Thinkers50 Hall of Fame: Anil K. Gupta and Haiyan Wang

Transcript

Stuart Crainer:

Hello and welcome. I’m Stuart Crainer, co-founder of Thinkers50. Every year Thinkers50 inducts new management thinkers into its Hall of Fame, which is supported by our partners at the Haier Group. The Hall of Fame recognises and celebrates thinkers who have made a significant long-term contribution to management thinking and practice. This year’s inductees into the Hall of Fame are a stellar group, and it is a pleasure to recognise their contribution. So my guests today are two of those inductees, Anil K. Gupta and Haiyan Wang. Born in India and China respectively, Anil and Haiyan joined their passion and over 60 years of research, consulting and global business management experiences to establish the China Indian Institute in 2007. This Washington DC based research and advisory organisation focuses on creating winning global strategies, organisations and mindsets that leverage the transformational rise of emerging markets for mostly China and India.

Haiyan has been an adjunct professor of strategy at INSEAD. Anil is the Michael Dingman Chair in Strategy, Globalization, and Entrepreneurship at the Smith School of Business at the University of Maryland. Haiyan and Anil are the authors of The Silk Road Rediscovered with Girija Pande, Getting China and India Right, and The Quest for Global Dominance with Vijay Govindarajan. And Anil is also the co-author of Smart Globalization, and Global Strategy and Organisation. So that’s a lot of work, Anil and Haiyan. I mean, I think what’s interesting, it’s fantastic your combination of China and India, but I think the backstory of how you got here in the first place and how your intellectual journeys met at some point. And Anil, I know you came to the States in 1975 and went to Harvard. Can you tell us more about that journey and what happened to get you to the States?

Anil Gupta:

Yes. So I was working for Unilever back in India, and then I wanted a more intellectual challenge. So I applied to a few PhD programs and came to Harvard at the business school. And initially the first 20 years of my research, say from about 1980 to 2000, the first 10 years was managing the diversified firm, the centre and business division relationships. I then parlayed that into looking at the global enterprise, the relationship between the centre and subsidiaries, and how they work together and how they work in the different markets. And that actually led to, really, a focus on emerging economies, because that’s where the real story – faster growth, two to three times faster than developed economies – and foremost in the emerging economies is Asia, within that China, India, Southeast Asia. So that’s how I got into looking at really going deep into emerging economies in China and India.

And then around 1997 is when Haiyan and I started our intellectual partnership, because it was very interesting… I was at that time taking a group of EMBA students from my business school to China. That was my first visit to China. And so then I talked to Haiyan, I said, hey, tell us, guide us, advise us on what the trip should cover. And so that got Haiyan and me talking about China. And I still remember a very, in many ways, humorous conversation early on, I saying to Haiyan, I don’t think you know China. Imagine somebody who was born, brought up, grew up in China, has two degrees from China, and somebody who has never been to China saying to Haiyan, I don’t think you know China. What really the story behind that is, is that it’s a little bit like asking a fish’s opinion about the water, which is obviously, you can’t say the fish doesn’t know water, but that’s a different perspective than that, let’s say, of somebody standing on the beach and looking at the water. So that’s in terms of the partnership between Haiyan and me, she has helped me understand India better than I did otherwise, and probably I have helped Haiyan understand China better. So that’s sort of how we got together, started working together and we have enriched our own perspectives.

Stuart Crainer:

So Unilever in India was something of a hotbed, wasn’t it?

Anil Gupta:

Yeah. In fact-

Stuart Crainer:

Did CK Prahalad work there?

Anil Gupta:

CK was five years senior to me, five, six years senior to me. So I knew about CK, but he had already left India. And then I started my PhD in 1975, that’s exactly when CK was finishing and leaving Boston at that time. So before he left, I knew about him. I said, “Hey, let’s get together for dinner.” And I still remember a piece of advice that CK gave to me, which I followed religiously. He said, “Look, you’re starting your PhD program. I’m sure you’re going to read every new issue of the top academic journals, the articles and so on, but make sure that you also know what’s going on in the 500 biggest companies in the world.” And so I made it my religion to read the Wall Street Journal, to read Businessweek, as diligently as I would read the academic journals. I think I really admire CK walking on, let’s say, both legs: the world of theory – the world of science, and the world of practice – the world of executives, leaders, managers.

