The Great Supply
Chain Shift from China
to South Asia?
Ganeshan Wignaraja,
Professorial Fellow In Economics and Trade

July 2023 | Paper No.34

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About the Author
Dr. Ganeshan Wignaraja is the Professorial Fellow in Economics and Trade
at Gateway House and Senior Research Associate at ODI in London. He holds
a visiting appointment at the National University of Singapore and is a Board
Member of the Geopolitical Cartographer. He advises the President of Sri
Lanka on strategic trade policy and is a member of the Central Bank of Sri
Lanka’s Stakeholder Engagement Committee on monetary policy and financial
stability matters. Previously, he served on the WTO Director-General’s Task
Force on Aid for Trade during the WTO Doha Round and the Sri Lankan Prime
Minister’s Task Force on the Indian Ocean.
In a career spanning over 30 years in the UK and Asia, he has held senior
roles in international organizations (including the Director of Research at
the Asian Development Bank Institute in Tokyo, Chief Programme Officer
at the Commonwealth Secretariat in London and a Visiting Scholar at the
IMF in Washington DC), government (including Executive Director of the
Sri Lankan Foreign Ministry’s think tank), and the private sector (including
Global Head of Trade and Competitiveness at Maxwell Stamp PLC in London).
He also worked at the Institute of Economics and Statistics at Oxford
University and the OECD in Paris. Dr. Wignaraja has published extensively
on macroeconomics, international trade, regional economic integration andeconomic development. He has successfully led teams to deliver complex
projects for aid agencies and governments in over 30 countries in Asia, Africa,
Europe and Latin America.
He has a DPhil in economics from Oxford University and a BSc in economics
from the London School of Economics.

Acknowledgements
Thanks are due to comments from Surjit Bhalla, Amita Bhatra, Biswajit Dhar, Cristita Perez, Manjeet
Kripalani, Mustafiz Rahman, Consuls General of Mumbai and the other participants at the seminar on
global supply chains hosted by Gateway House, Mumbai, and the Konrad Adenhauer Stiftung (KAS),Japan, on 22 March 2023 in Mumbai. KAS also deserves special thanks for funding the Gateway House
project. Kamalaharan Shanmugam provided valuable research assistance. The views expressed here aresolely mine and not to be attributed to Gateway House or KAS.

Table of Contents
1. Introduction

08

2. Unpacking Global Supply Chains09

3. The Rise of Factory Asia

10

4. Drivers of Supply Chain Relocation from China

12

5. South Asia’s Turn?

17

6. India as a Complementary Asian Hub

20

7. Implications for South Asia

23

8. Conclusion

26

Abstract
China-centric global supply chains, which brought prosperity to East Asia, are changing as MNCs re-assess
risks in the post-Covid era. This paper asks the question – is a shift of supply chains from China to South
Asia occurring? A careful read of recent data suggests that global supply chains and those in Asia andChina faced multiple disruptions and decreased YoY in Q42022. Nonetheless, East Asia and China remains
prominent in supply chains as industrial relocation is costly and replication of conditions for sophisticatedmanufacturing is hard for latecomers. Historically South Asia has had a limited role in global supply chains.
But high-profile manufacturing investments by Apple and Mercedes in India suggest that South Asian
supply chain pessimism could be changing with India emerging as a complementary supply chain hub in
Asia. This development is linked to de-risking strategies of MNCs, growing US-China trade tensions andrapid Indian growth. India can spread the gains regionally though more outward FDI to Bangladesh and
Sri Lanka, a Make in South Asia Programme and bilateral FTAs. Outward-oriented development strategies,
smart business strategies, and close business-government collaboration are crucial for South Asia while
the deployment of industrial policy merits careful study.

1. Introduction
Global supply chains connect world industry and international trade in manufactures. East Asia’s
dominance with China as the preferred assembly hub in global supply chains has brought unprecedented
regional prosperity, but South Asia remains a latecomer. However, pandemic-related and post-pandemic
continuing disruptions to supply chains and slowing growth are being keenly felt, dampening China’s
attractiveness. In an uncertain global economy, increasingly footloose foreign investors are looking
for alternative production locations. Is it South Asia’s turn to prosper through supply chains in thisuncertain world? This is the topical public policy question facing India and the others in South Asia.
This paper discusses the concept of global supply chains, the industrial rise of East Asia, drivers of supply
chain relocation from China, South Asia’s prospects, India as a complementary hub and policy lessons
from East Asia’s industrial success. For the purposes of this paper, South Asia is broadly defined as the
India and its contiguous countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan
and Sri Lanka.1

8

2. Unpacking Global Supply Chains
Global supply chains have emerged as the leading model of industrial production since the 1980s
influencing the pace and nature of globalization and regionalisation. The shift in industrial production
from local and regional supply to global supply took place gradually over the last 100 years and is arguably
one of the most revolutionary developments in the history of industrialisation. Global supply chains canbe found in a wide range of simple industries (e.g., textiles and clothing, food processing and consumer
goods) and complex industries (e.g., automotives, aircraft, machinery, electronics and pharmaceuticals).
The academic literature on international trade and industrial organization uses various terms to describe
the phenomena of global supply chains with minor differences including global production networks,
production fragmentation or global value chains. In essence, they refer to the geographical location ofstages of production (such as design, production, assembly, marketing, and service activities (such as
distribution, logistics and other related services) in a cost-effective manner.2 Different production stages
are increasingly located across various countries, linked by a complex web of trade in intermediate inputs
and final goods. This pattern of international specialization is a long way from the simple textbook ideaof a single large vertically-integrated factory situated in a given country.
It is driven by various factors including corporate strategies of multinational corporations (MNCs),
technological advances (e.g., trucking and warehouses, shipping containers, computerisation, robotics
and miniaturization technologies to name a few important innovations), developments in logistics
and trade facilitation, opening up economies to trade and investment flows, the spread of free trade
agreements (FTAs) and other trade deals and geopolitical schemes (e.g. China’s Belt and Road Initiative
and the U.S.’ Free and Open Indo-Pacific Strategy).3 Multilateral groupings like BRICS now recognise
supply chains as essential to sustainable development.4
There is much still to learn about the complex workings of sophisticated global supply chains. For instance,
the role of services in global supply chains are growing in importance but have been underestimateddue to serious problems with the availability of services data. Researchers are attempting to study
what specific services are important in different parts of supply chains, and whether they are typicallyprovided in-house or outsourced. More attention is also being given in the literature to unpack therole of firm size in global supply chains. Evidence suggests that small and medium enterprises (SMEs)
can participate in global supply chains initially as suppliers to large export firms and then graduate to
become independent exporters or investors through innovation and learning.

