The electronics sector has played an important role in the development trajectories of several
newly industrialized economies. Surprisingly, South Asia is not currently a significant player in
the sector, though electronics presents a substantial opportunity for the region. Addressing the
constraints that have prevented the growth of this sector could help South Asia raise growth and
create good manufacturing jobs.
South Asia’s lack of competitiveness reflects inadequate provision of public goods rather than
high labor costs. In fact, low labor costs remain the region’s primary source of competitiveness,
as the best firms combine lower wages than in East Asia with comparable labor productivity
performance due to investments in good management systems and worker skills. Instead, many
of the problems relate to policy, regulatory and infrastructural weaknesses that raise trading costs
and increase lead times. Such constraints are extremely serious in an industry that is based on
global networks. A particular issue in India concerns lower tariffs on finished goods than on
necessary inputs, which discourages local production in selected products. In Bangladesh, a key
constraint is the limited supply of large tracts of well-located and readily-available industrial
land for large investors. In general, greater investment in R&D and in training workers could
significantly increase productivity and returns in the South Asian electronics sector. The renewed
interest of global electronics investors in the region – in India and Bangladesh in particular –
shows that a few critical measures to address these constraints could help put the region on the
global electronics map.
The analysis focuses primarily on India and Sri Lanka – the two countries which already have
a critical mass of companies in the electronics sector – and touches on Bangladesh and
Pakistan. In an effort to keep the analysis focused, the study looks only at two of the largest
sub-sectors: telecommunications and consumer electronics. The study combines data from
secondary sources on the drivers of competitiveness with in-depth stakeholder interviews. It has
been suggested by some experts that while the “high-volume, low-cost” manufacturing that
characterizes these sub-sectors remains important, for South Asia as a latecomer, new
opportunities may be opening up for “low volume, high value strategies.”