Stuart Crainer:

Yeah, amazing man. Good man too, following his footsteps as well.

Anil Gupta:

Oh, 100%.

Stuart Crainer:

So, Haiyan, so you were a fish out of water or fish in water, I can’t remember Anil’s metaphor, but you came to the States via Germany. Can you tell us about your journey?

Haiyan Wang:

Well, I think I remember that humankind evolved from animals in the ocean!

Anil Gupta:

Keep that in mind!

Haiyan Wang:

Yes. I think that I consider myself to be a really fortunate one, that I was able to ride the waves of China’s reform and opening up. In the early 1980s, I was studying economics in college and graduate school. And in the mid 1980s, just when China was beginning to build its manufacturing base and every industry is steel, and I was in the business working for one of the largest state-owned enterprises importing steel. So I was very fortunate to be able to interact with the western world from early on. In 1989 the Tiananmen Square movement happened. I was a very passive participant, but that impacted my journey. And I left right after that for Germany and later, after two years, came to the United States to pursue MBA study and then started working in the U.S. in multiple industries. Firstly management consulting, then for a B2B marketplace, then for global consumer goods product companies. And I think that when I met Anil, Anil was already an intellectual heavyweight. He is still an intellectual giant. I think that I contributed perspectives from that of a practitioner. Having had cross-border, multiple continents and multiple industry experiences, I often pushed Anil to make our work both scholarly sound, but also practical, also impactful.

Stuart Crainer:

It is worth noting that in the late 1990s, China and India were very different places and our perspective of them was very different from it is now. I think that particularly applies to China, which is… the best part of 30 years ago, was not seen as a realistic competitor to the States or Japan even.

Haiyan Wang:

Indeed.

Stuart Crainer:

So tell me what you learned, Anil, about India from Haiyan, and Haiyan, what you learned about China from Anil? In the Venn diagram of these two wonderful nations, what was the sweet spot in between of intellectual insight?

Anil Gupta:

Yeah, so it’s very interesting. So if you look at cultural… maybe one could say cultural, but certainly in terms of political systems, China and India are as starkly opposite to each other as one can imagine. India is a raucous democracy, free press, free speech. You can stand on the town square and say the prime Minister is an idiot. China is obviously exactly the opposite. And despite that, from 1980, if you look at 1980 to 2000, we look at 1980 to 2024, that during this entire long period of several decades, China and India have been the two fastest growing economies in the world. And so that’s interesting as to why despite the stark political differences, political system differences, they are the two fastest growing economies. But also, of course, China grew at about 10%, India grew at about 7.5%, so there are also important differences. And so what’s kind of interesting to think about, to speculate on, is what are the commonalities and what are the differences? And the commonalities have to do with I think aside from obviously government policy matters, political systems matter, but what also matters is in fact the focus on education, focus on savings, focus on investment, focus on children, which are really cultural aspects.

So yes, Chinese and Indians eat different kinds of foods, speak different languages, but in terms of the core cultural values, they are virtually identical. And so I think that’s what made, obviously, the power of scale, because scale matters. Not all colleges in India are world-class, not all colleges in China are world-class, but it’s possible in India or China, as compared to say Malaysia or Indonesia, to have a few world-class educational institutions, to have research powerhouses. So I think those are the commonalities why China and India have been the two fastest growing economies and remain so today.

The differences are here, that’s where political systems… because in China, given a command and control system, now if you want to go from poverty to middle income, what you need to do is build infrastructure. And to build that infrastructure in China, figuratively speaking, the officials can sit down and say, okay, we need to build a highway, we need to build a railroad from this city to that city, and you draw a straight line and you build it. And of course if you have to relocate 5 million people, that’s a minor implementation issue. In India, that would take 30 years. And what that means is that India has been slow, it’s catching up now, slow to build that infrastructure, and obviously that means weakness in manufacturing. And that is why China grew at 10%, India grew at 7.5%, what I like to call a 2.5% democracy tax. So those are some of the things that are fascinating about China and India, at least over the last 20, 30, 40 years.

