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FEATURE STORY

South Asia Must Clear Away Barriers to Growth of its Electronics Sector

January 26, 2017

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With globally competitive labor costs and an ever-expanding pool of educated and technically skilled workers, South Asia seems poised for electronics manufacturing, which has contributed substantially to economic growth in East Asia. Indeed, several multinational electronics firms (including prominent names such as Samsung, HP, IBM, Motorola, Lenovo, Flextronics and Foxconn) already have operations in South Asia or have announced plans to invest there.

Even so, electronics production in South Asian countries is almost invisible compared to East Asian competitors. India, which has boosted its exports of mobile telephones, audio players, and display technologies, is the regional leader. But India is only the 14th largest electronics producer globally, behind countries such as Mexico (8th), Brazil (10th) and Thailand (12th).

A new World Bank study – “South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse” – explains that industrial clusters that give manufacturers the efficiencies they need in the highly competitive global electronics market are scarce in South Asia. Also, the region has precious few large tracts of industrial land where electronics firms can take advantage of top-flight import and export infrastructure that make connecting with global supply chains easy and economical.


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" The electronics industry gravitates to places with ready access to large pools of qualified workers and where they can reduce transaction and logistical costs among the multitude of firms often involved in many stages of a product’s production. With too few exceptions, South Asian countries have yet to establish these kinds of centers. "

Ashish Narain

Lead Author of Electronics Case Study

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Clustering in South Asia is difficult because verifying land ownership titles is complex and time consuming, and scarcity drives up the cost for adequate land. Some Indian and Sri Lankan urban areas, for example, are among the most expensive in the world.

In contrast, Vietnam has been able to provide large tracts of land to big companies as well as their suppliers – such as Samsung, which located there along with 76 of its Korean suppliers, and now directly employs 100,000 workers.

Industrial zones, which are have played a central role boosting electronics manufacturing investment in East Asia, are an obvious solution.

South Asia must also clear out external and internal trade logistic barriers to more rapid and efficient processing of electronics goods. South Asian firms report long and unpredictable delays in customs clearance, ambiguities in product classification and difficulties getting import tariff exemptions on raw materials and parts. Grievances can take considerable time to resolve, and companies that contest decisions fear reprisal, for example through losing their trusted trader credentials.

Moreover, numerous internal check posts, state borders, city entrances, and other regulatory stoppages add significant time to shipping. In South Asia public and private investment in worker training has been low and of poor quality, comparing unfavorably with other competitor nations.

“These barriers are keeping South Asia from seizing an enormous long-term economic opportunity,” Narain adds. 




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