How Knowledge Crosses Borders: Why Building Semiconductor Factories Is Not Enough

The old geography of industry is giving way to the new geography of knowledge

For much of industrial history, economic development followed a familiar belief: bring factories together, attract investment, build infrastructure and productivity will gradually improve. Industrial clusters were expected to become centres of technological learning simply because enterprises operated close to one another.

This thinking influenced industrial policy across the world. From the industrial districts of Europe to the export-processing zones of East Asia and the manufacturing clusters of India, governments invested heavily in industrial estates, transport infrastructure, tax incentives and common facilities. The assumption was that knowledge would spread naturally as firms competed, cooperated and observed one another.

But the semiconductor industry raises a fundamental question. What if factories can cross borders without transferring the knowledge that makes them competitive?

The October 2026 CEPR research by Goldberg, Juhász, Lo Forte and Thurk challenges the idea that technological capabilities emerge automatically from geographical concentration. Its central message is that knowledge travels through identifiable economic relationships. Suppliers learn from customers, engineers carry experience between organisations, multinational companies transfer operating practices, and investment creates opportunities for technical interaction.

The important distinction is between the movement of production and the movement of capability. A country can attract billions of dollars in semiconductor investment and still remain technologically dependent if its domestic enterprises and engineers do not participate meaningfully in learning.

Technology does not travel like merchandise

International trade has traditionally been understood as the movement of goods across borders. A semiconductor chip manufactured in Taiwan may be incorporated into equipment designed in the United States, assembled in Vietnam and sold in Europe. The physical product moves through an internationally distributed production system.

Knowledge follows a different geography.

A machine can be purchased, but the ability to operate it at world-class efficiency must be developed. A manufacturing process can be documented, but the experience required to control defects, improve yields, diagnose failures and modify production conditions cannot always be transferred through manuals.

This distinction is especially important in semiconductors, where small variations in manufacturing conditions can determine whether production is commercially viable.

The research draws attention to the channels through which technological learning can occur: supplier relationships, multinational production networks, engineer mobility and foreign direct investment. These relationships matter because they create opportunities for repeated interaction, problem-solving and the exchange of practical knowledge.

An equipment supplier working closely with a semiconductor manufacturer may acquire knowledge that would never emerge from a conventional sales transaction. An engineer moving between firms may bring experience in process optimisation. A multinational company may introduce quality systems, technical routines and production-management practices into a new location.

But none of these transfers is guaranteed. Their effectiveness depends on incentives, institutional arrangements and the ability of receiving firms to absorb and apply knowledge.

The future of industrial competitiveness may therefore depend less on how many factories a country attracts and more on how many learning relationships those factories create.

The semiconductor paradox: global production, concentrated intelligence

Semiconductors represent one of the most internationally connected industries in the world. Design, fabrication, manufacturing equipment, materials, packaging, testing and final applications are distributed across several economies.

Yet technological leadership remains highly concentrated.

The industry illustrates an uncomfortable reality of globalisation. Production networks can become geographically dispersed while control over critical technologies remains concentrated within a relatively small number of companies and countries.

A country may participate in semiconductor assembly without mastering advanced chip design. It may operate fabrication equipment without developing the capability to manufacture that equipment. It may supply chemicals and materials without acquiring the process knowledge required for higher-value production.

This creates different levels of participation within the same global value chain.

At the lowest level, firms provide labour, land, utilities and routine production services. At higher levels, they contribute engineering, process improvement, specialised materials, equipment design and technological innovation.

The difference between these levels is not merely investment. It is accumulated knowledge.

Historically, successful industrial upgrading has required more than the arrival of foreign enterprises. It has depended on domestic firms developing the technical competence to become increasingly sophisticated participants in production networks.

The semiconductor evidence reinforces the need to distinguish foreign investment that creates production capacity from foreign investment that creates domestic technological capability.

