An IIPM and Arindam Chaudhuri's Initiative

IIPM Prof. Arindam Chaudhuri on a Tale of Two Cities: How Bangalore Is Losing Out

 
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New Delhi, India -- (SBWIRE) -- 08/01/2011 -- When two nations started upgrading one of their cities, one nation aimed to make it an industrial & manufacturing hub, the other aimed to upgrade it to be their only and biggest IT hub. Coincidently, both these cities are located at the south of the respective nations. But then, one nation chose a port city (to exploit the sea trade), while the other ignored the very economy of sea and chose a landlocked city. One has a land size of 7,434.4 sq km with a population of 9.94 million while the other has an expanse of 741 sq km but has a population of 5.7 million. These two nations are none other than the favourite choices of economic critics – China and India. While China went ahead with Guangzhou on their industrial spree, India settled down for Bangalore to make it India’s biggest IT hub. Both Bangalore and Guangzhou laid their founding stones in the early 90s, and by the end of 20th century, had established themselves as an IT and industrial hub respectively. But then, the differences between and effective output by both these hubs now are more startling than their similarities.

China has always been of high interest to me since my childhood due to the books on Mao Tse Tung that I had read. However, the surge in interest came when I went to China for the first time. The way the nation hits you is stupendous! If you were not to know which country you had come to – and if you were not even shown how the people looked – then looking at the roads and buildings, you could easily mistake it for any Western developed nation, quite unlike India or its best cities like Bangalore. And Guangzhou has been at the very centre of this mind numbing development. To put the difference between the two cities into a better perspective, in the 2010 Pricewaterhouse Cooper’s Global GDP City Ranking Index, Bangalore ranks 84th with a GDP of $69 billion while Guangzhou ranks 44th with a GDP of $143 billion – almost twice that of Bangalore. Let’s take a look into the journey of these two cities on the basis of some key parameters to bring about the key differences.

China developed Guangzhou into its most efficient and dynamic industrial hub with a GDP of $143 billion and a per capita income of $13,111. Women’s employment rate in Guangzhou was 70.84% in 2010 (which increased by three fold since the last one decade) and around 2.5 million urban women are working in the city. Women constitute 40 percent of the total workforce. Better lifestyle and financial freedom also escalated the social fabric of the city. The most important factor, when it comes to women development, was that the life expectancy rate is now pegged to have reached 81.33 years (again, an increase by 4.5 years in the last one decade). Even the education rate has seen a major surge; more than 49 per cent of total graduates are women and can be seen actively working in the health, science, technology and education sectors.

In contrast, Bangalore was developed and upgraded as India’s IT hub with an aim of replicating the Silicon Valley model. On an average, Bangalore creates a job opportunity for around 800,000 people in various industries. Almost 43.36 per cent of total workers are engaged in manufacturing while the service sector is the second biggest employer with 31.51 per cent of the total workforces under its ambit. Although the employment is increasing by 6 per cent annually, the income level is rising by almost 9 per cent, thus making it one of the favourite destinations for white-collar jobs. Amidst these near-impressive growth patterns, the development of social infrastructure has got neglected. Despite being one of the fastest growing metropolitan cities in India – and the 4th largest city in terms of GDP – the sex ratio is quite skewed. There are merely 908 females for 1,000 males. The disparity becomes starker when it comes to male-female literacy rate. While the male literacy rate has touched a mark of 82.85 per cent, the female literacy rate is just 68.13 per cent.

Talking about Guangzhou, the geographical location and the trade thus attracted by it are the underlying reasons for the economies that the city brings in. Being situated in one of the most strategic zones, which acts as a southern doorway to enter China, Guangzhou undoubtedly has used its advantages to the maximum. Every year, in almost all economic surveys, the city has been featuring as one of the most prominent economic hubs averaging a staggering 14% growth rate! The Comprehensive Economic Partnership Agreement signed between China (Guangzhou) and other nations, viz. Hong Kong and Malta, has integrated the Pearl River Delta trade zone with this city and above all, made it a hub of trade entering China through the south. Around 85 per cent of all major industries of the nation are situated in this 7434.4 sq km area. Being precise, 34 out of 40 major industries treat Guangzhou as their home. And this focus has been as strong in the past. Even as on 2004, more than 8,000 foreign-invested industries and more than 2,000 foreign companies (from 60 different countries) were operational in China. So much so that 112 out of 500 of the world’s top MNCs were already there in the city; this increased to 174 by the end of 2010! But the growth saga didn’t cease here. By the end of last year, around 4,800 Foreign Direct Investment (FDI) projects were making the rounds. Even the service industry saw a huge and unpredictable growth. Total foreign investment pumped into the service sector by the end of last year was 53.6 per cent of total investment, an increase by a staggering 30 percent compared to the figures five years back. Additionally, around 1000 projects, each worth more than $10 million (as investment) were there to add to the Chinese economy. In all, the year 2010 marked a total investment of 17.8 billion as FDI (by 411 companies put together) and inception of 35 Chinese headquarters by foreign companies. Bangalore, to a large extent, mirrors the strategic location attribute of Guangzhou, but fails to attract investment to the tune of tens of billions.

