The Comparative Analysis of International Competitiveness of

The Comparative Analysis of International Competitiveness of
Service Industry Between China and India
WU Zongjie1, SANG Jinyan2
1. Department of Humanities and Social Sciences, Shandong University of Technology, China, 255049
2. School of Management, Shandong University of Technology, P. R. China, 255049
[email protected]
Abstract: Service industry plays more and more important roles in the process of economic
development. It is very important to comparative analysis of various factors of service industry between
China and India. Firstly, we use several index to construct an evaluation system of international
competitiveness of the service sectors. Secondly, we make use of this index system to analyze over 11
years’ data of China and India. Thirdly, we analyze the difference of international competitiveness
between China and India, and find the reason from which we can obtain some experiences and
inspirations, which can enhance the level of international competitiveness of the service industry.
Finally, we put forward the following policy suggestions for Chinese service industry: formulating
detailed and operational preferential tax policies, Increasing input for primary education and
strengthening talent cultivation, adjusting the industry structure gradually and strengthening the
development of modern service industry, speeding up the development of service outsourcing, and using
foreign capital actively and effectively.
Keywords: Service Industry, International Competitiveness, Index Analysis
1.
Introduction
Service industry plays an important part on economic, especially in developing country. China and India
are both developing countries with similar resources. In recent years, India has made great progress in
service industry, especially in the software industry which has caught worldwide attention. Therefore,
from international competitiveness point of view, we compare service industry between China and India,
then find the differences and analyze the reason which is of great significance for promoting Chinese
service industry.
2.
The index analysis of international competitiveness of service industry
between China and India
In this section, we choose several important indexes to measure international competitiveness.
2.1 The main index explanation
The evaluation system of measure international competitiveness (A) is established in five aspects: Trade
competitive advantage index (A1), Revealed comparative advantage index (A2), Revealed competitive
advantage index (A3), International market share (A4) and Productivity of labors (A5).
Aspect A1: Trade competitive advantage index (TC index), means the ratio of balance between export
and import ("export"-"import") to total volume of export and import. The TC index is a powerful tool
that can analyze international competitiveness of industry structure. It has rejected the effect of the
macro-total fluctuation such as inflation in each country; we can measure comparative advantage of one
country exactly.
Aspect A2: Revealed comparative advantage index (RCA index), means the ratio of the export of one
country's product or service to average export of world product or service, which is a powerful tool that
can study industry competitiveness.
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Aspect A3: Revealed competitive advantage index (CA index), means export comparative advantages
of industry or products subtract import comparative advantages. Because The RCA index only include
export, not import, The CA index covers the shortage best and measures one country's comparative
advantage exactly.
Aspect A4: International market share means the ratio of export of one country’s industry or product to
total volume of world export. Considering total scale and strength of one country’s economic
synthetically, the index can reflect total competitiveness of one country’s industry, which can measure
comparative advantage of one country.
Aspect A5: Productivity of labors means the ratio of service industry GDP to average employees, which
is an important index of reflecting international competitiveness.
2.2 The index analysis
In the index analysis, we only analyze TC index, RCA index, CA index and international market share.
Because Indian data of productivity of labor is limited at present, we can’t compare quantitative analysis
of productivity of labor, but making descriptive illustration in comprehensive review.
2.2.1 The analysis of trade competitive advantage index
Comparing trade competitive advantage index (TC index) between China and India (as Table 1), we can
see that from 1998 to 2001, Chinese TC index was superior to Indian. But from 1998, Indian TC index
was superior to Chinese, and the disparity between China and India enlarge gradually. From 1998 to
2008, Chinese TC index was a quantity less than zero, and the rate of increase was only 56.9%; from
2003, Indian TC index was a quantity more than zero, the rate of increase was 259%. Though Chinese
competitiveness of service industry has improved, the effect is not obvious, while Indian’s has obviously
promoted.
Table 1.
