The preceding chapters focussed on stories of sustained catching-up, mostly from the first-tier East Asian economies of South Korea and Taiwan. Recently, several countries have been observed to follow a similar path of catching-up, with China and India as the leading examples. This chapter discusses these two countries.
Since the early 2010s, China has faced the possibility of falling into the middle-income country trap after three decades of rapid growth, which has been regarded as a success of the Beijing Consensus. After examining China in terms of its innovation capability and the upgrading sequence of the OEM–ODM–OBM, the current chapter presents a positive assessment of China’s ability to break free from this trap based on its increasing specialization in short-cycle technology sectors.
India makes an interesting case study because its growth is based on services and not on manufacturing. A critical question is whether it will upgrade to higher-value-added segments, such as has occurred in first-tier Asian economies whose strength lies in their manufacturing sectors. In this chapter, several success stories of leading IT service companies from India are examined. If India succeeds in this respect, then its situation can be regarded as a different type of leapfrogging because India’s growth engine will have bypassed manufacturing and jumped directly into services. From a theoretical perspective, India’s success with IT service makes sense because the latter can be regarded as another short-cycle technology-based sector as it applies short-cycle technologies, namely IT, to servicing clients. IT service also boasts the frequent emergence of new business opportunities and a lower entry barrier in terms of required capital. The next section compares India and China in terms of the concept of leapfrogging. Section 8.3 examines India’s IT service sectors and firms in detail. Section 8.4 first discusses three unique modes of technological learning in China and then explores China’s case and its chances of surviving the middle-income country trap by building up technological capabilities or of remaining as a low-end goods producer. Section 8.5 discusses the technological turning points in China and India.