Why proximity is not the same as learning

Industrial cluster policy often treats geographical concentration as an economic achievement. The number of enterprises, investment commitments, employment generated and area occupied become the principal indicators of success.

These indicators measure industrial activity. They do not necessarily measure industrial learning.

Consider two semiconductor clusters.

The first attracts a large multinational facility, provides excellent infrastructure and generates substantial employment. However, most advanced engineering services, equipment maintenance, process technologies and specialised inputs continue to come from overseas. Local firms remain confined to construction, transport, packaging and routine services.

The second attracts a smaller investment but establishes technical relationships between the multinational enterprise, domestic suppliers, universities and engineering institutions. Local firms participate in equipment servicing, testing, process improvement, specialised component development and workforce exchanges.

The first cluster may report greater investment. The second may develop stronger foundations for long-term technological independence.

This is a hypothetical comparison, not a measured result from the paper. It illustrates why conventional investment indicators can misrepresent the quality of industrial development.

The essential policy question is no longer whether firms are located near one another. It is whether their relationships produce measurable improvements in technical capability.

A cluster becomes technologically meaningful when proximity is converted into organised learning.

Foreign investment must carry a learning obligation

Foreign direct investment remains essential for countries attempting to enter technologically demanding industries. Advanced semiconductor production requires enormous capital, specialised equipment, reliable infrastructure and access to international customers.

However, the traditional investment-promotion model concentrates heavily on attracting the initial project.

Governments offer fiscal incentives, subsidised land, infrastructure support, tax concessions and regulatory facilitation. Once the investment is secured, employment and output become the principal measures of success.

The next generation of industrial policy must go further.

Public incentives should encourage engineering exchanges, supplier-development programmes, local technical recruitment, collaborative testing, equipment-maintenance capabilities and structured knowledge-sharing arrangements.

Such obligations must be commercially realistic and compatible with intellectual-property protections and applicable trade rules. Companies cannot simply be required to surrender proprietary technology. But public support can be designed to reward genuine technical collaboration and local capability development.

A multinational semiconductor manufacturer receiving substantial public incentives could, for example, be encouraged to develop qualified domestic suppliers, support joint engineering projects and establish technical training programmes with measurable outcomes.

The objective should not be forced localisation of every input. It should be progressive localisation of technological competence.

This is a major conceptual shift: investment incentives should reward the creation of learning capacity, not merely the installation of production capacity.

Engineers may be more important than industrial estates

One of the most consequential channels of knowledge transfer is the movement of skilled people.

Engineers carry more than formal qualifications. They accumulate experience in solving production problems, managing equipment, interpreting technical failures, improving processes and coordinating complex manufacturing systems.

Much of this knowledge is tacit. It develops through practice and is difficult to reproduce through classroom instruction alone.

When experienced engineers move between organisations, they can help transfer technical routines and problem-solving capabilities. When domestic engineers participate in international production networks, they gain exposure to operating standards and technological practices that may be difficult to acquire locally.

For developing economies, this suggests that international engineering exchanges, industrial apprenticeships, returning technical professionals and collaborative research programmes should be treated as central components of industrial policy.

However, mobility alone is insufficient. Knowledge becomes economically valuable when engineers have opportunities to apply what they have learned.

A highly trained engineer returning to an enterprise without suitable equipment, technical autonomy or investment resources may be unable to translate experience into productivity gains.

Therefore, the challenge is not simply to train or attract engineers. It is to build enterprises capable of using their knowledge.

India's semiconductor ambition needs a second industrial strategy

India has increasingly recognised semiconductors and electronics as strategic industries. Investment incentives, semiconductor manufacturing initiatives, electronics production schemes and infrastructure development have created a stronger policy framework for attracting global production networks.

These efforts are important, but they represent only the first stage of technological development.

India's deeper challenge is to ensure that emerging semiconductor and electronics investments generate capabilities beyond the immediate facilities.

This requires a second industrial strategy centred on learning.