93. Rise of Factory Asia
Sophisticated and geographically dispersed global value chains (GVCs) have emerged as a distinctive
feature of Asia’s economic success, particularly in East Asia. The extent of East Asia’s participation in
global supply chains is significantly greater than elsewhere and has spurred its global rise to the coveted“Factory Asia” league with middle-income status for many economies.5 National trade data has beenused by researchers to identify trade in intermediate goods (also referred to as parts and components
trade) as a convenient proxy for supply chain trade. This approach also has the advantage of being
reasonably up to date as it is based on readily available high frequency trade data from sources such as
COMTRADE or CIEC.6
Table 1: World Shares of Intermediate Goods Exports
in Asia and Developed Countries, 2020-2021 (%)
Region/Country

2000

2010

2016

2021

Asia (a)

31.0

38.3

41.1

42.9

East Asia

21.1

29.4

34.0

36.0

China

3.1

10.4

13.3

14.7

Hong Kong

3.4

4.0

5.3

4.8

Republic of Korea

3.5

4.1

4.5

4.1

Taiwan

3.4

3.1

3.2

3.4

ASEAN

7.8

7.8

7.9

9.0

South Asia

0.9

1.8

1.8

1.5

India

0.8

1.6

1.7

1.4

Rest of South Asia

0.2

0.2

0.1

0.1

Japan

9.0

6.9

5.1

3.9

US

15.5

9.4

9.2

8.1

EU 28

38.6

36.0

33.8

35.5

Rest of the World

14.9

16.3

15.8

13.5

World

100

100

100

100

Developed Countries

Note: Japan+East Asia+South Asia+rest of Asia.
Source - Wignaraja et al. (2018), WTO (2022), WITS accessed 10 March 2023.

10

Intermediate goods exports from the developing countries of East Asia have grown rapidly since 2000
and made it a leading regional producer of parts and components. As Table 1 shows, developing East
Asia’s share of world intermediate goods exports increased from 21.1% to 34.0% between 2000 and 2016.
Of the 2016 figure for developing East Asia, China (13.3%) and Hong Kong (5.3%) together made up as
much as 18.6%, the ten members of the Association of Southeast Asian Nations (ASEAN) for 7.9%, Korea
for 4.5%, and Taiwan for 3.0%. Developing East Asia compared favourably with developed countries in2016 – 33.8% for the European Union, 9.2% for the U.S. and 5.1% for Japan. It is likely that Japan’s figure
may understate the extent of its share of world intermediate goods exports as its MNCs are lead firms in
automotive and electronics supply chains in East Asia.
East Asia's transformation from a poor, less developed agricultural periphery to a prosperous global factory
over the last half a century is widely hailed as a miracle of economic development. Korea and Singapore
have become high-income economies partly linked to the spread of supply chain activities while Malaysia
is not far behind. China is classed as an upper-middle income economy.
Three historical events were instrumental in export-led industrialisation and the spread of global supply
chains to East Asia.7
First, there was a widespread adoption of outward-oriented development strategies in East Asiaemphasizing attracting export-oriented foreign direct investment (FDI) into export processing zones(EPZs) to exploit low-wage and trainable labour.8 Export-led industrial growth has powered developing
Asia’s rise and prosperity in the past several decades. The switch from inward-oriented to outward-oriented
strategies in the 1960s and 1970s galvanised the rapid growth of manufactured exports and created jobs
in newly industrializing economies in East Asia like Hong Kong, the Republic of Korea, Singapore, andTaiwan. Subsequently, Malaysia, Thailand and other Southeast Asia economies also adopted outwardoriented strategies and witnessed export success. These became known as the Asian Tigers.
Second, Japan had a catalytic effect on the industrial development in neighbouring Asian economies.
Following the 1985 Plaza Accord to depreciate the U.S. dollar and rising labour costs, Japanese MNCs (e.g.,
Toyota and Sony) began relocating labour-intensive segments of its automotive and electronics industry
to Korea and South-East Asia. The effectuating role of Japan in spreading industry to neighbouring Asian
countries was conceptualised in the wild geese flying pattern of industrial development by Japanese
economist Kaname Akamatsu (1962). According to Akamatsu’s theory, Japan as a leading country iscompared to a lead goose, followed by a flock of developing country geese. The developing country geesethat trail behind eventually catch up with where Japan was, but by that time the Japan has progressed.
Thus, all countries advance technologically and with higher per capita income but the relative positions ofcountries in the hierarchy remain stable over time.
Third and arguably most significant was China’s emergence in the world trading system following its
reform and opening up policy in 1978 and its membership of the World Trade Organization (WTO) in2001. Coastal regions in China gradually became the central Asian assembly hub in global supply chainsdue to a liberal investment regime, attractive export processing zone incentives for export-oriented FDI,
high quality infrastructure and logistics, and ample supplies of labour among other factors.9

11

4. Drivers of Supply Chain Relocation from China
Even before the Covid-19 pandemic, Western firms had begun de-risking strategies to reduce theirreliance on China, and its popularity as a sourcing market among Western buyers receded. Some
production stages in China’s supply chains particularly labour-intensive ones — are migrating from
China to lower-cost locations. The major Asian recipients of such investment include South-east Asian
countries (e.g., Vietnam, Indonesia, Malaysia, Thailand, and Cambodia) and India in South Asia. This
trend is partly attributed to factors internal to China such as rising wages, supply chain bottlenecks
within China, and investor concerns about tighter regulation of foreign firms and the allegation ofviolation of intellectual property rights.
Externally, US-China trade tensions have also affected China-centric supply chains. The Trump
Administration alleged that China pursued unfair trade practices against its trading partners andadvocated for greater protectionism. Starting in 2018, the Trump Administration imposed industrial
tariffs on China and other trading partners thereby pressuring American firms to re-shore production
activities back to the U.S and to friendly nations (so-called friend-shoring). Since then, both countries
engaged in intense trade negotiations, a tit-for-tat tariff war, introduced foreign technology restrictions
and fought WTO cases. A truce was reached in mid-January 2020 when the two sides signed the Phase
One Deal, which officially agreed to the rollback of tariffs, expansion of trade purchases, and renewed
commitments on intellectual property, technology transfer, and currency practices. Recent researchsuggests that unofficial non-tariff barriers were responsible for 50% of the overall reduction in Chinese
imports from the U.S. during the height of the U.S.-China trade war in 2018 and 2019.10
However, US-China trade tensions remain today. In early October 2022, the Biden Administration
imposed sweeping export controls, including rules to cut China off from certain semiconductor
chips made globally with US tools, vastly expanding its reach in its attempt to slow China’s progressin technology and military development.11 The expanded rules to key U.S. toolmakers require themto stop shipments of equipment to wholly Chinese-owned factories producing advanced logic chips.
This dramatic U.S. move, which is beginning to see U.S companies and staff depart China, could set
back China’s chip manufacturing industry for years and affect its leading electronics companies suchas Huawei. China may impose retaliatory measures on the U.S. (e.g., limits on the exports of rare earths
used in industrial applications, including electronics, clean energy, aerospace, automotive and defence)
sparking off a new phase of the simmering U.S.-China trade-war (see Milner, 2022 on the so-called Chip
War) and is also investing heavily in domestic R&D which is discussed below.
Developments following the Covid-19 pandemic have further disrupted China-centric supply chains. One
is China’s slowdown associated with Covid-19 outbreaks, a strict zero-Covid policy, a property market
downturn, and tightening regulations on domestic technology companies (e.g., Alibaba and Tencent).
Figure 1 based on IMF data and projections shows that China’s growth slowed to its lowest rate in over
40 years from 8.4% in 2021 to 3.0% in 2022. Following the removal of tough Covid restrictions, China
could rebound to 5.2% in 2023 but moderate to 4.5% in 2024. Sustaining medium-term Chinese growth
may prove more difficult given high levels of property and local government debt, uncertainties about
rebalancing the economy away from investment towards consumption and the U.S.-China trade war.
Another is a world economy facing a rocky road to recovery which poses risks for supply chains. IMF
estimates suggest that world growth, which nearly halved from 6.0% in 2021 to 3.4% in 2022, could
be subdued at 2.8% in 2023 and 3.0% in 2024. Multiple external shocks in recent years – the Covid-19
pandemic, the Russia-Ukraine conflict and sanctions, volatile commodity prices and geopolitical events12

