DefinePK

Abstract

The US-China trade conflict has significantly reshaped global value chains, prompting a strategic redirection of Foreign Direct Investment (FDI) as multinational enterprises diversify their manufacturing bases away from China. This paper explores the resulting opportunities and enduring challenges for South Asia's manufacturing industry as it emerges as a critical alternative production hub. The region, particularly India and Bangladesh, benefits from competitive labor costs, a large demographic dividend, and government initiatives like 'Make in India,' attracting increased FDI into key sectors such as electronics, textiles, and machinery. However, the long-term sustainability of this growth is challenged by significant structural weaknesses, including persistent infrastructure deficits (logistics, energy supply), bureaucratic regulatory inefficiencies, a critical skill mismatch in the labor force, and the destabilizing risk of capital flight. Sustained success hinges on the urgent implementation of comprehensive policy reforms. These must prioritize substantial investment in smart infrastructure, streamlining regulatory frameworks, aggressive skill development, and fostering deeper regional cooperation to improve competitiveness relative to Southeast Asian counterparts and fully capitalize on the shifting global economic landscape.