Isn't China the richer opportunity?

Part II: Are the multinationals welcome?

Isn't China the richer opportunity?

India is at an inflection point. Consumer demand is growing three to five times faster than the overall economy.

In telecommunications, for example, the number of mobile-phone subscribers has risen from 2 million three years ago to 55 million today, and it is projected to reach 250 million within five years.

Airline traffic is also soaring, from 12 million passengers in 2000 to an estimated 47 million this year, and it is forecast to grow by about 20 percent annually over the next five years.

In financial services, every product category is exploding.

India's consumer demand is currently growing three to five times faster than the overall economy.

China's economy is in a later phase. Multinational companies shouldn't choose between India and China; they should aspire to engage both. Companies that enter India now can build advantageous positions that will be almost impossible (and very expensive) for latecomers to duplicate; delaying by just three years could increase the cost of entry tenfold. Companies that missed getting into China early shouldn't repeat that mistake. Those with strong positions in China should remember that they were built by getting in early.

Although India's growth potential in many sectors is second only to China's, India isn't a place for anyone hoping to make a quick rupee. Companies that have endured the inevitable downturns have done well, but many of those that arrived during the boom of the late 1990s left in frustration after the slowdown of 2002–2003. The opportunities are vast, but reaping them takes staying power and investment.

In addition to the opportunities presented by the world's tenth-largest economy, there are strategic reasons for operating in India as well as in China. Two stand out. First, companies should be wary of relying heavily on a single source of supply; India can help to diversify supply chains, particularly in manufactured goods and textiles. Second, India remains richer in technical talent -— an advantage that could complement China's manufacturing prowess for multinationals active in both countries.

Next: How do successful multinationals approach India?

Adil S Zainulbhai is a director in McKinsey's Mumbai office. This commentary first appeared in India Abroad, the newspaper owned by rediff.com, courtesy McKinsey Quarterly.