World's largest economies

Did you know that India's economy is larger than that of Russia? I was surprised to know that. India's economy (measured in terms of nominal GDP) is larger than that of Russia, but smaller than Spain, Brazil and Canada. Check out the list of top economies of the world in 2009.

US GDP is bigger than the GDPs of next three nations put together! Japan was number 2 until last month. In August China pipped Japan to become the second largest economy for the first time. India's GDP is about 1,200 billion USD, approximatly 55,000 billion INR.

Good article on China

Here's a good article on China in Supply Chain Digest.

Read it and let me know your views.

The Last Emperor

Yesterday I saw The Last Emperor. It is no wonder that the movie won 9 Oscars, including the Best Picture Award. It's an amazing movie. It's a long movie (more than three hours long) on a serious topic, and yet it keeps you glued to your seat. The way Bernardo Bertolucci has recreated early twentieth century China is definitely admirable. It is very interesting narration of the life of the last emperor of China, Puyi, who was crowned emperor when he was just 3 years old, lost his seat when he was just a teenager and ended up in prison after the Communist revolution of 1949.

After watching the movie a thought crossed my mind. Is it because of the constant fighting between different warlords that Chinese people finally thought that the best option available to them was single party rule and Communism. Is that why Communism has survived sixty years and is seeing no threat in near future?

What is a "Smiley Curve"?

China is said to be at the flat middle portion of the smiley curve.

But what is this "Smiley Curve"?

The curve is named for the U-shaped arc of the 1970s-era smiley-face icon, and it runs from the beginning to the end of a product’s creation and sale. At the beginning is the company’s brand: HP, Siemens, Dell, Nokia, Apple. Next comes the idea for the product: an iPod, a new computer, a camera phone. After that is high-level industrial design—the conceiving of how the product will look and work. Then the detailed engineering design for how it will be made. Then the necessary components. Then the actual manufacture and assembly. Then the shipping and distribution. Then retail sales. And, finally, service contracts and sales of parts and accessories.

The significance is that China’s activity is in the middle stages—manufacturing, plus some component supply and engineering design—but America’s is at the two ends, and those are where the money is. The smiley curve, which shows the profitability or value added at each stage, starts high for branding and product concept, swoops down for manufacturing, and rises again in the retail and servicing stages. The simple way to put this—that the real money is in brand name, plus retail—may sound obvious, but its implications are illuminating.

The implication of this is that although Americans import huge volumes of manufactured goods from China, most of the money spent on those imports stays in American hands. For e.g. not much of Apple's iPod is manufactured in the United States, but the majority of value added is captured by Apple... Apple made $80 in gross profit on a 30-gigabyte video iPod that retails for $299. Its profit is 36 percent of the estimated wholesale price of $224. [Not to mention the retail profit, if it is sold in an Apple store.] The total cost of parts was $144.

References:
The Personal Computing Industry Center at the University of California
More on the "smiley curve": China makes, Apple takes