– have hit a fragile world economy. Major economies are witnessing economic downturns with higher
inflation and unemployment. Central banks have tightened monetary policy and global interest rates
are rising. A shortage of shipping containers, which are critical to modern supply chains, has raised
freight charges and hampered global trade.

Source: IMF Data Mapper Database, accessed on 15th May 2023

Reflecting these disruptions, world exports of intermediate goods decreased by 10% in Q4 2022 on a year on
year basis while Asia’s exports of intermediate goods decreased by 15% (WTO 2023). Asia's fall in Q4 2022 wasmore than the decrease of 3% in the US, 12% in Germany and 10% in France. Underpinning Asia’s significant
fall were decreases of 15% in China, 27% in Hong Kong, 13% in Japan, 21% in Korea and 9% in Taiwan.
Nonetheless, recent data in Tables 1 and 2 confirm that developing East Asia and China continue to beprominent in global supply chain trade in a post-Covid world economy. Table 1 shows that developing
East Asia’s share of world intermediate goods exports rose to from 34.0% 36.0% between 2016 and2021 linked to a rising share of China and Hong Kong combined from 18.6% to 19.5%. Looking at othersin East Asia, ASEAN’s share rose from 7.9% to 9.0% and Taiwan’s from 3.2% to 3.4% but Korea’s fell
from 4.5% to 4.1%. Meanwhile among developed countries, the share of the EU rose from 33.8% to35.5% while those of the US fell from 9.2% to 8.1% and that of Japan from 5.1% to 3.9%.

13

Table 2: Top 15 World Intermediate Goods Exporters in
2021 and Q4 2022 (value in US$ and world share)
Rank

Country

Intermediate
goods exports

World share2021 (%)

2021 ($ Bn)

Intermediate
goods exports

World share
Q4 2022 (%)

Q4 2022 ($ Bn)

1

China

1458

14.7%

354

15.3%

2

United States

800

8.1%

208

9.0%

3

Germany

718

7.3%

158

6.8%

4

Hong Kong

470

4.8%

95

4.1%

5

Korea, Rep. of

406

4.1%

87

3.8%

6

Japan

389

3.9%

89

3.8%

7

Taiwan

335

3.4%

84

3.6%

8

Netherlands

316

3.2%

73

3.2%

9

Belgium

272

2.8%

55

2.4%

10

Singapore

266

2.7%

59

2.5%

11

Italy

255

2.6%

61

2.6%

12

France

249

2.5%

59

2.5%

13

United Kingdom

173

1.7%

70

3.0%

14

Australia

160

1.6%

n.a

n.a

15

Canada

154

1.6%

n.a

n.a

World total

9,887

2,314

Source: WTO (2022 and 2023)

14

Table 2 providing the values and shares of the top 15 world intermediate goods exporters in 2021 and2022Q4. The value data illustrate China’s role as the so-called world’s factory in post-Covid times comparedto key developed countries with much higher incomes per capita. The value of China’s intermediate goods
exports nearly twice that of the U.S., twice that of Germany and nearly four times that of Japan, and nearlynine times that of the U.K. It is notable that India has not shown up on the top 15 exporter list in 2021
and 2022Q4. China’s share of world intermediate goods exports rose from 14.7% to 15.3% between 2021
and 2022Q4 while that of the US also rose from 8.1% to 9.0% and Germany’s fell from 7.3% to 6.8%. The
combined world share of China and Hong Kong was 19.4% which is about the same as the 2021 figure.
A careful reading suggests the following interpretation of the China data in Tables 1 and 2 which reflects
the locational decision-making of MNCs. There is some momentum to spread manufacturing activities assome MNCs create parallel assembly hubs to reduce the geopolitical and economic risks of concentrated
China-centric global supply chains. India’s role as a complementary hub is discussed below. But it seems
premature to count China out of the global supply chain game. The Chinese economy is a global supplier ofelectronics components (memories, integrated circuits, processors), parts and accessories for telephonesets and high-tech machines, lithium-ion batteries, photovoltaic cells and electrical components. It is very
costly to shift such supply chain activities elsewhere. Most MNCs cannot afford a wholesale relocationof their factories out of China, train new labour or replace their Chinese sourcing vendors. China has ahighly skilled and disciplined work force, giant factories reaping significant economies of scale, a dense
network of sub-contractors and suppliers capable of most industrial intermediates, modern special
economic zones along the coastal belt, world class logistics and efficient container ports, and attractive
incentives and subsidies. Few other Asian locations presently have these highly conducive conditions
for manufacturing production. Thus, in the short term, MNCs could make location decisions based on
profitability rather than national security considerations. Beyond this, it is difficult to predict as global
de-risking strategies of MNCs and China’s technological advancement are evolving rapidly.
A breakdown of trade data show that China’s huge value of exports and imports are dominated by highskilled manufacturing items including machinery, electronics, transport equipment, vehicle parts andprecision equipment (see Table 3). This underlines China’s role as a global supply chain hub producing
and trading in such items.
Furthermore, China has significantly increased its R&D spending to bridge the technology gap with
developed countries and upgrade its footprint in international supply chains. Data from the World Bank
shown in Table 2 suggests that as a percentage of GDP, China’s R&D spending more than doubled from
0.89% to 2.40% between 2000 and 2020. Compare these figures over the same period for Japan (2.86%
to 3.26%), Germany (2.41% to 3.14%) and the US (2.63% to 3.45%).12 Meanwhile, worryingly India’s
limited R&D spending fell from 0.76% to 0.70%.
The Chinese government has launched “Made in China 2025,” a state-led industrial policy that seeks
to make China dominant in global high-tech manufacturing.13 The program is using government
subsidies, mobilizing state-owned enterprises, and pursuing intellectual property acquisition to catch
up with—and outdo—Western technological development in advanced industries. Accordingly, one
interpretation of the R&D data is that China is pursuing a model of higher domestic value-added growth
and the building of innovation capability, as was seen first in Asia through Japan, and subsequently in
the Republic of Korea (see Wignaraja et.al 2017). This entails the development of more technologicallysophisticated regional supply chains and related services in East Asia, which can drive a new phase ofregional and global trade growth.