Semiconductor and electronics clusters in Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh and other emerging locations should develop structured mechanisms connecting anchor investors with domestic engineering firms, equipment-service providers, technical institutions and specialised MSMEs.

Supplier development must move beyond vendor registration. Firms need assistance with process control, precision manufacturing, quality management, reliability testing, certification and technical documentation.

Engineering institutions should be evaluated not only by the number of graduates produced but also by their participation in industrial problem-solving.

Common facilities should include advanced testing, metrology, reliability assessment and process-development services where commercially and technically feasible.

Public support should help smaller enterprises cross the expensive threshold between being potential suppliers and becoming technically qualified suppliers.

The crucial question is whether India can build an ecosystem capable of learning from the semiconductor industry rather than remaining primarily a destination for semiconductor investment.

The next industrial divide will be between producers and learners

The historical division between developed and developing economies was often described in terms of capital, infrastructure, labour productivity and access to markets.

The emerging division may be more complex.

Some economies will participate in advanced manufacturing while remaining dependent on imported process knowledge, equipment, intellectual property and engineering services. Others will use participation in global production networks to build progressively stronger domestic technological capabilities.

Both may report rising industrial output. But their long-term economic trajectories could diverge sharply.

Artificial intelligence, automation and advanced manufacturing may intensify this divide. As production becomes more sophisticated, competitive advantage will increasingly depend on the ability to understand, adapt and improve technologies rather than simply operate them.

Countries that fail to develop domestic learning systems risk becoming technologically dependent manufacturing locations.

This does not mean every country must independently produce every technology. Complete technological self-sufficiency is neither practical nor necessarily efficient.

The more realistic objective is technological agency: the capacity to understand critical processes, develop specialised expertise, negotiate effectively with technology providers and progressively move into higher-value activities.

A necessary caution: semiconductors are not every industry

The semiconductor industry offers powerful insights, but it also has distinctive characteristics. Production is exceptionally capital-intensive, technical standards are demanding, intellectual-property barriers are substantial and international production networks are highly specialised.

Learning mechanisms observed in semiconductors cannot automatically be assumed to operate with the same strength in garments, leather, handicrafts, food processing or other labour-intensive industries.

In traditional clusters, informal apprenticeship, labour circulation, subcontracting relationships, collective marketing and local entrepreneurial imitation may remain important.

The appropriate lesson is not that geographical spillovers are irrelevant everywhere. It is that policymakers must identify the actual mechanisms through which knowledge moves within each industry.

Moreover, empirical findings about knowledge transmission depend on the research design and its identification assumptions. Evidence of a particular transmission channel should not automatically be interpreted as proof that every policy intervention targeting that channel will succeed.

The value of the research lies in directing attention toward mechanisms that can be investigated, strengthened and measured.

From cluster development to knowledge-network development

The conventional industrial cluster was largely defined by geographical concentration. The future cluster may be defined increasingly by the density and quality of its technical relationships.

This does not make physical infrastructure unimportant. Reliable electricity, logistics, industrial land and utilities remain essential. But they provide the conditions for production, not a guarantee of technological upgrading.

A more advanced cluster-development model would assess whether enterprises are developing new products, improving production processes, qualifying for demanding customers, acquiring engineering skills and entering more sophisticated segments of global value chains.

Cluster institutions would become organisers of technical collaboration rather than merely administrators of common infrastructure.

Their responsibilities could include coordinating supplier qualification, facilitating engineering exchanges, organising joint problem-solving, linking firms with research institutions and helping enterprises access specialised technical services.

The success of such institutions should be measured through capability outcomes: reduced defect rates, higher yields, successful supplier qualifications, domestic engineering solutions and sustained participation in higher-value production activities.

This is a more demanding form of cluster development because it requires continuous institutional engagement rather than one-time infrastructure expenditure.

The future belongs to economies that organise learning

The most important implication of the CEPR research is that international production does not automatically produce international knowledge convergence.