Stuart Crainer:

I think we’d be quite willing to pay that democracy tax.

Haiyan Wang:

Yes. And I think that Anil and I are very much the product of, in some sense, how we grew up and the democratic society versus a state controlled society. I think that when Anil travelled to China, he was amazed how a poor chaotic city could be turned into a modern city overnight. And I would be amazed travelling to Agra how for all these years this beautiful city is still poor and chaotic. And I think that I tend to see more of the merit of some state intervention and Anil tends to be more of a believer in free market forces. And interestingly what we have seen is that this shift towards more of the state capitalism, even in liberal economies like the United States, like some of the European countries, even India, and we are seeing more of the governments taking a page from how China has developed. We’ve seen more of the industrial policy, more of the state intervention. And that’s sort of the back and forth Anil and I often challenge each other’s viewpoint through those different lenses. And in the end, and I think that when we do agree with each other, it tends to be a good solid viewpoint.

Stuart Crainer:

It is interesting, Anil’s point about the shared values and scale as being the two ingredients, because even though the way you mapped it out, Anil, the shared values are quite clear, but you don’t hear about them very much, do you? We hear a lot about differences.

Anil Gupta:

No, that’s right. Exactly. So this is where, kind of, having an insider perspective on China and India, I mean between the two of us, that makes us see things that others might miss. And I mean there are some Indians who have written about China, but they don’t really know China the way I do, I believe, or jointly certainly from what I have learned from Haiyan and many visits to China. And similarly, there are not too many Chinese who know about India the way Haiyan does. And so from our perspective, we see things.

I mean just as another example of what you don’t hear about, what you don’t read about, but is a ground level reality, is that if you look at the U.S. corporate landscape or actually U.S. and Europe corporate landscape, there are many blue chip companies, American or European, where the CEOs are Indian immigrants. You don’t yet see similar cases from China. And so when I travelled to China, I used to teach in our EMBA program there, students would ask, “So why is it that you have these Indian CEOs, but not Chinese, is it English language?” So that would be a surface level conjecture, but I think that’s a completely incorrect conjecture. And so the difference is, and this is where actually there’s an MIT Sloan School professor of Chinese, ethnic Chinese, who has been looking at this, a really phenomenal study. So we invited him to give a talk at a seminar at my school, and he said, you know what research points out, and he did research in one of the major American companies, which employs tons of Chinese and tons of Indians, surveys and various other things, thousands and thousands of people that he studied. And the difference actually comes down to the political systems in which the Indians and Chinese grew up.

And so because the Indians in a diverse country, where you can speak your mind freely, as a child, they learn the skill, if you will, of how to disagree with others, how to disagree with your superiors without actually pissing them off. Stand your ground, but do it respectfully. And whereas in China, you have a much more homogenous society, you have a much greater hierarchical aspect to the culture, and so therefore you don’t… so Chinese born in China, not Chinese born in the U.S., but Chinese born in China, they do not build those skills. And so it’s that what he termed as debating skills, not that you’re a champion debater, but the debating skills, many Indians have it naturally. And so those are the kinds of things about China and India that are cultural, that are extremely important, that are crossed over by a lot of people.

Haiyan Wang:

What I would say is that at the country level, China and India are the only two countries that have multiple stories rolled into one. One is because of the 1.4, 1.3 billion population, it is a mega market. And two, because of its hundreds of millions of workforce, and a very deep and large pool of engineers and researchers, they are the country that also has the potential to be at the centres of R&D, and also they are the only two countries that can simultaneously be the hubs for low cost manufacturing. Even though India has not taken its place as a manufacturing powerhouse, but because of the hundreds of millions workforce, it has the potential.

So you have mega markets, but not necessarily low cost. You have countries that are low cost, but do not have the millions of engineers. So I think that these fundamentals make the rise of China, India, almost inevitable once they open up, once they connect to the global economy. And no doubt that China today, the second-largest economy, will eventually become the largest economy and India will become the third-largest economy by 2027. And if the growth pace continues at twice the pace of China, at some point down the road, India could even surpass China. So from a long-term horizon, so the world’s three largest economies will be China, U.S., India.