15

The spread of robotics, advances in miniaturization, developments in internet connectivity, artificial
intelligence, process-centered research and development, and various organizational innovations are
increasingly likely to feature in global supply chains in this new phase of trade growth. And China isinvesting in all of this. It is possible that like Japan before it, China could emerge as a future catalyst in a
new wave of high-tech supply chains in Asia and elsewhere.

Source: World Bank World Development Indicators Database Accessed on 10 November 2022

16

China is emphasising a hub-and-spoke model to make itself the centre of high-tech industries while its
supply chains in Southeast and East Asia facilitate is own central positioning in global supply chains.
This may be seen as an attempt to make neighbouring Asian countries dependent on China for jobs,
exports and growth in the future. However, it is unclear whether China is looking to South Asia to be partof more technologically sophisticated regional supply chains. Although China has invested significantly
in infrastructure projects in some South Asian countries (particularly Pakistan and Sri Lanka) though
its Belt and Road Initiative, there seems surprising little Chinese FDI in the manufacturing sector inSouth Asia. It may be that China sees South Asia largely as a market for its exports of manufactures andas a client for commercial infrastructure loans from its policy banks such as the China Development
Bank and the Export Import Bank of China Bank. But, South Asia’s cumbersome business environment
probably makes the region less attractive to Chinese manufacturing investment, which is mostly
dominated by private Chinese companies, compared to Southeast Asia. Furthermore, India is wary of
permitting Chinese investment into the country due to national security concerns and inward-oriented
business lobbies who worry about increased competition on the domestic market.
Table 3: China's Merchandise Exports and Imports by HS section, 2015 and 2020
HS section/chapter/subheading

Exports
2015

Exports
2020

Imports
2015

Imports
2020

2,273.52590.6

1,679.60

2055.6(% of totalexports)(% of total
imports)

06 Chemicals and products thereof

4.7

5.3

6.7

7.3

11 Textiles and textile articles

12.0

10.8

1.9

1.4

12 Footwear, headgear, etc.

3.0

2.0

0.2

0.3

15 Base metals and articles thereof

7.8

6.8

5.2

5.7

16 Machinery, electrical equipment

42.2

44.4

34.9

36.0

84 Machinery and mechanical appliances, parts there of

16.0

17.0

9.4

9.3

8471 Automatic data processing machines and units thereof …

6.0

6.6

n.a

n.a

8473 Parts…suitable for use with machines of heading no. 8469 to 8472

1.3

1.2

85 Electrical machineries and parts thereof

26.1

27.4

25.5

26.7

8517 Telephone sets, including telephones for cellular networks …

9.4

8.6

2.9

2.1

8528 Monitors and projectors …

1.2

1.2

8542 Electronic integrated circuits

3.1

4.5

13.7

17.1

17 Transport equipment

4.7

4.3

5.8

4.2

87 Vehicles, parts thereof

2.8

2.9

4.1

3.6

8708 Parts and accessories of motor vehicles of HS 8701 to 8705

1.2

1.3

2.6

2.2

18 Precision equipment

3.6

3.3

6.2

5.1

20 Miscellaneous manufactured articles

6.9

7.7

0.4

0.3

Source: WTO (2021).

17

5. South Asia’s Turn?
At first glance, South Asian countries offer potentially attractive locations for labour-intensive segmentsof global supply chain activities shifting from China. The region’s allure stems from factors such as having
ample supplies of low-cost labour for manufacturing assembly operations and strategic locations in the
Indian Ocean along the main East West Sea route. These advantages have enabled some South Asian
countries (notably India, Bangladesh and Sri Lanka) to enter exporting and supply chain activities intextiles and garments.14,15 Yet the trade data suggest that South Asia has been slow to diversify beyond
textiles and garments into intermediate goods trade.
Figure 3: World Shares of Intermediate Goods Export

Source: Wignaraja (2018), WTO (2022)

The reason is three-fold. First, South Asia as a region is a small player with its share of world intermediate
goods exports, increasing from a low base of 0.9% to 1.8% between 2000 and 2016 and then falling to
1.5% in 2021 – far less than East Asia (see Figure 3 and Table 1). Second, most of the region’s supply chain
activity is highly concentrated in India with little penetration by the rest of South Asia. India’s share of worldintermediate goods exports increased from 0.8% to 1.7% between 2000 and 2016 and then fell to 1.4% in
2021. Third, there are few regional spill-overs from India’s supply chain activities to the rest of South Asia.
Intra-regional trade in South Asia at 5% (2017) is among the lowest in the world.16 This suggests that South
Asia is one of the world’s most disconnected regions in economic terms. Despite its growing trade volume
with the world, India’s trade with its neighbours has remained roughly between 1.7% and 3.8% of its global
trade.17 India’s largest regional trading partner is Bangladesh, followed by Sri Lanka and Nepal.
Cross-county comparisons of the national business environments between China and South Asian
countries provides some explanations for South Asia’s limited role in supply chains beyond textiles andgarments. The evidence suggests that the difficult country-specific conditions and policy impedimentsin the business environment in South Asia are a deterrent to foreign investment in long gestation
manufacturing activities. To illustrate this point, Table 4 compares China and South Asian countries
on four key aspects of the business environment: (1) wages and labour productivity to indicate labour
market conditions, (2) the state of cluster development to represent the quality of suppliers, (3) ports
and logistics to represent the connectivity of trade-related infrastructure, and (4) behind-the-borderregulations for starting a business to indicate the hassle factor in doing business.