Globalisation creates opportunities for technological learning, but these opportunities must be converted into capabilities through firms, people, institutions and sustained economic relationships.

The semiconductor industry makes this distinction unusually visible. A factory can be built within a few years, while the engineering competence surrounding it may take decades to develop.

For India and other emerging manufacturing economies, the policy challenge is therefore not simply to attract the next global semiconductor plant. It is to ensure that each major investment leaves behind a deeper domestic technological ecosystem.

The ultimate measure of industrial progress should not be how much foreign technology a country can operate, but how much technological capability its enterprises and workers can progressively develop.

The industrial policy of the twentieth century concentrated factories. The industrial policy of the twenty-first century must organise learning.

And the countries that understand this distinction will be better positioned to capture the real economic value of global manufacturing.

Research reference: The CEPR paper was published on 2 October 2026. The publisher confirms that cross-border technological learning operates through supply-chain relationships, engineer mobility within multinationals and foreign investment, rather than relying solely on anonymous spillovers.

The official author names are Pinelopi Koujianou Goldberg, Réka Juhász, Giulia Lo Forte and Jeff Thurk.

[Read the original CEPR Discussion Paper 22009](https://cepr.org/publications/dp22009?utm_source=chatgpt.com)

The Future Factory Needs Future-Ready Suppliers

Why India’s manufacturing transformation must reach beyond the large plant

A modern factory can stand behind impressive gates while its suppliers struggle with outdated machines, uncertain orders and shortages of technical skills. The factory may be globally connected, but the surrounding production economy can remain fragile. This is the uncomfortable possibility behind industrial strategies that celebrate major investments without asking whether smaller enterprises can participate in the industries being created.

The OECD’s Fit-for-Future Manufacturing SMEs: Effective Policies for Transformation, published on 2 October 2026, brings this question into focus. Examining automotive, semiconductor and electronics, and machinery businesses across France, Germany, Japan, Korea and the United States, it shows why industrial transformation requires policies shaped around the position of smaller firms within particular supply chains. (oecd.org⁠)

The old assumption has become expensive. Industrial development has often been imagined as a spreading process: attract a large manufacturer, expand production and allow knowledge, orders and technology to reach smaller suppliers. Such linkages can develop. But physical proximity alone cannot create them. A small enterprise located beside an advanced plant may still lack the testing capability, technical documentation or production consistency needed to supply it.

The OECD explicitly challenges the assumption that support for major industries will automatically benefit SMEs. It finds that direct, structured SME support often remains secondary to measures aimed at larger enterprises. Its central contribution is to examine digitalisation, low-carbon production and supply-chain disruption together, while recognising that their effects differ by industry. (oecd.org⁠)

For India, the implication is significant: manufacturing policy needs to finance the connections between firms as deliberately as it finances the factories themselves.

Three transformations arrive at the same workshop. Consider a hypothetical component manufacturer. One customer asks for digital production records. Another wants energy and emissions information. A third requires alternative sources for critical inputs. Each request appears reasonable in isolation. Together, they demand investment, management time and new skills before additional revenue is assured.

Public programmes can make this harder when they treat technology, energy efficiency and resilience as separate administrative subjects. The enterprise experiences one business problem, while support arrives through several application forms.

An Indian supplier programme should therefore begin with a practical diagnosis: which changes will help this firm retain customers, enter a viable market or reduce a measurable operating risk? Funding should follow that sequence. Buying software before stabilising production records, or installing equipment before securing the skills to operate it, can leave expensive assets underused.

Automotive policy must start with the component’s future. The transition towards electric powertrains creates particular difficulties for suppliers whose capabilities and revenues depend on internal-combustion-engine components. The OECD identifies adaptation to new vehicle supply chains, or movement into other industries, as a central challenge for these businesses. (oecd.org⁠)

For Indian automotive clusters, the first task should be to map exposure at the product level. Which components face declining demand? Which machining, casting, tooling or quality-control capabilities can serve new customers? Which investments remain commercially useful across several possible transition speeds?