Stuart Crainer:

And you started the China India Institute in 2007. What kind of reaction were you getting from executives at that time? Was there a degree of scepticism?

Haiyan Wang:

Oh, actually in 2007, remember that was the depths of Western’s financial crisis. Then 2008, the Beijing Olympics, the glamour and the development of China took the western executives by awe. And I think that at the depths of the financial crisis, a lot of the politicians and executives started seeing China as the bright spot. Indeed, over the last two decades, China’s growth has contributed to nearly a third of the global economic growth. And I would say that until before the pandemic, in the boardrooms, in corporate events, executives see China as more as an opportunity, as a must-win marketplace, as the place not only the manufacturing hub in China, but also the R&D centres in China, but also that a lot of companies, such as Cisco and others, are thinking about moving their original headquarters to Shanghai away from Hong Kong, away from Singapore.

But I would say that the last few years we have seen a reverse of that trend, and I hear executives talking China less from the perspective and opportunity, more from the perspective of risks, and less as moving headquarters and top talents into China, but more to how do we reset up regional headquarters in Singapore. So that reversal, in some sense, it took me by surprise, how rapidly that mindset has been changing just I would say over the last five years or so, a dramatic switch.

Stuart Crainer:

So where are we in the evolution of globalisation? I mean there’s talk of deglobalisation, hyper-globalisation. I mean, you’ve been commentators on the realities of globalisation for the last 30 years, so where are we and how is it going to play out?

Anil Gupta:

Yeah, so I mean if I just take a cut at it, much of the media talk is about deglobalisation, but I think that’s myopic and that reflects looking at globalisation from yesterday’s lens, which is really looking at trade and physical goods. But globalisation is about interconnectedness among nations, even on the economic front. Interconnectedness is of course trade in physical goods, it’s trade in services, it’s movement of technology, movement of data. And if you look at some numbers that say from 2010 to 2019, the average growth rate in world GDP was 3.1%. Now, compared to that, if you look at all the physical goods, resources, trade-in resources grew at only 0.4%. Trade-in manufactured goods grew at only 2.7%. So therefore, tangible goods trade has been growing slower than world GDP, and that is what people look at when they talk about deglobalisation. But there is another side of the story, which is that trade-in services compared to GDP growth of 3.1 grew at 4.6%. Intellectual property flows grew at 5.8%, and data flows grew at 45%. So essentially globalisation is undergoing a phase change, like from ice to water, water to steam, and one way to capture this is fewer atoms, more bits. So that’s the new reality of globalisation.

Haiyan Wang:

I would add that I think that definitely not de-globalisation, even when we look at the traditional key measures of globalisation. And you mentioned that the pace of trade has slowed down, but if you look at the merchandise trade as a percentage of global GDP, in 1990 that percentage was 30%, and by 2022 it was 50%. So really the biggest interruptions were one, the financial crisis, and second is the COVID. But if you look at merchandise trade, a percentage of global GDP, it has not shrunk, but somewhat has remained steady coming back to the pre-financial crisis level. And another measure of globalisation, if you look at the stock of foreign direct investment, in 1990 the global stock of FDI was $2.2 trillion, and 2023 it was $49 trillion. Yes, the annual flow of FDI has slowed down, but that total stock of FDI has not shrunk. Meaning that those companies with foreign footprints, have not taken all of those… come back to their homeland. And I don’t think that it’s going to happen. It just does not make economic sense for all of the economies to become islands.

Anil Gupta:

Yeah. Actually another way to look at where globalisation is headed. So obviously historically, if you look at companies in the retail sector, you had to be multi-domestic, your operations had to be, your physical stores had to be. But then you look at what’s happening in many other industries, automotive, look at Tesla for example. So you’ve got to produce in China for China, in Europe for Europe, in the U.S. for U.S., and so on. You look at even Nvidia, and Jensen Huang has talked about basically what they’re doing is to provide chips to build what he calls AI factories. And you look at what people… Talk to people at Microsoft, people at Amazon, and so of course they are massive in terms of data centres and the cloud. And what they’re doing is to build data centres, what they call AI factories, locally or regionally within countries, within India, within Southeast Asia, within the Middle East, within Africa, within various parts of Europe. And so the physical operations are becoming more and more, and more localised or regionalized.