Years
Country
China
India
The index analysis of competitiveness in service industry between China and India
1998
1999
2000
-0.137
-0.042
-0.065
-0.205
-0.210
-0.155
2001
2002
2003
2004
2005
2006
2007
2008
0.055
0.109
0.092
0.087
0.084
0.081
0.079
0.084
0.071
0.059
0.070
0.125
0.142
0.240
0.282
0.326
Sources of data: according to Lixia [1] and Dong Xiaolin [2].
2.2.2 The analysis of revealed comparative advantage index
Comparing revealed comparative advantage index (RCA index) between China and India, we can see
that Indian RCA index was superior to Chinese. From 1998 to 2008, the disparity expanded from 0.38 to
1.46, as Table 2 shows. From 1998 to 2008, Indian RCA index were greater than 1 in most years, which
showed more comparative advantage. Chinese RCA index was among 0.4-0.6, and the service trade
comparative advantage was weaker. From 2001, RCA index still keep falling down.
Table 2.
Years
Country
China
The index analysis of revealed comparative advantage between China and India
India
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0.59
0.57
0.60
0.59
0.57
0.58
0.57
0.55
0.49
0.48
0.47
0.97
0.90
1.02
1.22
1.39
1.58
1.69
1.65
1.57
1.61
1.93
Sources of data: according to Ding Ping
、Du Li
[3]
[4]
.
2.2.3 The analysis of revealed competitive advantage index
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Comparing revealed competitive advantage index (CA index) between China and India, we can see that
from 1998 to 2008, Chinese CA index was only superior to Indian in 1999, and Indian CA index were
superior to Chinese in other years, as Table 3 shows. Since 2000, the disparity between China and India
has enlarged obviously. From 2000 to 2008, the disparity expanded from 0.092 to 0.526, which reflected
the disparity of service international competitiveness between China and India from another point of
view.
Table 3. The index analysis of revealed competitive advantage between China and India
Years
Country
China
India
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0.277
0.238
-0.119
-0.242
0.226
0.056
0.163
0.061
0.172
0.348
-0.174
-0.165
-0.150
0.209
0.050
-0.187
-0.274
0.225
0.015
0.352
0.357
0.361
Sources of data: according to Zheng Jichang[5] .
2.2.4 The analysis of international market share
As international market share analysis, the ratio of export of Chinese service industry to world export
was superior to Indian, and Chinese international market share was superior to Indian. But taking the
growth of international market share into consideration, From 1998 to 2008, Chinese international
market share nearly doubled in 2008, as the rate of increase was 118%.Indian international market share
increased four times, as the rate of increase was 392%. The disparity of international market share
between China and India shrunk gradually, as Table 4 shows.
Table 4. The ratio of export of service industry to world export between China and India
Years
1998
1999
2000
2001
2002 2003
2004
2005
2006 2007
2008
Country
China
1.54
1.55
1.78
1.70
1.81
2.02
2.20
2.46
2.54
2.84
3.36
India
0.57
0.56
0.69
0.82
0.95
1.08
1.13
1.20
1.26
1.76
2.80
Sources of data: according to Shi Xiaofang [6].
3.
The comprehensive evaluation of international competitiveness of service
industry
We have estimated and analyzed single index of international competitiveness of service industry, but in
order to obtain comprehensive index of international competitiveness of service industry, we need
further comprehensive estimation. In this paragraph, we quote variation coefficient method to evaluate
weight of each index.
3.1 The determination for weighting
For numbers of sample
X1
，X
2
……
Xk
，
1 n
∑ Xi
calculating average X = n i =1
and standard
n
1
∑ ( X i − X )2
VX = S X / X is the variation coefficient of X1
n i =1
, then
，
SX =
X 2 …… X k .We indicate the variation coefficient of X i , using Vi ,i=1 2……k. Then the weight of
deviation
，
k
X i is Vi /
∑V
j =1
j
。The weighting could stand out amplitude of variation of each index.
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On the basis of the method, we calculate average of four index from 1998-2009 between China and
India, as Table 5 shows.
