What lessons can mid-sized companies draw from your analyses? Almost all your examples are those of fairly large corporations. Are global opportunities a function of enterprise size?

I focused the discussion in my book on fairly large corporations, both to illustrate the power of my perspective in reinterpreting the success or failure of companies that many readers had already heard about and to suggest that getting things right versus wrong can have consequences that are large in absolute terms. But the basic questions that I discuss and the insights that I offer are, in many cases, even more important for mid-sized companies to engage with.

For example, while Coke competes virtually everywhere, mid-sized companies do not: the median number of foreign countries in which US companies with an overseas presence have operations is 2, not 200. As a result, my discussion of where to compete is actually much more interesting for mid-sized companies — or even smaller companies looking to make their first move overseas.

What are your views on India vis-À-vis China, on the CAGE (cultural, administrative, geographic, and economic) framework, from an investor’s perspective?

Let’s use the CAGE framework to look at a specific topic that I’m frequently asked to talk about: How India and China compare, from the perspective of US companies. Culturally and socially, India’s main source of proximity to the US is its greater use of English. The pool of Indians who know English is estimated to range from less than 100 million to more than 300 million — I’d go with the lower end of the range — but is generally agreed to be larger than China’s. China is generally thought to have an advantage in terms of the size and commercial orientation of its diaspora — although the Indian diaspora in the US, in particular, tends to be better educated, more recently arrived, and more likely to be involved in the technology sector.

Unilateral cultural characteristics of the two countries yield less clear-cut conclusions. China is more homogeneous linguistically and ethnically, but whether that smoothes progress or makes for too much insularity is a matter of debate. And while India’s class- and caste-ridden social structure is deplorable on broader grounds, it may have reinforced Indo-US economic ties, due to the Westernised Indian elites who have emerged from the original British imperialist programme to create “brown sahibs.”

Administratively, colonisation by Britain has created a number of commonalities between India and the US. The most important of these is that the legal systems in both countries are based on English common law, with its emphasis on precedents and adaptation. China’s legal system, by contrast, relies on civil law — the German version — with its emphasis on principles that are absolute and therefore don’t need to be contextualised. In addition, political relationships between the US and India are currently very close. While that situation is always subject to change, political tensions between the US and China are almost certain to persist over the decades to come.

Unilateral administrative/political indicators are best looked at in terms of time frame. In the short run, multinationals perceive themselves as facing fewer administrative/political obstacles to doing business in China, partially as a result of special economic zones and enclaves such as Hong Kong, and have, until now, enjoyed preferential tax rates. But in the long run, China faces challenges in establishing the rule of law, recognising private property, restructuring insolvent state-owned enterprises and banks, and dealing with political change.

Geographically, Chennai (in India) is 60 per cent farther away from Long Beach, California — the busiest US container port — than is Shanghai. But the greater shipping distance is only part of India’s logistical problems: its ports are inefficient and slow, raising the estimated lead-time in shipping to the US to six to twelve weeks, versus two to three weeks from China, and exemplifying the relatively poor state of its infrastructure.

Another key geographic point to underscore is that China is the dynamo within a vibrant East Asian sub-regional economy, with regional partners that account for more than half of inbound FDI and three-quarters of imports. China’s trading relationships with the US are embedded in, and in some respects enhanced by, this broader network. India, by contrast, is located in a far less economically dynamic sub-region, and trade with its South Asian neighborus amounts to less than 5 per cent of its total trade.

Economically, unilateral factors warrant particular attention. China’s economy is reported to be more than twice as large as India’s (although China’s official statistics may overstate its actual economic growth rate by 2-4 per cent!), and its markets for many income-elastic products more than five times as large, reflecting the effects of higher per capita GDP.

China’s labour productivity is also higher, in line with higher labour incomes, and its workers are generally better educated — although it trails India in a few higher-end categories (e.g., experienced managers, English-speaking graduates. etc.) and faces a somewhat worse demographic outlook given its one-child policy. China has achieved better outcomes to date by reallocating labour from agriculture to manufacturing, and by mobilising more domestic capital: its official savings rates — again, perhaps somewhat exaggerated — are 40-45 per cent of GDP versus 20-25 per cent for India.