18

Competitive wages and productive labour are fundamental for South Asia to benefit from supply chain shifts
from China. According to data from various sources, all the South Asian countries have lower hourly wages
than China. Expressed as a share of Chinese wages, four South Asian countries stand out: India (23.8%),
Bangladesh (10.9%), Pakistan (10.9%) and Sri Lanka (14.5%). Wages in Nepal (56.4%) and Maldives(50.9%) are relatively expensive which makes them uncompetitive for supply chain activities. However,labour productivity (measured by the ILO as GDP per hour worked in constant PPP$) India, Pakistan and
Bangladesh lags China. Sri Lanka seems to be an outlier meriting more research using alternative labour
productivity measures. Lagging labour productivity relative to China means that South Asia may find it
challenging to achieve improvements in price, quality and delivery to world standards.
Having adaptable, high quality industrial suppliers would make South Asia attractive to supply chain
shifts from China. China is famous for having a large pool of potential good quality industrial suppliers
to choose from. This gives buyers more negotiating power and can help drive down prices and ensurescompetitiveness of supply chains. Furthermore, suppliers in China are reputed to be willing to work withsmall orders or even custom orders. This can be helpful for businesses that do not have the volume tojustify working with a larger supplier. A crude proxy to represent a country’s supplier base is the stateof industrial cluster development measure from the World Economic Forum’s national business surveys.
Cluster development in China (4.6) is more advanced than in South Asia indicating it has notable regional
concentrations of related industries and suppliers. Among South Asian countries, India (4.3) comes closest
to China while Bangladesh (3.6), Pakistan (3.9) and Sri Lanka (3.9) are considerably behind.
The efficiency and quality of South Asian seaports and logistics are another factor affecting supply chain
shifts from China. This hard and soft trade-related infrastructure reduces trade costs and transit times
for the movement of goods and intermediate inputs from one link in the supply chain to the next. The
World Bank’s logistics performance index (LPI) measures the ease of establishing reliable supply chain
connections and the structural factors that make it possible, such as the quality of logistics services, tradeand transport-related infrastructure, and border controls. China’s LPI score (3.7) puts it ahead of South
Asia. India (3.4) leads the region, and is followed by Sri Lanka (2.8), Bangladesh (2.6) and Pakistan (2.4).
A streamlined process of starting a business would make South Asia attractive to supply chain shifts from
China. An imperfect indicator is the time taken to start a business (in calendar days) from the World Bank.
Sri Lanka (8 days) seems on par with business start-up times in China (9 days). However, India (18 days),
Bangladesh (20 days), Pakistan (17 days) and the rest lag China.

19

Table 4: Business Environment in China and South Asia
Country

HourlyHourly Wage GDP per Hour
State of
Manufacturing Cost as a %Worked (GDP
Industrialof China
Constant 2017
Cluster
Wages (US$)
International $ Development
at PPP) (2)(1)(1-7 where 7 isTime to Start a
Logistics
Performance Business (Days)(5)
Index (4)best) (3)

2022

2022

2021

2019

2023

2019

China

5.5

100

13.5

4.6

3.7

9

India

1.3

23.6

8.5

4.3

3.4

18

Bangladesh

0.6

10.9

6.4

3.6

2.6

20

Maldives

2.8

50.9

17.5

-

2.6

12

Nepal

3.1

56.4

3.4

3.3

2.5

23

Bhutan

-

-

-

-

2.5

12

Pakistan

0.6

10.9

7.6

3.9

2.4

17

Sri Lanka

0.8

14.5

16.6

3.9

2.8

8

Sources:
1. Manufacturing Wages for Hour – 2022 China, from Bureau of Labour Statistics China https://www.bls.gov/fls/
china_method.htm. India, Ministry of Labour and Employment https://labour.gov.in/wages-and-statistics. Maldives, Ministry of Economic Development Introducing Minimum Wage Reporthttps://www.trade.gov.mv/uploads/12/newweb/reports Sri Lanka, Department of Labour Sri Lanka. Bhutan, Finance Ministry of Bhutan andBhutan future workforce report 2022 https://www.undp.org/sites/g/files/zskgke326/files/2022-12/Bhutan%20
Futures%20Workforce%20Report-%20Dec-2022.pdf
2. GDP per Hour Worked https://ilostat.ilo.org/topics/labour-productivity/
3. State of Cluster Development - https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf
4. Logistics Performance Index – LPI from World Bank Development Indicator for 2023, https://lpi.worldbank.org/
international/global
5. Time Require to Start a Business (Days) – TRSB from World Bank Development Indicator for 2019, https://data.
worldbank.org/indicator/IC.REG.DURS

More generally, the trade and industrial literature on South Asia has long argued that the inward-oriented
restrictive nature of the region’s business environment hampers supply chain activities. Such policy
impediments include high import barriers; restrictive, non-transparent FDI policies; limited participation
in FTAs; variable quality of export processing zones; and high cross-border logistics costs and inadequate
infrastructure for warehousing.18 Although India’s digital connectivity has improved substantially which
supports coordination in supply chain activities, digital ecosystems and connectivity in other South Asian
countries, also merits notable improvement.19 Key measures include providing access to and adoptionof high-quality affordable broadband, starting a paradigm shift in building digital public platforms andaccelerating digital financial services.

206. India as a Complementary Asian Hub
Weighted down by a challenging business environment, it is hardly surprising South Asian countries do notappear on the WTO’s list of the top 15 world exporters of intermediate goods in 2022Q4 (Table 2). But, as Table
5 shows, India is listed as the world’s 5th largest importer of intermediate goods imports in 2022Q4 with a 5%
share suggesting that supply chain pessimism on India may be altering since the pandemic (see Table 5). The
countries ahead of India are China (23.4%), the US (16.2%), Germany (9.1%), and Hong Kong (6.0%).
Table 5: India - the World's 6th Largest Intermediate Goods Importer in Q4, 2022
Rank

Country

Value ($Bns)

Top 15 share Q4 2022 (%)

1

China

376

23.4%

2

US

261

16.2%

3

Germany

147

9.1%

4

Hong Kong

97

6.0%

5

India

81

5.0%

6

Japan

75

4.7%

7

Mexico

74

4.6%

8

Korea, Rep. of

72

4.5%

9

Netherlands

72

4.5%

10

France

67

4.2%

11

UK

65

4.0%

12

Italy

63

3.9%

13

Singapore

56

3.5%

14

Canada

52

3.2%

15

Taiwan52

3.2%

Source: WTO (2022 and 2023)

Anecdotal evidence at the micro-level from India reinforces this finding. Apple has ramped up its
manufacturing of iPhones in India, accounting for almost 7% of its total iPhone production in 2023, up from
1% in 2021. One eye-catching example is Apple’s decision in 2022 to move some production of its latest
model smart phone, the iPhone 14S, from China to India.20 A factory in Chennai has begun assembling
the iPhone 14 for the domestic Indian market, with a larger plan to produce a quarter of all iPhone 14s in
India by 2025. This is the first time Apple has assembled iPhones outside of China in the same year they
are released. It is part of a plan to decouple its manufacturing operations from China due to Beijing’s zeroCovid policy which has hit supply chains, and the geopolitical tensions between the U.S. and China.