On the other hand, Bangalore today – thanks to good air connectivity – is connected to almost all important destination of the world and has made all trade hubs accessible within a few hours’ time. However, it does lack a port facility as the nearest port is Cochin. While the FDI data that is available is applicable for the entire state of Karnataka, but Bangalore being the hub of trade and the most coveted destination for investors, one could presume that a large pie of FDI contribution into the state can be credited to the city.

Karnataka saw an inflow of more than $2,000 million worth of FDI in 2008-09 (7.5 per cent of nation’s total FDI). As per an Assocham Eco Pulse Study, the state saw a 28.17 per cent growth in FDI investments inflow in 2009. Comparing Guangzhou and Bangalore on FDI levels would be quite silly, as one registers FDI inflows in double digit billions while the other is just trying to touch single digit billion levels. In simple words, in terms of FDI inflows Guangzhou is more than 6 times Bangalore!

By the end of last year, Guangzhou’s total imports and exports stood at $103.78 billion (a part of their eleventh five year plan). Obviously, as the Chinese do it, imports were higher than exports by $7 billion. For the uninitiated, the exports figure stood at $48.38 billion. The growth in the last five years can be basically attributed to a stress on exports of mechanical and electrical products (average growth of 14.2%), high-tech products (average growth rate of 12.1%) and service trade (annual growth rate of 24.9%). While mechanical goods accounted for $104.44 billion of total exports, high-tech products contributed $37.78 billion and service played its part by contributing $5.42 billion to total exports. Interestingly, even the other side of the coin is equally fascinating. If the inflows were in billions, then Guangzhou kept the flag high being at par when it comes to outflows as well. In the last five years (2005-2010), the city invested $1.6 billion in more than 200 offshore foreign enterprises – compared to the year 2000, this is an increase of 2.7 times with respect to the number of companies and a jaw-dropping (literally) increase of 15 times when it comes to gross amounts invested. In the case of Bangalore, the data revealed by IT and Biotechnology Department of Bangalore shows that the total exports last year stood at Rs. 27,600 crores (or $6 billion) while the Software Technology Parks of India (STPI) in Bangalore had received an investment of Rs. 1,181 crores (or $262 million). Overall, the total exports by the city was pegged to be something around Rs 43,221 crore (or $9.64 billion) as of 2004-05.

Evidently, SEZs and trade zones are best exploited by China and have been a key to the Chinese miracle. Replicating the same to squeeze the maximum out of foreign clients, Guangzhou has divided the city into specialised zones. The entire city is strategically designed to pave a way for almost all kind of manufacturing projects. The Guangzhou Economic and Technological Development Zone is meant for all technological manufacturing and also deals with industries like chemical, electric machinery, food, electronic equipment, metal fabricating and beverages. To make the transportation cheaper and more convenient, it is seamlessly connected with the nearest Shenzhen Port. The second zone – Guangzhou Nansha Export Processing Zone – deals with the manufacturing of automobiles, biotechnology products and other heavy industry output. Given the sheer nature of production that demand quick and efficient transport, the zone is situated next to Guangzhou Baiyun International Airport and Shenzhen Port – thus making sure that the transport is fast (via Baiyun airport) and cheap (via Shenzhen port), as per the needs. The third zone is more of a trade attraction zone. Being a Free Trade Zone (FTZ), it has become one of the most sought-after destinations for outsourced manufacturing. More so, since it’s located just next to the Guangzhou Economic and Technological Development Zone, the flow of goods and raw material become very opportune. This FTZ is also situated near the Baiyun Airport, thus allowing foreign delegates and businessmen to reach the spot in no time. Guangzhou is also the auto-hub of the nation. Its four major auto-companies, through joint ventures, are doing business with over 50 foreign auto companies. By 2005, these factories were rolling out 500,000 cars; they are expected to cross the mark of 1,000,000 by this year’s end. Similarly, petrochemical plants in the city are currently refining 10 million tons of oil and are expected to churn out ¥50 billion (close to $8 billion) of output and promote a host of other chemical related trade, thus adding another ¥200-300 billion ($31-46 billion). Today, the FTZ even boasts of business that deals in international trade, logistics, processing and computer software.