Country
Table 5. The average of each index between China and India From 1998 to 2008
Index
TC index
RCA index
CA index
International Market Share
China
-0.077
0.551
-0.196
2.164
India
0.038
1.412
0.083
1.166
Sources of data: according to Table 1, Table 2, Table 3, and Table 4.
3.2Calculating comprehensive international competitiveness
Using variation coefficient method, we can obtain the weighting of four indexes. They were 0.5860,
0.0366, 0.2985, 0.0789. Calculation formula of comprehensive international competitiveness
y (1)
yij
y (2)
，y ，y ，y ，y
y(4)
y (3)
(1)
(2)
(4)
ij
(3)
ij
ij
ij
=0.5860 ij +0.0366 ij + 0.2985 ij + 0.0789 ij .Meanwhile
stand for the quantitative value of TC index, RCA index, CA index, international market share.
Table 6. The comparison of comprehensive international competitiveness between China and India
Years
Country
China
India
1998
0.019
9
0.110
7
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0.083
0
0.052
0
0.056
3
0.047
4
0.063
9
0.098
3
0.116
6
0.113
3
0.148
1
0.198
5
0.127
7
0.043
8
0.040
9
0.089
8
0.200
8
0.242
5
0.342
2
0.402
6
0.469
6
0.590
3
Sources of data: On the basis of preceding date.
By comprehensive analysis of TC index, RCA index, CA index, international market share, we can
reach a conclusion that, from 1998 to 2001 comprehensive international competitiveness of Chinese
service industry was superior to Indian. But from 2002 to 2008 comprehensive international
competitiveness of Indian service industry was superior to Chinese, and the difference enlarge gradually,
as Table 6 shows. In addition, owing to obtain less data of Indian productivity of labors, though Chinese
total productivity is superior to Indian, service productivity of labors in China is inferior to India
through given document. Qualitative conclusion of the index strengthened above analytic result.
4.
The different reasons of international competitiveness analysis of service
industry between China and India
The reasons that causing the difference of service international competitiveness between China and
India are all-round, which concretely show several aspects.
4.1The difference of economic liberalization policy
In the early 1980s, India started economic liberalization process. In 1990s, economic reformation that
was more comprehensive and was characteristic of “new liberalism” was implemented by Indian
government. Meanwhile, Indian service industry opened to foreign investors and foreigners. In 2001,
India passed “insurance regulation and Developing Council Bill”. Foreign funds could own 26% shares,
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after obtaining license that was awarded by Legislative Council. Because private bank developed rapidly,
foreign funds could obtain 74% shares and open up several branches. After 1998, private and foreign
funds were allowed to participate in basic service and value-added service of mobile telephone in
telecommunication industry. In a word, because government relaxed the control of service industry, and
evoked the investment enthusiasm of private and foreign funds, service department increased rapidly,
and the whole service industry also rose rapidly. Since the implementation of reform and the opening
policy, Chinese industry policy tends to manufacturing development. Though service industry field
opened after China joined WTO, the opening process moved slowly, and the opening extent was
insufficient. Meanwhile, government intervened in service industry excessively, and attached
importance to service industry insufficiently. Service industry monopolized seriously, such as
finance and telecommunication etc, which set back the pace to the development of service industry.
4.2 The different issues of introduction of foreign capital
The absorption of FDI mainly focused on service industry in India, especially in software industry.
According to the calculation of Li Jin (2008)①, from 2006 to 2007, the ratio of the influx of FDI of
Indian service industry to the whole influx of FDI was 30.2%. Owing to different dividing method of
service department, the above data didn’t include data of electronic information and transportation
business, which were the main share of service industry introduction of foreign capital in India. If we
add these data, the ratio of the influx of FDI of Indian service industry was over 50%,and was superior
to Chinese share. The main department of the influx of FDI was manufacturing in China, and the
introduction of foreign capital didn’t enter the path of rapid and stable growth. In 2009,the ratio of
service introduction of foreign capital was less than 30% in China.
