for Titan to take another revolutionary step. If not, it will find it difficult to satisfy the aspirations of almost 200 Titan franchisees, who have seen their average cost per sq ft grow consistently whereas average revenue per Titan watch has not kept pace with it. I respect the fact that Titan could not have looked at this opportunity earlier because till very recently a bulk of Swiss watches were imported through grey channels. A Tata company with high ethics could not have indulged into such nefarious activity. However, today things have changed. Titan would serve itself well by offering Indian consumers their high quality watches along with that of Swiss. Finally, it is the consumer who should decide.

One would urge the Titan management team to have a deep look at this opportunity. And if there are any doubts about the quantum this opportunity could reach, a visit to China could open the eyes. If Indian trade creates the infrastructure, they will all come. I mean the Swiss brands to invest in the country as well as the Indian consumers to buy more watches at home. It will be a great national service too as India will end up collecting higher taxes, save forex spent on watch purchases abroad, upgrade retailing standards, generate employment through retail as well as after-sales service and generate higher advertising revenues. Let us learn from the Chinese Dragon on how to move bold and fast. And one thing is very clear, once the Indian elephant starts dancing everyone else will have to clear the floor!

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