21

Another striking example is the early technology transfer in the product cycle of the technologically advanced
Mercedes Benz EQS to India. This is the first fully electric luxury sedan from the Mercedes Group with animpressive range of 350 miles. Domestic sales began in Germany as recently as September 2021, followedby exports in December to the U.S. market. The car is designed in Germany and assembled at the Mercedes’
Factory 56 in Sindelfingen but with parts and components produced globally. In a landmark signalling ofconfidence in India as a manufacturing hub in Asia, in September 2022 Mercedes announced that the EQS
580 4Matic would be assembled in Pune for the Indian market with likely exports at a later date.21
A third example related to Apple is the Foxconn Technology Group teaming up with Vedanta, an Indian
mining group, to develop a $19.5 billion chip-making fabrication plant in Gujarat which has been
approved.22 This is likely to be among the first semiconductor manufacturing plants in India. India’s
advantages for making semi-conductors are said to be its huge consumer market and a well-educatedand cheap work force.
These examples suggest that India is being courted by foreign investors in high-tech manufacturingsectors, with no announced plans to set up new manufacturing in China. Over time India can lay thefoundation to become a complementary Asian manufacturing hub to China by reaping gains fromtechnology and skill transfer from abroad, earning foreign exchange from exporting manufacturing andcreating local jobs. Manufacturing sectors in India such as automotives, pharmaceuticals and electronics
assembly are already sophisticated and likely winners.
India’s attractiveness to foreign investors is linked to geopolitical and economic factors. As the example
of Apple suggests, geopolitics may be entering the locational decision-making calculus of investors.
For instance, U.S. President Biden’s Indo-Pacific Economic Framework (IPEF) seeks to decouple global
supply chains from China and promote more global sourcing from trusted supplier economies likeSoutheast Asia and India. This reflects a U.S. perception that China is its main strategic and economic
competitor globally. One gap in the IPEF is that it lacks a trade deal like the Comprehensive andProgressive Transpacific Partnership (CPTPP) offering preferential market access and regulatory
coherence to members and discriminating against non-members. But, many MNCs fear the U.S. could
unilaterally impose more stringent trade and technology restrictions on Chinese business which could
also disadvantage third country firms. The IPEF has started discussions and held its first ministerial-levelmeeting in late July 2022. Interestingly, India has signed on to all the IPEF Pillars except trade. Analysts
have suggested that India’s caution may be due to the county not yet ready as it has made insufficient
progress on domestic regulations in critical areas including labour markets, environmental standards
and domestic competition regulations.23 Nonetheless, if the IPEF progresses and many countries sign
up, it can support national efforts across South Asia in practical ways by sharing best practices on
supply chain resilience, supporting open and transparent FDI policies, assist in regionalization of supply
chains (e.g., helping to upscale the Make in India Programme), invest in supply chain logistics and digitalconnectivity and improving cyber security for emerging IT infrastructure and services trade.
On the economic front, the large Indian economy is billed as one of the world’s fastest growing countries
related to its low-cost, trainable work force, a large middle class of consumers, and more openness totrade and investment. Table 4 highlighted important factors conductive to supply chains such as India’s
labour cost advantage relative to China and that India’s cluster development and logistics/trade-related
infrastructure are moving towards China’s levels. The services sector in India could also be a likely
winner including ICT services, financial services, professional services, transport and logistics. For thisto occur, India will need to up its game by building knowledge and research capacity in services tradeand learning by participating in trade agreements with developed countries.

22

Additionally, the Modi Government’s trade policy is placing renewed emphasis on preferential trade opening
with trading partners through a flurry of bilateral trade deals since 2022.24 The UAE-India Comprehensive
Economic Partnership Agreement entered into force in May 2022. An early harvest was reached in April
2022 for the Australia-India FTA and talks are on-going to conclude the full FTA by the end of 2023.
Negotiations are ongoing for a UK-India trade deal which could be the most comprehensive of India’s
FTAs.25 British Prime Minister Rishi Sunak is interested in transforming historic ties into a modern
economic partnership in the post-Brexit era while Indian Prime Minister Narendra Modi is keen to markIndia as a rising geopolitical player in the global economy. The fact that there were six rounds during2022 in talks which only started in January 2022 indicates the enthusiasm to get the trade deal done.
There is a reasonable window of opportunity to conclude the UK-India FTA as general elections are likely
in both countries in the next two years. Expending some political will to find pragmatic solutions todifficult negotiations issues can yield a deep FTA with 26 chapters covering tariffs, sustainable growth,
product and service standards, SMEs, government procurement, data flows and intellectual property.
Interestingly, EU-India trade talks revived in June 2022 after being halted in 2013. The talks cover
23 policy areas. If concluded, this comprehensive deal would be an economically important FTA for
India as the EU is its second largest trading partner after the US. Furthermore, the EU is a huge global
player in global supply chains and on a par with East Asia in terms of world exports of intermediate
goods (see Tables 1 and 2). It could lead to many economic benefits for both parties like greater market
access for businesses, lower import tariffs, easing of barriers to services trade and easier movements ofprofessionals for work purposes.
The Modi Government’s focus on bilateral FTAs has several motivations:26 rising geopolitical tensions,a strategic move to counter the threat of rising global protectionism, gaining access to new markets
and increase exports of goods and services, facilitating technology transfer, and helping to position the
country as a complementary Asian hub to China. These new deals are significant because they are with
Western trading partners and reflect plans for deep economic integration going well beyond India’s
previous FTAs which focused solely on the goods trade and related measures.
In an uncertain global economy, however, the economic gains from these trade deals (such as more
exports and faster growth) will not automatically accrue to India.27 To realise the benefits from the FTAs,
Indian business needs strategies which raise its productivity and competitiveness to global standards.
The Modi government recognises the challenge and in late August 2022 announced ambitious plans to
restructure the Department of Commerce to support Indian business to export and join global supply
chains.28 It is hoped that a re-designed Department of Commerce will address the issue of low preference
utilization rates in India’s existing FTAs which means dealing with problems of information about
preferences and cumbersome bureaucratic procedures in rules of origin.29 Implementing much-needed
second-generation economic reforms are also needed to cut red tape affecting business, ensure reliable
electricity and green the economy, and invest in education and training which will help boost lagging
labour productivity shown in Table 4. Furthermore, foreign investment and technology transfer into
manufacturing needs to be supported by enhanced domestic industrial technology development as Figure
2 suggesting a worrying R&D spending gap in India compared to China, Japan and the West.30 Stronger
intellectual property legislation and legal enforcement, stronger partnerships between industry andscience and technology institutions and better incentives for business R&D are ways forward. By working
more closely together, business and government can ensure that the potential gains from India’s new
FTA push are properly realised in difficult economic times.