4.3 The difference of preferential tax policy
The preferential policy of customs duty plays an important part in import and export trade. Such as
software industry, in order to support the development of software industry, Indian government
introduced special preferential tax policy to support effectively, which zero of duty, zero of circulation
tax and zero of service tax were implemented in software industry. Chinese government has made great
efforts, but still need perfect some places. Comparing with Indian, Chinese strength of preferential tax
policy was inadequate, and the rule was not available and unspecific.
4.4 The service outsourcing
The service outsourcing could reduce the enterprise cost, exert the benefit of scale economic, and help
these countries exert own advantage that were high-quality labor force and lower cost of labor force.
Indian Owned factors of undertaking service outsourcing. They were low labor force, enormous English
professional team, favorable infrastructure and government hand-holding. In 1990s, the fast
development of service outsourcing promoted greatly the development of service industry. Such as
software industry, in order to reduce cost, increase the market competitiveness and settle shortage of
technician, American software magnate gradually off-shored the develop of low-end software product in
1980s, meanwhile Indian software company seized the opportunity and gained large numbers of
outsourcing order. In 1990s, owing to the promotion of “The Millennium Bug” and unified European
currency, the increasing business of international software industry provided plenty of knowledge,
technology and opportunities for Indian development of software industry. According to statistical data
of NASSCOM, Indian software companies have provided software outsourcing for 303 companies that
were top 500 companies, which of the ratio to market amount of global service outsourcing was 46%,
and market amount of global software outsourcing was 65%.Owing to hysteretic policy of service
outsourcing, such as the control policy of cross-border mergers, the tax policy of project outsourcing
① Li
Jin. The service introduction of foreign capital: Indian inspiration to China. International Economic
Cooperation,7(2008), P83-92 (In Chinese).
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and the protection policy of intellectual property, in addition to the improvement of investment
environment and slow development of service outsourcing, the increasing development of service
industry was influenced.
4.5 The mechanism of personnel training
The development of service industry can’t do without high-quality professional talents. Indian
government attached weight to the training of professional talents. At present, Indian has owned 380
universities, 1500 research institutions, 20 million engineers, 30 million non-technician and new joined
graduate every year, which of most can speak fluent English, be familiar with modern technology or
management knowledge and satisfy the development of modern service industry greatly. Human
resources that taking part in high education were abundant in China, but were short of professional
talents in service industry, especially in modern service industry. Because vocational education started
fairly late in China, and introduction to specialties lag behind social need, labor quality of service
industry were relatively poor. Many junior and high school graduates without formal professional
training, directly access to service industry and were lack of vocational skills.
4.6 Protection of intellectual property
Protection of intellectual property is the need that can fulfill international promise, create favorable trade
and investment environment, and promote international competitiveness. In 1958, India issued
trademark law, namely “1958 trade and certification mark law”. In 1970, India issued patent law,
namely “1970 patent law”. In 1990s, India sped up the construction of protection of intellectual property.
In March 2003, India issued “patent law” (supplement). In December 1999, India issued “copyright
law” (supplement), which was similar to “Berne convention” copyright and neighboring right. Owing to
the strength of protection of intellectual property, Indian service industry just grew up, especially
software industry. In 1983, China implemented “trademark law of the People's Republic of China”.
Chinese legal system of intellectual property constantly improved, but weak enforcement of intellectual
property was denounced constantly, in addition to weak awareness of protection of intellectual property,
Chinese protection of intellectual property has been criticized by European and American multinational
enterprise, and has influenced the whole development of service outsourcing and service industries.
5.
Conclusion
Through the above analysis, we combine with Chinese actual conditions and take examples from Indian
policies of promoting the development of service industry; we can put forward the following policy
suggestions: formulating detailed and operational preferential tax policies, Increasing input for primary
education and strengthening talent cultivation, adjusting the industry structure gradually and
strengthening the development of modern service industry, speeding up the development of service
outsourcing, and using foreign capital actively and effectively.
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