The Dragon vs. the Elephant Comparative analysis of innovation capability in the telecommunications equipment industry in China and India Professor Sunil Mani Planning Commission Chair Professor Centre for Development Studies Trivandrum

Sunil Mani, 3L Lecture Series, CMD, February Outline The telecommunications industry in China and India The sectoral system of innovation Innovation Capability – Traditional indicators: (a) R&D investments; and (b) Patents – Competitiveness of exports – Capability in hardware – Capability in telecoms software Conclusions

Sunil Mani, 3L Lecture Series, CMD, February Research Intensity

Sunil Mani, 3L Lecture Series, CMD, February Patenting performance in the US

Sunil Mani, 3L Lecture Series, CMD, February China: Scientists and engineers engaged in R&D

Sunil Mani, 3L Lecture Series, CMD, February India: Scientists and engineers engaged in R&D

Sunil Mani, 3L Lecture Series, CMD, February Relative technological strengths: China vs. India ChinaIndia TelecommunicationsEmbedded software Mechanical engineeringDrugs Computer graphicsBusiness software Handwriting recognitionChip design

Sunil Mani, 3L Lecture Series, CMD, February Growth of telecommunications services sector in China and India, (Million subscribers)

Sunil Mani, 3L Lecture Series, CMD, February Trends in teledensity in China and India, (Number of main lines per 100 people)

Sunil Mani, 3L Lecture Series, CMD, February Extent of Digital Divide in China and India, (Ratio of urban to rural tele densities)

Sunil Mani, 3L Lecture Series, CMD, February Chinese and Indian investments in telecommunications,

Sunil Mani, 3L Lecture Series, CMD, February Growth of telecoms revenues in China and India, (Value in billions of US $)

Sunil Mani, 3L Lecture Series, CMD, February Distribution of Telecom revenues: China Vs India (c2004)

Sunil Mani, 3L Lecture Series, CMD, February Relative profitability of the Chinese and Indian Telecom Services Industry

Sunil Mani, 3L Lecture Series, CMD, February Relative size of the market for telecom equipments,

Sunil Mani, 3L Lecture Series, CMD, February Digital Access Index: China and India, 2002

Sunil Mani, 3L Lecture Series, CMD, February Sectoral System of Innovation-China Chinese: Stronger and more closely knit- public labs have been converted to production enterprises Manufacturing enterprises are highly research intensive and two of them have emerged as leading MNCs in their own right; Strong rivalry between domestic manufacturers and indeed between them and western MNCs The state has provided strong and effective strategic direction

Sunil Mani, 3L Lecture Series, CMD, February Sectoral System of Innovation- India Indian Weak and fragmented- the public laboratory has strong research capability- successfully transferred generated technologies to local enterprises- helped to jump start a domestic equipment manufacturing industry Domestic manufacturing enterprises do not have strong in- house R&D capabilities Leading state-owned equipment manufacturer have become a mere “trader”. Deregulation of telecoms equipment industry has had adverse consequences for the leading domestic equipment manufacturer Growth of R&D outsourcing deals FDI into telecom equipment manufacturing

Sunil Mani, 3L Lecture Series, CMD, February Growing importance of local producers in the market for telecom switches in China,

Sunil Mani, 3L Lecture Series, CMD, February Innovation Capability Definition: Ability to conceptualise, design, manufacture, and sell state-of-the-art-telecommunications equipment both at home and abroad; Measurement is not easy- no single indicator captures the above definition; Following four indicators are employed – Traditional indicators: (a) R&D investments; and (b)patents – Competitiveness in exports – Capability in hardware design – Capability in telecoms software

Sunil Mani, 3L Lecture Series, CMD, February Traditional Indicators Human resource devoted to telecom R&D in China and India (Number of R&D scientists and engineers)

Sunil Mani, 3L Lecture Series, CMD, February Ratio of Chinese to Indian investments in Telecom R&D,

Sunil Mani, 3L Lecture Series, CMD, February Number of patents granted to Chinese and Indian Inventors in Telecom technologies in the US,

Sunil Mani, 3L Lecture Series, CMD, February Profile of the Largest Chinese Telecom Equipment Manufacturer

Sunil Mani, 3L Lecture Series, CMD, February Huawei-Exports

Sunil Mani, 3L Lecture Series, CMD, February Growing market share of Huawei in China

Sunil Mani, 3L Lecture Series, CMD, February Number of US patents granted to Huawei Technologies (China) in the US,

Sunil Mani, 3L Lecture Series, CMD, February Comparison between the largest Chinese and Indian telecom equipment manufacturers

Sunil Mani, 3L Lecture Series, CMD, February Competitiveness of telecom exports,

Sunil Mani, 3L Lecture Series, CMD, February China has innovation capability in 3G Mobile Telephony Technology

Sunil Mani, 3L Lecture Series, CMD, February China introduces its own standard for 3G Mobile technology China‘s Ministry of Information Industry (January 2006) formally approved TD-SCDMA, a local standard for third-generation wireless service. The move signals an important step towards the development of the country‘s telecommunication industry. Following confirmation of the commercial viability of the local 3G standard, Beijing is expected to start issuing 3G wireless- operation licenses as early as March or by mid Domestic and international telecommunications companies, including Huawei Technologies Co, Lucent technologies, Motorola Inc and Nortel Networks Corp, welcome the move.

Sunil Mani, 3L Lecture Series, CMD, February Diffusion of TD-SCDMA Technology in China

Sunil Mani, 3L Lecture Series, CMD, February Market Perception Based on 2005 Wireline Telecom Equipment Market Perceptions Study by Heavy Reading

Sunil Mani, 3L Lecture Series, CMD, February Share of C-DOT designed switches in India’s telecom network (As on March 31, 2004)

Sunil Mani, 3L Lecture Series, CMD, February Telecoms software exports from India (Millions of US $)

Sunil Mani, 3L Lecture Series, CMD, February Conclusions China is a later entrant to telecommunications research and manufacturing. But it has already evolved as a major world player; The Chinese and Indian innovation systems presents exactly the opposite picture. China first allowed MNCs in the design and manufacture of telecom equipments. Later on through carefully crafted policies it engineered positive technology spillovers to local companies. Currently the Chinese market is dominated by these local companies Further it has built up considerable innovation capability in wireless telecommunications equipments- development of the TD-SCDMA 3G Mobile standard for instance; India has built up some capability in telecom software, access technologies and in R&D outsourcing Chinese telecom sector has undergone better strategic direction than India’s