Support could then combine traceability, engineering assistance, prototype testing and diversification finance. A technically capable firm should not be encouraged into an unfamiliar EV product simply because that category attracts policy attention. Its transition needs a credible customer, an achievable specification and a workable margin.

Electronics policy must build a route to qualification. A major electronics or semiconductor investment does not automatically create an accessible market for nearby small firms. The OECD highlights high entry barriers alongside opportunities in specialised components, design and maintenance services. (oecd.org⁠)

India’s practical response should be to identify specific supply opportunities and work backwards from buyer requirements. A prospective supplier needs to know what must be tested, who can validate it, how long approval may take and what the process will cost.

Shared laboratories would help only if their capabilities and results are accepted by prospective buyers. Skills programmes should address actual production and engineering gaps. Access to design tools and intellectual property should be arranged through lawful, commercially workable licences.

Above all, finance should recognise the period between developing a credible product and receiving an approved commercial order. Otherwise, a technically promising enterprise can run out of money while waiting to become a supplier.

Machinery firms need a business-model transition. The OECD’s machinery analysis describes opportunities in digitally enabled services, alongside barriers involving investment, skills and organisational change. Smaller manufacturers can struggle to move beyond hardware production even when new service markets are emerging. (oecd.org⁠)

For India, this suggests a wider agenda than subsidising new machines. A machinery enterprise could earn revenue through installation, remote diagnostics, retrofits, maintenance and application-specific customisation. These services require software capability, reliable field support and a clear agreement on access to customer data.

Cluster institutions could provide shared engineering and digital-service teams that individual firms cannot yet afford. Their performance should be judged by functioning services and paying customers. A demonstration centre that impresses visitors but changes no commercial practice has limited developmental value.

Public incentives should purchase supplier capability. A policy proposal follows from this analysis: large firms receiving public support should agree to proportionate, measurable supplier-development commitments.

These commitments could cover technical mentoring, supported qualification trials, predictable payment practices and verified improvements among participating suppliers. They should distinguish between suppliers merely attending a workshop, suppliers passing qualification and suppliers receiving repeat commercial orders.

Care is needed. A domestic procurement target alone may reward superficial localisation. An obligation to hold training sessions may generate attendance sheets rather than competence. The stronger test is whether suppliers can consistently meet specifications, improve productivity and compete for business beyond the original anchor firm.

Supplier development should expand a smaller enterprise’s commercial options. It should not create permanent dependence on one powerful customer.

Borrow the questions, test the answers locally. The OECD study offers a comparative diagnosis, not causal proof that particular programmes deliver particular outcomes. Its five-country setting also differs substantially from the institutional and technological conditions of many Indian clusters. The country analysis draws on sector evidence, policy reviews and stakeholder interviews. (oecd.org⁠)

India should use these insights to design and test focused interventions. Begin with a defined supplier group, establish its starting capabilities, track results over time and examine whether improvements exceed what would otherwise have occurred. Publish failures alongside successes. This would provide a firmer basis for expansion than counting beneficiaries or expenditure alone.

The future of manufacturing will be shaped by the capabilities distributed across thousands of smaller enterprises. A large plant can introduce advanced production. A capable supplier network can make that advancement durable, adaptable and locally rooted.

India’s industrial ambition should be measured by how many smaller firms become capable of supplying the next generation of industry—and how much knowledge, bargaining power and value they retain while doing so.

Read the OECD report⁠

Why Trade Growth No Longer Guarantees Development

Based on UN Trade and Development (UNCTAD), Trade and Development Report 2026: The Geoeconomics of Development | 9 October 2026

The World Is Trading More, but Development Is Becoming Harder

For much of the twentieth century, economic development followed a relatively simple assumption: countries that produced more, exported more and attracted foreign investment would gradually become richer. Industrialisation created employment, exports generated foreign exchange, and participation in global markets opened opportunities for technological learning.

