Entrepreneurs in the world’s 2 most populous nations, China and India, has through modern times been somewhat asleep. But now, says HBS professor Tarun Khanna in a new book, both societies “have woken up,” and the results could reshape business, politics, and society worldwide.
“In some sense people in these societies are running faster than their rules and laws can keep up. So they are creating the rules as they go along. And entrepreneurship is, after all, doing things in new ways, ahead of social norms and customs, and establishing the rules and laws. In both countries, these processes are unfolding not just in the mainstream business sector but in society writ large and even in politics and civil society,” says Khanna.
Khanna’s book Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours will be published by Harvard Business School Press on February 1. Each chapter compares China and India on a broad range of factors in entrepreneurship, including access to capital, freedom and reliability of information, governmental involvement, and infrastructure. Khanna examines the landscape of big, medium, and small entrepreneurship, including rural health-care initiatives and even Bollywood.
As Khanna explained to HBS Working Knowledge, “One can see China clearly when juxtaposed against India, a neighbor that, like China, is a large, populous, and ancient country that chose a different path. The difference is stark. The same is true when we look at India with China as a backdrop. That’s why I wrote a comparative book.”
In our interview Khanna outlines the business landscape in both countries. He also describes how indigenous and foreign entrepreneurs could get a foothold, how China and India relate to their own diasporas, and how entrepreneurial activity is reshaping both countries for the better.
Martha Lagace: Why did you choose the title Billions of Entrepreneurs?
Tarun Khanna: The title captures the ferment that is taking place in both China and India. Entrepreneurship is not only about hotshots taking companies public. A lot of entrepreneurial activity in these countries is in the exercise of getting things done more efficiently and creatively in response to constraints that people find themselves immersed in. Some of these constraints are societal; some are political. And so this book is full of stories about social entrepreneurs, political entrepreneurs, and others whom we study in business schools—investors, capitalists, and so on.
Q: What’s different about entrepreneurship in both countries?
A: The extent and type of government involvement and the nature of openness are 2 dimensions in which the countries are different. These dimensions pervade all aspects of societal existence, whether that means raising capital to start a new business, the nature of markets, copyrights, the media, movies, and religion, as well as the ways in which both countries themselves project their power, the way they deal with each other, and the way the village economy works.
In China, the government is often the entrepreneur. It is in many instances a very efficient entrepreneur. Of course there are bankrupt state-owned enterprises, but there are equally dynamic companies starting out in villages, small towns, and major cities, often with a sizable amount of investment or involvement by local government authorities. It is hard to find any reasonably sized Chinese company in which government authorities do not have input.
In India, some islands of excellence notwithstanding, the government remains inefficient for the most part, and most pockets of entrepreneurship—interesting, vibrant new ways of doing things—are in the private sector or civil society, staying far away from government intervention. So here the private sector leads many significant initiatives; in China, the lead is often provided in a top-down manner.
The second difference is the nature and extent of openness to outside influence and foreigners. Foreign direct investment pours into China. India has embraced foreign direct investment much less, for good and bad reasons. On the good side, India never had to endure a cultural revolution. China “wiped its slate clean” in the Cultural Revolution. Literally and metaphorically, it got rid of intellectuals, human capital, private enterprise, everything. With a clean slate in those circumstances it came to rely on FDI, and help from the overseas Chinese was a big piece of that.
Because India did not follow a similar extreme path it didn’t need to embrace FDI quite as much. So that’s a reasonable reason to expect low FDI levels. On the negative side, however, India, with its indigenous entrepreneurs, still engages in some protectionist behavior and lobbies to keep foreign investment out.
There are other aspects to openness, of course, than just FDI. Traditionally, India has been more open to ideas than has China, for instance.