23

7. Implications for South Asia
Greater participation in global supply chains presents India with a historic opportunity to promoteindustrialisation in its South Asian neighbourhood, thereby stabilising the region, increasing jobs, andmaking it less vulnerable to Chinese enticements. However, the economics of sophisticated regional
supply chain manufacturing and national business environments dictate which South Asian countries canbenefit from regionalisation. Pakistan is ruled out of regional supply chain activities for the foreseeable
future because of political and economic instability which raises political risk premiums and deters
foreign investors. The limited Pakistan-India trade is also constrained by non-economic factors and largely
takes place through third countries like UAE. Furthermore, land-locked Bhutan and Nepal are at a special
disadvantage in regional supply chains due to high trade costs due to inefficient customs procedures andincompatible standards at land borders. Sea-locked Maldives is impeded by similarly high trade costs aswell as the huge challenge of financing investments for world class container ports and logistics. This
leaves Bangladesh and Sri Lanka are candidates for regional supply chains centred on India.
Market-led spillovers from India’s supply chains participation through outward-FDI and international
subcontracting of labour-intensive manufacturing are a natural transmission channel to Bangladesh and
Sri Lanka. Furthermore, India’s dynamic start-up culture, venture capital financing and fintech capacity
can be used to draw in young entrepreneurs from other South Asian countries.31 The Indian government
should consider two policy initiatives to promote regional supply chains. First is upscaling the Make in India
Programme into a Make in South Asia Programme. For instance, India could provide fiscal incentives tospread some Indian manufacturing companies to Bangladesh and Sri Lanka. Segments in food processing,textiles and garments, and automotive might be possible candidates given the factor endowments andindustrial experience of neighbouring countries. Second, India should conclude a comprehensive bilateral
FTA with Bangladesh and upgrade the Indo-Lanka FTA to support regional rules-based trade andinvestment. These policy initiatives can help to integrate these two countries into supply chain activities
centred on India as the assembly hub and bring mutual welfare gains in terms of industrialisation, real
income growth and job creation. For instance, notable trade gains are visible from concluding a deep
India-Sri Lanka FTA which fully liberalises import tariffs on all goods, eliminates some non-tariff barriers
and partially opens services. Under an India-Sri Lanka FTA scenario, a computable general equilibrium
model-based simulation suggested that Sri Lanka’s volume of merchandise goods exports to India could
increase by 2.43% and its volume of merchandise imports from India by 1.56%. 32 This is higher than the
trade gains from a shallow China-Sri Lanka which only fully liberalises import tariffs on all goods.
East Asia’s success in global supply chains offers some policy lessons for business and government
particularly in South Asian countries like India, Bangladesh and Sri Lanka. First, is the argument in the
trade and industrialisation literature in South Asia and the evidence in Table 4 that a conducive businessenvironment matters to participate in supply chains. This means emphasising outward-oriented,
market friendly development strategies than the alternatives. Open trade and investment regimes which
encourage inward investment, facilitate technology transfer from abroad and transmit price signals tobusiness are essential for supply chain activities. Streamlining cumbersome bureaucratic regulations
affecting business and digitalisation of approval processes in tax, customs and business permits canhelp to improve the ease of doing business. On the supply side, ensuring flexible labour markets toensure competitive labour costs and investment in skills and training to boost productivity. A packageof comprehensive business development services and industrial finance for SMEs can help to createcompetitive industrial suppliers and encourage such firms to organise in geographical industrial clusters.
Investing in modern logistics systems and trade-related infrastructure is yet another requirement.

24

Second, industrial policy is coming back into fashion in South Asian in debates over policy responses torecent multiple external shocks and fostering transitions to renewable energy. These typically refer topolicies that stimulate specific economic activities and promote structural change. Country studies showthat some East Asian countries did undertake industrial policy interventions to remedy market failures
and foster export-led industrialisation including participation in global supply chains.33 Korea’s export
success was achieved by an industrialisation paradigm aimed at promoting large conglomerate firms while
Taiwan’s approach was to foster the international competitiveness of its SMEs. More recently, China’s rise as
Asia’s assembly hub in global supply chains has drawn attention to its vast array of industrial interventions
including technology-transfer requirements, local content rules, public ownership, production andinvestment subsidies, and subsidised credit and non-tariff import protection. The failures in industrial
policy in East Asia loom large. Some examples of such failures with high loses include Korea’s heavy andchemical industry (HCI) push, Malaysia’s national car project (the Proton) and China’s home-grown 3G
mobile technology TD-SCDMA. Cronyism was also a problem in some countries.
Accordingly, industrial policy remains a controversial area of public policy and caution should be
exercised before South Asia attempts to copy wholesale the templates of Korea, Taiwan and China.
South Asian governments should actively engage with national think tanks to critically study economic
policies to build back better from multiple external shocks (including East Asia’s experience of tradeand industrial policies) to gain insights into what might work.34 Nonetheless, some aspects of industrial
policy may be relevant to India including better targeting of MNCs in new industrial activities it has apotential comparative advantage, and investment in technology subjects in tertiary-level education (e.g.,science, technology, engineering and mathematics or so-called STEM education). These policies should
be tailor-made to the national circumstances and state capacity of India. However, as Bangladesh and
Sri Lanka lack the state capacity and institutions to implement East Asia style industrial policies, there
is a significant risk of government failure and cronyism. Furthermore, facing significant macroeconomic
stresses and adverse foreign debt dynamics, Bangladesh (US$4.7 billion approved in January 2023) and
Sri Lanka (US$ 2.9 billion in March 2033) have recently concluded tough IMF Programmes for the next
few years. Under such IMF Programmes, both countries are obligated to implement measures to restore
macroeconomic, debt and financial sustainability. This means that Bangladesh and Sri Lanka lack thepolicy space to experiment with East Asia style industrial policies.
Third, firm-level involvement in supply chains does not automatically occur but requires conscious andactive efforts by business. Large sample cross-country cross-firm econometric studies of Southeast
Asia shows that firms deployed smart business strategies to participate in global supply chains (see,for instance, Wignaraja, 2015). Being a big firm naturally creates advantages to participating in supply
chains due to a larger scale of production, better access to technology from abroad, and the ability
to spend more on marketing. Conglomerate firms can cross-subsidize investments and other costs
among business units. SMEs should work as industrial suppliers and sub-contractors to large export
firms and conglomerates. Hence, smart business strategies, such as mergers, acquisitions, and forming
business alliances with multinationals or large local business houses are all rational business strategy
approaches; so is investing in domestic technological capabilities to achieve international standards ofprice, quality and delivery. Southeast Asia’s experience also suggests that nimble SMEs can join supply
chains by locating in industrial clusters with other SMEs and reap the benefits of interdependence
like co-financing a training centre or a technical consultant to upgrade skills. Business associations
can facilitate clustering by mitigating trust deficits to cooperation among SMEs, and by coordinatingcollective actions for cluster formation.

25

An example can be drawn from Malaysia. The Malaysian electronics industry is a composite of threegeographical clusters of similar size in terms of employment, namely Penang, the Kalang Valley andJohor.35 In these clusters, large firms are working with thousands of SME suppliers and subcontractors
making parts, components and final goods. Advancing of local production capabilities has benefitted
by effective institutional policy support from a model regional development agency. The Penang
Development Corporation coordinated various aspects of productivity improvement to create a worldclass high-volume production system.