That assumption is becoming increasingly unreliable.

The global economy is entering a period in which the volume of international trade may continue to expand while the opportunities for developing countries to capture its benefits become more restricted. Goods can cross borders, investment can flow between countries, and multinational companies can expand their supply chains without necessarily transferring technology, productive knowledge or economic power.

The Trade and Development Report 2026: The Geoeconomics of Development, published by UN Trade and Development on 9 October 2026, brings this contradiction into focus.

The report projects global economic growth of approximately 2.6% in 2026, even as international trade volumes expand by roughly 4%. These figures suggest that trade activity can grow faster than the world economy without producing a corresponding improvement in development opportunities.

The deeper concern is not whether globalisation is ending. It is whether globalisation is being reorganised into a system in which a relatively small number of countries and corporations control the most valuable parts of production.

The emerging development question is therefore no longer simply how much a country exports, but how much knowledge, technology, income and decision-making power it retains from those exports.

From Free Trade to Controlled Interdependence

The economic history of globalisation has passed through several distinct phases.

The post-war period emphasised industrial reconstruction, domestic manufacturing capabilities and national development strategies. The liberalisation era of the 1980s and 1990s promoted open markets, lower tariffs, foreign investment and integration into international production networks.

The next phase was dominated by global value chains. Production was divided across countries according to costs, capabilities and logistics. Developing economies became important suppliers of components, raw materials, intermediate goods and labour-intensive manufactured products.

This arrangement created enormous opportunities, particularly in East Asia. But it also produced a structural weakness: participation in a global value chain did not automatically translate into control over that chain.

The emerging geoeconomic order is making this weakness more visible.

Governments increasingly influence industrial development through export controls, investment screening, technology restrictions, strategic subsidies, national security requirements and supply-chain conditions.

Semiconductors, batteries, artificial intelligence, pharmaceuticals, telecommunications, critical minerals and advanced machinery are no longer treated merely as commercial industries. They are becoming instruments of national economic security.

This changes the rules of industrial competition.

A developing country may have competitive labour, natural resources, industrial land and attractive investment incentives, yet remain excluded from high-value production because it lacks access to technology, intellectual property, finance, specialised equipment or approved international supply networks.

Tariffs once determined much of the cost of entering a foreign market. Increasingly, technology permissions, standards, ownership conditions and strategic trust determine whether entry is possible at all.

The world is moving from open competition based largely on production costs towards controlled interdependence based on technological and institutional power.

The Resource-Rich, Value-Poor Paradox

Perhaps the most revealing contradiction in the emerging global economy is that countries supplying essential resources may capture only a small fraction of the value ultimately generated.

Africa illustrates this problem.

Despite its substantial role in supplying minerals such as cobalt, the continent reportedly captures less than 1% of the value associated with green supply chains, according to the report’s analysis.

The economic significance extends far beyond mining.

A mineral extracted in a developing economy may be processed elsewhere, converted into advanced materials in another country, incorporated into batteries or electronic systems in a third, and ultimately sold as a high-value product under a global brand.

At every stage, value is added through technology, processing, design, intellectual property, financing, logistics and market access.

The country supplying the original resource may receive relatively little of that accumulated value.

This is not simply a problem of unequal prices. It is a problem of unequal productive capabilities.

Countries that control design, patents, sophisticated processing, technical standards and customer relationships occupy the most profitable positions. Countries restricted to extraction, basic processing or low-cost assembly remain vulnerable to commodity cycles and buyer decisions.

The same problem exists in garments, electronics, pharmaceuticals, automotive components and agricultural processing.

A country may become a major exporter without becoming a major owner of the knowledge embedded in what it exports.

This is the central paradox of modern development: a country can become indispensable to global production while remaining economically dependent on those who control the production system.

Industrial Policy Is Returning, but Not on Equal Terms

Industrial policy has returned to the centre of economic strategy.

