From Comparative Advantage To Competitive Advantage

Since the 21st century, China and India have become the focus in the world economics and the starts at the world economics forum in Davos. Being members of BRICs, having vast territory, huge population, and high-speed economic growth, such similarities between China and India bring about contract and dispute among people, and since then,"dispute between dragon and elephant","the hare and the tortoise"have never disappeared from the view of people, furthermore, how to maintain and develop both countries'economic growth has always been hot topic, which left people countless images and daydream. Today, along with international industry structure evolving and changing, the world is stepping into"Service Economy", and the proportion of services in the world economy, trade in services in the total volume of trade have all increased day by day. Besides, modern service industries, such as financial, counseling, and information industry are springing up and having become new engines of economic growth. So, we can infer that China and India, being up-and-coming stars in world economic circle, which one grasps the excellent opportunity in economic transition, will continue one's myth in economic growth. And trade in services, based on respective service industry, will be important index deserved people's attention.India, as a developing country, deserves people's attention because the proportion of its third industry in the GDP has reached 50%~60%, which obviously presents"developed countries'industrial structure". Furthermore, information industry is growing with a high speed and has a leading position in the service industry, which can be seen by the distinguished advanced technical zones, such as Bangalore, rapidly developing enterprises, for instance, Tata. And the slogan of establishing India as the"information technology great power"from Vajpayee government adds fuel to the fire and gives strong support to its information industry as well. By contrast, manufacturing is still having a steady position in China's industrial structure and it seems China has never abandon the title of"World Factory". The comparison of the service industry and trade in services between China and India leaves people deep consideration——Will China lag behind in the structural transformation of the economy compared with India? So, this article will analyze and give answer.First of all, we will talk about development situation of both two countries. Depending on excellent service industry, recent years, the trade in services in India has a rapid growth and gives us special characters. Since 20century 90s, the trade in services in India has been experiencing fluctuating trend; Before the year 1997, the service import exceeded export, but from then, India became the net export country in the area of trade in services. Surprisingly, India——a country with huge population, does not show any indication of labor-intensive service industry in its economic structure, by contrast, it presents people knowledge-intensive style, that is to say, it's India's information industry that provides its rapid economic growth and export with great impetus, and software industry is playing an incomparable role in this industry. China, a power gradually consolidating its position in the world economy, both service industry and trade have improved recently. Average growth rate per annum about trade in services exceeds world average rate in the same period, and the proportion of service export in world service export ascends continuously, showing convinced imagination. But there is still something to feel not good enough, for instances, having trade deficit in service trade, the proportion of service industry in the GDP still low, service export structure unreasonable, mainly depending on tourism and other resource-intensive or labor-intensive industries to support its export, yet knowledge-intensive and technology-intensive industries expecting further development. Based on above generalization, we need concrete indexes to compare competitive advantage in service trade between China and India. The first one we will use is Market Share——the bigger the index outcome, the more competitive the country will have. So we can infer that, since 1995, thank to their respective open-policy, China and India have all experienced increasingly market share in the world service trade. At the same time, China has a bigger market share than what India has all along, from which we can infer China has absolute advantage in total volume of service trade and trade scale. Next, Trade Special Coefficient (TC) is another index to measure general and district advantage. According to TC, we can conclude that, compared with the world average level, China has no competitive advantage in general, but India has outstanding performance since 2004, although it fell behind China before 2000. We can also do some concrete analysis with TC. First, the competitive advantages of service trade in China in different districts are imbalance, that is to say, only in resource-intensive industries, such as tourism, and labor-intensive industries are the TC index positive; yet in modern service industries, for instance, financial, insurance, China is in bad situation, even in some districts, there nearly is no competitiveness. Second, from the view of development trend in different districts in China, tourism keeps steady, transportation, construction and architecture, computer and information services are experiencing uptrend. Besides, we can also use RCA index to measure competitive advantage of service trade. According to this index, compared with China, India has an obvious advantage.With the analysis above, we can have several conclusions. Based on comparative advantage to develop trade in services in the world market, China has competitiveness in labor-intensive and resource-intensive industries, yet in most modern industries, China gives indication of weakness, but it's the modern service industries that play key roles in updating and upgrading in a country's industrial structure. By contrast, India's accumulation of human capital makes greater contribution to its service industry, and export structure of service products manifests conspicuous competitive advantage. So, China needs to change its theoretical base of taking part in international trade, that is to say, drawing lessons from Potter's Competitive Advantage Theory, China, from relying on comparative advantage to depending on competitive advantage, should take steps to combine one's own country's factor endowment with accumulation of human capital, should perfect related and supported industry of service trade, should enforce international competitiveness of corporations, and government should also play an active role in perfecting its country's economy, in order to improve competitiveness of service trade in world market .