26

8. Conclusion
This paper analysed the changing dynamics of global supply chains in an uncertain global era and theprospects for South Asian countries. Several findings are noteworthy.
First, global supply chains have been the leading model of industrial production since the 1980s driving
globalization and regionalisation and can be found in a wide range of sectors. East Asia’s participationin global supply chains is more than other regions and has powered the ascent to middle-income status
for many economies. China has become the central Asian assembly hub in global supply chains after
opening up and witnessed a meteoric global economic rise. Rising wages, geopolitical factors and slower
global growth are disrupting global supply chains including shifts of supply chain activities from China.
Second, data in 2022Q4 suggests that global supply chains and those in Asia and China faced multiple
disruptions and decreased YoY in Q42022. But East Asia and China remains prominent in global supply
chains while South Asia is a small player. While MNCs are engaged in de-risking strategies away from
China, it is costly for MNCs to relocate and hard for latecomers to replicate China’s evitable industrial
conditions for sophisticated manufacturing. China is also upgrading its manufacturing capacity bybuilding technological capabilities in a wide swath of medium technology industries and investingheavily in research and development in high tech industries of the future (including artificial intelligence,robotics and biotechnology). Emulating Japan, China could emerge as a future catalyst in a new waveof technology-oriented supply chains. However, it is still too early to predict the net impact on global
supply chain behavior of MNC de-risking strategies, US trade policies on China and China’s domestic
technological upgrading.
Third, anecdotal evidence of high-profile manufacturing investments in India by Apple and Mercedes
Benz suggests that supply chain pessimism in South Asia could be changing since the pandemic. India’s
attractiveness to leading foreign investors is linked to geopolitics, a large consumption market, skilled
low-cost labour, renewed interest in FTA with the UK and EU. If present trends continue, India could
become a complementary Asian supply chain hub.
Fourth, India has an opportunity to foster regional supply chains in South Asia thereby stabilising theregion and making it less vulnerable to Chinese enticements. However, the economics of sophisticatedregional supply chains and business environments suggests that Bangladesh and Sri Lanka could gain
while others might miss out. Outward-FDI by Indian companies to Bangladesh and Sri Lanka can be
usefully supported by a Make in South Asia Programme and comprehensive bilateral FTAs.
Fifth, outward-oriented development strategies, smart business strategies, and facilitating businessassociations are critical for South Asia, while close business and government collaboration promotes
policy coordination. Some South Asian countries are also looking for quick recovery fixes and industrial
policies are in vogue to promote supply chains entry. However, it may be a costly mistake for South Asia,with less industrial experience and state capacity, to copy wholesale East Asian style industrial policies.
A lack of policy space and risks of government failure and cronyism could loom large in Bangladesh and
Sri Lanka. But, with more state capacity, India could refine its targeting of foreign investors, invest morein STEM education and build industrial capacity. Before deploying a gamut of industrial interventions,South Asian governments should collaborate with think tanks to gain a better understanding of theappropriate mix of macroeconomic, trade and industrial policies for recovery.

27

Notes1

Future research can extend the coverage of the research include Myanmar and possibly Thailand,
thereby capturing the essence of supply chains dynamics in the Bay of Bengal.
2

Jones and Kierzkowski (1990). The fragmentation of production approach—found in seminal work by
Jones and Kierzkowski (1990) and Arndt and Kierzkowski (2001)—has become the standard framework
for international economists to study supply chain trade. Important work on global value chains can befound in Gereffi (2018).
3

See Baldwin and Gonzalez, (2014); Cigna, Gunnella and Quaglietti (2022).

4

Dr. S Jaishankar (@DrSJaishankar). “Its focus is on building a fairer, inclusive and open internationalarchitecture with sustainable development at its core. Creating resilient and reliable supply chains arecentral to ensuring that no one is left behind.” June 02, 2023, Twitter. https://twitter.com/DrSJaishankar/
status/1664618745539469312.
5

Baldwin, and Lopez-Gonzalez (2014).

6

An alternative approach to intermediate goods exports examines the value added by each country in
the production of goods and services that are consumed worldwide (see ADB, 2021). While the valueadded approach provides for arguably accurate estimates of the behavior of global value chains, theinput-output tables on which they are based can be rather dated for some countries.
7

Abashi and Kimura (2016).

8

World Bank (1993).

9

For a comparative analysis of trade policy and exports in China and India, see Wignaraja (2011) and
Wignaraja et al. (2018).
10

Chen, T., C.T. Hsieh, and Z. Song (2022).

11“Biden Administration Imposes Sweeping Tech Restrictions on China.” The Guardian, October 7, 2022.
https://www.theguardian.com/us-news/2022/oct/07/biden-administration-tech-restrictions-china.
For a detailed history of the geopolitics of the so-called ‘chip wars’ see Miller (2022)
12

These trends are confirmed by the US National Science Foundation. See Burke, Okraint, and Hale
(2022).
13

McBride and Chatzky (2022).

14

Wijesinha (2021).

15

Rahman and Moazzem (2022).

16

This figure is from Sinha and Sareen (2020).

17This figure is from Sinha and Sareen (2020).

18

Taneja, Prakash, Bimal, Garg, and Roy (2020).

28

19

World Bank (2022).

20

Cheng (2022).

21

Singh, (2022).

22

Kharpal (2022).

23

Palit (2022).

24

Dhar (2022).

25

Agarwal and Wignaraja (202326

Batra (2022) .

27

Model based studies suggest significant welfare gains from a comprehensive India-UK FTA. Estimatesfrom DIT (2022) suggest total bilateral trade in goods and services could rise from GBP25.7 billion in
2021Q1-2022Q1[2] to around GBP39.7 billion by 2035. Powered by trade, India’s GDP could increaseby between GBP3.7 billion to GBP8.8 billion by 2035 and the UK’s GDP by between GBP3.3 billion to
GBP6.2 billion.
28

The restructuring includes goals increasing India's share in international trade, assuming leadershiproles in multilateral organisations, creating 100 Indian brands as global champions, and establish
economic zones in India to strengthen the manufacturing sector and attract investments. https://pib.
gov.in/PressReleasePage.aspx?PRID=1853971.
29

Saraswat, Priya and Ghosh (2017) suggest that preference utilization under India’s previous FTAs is
low at about 25% related to a lack of information about preferences, low margins of preference, delays,
administrative costs associated with rules of origin, and impediments caused by non-tariff barriers.
30

See Burke, Okrent, and Hale (2021)

31

Bhandari, Chakraborty, Punjabi, and Dasgupta (2022).

32

Wignaraja, (2021).

33

Amsden (1989), Wade (1995) are classics in this tradition, and they typically provide a positive viewon the success of industrial policies in Korea and Taiwan. See Rodrik (2019) for a survey of the literature.
34

Recent research has drawn on case studies to identify guiding principles for successful industrial
policy. Terzi, Singh and Sherwood (2022) suggest six basic design characteristics when designingindustrial policy that can maximize impacts while minimizing risks: (i) future-oriented; (ii) sector andtechnology-driven; (iii) competition is a strength; (iv) top down, but also bottom up; (v) accountable,
non-partisan and adaptable; and (vi) holistic approach).
35

Best (2005).

29

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