Advanced economies increasingly use public funding, procurement, tax incentives, research support and strategic regulations to strengthen domestic production. Technologies once allocated mainly through global markets are now being actively supported or restricted by governments.

For developing countries, this creates both opportunities and risks.

New investment may arrive as multinational corporations diversify production locations. Supply-chain restructuring may create demand for alternative manufacturing destinations. Strategic competition may encourage technology partnerships and infrastructure investment.

However, these opportunities are not distributed equally.

Countries with strong research institutions, skilled workers, reliable infrastructure, domestic supplier networks and negotiating capacity are better positioned to benefit. Economies offering only low wages and financial incentives may attract factories without acquiring lasting industrial capabilities.

A subsidised manufacturing facility can generate employment and exports. But if its machinery, designs, critical components, software and major customers remain externally controlled, the host economy may capture only a limited share of the value created.

Industrial policy must therefore be judged by more than the number of factories established or the investment commitments announced.

The important questions are whether domestic suppliers have moved into more sophisticated functions, whether local firms have acquired process knowledge, whether engineering capabilities have improved, and whether the country can eventually produce, design or adapt technologies independently.

Industrialisation without technological learning risks becoming a more expensive form of dependency.

India’s Manufacturing Ambition Faces a Value-Retention Test

India occupies an unusual position in this changing economic landscape.

It has a large domestic market, substantial engineering capabilities, a growing digital economy, an established pharmaceutical industry and significant manufacturing clusters. Its geopolitical position also creates opportunities as companies seek to diversify production beyond concentrated supply networks.

Yet India’s manufacturing challenge is not merely to attract more production.

It is to retain more value from that production.

Consider electronics. Domestic assembly can expand rapidly while high-value semiconductors, advanced displays, operating systems, intellectual property and precision manufacturing equipment continue to originate elsewhere.

In pharmaceuticals, India has built considerable strength in formulations and process chemistry, but important dependencies remain in selected active pharmaceutical ingredients, advanced biotechnology and sophisticated medical technologies.

In textiles, competitive production clusters may generate substantial exports while international buyers retain control over brands, product development, distribution networks and consumer relationships.

In capital goods, increasing machinery output does not necessarily mean domestic control over advanced sensors, precision components, industrial software or critical control systems.

These examples demonstrate why manufacturing growth and industrial capability must be evaluated separately.

India’s next industrial transition should not be measured only by how much it produces for the world, but by how much technological and commercial authority Indian enterprises acquire within global production networks.

The difference will determine whether India becomes a durable industrial power or remains primarily a competitive manufacturing location.

The Missing Link in Cluster Development

The implications for India’s MSME clusters are particularly significant.

For decades, cluster development programmes have concentrated on infrastructure, common facilities, skills, credit, technology upgrading and market access. These interventions have produced benefits, but many clusters remain dependent on external technology suppliers, large buyers and intermediaries.

The new geoeconomic environment requires a more demanding approach.

A textile cluster in Tiruppur should not evaluate success only through garment output and export growth. It should also assess progress in technical textiles, sustainable processing, product development, traceability, proprietary designs and direct customer relationships.

An automotive cluster in Pune or Gurugram must move beyond component supply towards engineering, testing, embedded electronics, specialised materials and electric-mobility technologies.

A pharmaceutical cluster in Hyderabad should measure not only manufacturing capacity but also its strength in research, complex molecules, process technologies and regulatory knowledge.

An electronics cluster in Noida should build deeper local supplier networks and capabilities in component engineering, testing, industrial design and production technologies rather than depend indefinitely on imported kits and systems.

The objective is not to eliminate imports or reject foreign investment. Such an approach would be economically unrealistic.

The objective is to ensure that international integration creates cumulative domestic capabilities.

This requires a fundamental change in the way cluster programmes are designed.

Rather than treating a cluster simply as a geographical concentration of enterprises, policymakers should treat it as a system for acquiring, developing and retaining industrial knowledge.

