The rapid growth of the Indian economy has recently led to a rising interest among other countries regarding the sustainability and direction of India’s economic emergence. Its growth has provided an incentive for major economic powers such as the USA, Japan, China, EU etc. to enter the Indian market and expand their trade volume and investment with India.
Consequently, such increases in exports and investment from other countries have spurred changes in the industrial structure of India. Because of the recent increase in the market share of other countries in India, Korean firms in India now face higher competitive pressure in the Indian market. This necessitates better, diverse strategies in order to respond to the changes occurring in the Indian economy and the rising competition in the Indian markets.
Considering these issues, we begin the paper by analyzing the structural changes of the Indian economy and competition over India’s market. Then in the second chapter, we analyze the changes of industry, export and import, and competition in terms of market share. The results can be summarized as follows: First, the share of service compared to that of manufacturing has increased, implying that India’s economy has grown in parallel with service-oriented industries.
We also found that ‘center of gravity’ of manufacturing in India has shifted from labor-intensive industries to capital-intensive industries. Second, while exports have had a major role in India’s growth, the amount was smaller in relative terms to those of other developing countries. It implies that India’s economy depends more on the domestic market than trade. Third, India depends more on private consumption than fixed capital formation or other similar aspects, with respect to the determinants of aggregate demand.
Fourth, the major industries have experienced structural changes, as the share of textiles and its products have decreased and those of other manufacturing, especially electrical and optical equipment, have increased in the exports. As for imports, the ratio of other manufacturing, basic metals and fabricated metal, chemicals and related products, and electrical and optical equipment have increased. Fifth, the ratio of intermediate goods is higher than that of final goods in terms of the production process.
It means that entry strategies of Korean firms need to focus on intermediate goods. Sixth, even though the major trade partner for India is the USA, China’s share in the Indian market has undergone a significant increase. On the other hand, the import ratio of EU has decreased. Seventh, in measuring the effect of creation of value-added from major countries that export to India, USA is still the most influential. However, its ratio has been declining quickly, while there has been rapid growth on the part of China, meaning China has become the most important country for India in terms of trade.
In the 3rd chapter, the changes within the domestic market and promising industries in India are identified. First, we have identified chemicals and related products, basic metals and fabricated metals, electrical and optical equipment, machinery, and transport as the most promising industries in India in view of growth rate and size of the domestic market and imports. In the 4th chapter, the competition structure of major countries compared to Korea in the said five industries is analyzed.
The results show that Korea has lost its competitive edge vis-a-vis China and EU 15 in those industries, even though it still holds advantages over USA, Japan and ASEAN. In Chapter 5, we provide several political implications for the Korean government and companies in need of economic cooperation with India. First, the Indian economy depends more on its domestic market than exports, and has grown alongside industries that are heavily engaged in import and investment.
Thus, Korean firms need to focus more on the Indian domestic market, in addition to formulating proper entry strategies. Second, capital-intensive industries will claim a greater proportion of the Indian economy because the share of labor-intensive industries has been reduced and that of capital-intensive industries have recently experienced rapid growth. It implies Korean firms’ strategies for entry and economic cooperation strategies need to focus on capital-intensive industries.
Third, the high utilization ratio of most industries shows that the strategies are also necessary for the establishment of bases of production and entry into manufacturing industries. Fourth, a strategy is also needed for expansion of trade for import-oriented industries. Fifth, more strategies in response to China’s expansion in India’s market is imperative, given the aggressive entry of numerous Chinese products into the Indian market.
Sixth, the entry strategies at the industry level are needed, considering the increased competition with major countries in India’s market. Finally, Korea needs to enter the infrastructure sectors where the Indian government has recently invested heavily.