The downside of China’s capital abundance is that it has depressed returns and led to overinvestment, especially in construction and infrastructure, by companies not noted for their self-restraint. Indian companies have been consistently more profitable.

In addition, the best Indian domestic companies have typically gotten less support from their home government than the companies that the Chinese government is trying to build up into global companies. Part of the Indian companies’ response has been a more disciplined, less investment-intensive approach.

Foreign companies account for about 20 per cent of Chinese industrial production, and less of India’s. Foreign invested companies have had a disproportionately large impact on Chinese exports, where they have grown their shares to more than 50 per cent overall, and 80 per cent in the higher value-added categories.

Since foreign companies account for less than 10 per cent of total Indian exports, and since India’s exports have recently run to one-tenth of China’s, foreign companies’ nominal exports out of China are about 50 times as large as out of India. These figures also say something about the relative levels of development of supply chains in the two countries.

Summarising very broadly, China seems more attractive than India to general-purpose US investors on many geographic and economic grounds but less attractive on a number of cultural and administrative grounds.

I’ll add four elaborations to that summary statement. First, the choice of perspective is key. From West Europe, the comparison looks different: China is farther geographically but, on the other hand, India’s English language capabilities are of narrower relevance. And for purposes of offshoring, both East Europe and, to a lesser extent, North Africa are much closer to West Europe than either India or China.

Second, both China and India are very large countries with a great amount of internal variation. For example, both countries’ coastal regions are significantly more vibrant than their hinterlands, suggesting application of the CAGE framework at the intra-national level. Thus, glass manufacturer St. Gobain has overtaken longer-established foreign competitors in India by focusing on the coastal south rather than north.

Third, many analyses of China vs. India focus on the points about larger markets and higher labour productivity in China. But the analysis above reminds us of the need to take a broader perspective, the most unexpected conclusion from which is India’s comparative closeness culturally and administratively to the US. Not coincidentally, these are the two CAGE dimensions that most often get overlooked.

The fourth point is a logical extension of the third. Presumably, India should look more attractive than China as an investment destination in industries that are more sensitive to cultural or administrative distance. Software services provides a good example.

Culturally, software services is a business in which speaking English is particularly important and in which the Indian diaspora in the US — variously reported to account for more than a third of the workforce of technology companies in Silicon Valley, and to run 10 per cent of new technology ventures there — has been directly helpful.

In addition, geographic distance from the US matters less and less, especially since the shift towards offshore development, and India has also been economically advantaged by virtue of its much larger graduate talent pool. The result: India accounts for over 60 per cent of offshored software services, versus less than 10 per cent for China.

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Bio: Mr Ghemawat earned his A.B. degree in Applied Mathematics from Harvard College, where he was elected to Phi Beta Kappa, and his Ph.D in Business Economics from Harvard University. He then worked as a consultant at McKinsey & Company in London before joining the Harvard Business School (HBS) faculty in 1983. In 1991, he was appointed the youngest full professor in HBS’s history. He joined the IESE faculty in 2006.

His recent globalisation-related publications include: ‘Regional Strategies for Global Leadership,’ which won the McKinsey Award for the best article published in Harvard Business Review (HBR) in 2005; ‘Global Integration? Global Concentration’ (with Fariborz Ghadar), the lead article in August 2006 in Industrial and Corporate Change; ‘Managing Differences: The Central Challenge in Global Strategy,’ the lead article in March 2007 in HBR; and ‘Why the World Isn’t Flat’ in Foreign Policy in March/April 2007. Mr Ghemawat’s other books include ‘Commitment’, ‘Games Businesses Play’ and ‘Strategy and the Business Landscape’. He also serves as editor for ‘Strategy at Management Science’ and has been elected a fellow of the Academy of International Business.