1. 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-695011

2. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 2 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

3. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 3 Research Intensity

4. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 4 Patenting performance in the US

5. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 5 China: Scientists and engineers engaged in R&D

6. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 6 India: Scientists and engineers engaged in R&D

7. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 7 Relative technological strengths: China vs. India ChinaIndia TelecommunicationsEmbedded software Mechanical engineeringDrugs Computer graphicsBusiness software Handwriting recognitionChip design

8. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 8 Growth of telecommunications services sector in China and India, 1990-2005 (Million subscribers)

9. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 9 Trends in teledensity in China and India, 1991- 2005 (Number of main lines per 100 people)

10. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 10 Extent of Digital Divide in China and India, 1978- 2003 (Ratio of urban to rural tele densities)

11. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 11 Chinese and Indian investments in telecommunications, 1975-2001

12. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 12 Growth of telecoms revenues in China and India, 1997-2003 (Value in billions of US $)

13. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 13 Distribution of Telecom revenues: China Vs India (c2004)

14. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 14 Relative profitability of the Chinese and Indian Telecom Services Industry

15. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 15 Relative size of the market for telecom equipments, 1992-2003

16. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 16 Digital Access Index: China and India, 2002

17. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 17 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

18. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 18 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

19. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 19 Growing importance of local producers in the market for telecom switches in China, 1982-2000

20. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 20 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

21. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 21 Traditional Indicators Human resource devoted to telecom R&D in China and India (Number of R&D scientists and engineers)

22. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 22 Ratio of Chinese to Indian investments in Telecom R&D, 2000-2003

23. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 23 Number of patents granted to Chinese and Indian Inventors in Telecom technologies in the US, 1991-2004

24. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 24 Profile of the Largest Chinese Telecom Equipment Manufacturer

25. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 25 Huawei-Exports

26. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 26 Growing market share of Huawei in China

27. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 27 Number of US patents granted to Huawei Technologies (China) in the US, 2000-2004

28. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 28 Comparison between the largest Chinese and Indian telecom equipment manufacturers

29. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 29 Competitiveness of telecom exports, 1992-2003

30. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 30 China has innovation capability in 3G Mobile Telephony Technology

31. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 31 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-2006. Domestic and international telecommunications companies, including Huawei Technologies Co, Lucent technologies, Motorola Inc and Nortel Networks Corp, welcome the move.

32. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 32 Diffusion of TD-SCDMA Technology in China

33. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 33 Market Perception Based on 2005 Wireline Telecom Equipment Market Perceptions Study by Heavy Reading

34. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 34 Share of C-DOT designed switches in India’s telecom network (As on March 31, 2004)

35. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 35 Telecoms software exports from India (Millions of US $)

36. Sunil Mani, 3L Lecture Series, CMD, February 8 2006 36 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