The new geography of manufacturing: value chains, East Asia and China plus one

Detail

1. Global value chains: one product, many countries

• Global value chain (GVC): the making of one product is split into stages, and each stage is done in a different country. The stages are design → parts → assembly → marketing.

• Example, a smartphone:

  • It is designed in the USA.
  • High-value parts (chips, screens, memory) come from Japan, South Korea and Taiwan.
  • It is assembled in China or India.
  • It is then sold all over the world.

• Why this became possible:

• Containerisation (goods packed in standard steel boxes that move from ship to train to truck without unpacking) made sea freight cheap and fast.
• The internet lets a firm in one country design, order and track production in another country in real time.

• When transport and communication costs fall, a firm no longer has to keep all its stages in one place.

• Link to industrial location theory:

• Weber's least-cost theory says an industry locates where its total cost of transport, labour and agglomeration is lowest.

• A GVC uses the same logic for the whole world, stage by stage:

  • Skill-heavy stages (R&D, design, chips) stay in rich countries or East Asian high-tech hubs.
  • Labour-heavy stages (assembly, garments) go to places with cheaper workers.

• How big GVCs are:

• GVCs drove the surge in world trade after 1990. They now make up almost half of all world trade. Their growth has slowed since the 2008 global financial crisis (World Bank, World Development Report 2020: Trading for Development in the Age of Global Value Chains) [2].

• In a country, a 1% rise in GVC participation raises income per person by more than 1%. That is about twice the gain from ordinary trade in finished goods (WDR 2020) [2].

• How GVCs are measured: TiVA

• TiVA (Trade in Value Added): a dataset of the OECD and WTO. It splits a country's exports into the value added at home and the value added abroad, so it shows who actually earns from each stage [3][4].
• The 2025 edition covers 81 economies and 50 economic activities for 1995–2022 [3].
• The WTO also runs a GVC Indicators Database alongside TiVA [4].

2. East Asia: the Pearl River Delta and other Chinese cores

• Pearl River Delta (PRD): China's main factory region, in Guangdong province in south China.
• Location: about 22°–23.5°N and 113°–114.5°E. The Tropic of Cancer (23.5°N) passes just north of Guangzhou.
• The Pearl River (Zhujiang) is formed where the Xi, Bei and Dong rivers meet. It flows into the South China Sea.

• Main cities: Guangzhou, Shenzhen, Dongguan, Foshan, Hong Kong and Macau.

• How it grew (cause → process → result):

• Cause: in 1980 China opened Special Economic Zones (SEZs). An SEZ is a zone with special tax, trade and land rules that is open to foreign investment.
• The first four SEZs:
  • Shenzhen (Guangdong): next to Hong Kong.
  • Zhuhai (Guangdong): next to Macau.
  • Shantou (Guangdong): on the eastern Guangdong coast.
  • Xiamen (Fujian): faces Taiwan across the Taiwan Strait.
• Process:
  • Capital, design and buyers came from Hong Kong and Taiwan.
  • Cheap workers came from rural inner China.
  • Ports on the South China Sea gave easy access to the world.

• Result: the PRD became the world's largest workshop for electronics and consumer goods, such as phones, toys, garments and appliances.

• Today: since the 2019 plan, the region is called the Greater Bay Area. It is now moving into higher-tech industry.

• Other Chinese cores:

Core region	Location	Main centres	Strengths
Pearl River Delta / Greater Bay Area	South China, Guangdong; South China Sea	Guangzhou, Shenzhen, Dongguan, Foshan, Hong Kong, Macau	Electronics, consumer goods
Yangtze River Delta	East China; mouth of the Yangtze on the East China Sea	Shanghai, Suzhou, Ningbo	Heavy and high-tech industry, ports, finance
Bohai Rim	North China, around the Bohai Sea (an inner arm of the Yellow Sea)	Beijing–Tianjin and the coasts of Hebei, Liaoning and Shandong	Steel, petrochemicals, machinery

• Pattern: all three cores are coastal. This shows how much export industry depends on ports.

3. Maquiladoras: Mexico's border factories

• Maquiladora: a factory in Mexico, mostly on the US border, that works in four steps:
• it imports parts duty-free (no import tax);
• it assembles them using cheaper Mexican labour;
• it exports the finished goods, mainly to the USA;

• tax is paid only on the value added in Mexico.

• Main border centres:

Mexican city	Mexican state	US city across the border
Tijuana	Baja California	San Diego (California)
Ciudad Juárez	Chihuahua	El Paso (Texas)

• Timeline:
• 1965: the Border Industrialization Programme began.
• 1994: the plants grew under NAFTA (the North American Free Trade Agreement of the USA, Canada and Mexico).

• 2020: NAFTA was replaced by USMCA (the United States–Mexico–Canada Agreement).

• Nearshoring: moving production to a country close to the home market instead of far-off Asia. It cuts shipping time and supply risk.

• Because of nearshoring, Mexico had become the top US trading partner by the mid-2020s. This figure changes from year to year (verify current).

• Common link with the PRD: both are assembly regions next to a rich market. The PRD sits beside Hong Kong; the maquiladoras sit beside the USA.

4. China plus one

• China plus one: a global firm keeps its Chinese plants but adds at least one more production base in another country, such as Vietnam, India, Mexico, Malaysia or Thailand.
• Why firms do it (four risks):
• Rising wages in coastal China.
• Tariffs: the US–China trade war from 2018 put extra import taxes on Chinese goods.
• COVID-19 lockdowns (2020–22) stopped factories and ports.

• Political tension between China and the West.

• Result: the firm spreads its risk across several countries, so one shock does not stop the whole chain. It does not leave China completely.