Bangalore, on the other hand, plays on quantity. Instead of dividing the city into specialized zones, Bangalore allows manufacturing hubs to be heterogeneous. This small city (1/10 of Guangzhou) has around 10 SEZs. Unlike Guangzhou, most of these SEZs are owned by private companies like Infosys, Biocon, Wipro, Piramal group – to name a few. For that matter, Bangalore has no state or central government owned SEZs – a typical feature of India’s crony capitalism where a handful of business houses are being handed over the nation’s resources at throwaway prices in return of petty kickbacks for a few ministers and bureaucrats. However, there are a few areas which have, with time, become a clustered zone for a kind of industry. Take for instance, the Inner Ring Road in Bangalore which boasts of IT companies like Microsoft, Dell, Yahoo, IBM, and a few non-IT companies likes Dendrite, Sanyo etc. Another area hosts companies like Accenture, Intel, Aricent, Cisco, Nokia, Honeywell, ARM, JPMorgan Chase, Oracle and similar other companies. Amidst all these, zones like Bagmane Tech Park and Manyata Technology Park are some of those zones which attract most of the foreign companies to set-up their offices. But then, unlike Guangzhou, Bangalore does not have specialised trade zones. In Bangalore, all trade zones allow all kinds of companies rather than being particular about the operational operandi. This reduces the synergy and makes the zone look scattered rather than a one-stop point for a kind of industries. Moreover, the design and structure again have been random – or rather, shall I say, have with time mushroomed up, instead of being designed and developed in an organized manner. But the city is fast catching up as a biotech hub. Since the last couple of years, Bangalore has seen a surge in the number of biotech companies – around 100 out of Indian’s total 250 biotechnology companies have their units in the city.

Coming back to Guangzhou, the city not only made its conveyance investor friendly but also put in place all possible dimensions to ease investments. It also left no stone unturned to exhibit and promote its USPs across the world and made itself one of the most visible (and recalled) investment destinations in global forums. After easing the investment process through e-government/governance and connecting various nodal agencies through the use of IT, Guangzhou in 2003 also launched online business platforms and furthered the aim of making it the most sought after investment destination by introducing a fee waiver scheme. In five zones viz. Guangzhou Economic and Technological Development Zone, Guangzhou New- and High-tech Development Zone, Guangzhou Export Processing Zone, Guangzhou Bonded Zone and Guangzhou Nansha Development Zone, all kinds of administrative fees were waived off.

Being the third largest city and given its proximity to Hong Kong, the city hosts a myriad of conventions, exhibition and trade fairs. Guangzhou hosts more than 350 major exhibitions and over 1,000 other trade related events. These shows/fairs are multi-dimensionally beneficial for China. These events encourage South Asian players to invest in the region, increases the footfalls at their airports and above all, also act as a one-stop point for all trade related deals and prospects. In simple words, through its 1500+ fairs, Guangzhou showcases every possible angle that is conceivable! So much so that a few trade fairs of Guangzhou have even won the coveted title of being “China's First Exhibition" for their sheer size and scale. If one goes beyond the subjectivity of the fails and browses the economy thus generated, the entire scale and size would seem humongous. Every year (starting 2003), Guangzhou's fairs allowed for an inflow of $10 billion.

In June 2010, Bangalore also hosted the Global Investor Meet to attract foreign and domestic investments, echoing allusions to a sustained government policy trajectory. The 12 sectors that were included were minerals, tourism, information and biotechnology, power, health, education, food processing and textiles. The encouragement of investments got a further boost with a judiciously formulated tax concession policy. Tax exemptions from 3-8 years were provided to all medium and large scale industries. Those projects where investments in fixed assets exceeded Rs 100 crores, were given tax waivers between 8-12 years. Moreover, exemptions from entry tax and sales tax were provided to 100% export oriented enterprises. To make matters easier for its citizens and to free them from the hassles of multiple levels of bureaucracy, the concept of Bangalore One has been created by the government – which is a one stop interface for the people with various government service providers like Bangalore Electricity Supply Company, Bangalore Mahanagar Palike, Bangalore Police Service, Bharat Sanchar Nigam Limited, Regional Transport Office, The Department of Labour, and Bangalore Water Supply and Sewerage Board. The Global Investor Meet is said to have generated around Rs 3 trillion worth MOUs. How much of that really flows in, is a different matter though.

Last but not the least, if air-traffic by any means is a measure of economies that enter a destination, then Guangzhou would win hands down. Bengaluru International Airport experiences total passenger traffic of 11.59 million. In 2009, the airport saw a total passenger movement of 9.3 million passengers and was a host to 10 domestic and 21 international airlines. In contrast, Guangzhou Baiyun International Airport – China’s 2nd busiest airport – handles 40 million passengers and cargo of 161896 tons (2009 data) every year and also is 21st busiest airport worldwide in cargo traffic. Additionally, the Port of Guangzhou acts as a hub-port for Pearl River Delta region and handles cargo of around 300 million tons.

All in all, it can be said that this tale of two cities does have a significant lot in common; but with time, one city has kept itself in the growth path by focusing on manufacturing and creating world class infrastructure – qualities that build a base for generations – and made sure that its graph continues a northward trend. Today, Bangalore is languishing in its economic development and is suffering heavily because of opportunity costs and opportunities lost. History is a testimony of many global cities that got lost due to just a few perforations that they ignored; and Bangalore is following the very same pattern. The question is, is there still time; can we learn from Guangzhou and reverse the process? Can we even create a Guangzhou in India in the next twenty years at least?