Readers who think that India is the opposite of China – democratically
developed and economically backward – should be seeing recent news as eye
openers. The center of mobile phone making is moving from Korea to China,
right? Well, except that Indian mobile phone maker Micromax (and some domestic
rivals) are showing the world one more way to compete in the mobile phone market,
with new product release times coming significantly less than a month apart.
Compare that with the iPhone release schedule, and you see how advanced Micromax
is. Naturally they are quickly gaining market share.
Development is also going quickly elsewhere. The Indian auto
industry (yes, there are multiple makers) is introducing new models that are competitive
with imports, its high tech industry is now so advanced that talk about closer
US alliance leading to license manufacturing of arms in India is sounding
realistic, and on the political front there is even a sudden (though very late…)
resolution of the major border dispute with Bangladesh.
Does this mean that India is becoming fully Westernized?
Well, here we have to deal with some myths that people have, most important of
which is the idea that economic development is the same as creating some sort
of US/European economy. It is not. Guoli Chen, Raveendra Chittoor, and Balagopal Vissa have published a paper in Academy of Management Journal that
looks at just one of multiple dimension of difference: connections between
firms.
The idea is simple. We often believe that non-western
economies have more informal contacts between firms than western ones, and also
are more reliant on business groups of firms controlled by owner families. The
second of these statements is false, by the way, there is a lot of variation in
business group presence across nations, and it does not follow a clean
western/nonwestern line. This article looked at the connections part, which we
know less about because it is often hidden. But it can be revealed by seeing
who has the best information, which the authors did neatly by examining which stock
analysts were best able to predict firm performance.
If development means westernization, we should see
traditional forms of ties between firms disappear, right? Well, this almost happened. Stock analysts were unusually well informed about firms in which the
CEO had the same caste or ancestral language, but only if the CEO started the
career before the economic reforms in 1990. They were also unusually well
informed about firms in which the CEO came from the same school as them, but only
for CEOs starting the career after the reform. That school effect sounds like
something that would not exist in western economies, which have rules on information release, but actually it does.
Indeed, westernization doesn’t mean that networks don’t matter; it means that
different networks matter.
So in what way is India different from a westernized economy
then? It is that both types of ties exist at once. The traditional ties are not
gone; they are just limited to the “older” CEOs. “Westernized” ties exist in
addition. Perhaps the old ties will be gone at some point, but it is hard to
guess now that it will happen, and it is incorrect to assume that it has
already happened.