5. India's response

• PLI (Production Linked Incentive) schemes, 2020-21: the government pays firms a cash reward linked to extra sales from goods made in India.
• The PLI scheme for Large Scale Electronics Manufacturing was notified on 1 April 2020. It gives 4–6% incentive on incremental sales of mobile phones and some electronic components [5].

• By 2025 this scheme had brought ₹12,390 crore of investment. It had led to ₹8,44,752 crore of production and ₹4,65,809 crore of exports [5][6].

• Results in electronics:

• Electronics production: grew 146%, from ₹2.13 lakh crore (FY 2020-21) to ₹5.25 lakh crore (FY 2024-25) [5][6].
• Mobile phone production: rose about 28 times in a decade, from ₹18,000 crore to ₹5.45 lakh crore (to 2024-25) [6].
• Mobile phone exports: rose about 127 times in a decade, from ₹1,500 crore to ₹2 lakh crore (to 2024-25) [6].
• Units made: rose from 5.8 crore (2014-15) to 33 crore (2023-24). India changed from a net importer to a net exporter of mobile phones [5][7].

• India is now the world's second-largest maker of mobile phones, and smartphones were its top export item in 2025 [8].

• Apple supply chain: Apple supplier plants have come up near Chennai (Sriperumbudur, Tamil Nadu) and Bengaluru (Karnataka). This is India's clearest "plus one" gain in assembly.

• Semiconductor incentives under the India Semiconductor Mission (ISM):
• Dholera (Gujarat): India's first chip fabrication plant (fab) will be built here by Tata Electronics with Powerchip Semiconductor Manufacturing Corp (PSMC) of Taiwan. The investment is ₹91,000 crore (approved 2024) [9].
• Its SEZ at Dholera covers 66.166 hectares and is expected to employ about 21,000 people [10].

• By 2026 the ISM had approved 12 projects, with total investment of about ₹1.64 lakh crore [11].

• Industrial corridors: Dholera is a node of the Delhi–Mumbai Industrial Corridor. This shows how corridors and chip incentives are linked in space. See manufacturing-industries-india for India's corridors.

6. Debates

• Reshoring and automation vs continued offshoring:
• Reshoring means bringing factories back to the home country.
• Robots reduce the advantage of cheap labour, so rich countries may reshore some work.

• However, the ecosystems of East Asia keep offshoring alive. An ecosystem here means suppliers, skilled workers and ports clustered in one region.

• Can India create low-skill factory jobs?

• India's big workforce needs labour-heavy factory jobs such as garments, footwear, toys and assembly.

• The obstacles are small firm size, logistics costs and the gap in skills. Vietnam and Bangladesh compete for the same buyers.

• Africa's lag (NCERT exercise), despite rich mineral and farm resources:

• Weak infrastructure: too few roads, railways, ports and power supplies.
• Small markets: many small countries with low incomes.
• Colonial pattern: the economy was set up to export raw materials and import finished goods.
• Shortage of capital and skills.
• Result: high-tech and assembly industry has spread from rich countries to East and South-East Asia, but has mostly passed Africa by.

Prelims Hooks

• The first four Chinese SEZs (1980) were Shenzhen, Zhuhai, Shantou (Guangdong) and Xiamen (Fujian). Xiamen is the trap: it is the only one not in Guangdong.
• The Pearl River Delta flows into the South China Sea; the Yangtze River Delta flows into the East China Sea. The Bohai Rim lies around the Bohai Sea.
• Pearl River Delta = Greater Bay Area (2019 plan), which includes Hong Kong and Macau.
• Yangtze River Delta core cities: Shanghai, Suzhou and Ningbo. Ningbo is not in the Pearl River Delta.
• Maquiladora pairs: Tijuana–San Diego; Ciudad Juárez–El Paso. The programme began in 1965 and grew under NAFTA 1994 → USMCA 2020.
• World Development Report 2020 (World Bank): GVCs make up almost half of world trade [2].
• TiVA is a joint OECD–WTO dataset. Its 2025 edition covers 81 economies [3].
• Electronics PLI was notified on 1 April 2020, with an incentive of 4–6% on incremental sales [5].
• India's first semiconductor fab: Dholera, Gujarat, built by Tata with PSMC (Taiwan) [9][10].
• India is the second-largest mobile phone maker in the world (2025) [8].

Mains Points

• GVCs changed the logic of industrial location (GS-I):
• Cheap containers and the internet → production split into stages → each stage placed where its cost or skill fits (Weber's logic applied worldwide).
• Result: assembly regions grew next to ports and rich markets (the PRD, the maquiladoras).

• Joining GVCs raises income per person about twice as much as ordinary trade [2].

• China plus one is a chance for India (GS-III):

• Rising Chinese wages, the 2018 tariffs, COVID-19 lockdowns and geopolitics push firms to diversify.
• India's levers are PLI (electronics production up 146% from FY 2020-21 to FY 2024-25 [5][6]), Apple-linked clusters in Tamil Nadu and Karnataka, the Dholera fab [9] and industrial corridors.

• Its limits are logistics costs, skill gaps and competition from Vietnam and Mexico.

• The jobs question (GS-III):

• Assembly-led growth adds export value. But automation and reshoring may shrink the low-skill jobs India needs.

• The policy answer is labour-heavy sectors, skilling, and moving up the chain from assembly to components and design.

• Uneven spread of industry (GS-I):

• Industry has spread to East and South-East Asia and to Mexico, while Africa lags.
• Africa's causes are weak infrastructure, small markets, a colonial raw-material export pattern, and shortages of capital and skills.
• Use this as a model answer on why resources alone do not create industry.