So that’s, in one sense, one might call that deglobalisation, but it is not really, because it’s the same multinationals, and their investment in different local and regional markets is growing. That’s the numbers that Haiyan was talking about. And what connects these different local and regional operations is actually obviously capital, but what connects is the movement of technology, movement of data, movement of know-how. So that’s the future of globalisation.

Haiyan Wang:

So in fact, just to add on to what Anil has said, that if you look at the cross-border data flow, it has been growing from 2010 to 2019 at 45% annual rate. And that data flow is because of several reasons. One is that people are just buying more digital goods, people are consuming more digital goods, digital services for free. And then very interestingly, a lot of the physical goods increasingly are embedded with sensors. So you could have a tractor ploughing the field in Thailand, but that John Deere data is being communicated worldwide to make sense of it. And with the rise of AI, that data centricity means that we’re going to see even more cross-border data flows.

Stuart Crainer:

And of course we should acknowledge that there are geopolitical tensions between the U.S. and China around key technologies, chips and AI, et cetera. How do you think those will play out then, Haiyan?

Haiyan Wang:

I think that that rivalry will continue and will intensify. The arms race in chips, the arms race in EVs, in EV batteries, and even in green technologies, that will continue, given the broader geopolitical atmosphere. But at this point, I think that despite the sanctions from the U.S. and its allies, amazingly, China is steadily making progress. So when we look at the EV today, China produces 62%, if you include hybrids of all the global EVs. And if you look at the batteries, China produces 77% of the global EV batteries. And in terms of the EV market, China’s annual sales is close to 10 million versus 1.7 million in the U.S. and 3.4 million in Europe.

But I also think that this chips race, this EV race, is not just limited to the U.S. and China, and we see all of the major economies adopting some forms of national industrial policy. You have the CHIPS Act in the U.S., but you also have the CHIPS Act in Europe. Japan has the Economic Security and Development Act, and India wants to build its own capability in the semiconductor industries. And I think that eventually we ended up in the situation in the semiconductor industry, kind of a regionalized landscape, where all of the major economies intend to retain some level of self-reliance.

Anil Gupta:

So actually, I mean if I build on what Haiyan said, that chips is perhaps at the extreme end of what we would call a very global industry, where you could produce in one country and the cost of transportation to the rest of the world is basically close to zero. But even there, what’s happening is, just like in automotive, just like in data centres, that we are moving towards more regionalized production of semiconductors over time, but the companies that are actually the players, it’s the same companies. It’s Arm, it’s Nvidia, it’s AMD, it’s Broadcom. So therefore it’s not that the multinationals wither away and to be taken over by local players, but the multinationals remain dominant. But how the multinationals operate their businesses, the physical production becomes more regionalized, but the technology is global and managed globally.

Haiyan Wang:

One caveat is that in these extreme cases of supposedly very globally integrated industries, we could likely see two camps, the U.S.-led Western camp, so sort of the ideology-aligned camp, and China, perhaps Russia, but mostly China, in another camp. It could be a globally integrated enterprises X minus China. And China is just digging in and putting more and more money into not just research and development, but really foundational science development. And it’s amazing that despite all of the sanctions, China has not been choked to death. And Huawei is an example. Huawei choked in 2017, and it’s a smartphone dive down, but now it has surpassed Apple. Its market share keeps on growing with its own developed AI chips. According to one Japanese research agency, that Huawei’s own development of chips is likely to be just three to five years behind. And if you look at all of the basic research in AI, in natural sciences, not only in terms of the total quantities of publications, but also in terms of… in very top-notch natural science journals, in the top-notch AI journals, that the Chinese scientists have been contributing the most, surpassing the U.S.

So if China keeps on pushing foundational research, could they somehow at some point close that five year gap, break through? I have no reason to say it is not possible, even though the journey is tough. But I think that with the depth of scientists with heavy funding from government, with more R&D expenditures in companies like Huawei, and I think that we could see the Chinese just keeps on pushing forward on their chip, on their semiconductor, on their new green technologies front.

