China’s loss may not be India’s gain

Google’s spat with China is taking an interesting turn. That is why I call it a “spat,” and not any other more conclusive word. I doubt anybody can predict the outcome yet. Still, it hasn’t stopped the world’s pundits from seeing a variety of possibilities.

The Wall Street Journal, for example, saw Google getting on the “right side of history in China,” though the search giant could easily nullify that pronouncement by negotiating a compromise with Chinese authorities. A very perceptive tech writer, Kevin Kelleher, on saw in Google’s retaliatory protest – lifting self-imposed censorship of search results in China after China-sponsored hackers infiltrated its servers – an instance of “civil disobedience” being used as a business strategy. The one that surprised me the most was the good old tale of how China’s loss could be India’s gain. The surprise also was in the source of that analysis: Swaminathan Anklesaria Aiyar, an experienced and sagacious columnist in The Economic Times.

Aiyar, wishfully perhaps, believes that if Google eventually leaves China, other foreign investors scared about protecting their intellectual property will follow. This investment, he argues, could come to India.

Is this really plausible?

First off, Google’s exit from China is far from certain. Many op-ed writers and bloggers have seen Google’s strong reaction as a daring deed of an ethical corporation ready to leave a lucrative market, believing easily in Google’s famous vision statement, “Do no evil.” Google has made compromises with both China and India when it comes to Internet censorship. The truth is, Google may only be saber-rattling.

As many of you may have read over the weekend, or this morning, Google is ready to sit down for talks with China. Let me take a slightly cynical view and suggest a potential compromise: China will agree to stop hacking Google’s servers and search for e-mails of human rights activists, and Google will maintain its filters that censor out most material considered offensive by China.

Secondly, Google has not found an outpouring of support even from the technology companies. Microsoft and Cisco, two of the world’s biggest tech companies, have said they have nothing to do with Google’s problem. Yahoo showed some measure of support without sharing any details on whether or not its servers were hacked. But it is now facing a broadside from its Chinese joint venture partner Alibaba for backing Google. Yahoo’s track record, it must be mentioned, is not good. In the past, it has handed over to China e-mails and identities of some human rights activists.

Contrary to Aiyar’s expectations, American companies are unlikely to stop pursuing China, one of the biggest and the fastest-growing markets, and certainly the more attractive when compared with India. Even Pepsi, for example, led by the India-born Indra Nooyi, is not going to divert its China investment into India. Neither will Wal-Mart or most others.

The likes of Aiyar, I suspect, have wished so long for India to steal a march over China, they see an opportunity in everything anti-China, even when none really exists. The fact is, India will have to do a whole lot more to win more attention and investments from foreign investors. But the small matter of truth is: India is just not ready for mega doses of investments. It cannot quickly transform its infrastructure to ensure higher, and faster, growth, and cannot absorb foreign direct investment fast enough.  Why, our macroeconomic constraints mean we can’t even handle a big spike in foreign investment inflows caused by a bullish stock market. India can’t win this long-running race with China by default. It will have to win on its own strengths.