Anil Gupta:

So here, if I add a slight, I agree with Haiyan, but ‘the rest of the story’, if I add something to that, which is you read about these two blocks, the U.S.-led block and the China-led block, and the world getting divided into two, in one sense that is correct, but in another sense, it’s important to look at the scale. So China today is about 17% of the world’s GDP, and the IMF projects that over the next five years it’s going to remain at 17%, because China is not growing faster than the world GDP. But China’s population is about 20% of the world and declining, and so it’s very hard for me to imagine that even 20 years from now, China’s GDP will be more than 20% of the world. And Chinese allies, they’re, again, economically tiny.

And so the China-led block is about 20% of the world, and the U.S. block is about 80% of the world, whether by population, by GDP, by number of scientists, and so on. So therefore, it’s not a 50/50 division of the world into two blocks, it’s an 80/20, that’s number one. Number two, I agree with Haiyan’s perspective on the strength of China in science and technology, and innovation, very true. But the rest of the story I would say is that the science developments in China, science is a public good. And when Chinese scientists publish in the journals, that’s as accessible to non-Chinese scientists as the reverse. And so therefore, yes, China is a powerhouse in science, but that’s global public good. On the other hand, now if you go about the application of that science into chips or into EVs, or into other products, there… In fact, the strategy that Chinese government is following right now is basically to flood the world’s market with the EVs and with solar panels, for example, that cannot continue, because unless the U.S. and Europe decide to commit economic suicide, and India, and U.S. is basically blocked and Europe is moving in that direction.

So therefore, China’s strength in science is a global public good, but China’s strength in the application of the science to create goods and services that will enable Chinese companies to dominate China, but it’s going to get harder and harder for those Chinese goods to find markets outside China, except in small economies. You take Latin America, for example, I mean, yeah, Latin America in a number of countries, the population is large, but economically it’s not all that important.

Stuart Crainer:

We’re running out of time. Final point, Anil, are you optimistic?

Anil Gupta:

Yeah. In terms of science, technology, economics, I’m optimistic with one caveat. And the big caveat is what happens in the U.S. elections. Because if Trump were to win, the policies that he has talked about that he would want to implement, they would be in the view of many, including Goldman Sachs and 20 Nobel Laureates, and so on, would be pretty nasty, pretty negative for the U.S. He wants to increase the tariffs to 20%, and essentially all that is is a tax on the middle-income Americans that will lead to a rise in inflation, that will lead to rise in deficits, and therefore obviously it would have to lead to a rise in interest rates and the like. And naturally there’s a contagion effect. But on the other hand, if Kamala Harris wins, then that would make a huge big dent into the whole Trumpism and Trump movement, which will then begin to wither away. So I think the U.S. elections are pivotal to whether one should be optimistic or pessimistic about the coming 10 years.

Stuart Crainer:

That’s a big caveat. Haiyan, are you optimistic?

Haiyan Wang:

I am very optimistic regardless who sits in the White House. And I think that on climate change, I think that, yes, China is overproducing, we have overcapacity, yes, all of the countries trying to develop their own green technologies, green capacities, ended up in some inefficiency, ended up in… But eventually it will bring prices down, it will enable the green transition, and that’s good for the globe. That’s one. Second, I believe in the power of artificial intelligence. And I think that when AI empowers businesses, empowers consumers, empowers every economy, that is a total boost to global productivity. And a global productivity boost is good for the well-being of global citizens. And finally, even though there is global geopolitical tension, I still don’t think that this competition is going to become a hot wall, that it is going to become a conflict. I don’t see any of the major economies wanting to wage a third world war that just brings the whole global economy into catastrophe. So if politicians manage the tension into just competition, I think that we will still have decades of peaceful development. So on those three grounds, I am thoroughly optimistic.

Stuart Crainer:

Oh, it’s nice to finish on an optimistic note, Haiyan. Haiyan Wang, Anil Gupta, thank you very much. Haiyan and Anil have been champions and commentators on globalisation for more than 30 years. Their work is required reading, find out more at the China India Institute. Haiyan and Anil, thank you very much.

Haiyan Wang:

Thank you, Stuart.

Anil Gupta:

Thank you very much, Stuart, for the honour.