Public support should be linked to measurable improvements in supplier sophistication, engineering capability, product development, technology access and customer diversification.

Common facility centres should evolve from shared machinery installations into institutions providing testing, design, prototyping, applied research, regulatory intelligence and technological problem-solving.

Cluster associations should move beyond representing industry grievances and become organisations capable of negotiating technology partnerships, building market intelligence and coordinating supplier upgrading.

Most importantly, anchor investors receiving public incentives should be encouraged, through practical and enforceable arrangements, to develop domestic suppliers, support technical learning and create opportunities for local firms to undertake higher-value functions.

Otherwise, public subsidies may strengthen production capacity while leaving the underlying structure of dependency unchanged.

From Export Competitiveness to Value-Retention Competitiveness

The traditional definition of export competitiveness focuses on price, quality, delivery and market access.

These factors remain essential. But they are no longer sufficient.

A more useful development framework should examine the share of value that remains within the domestic economy after accounting for imported inputs, foreign technology payments, external services and the distribution of profits across the production network.

Even domestic value added is not the complete measure. Some domestic activities may generate substantial employment but limited opportunities for technological upgrading, while others create knowledge that can be applied across many industries.

Future competitiveness therefore needs two dimensions.

The first is the ability to enter and remain competitive in international markets.

The second is the ability to move progressively into activities that generate greater technological knowledge, stronger bargaining power and more sustainable domestic income.

For India, this suggests a shift from export promotion alone towards strategic value retention.

Supplier development programmes should identify specific technologies and components that domestic enterprises can realistically master. Public research institutions should work more closely with industrial clusters. Technology-transfer agreements should contain credible provisions for learning and capability development.

MSMEs should also reduce excessive dependence on a single multinational buyer, export market or technological platform.

Diversification is not simply a commercial risk-management tool. It is increasingly a form of economic security.

The Danger of Misreading Geoeconomic Forecasts

The UNCTAD analysis offers an important framework for understanding structural changes in the world economy, but its findings must be interpreted carefully.

Global projections are dependent on modelling assumptions, while policy mapping and scenario analysis identify risks and possible outcomes rather than establish causal effects for individual enterprises.

A semiconductor supplier, garment exporter and food-processing MSME will not experience geopolitical fragmentation in the same way.

Some firms may lose market access because of new restrictions. Others may gain business as buyers diversify. Certain clusters may benefit from strategic investment, while others may face higher compliance and technology costs.

Therefore, national industrial strategies cannot simply translate global forecasts into uniform cluster policies.

They need detailed evidence on firm capabilities, imported technology dependence, buyer concentration, local value addition and realistic upgrading opportunities.

A cluster-level geoeconomic risk dashboard could become a valuable policy instrument, combining information on export-market exposure, technology dependencies, critical inputs, standards and potential alternative customers.

Such an approach would make industrial policy more adaptive and less dependent on broad announcements.

The Next Development Divide Will Be Between Producers and Controllers

The most consequential change in the global economy may not be the division between countries that trade and countries that do not.

It may be the division between countries that participate in production and countries that control its most valuable functions.

The first group supplies labour, resources, factory capacity and intermediate goods.

The second controls technology, design, finance, standards, intellectual property, platforms and customer access.

This distinction is not absolute. Countries can move between these positions through learning, investment, institutional development and strategic partnerships. The experience of successful industrial economies demonstrates that upgrading is possible, although it is neither automatic nor guaranteed.

For developing economies, the challenge is to use participation in global value chains as a pathway towards greater capabilities rather than accept a permanent position at their lower-value stages.

India’s opportunity is substantial, but the window will not remain open indefinitely.

As strategic technologies become more tightly controlled and global supply chains become more politically conditioned, latecomers may find it increasingly difficult to acquire the knowledge needed for industrial advancement.

The next generation of industrial policy must therefore invest not only in factories, but also in the capabilities that determine who controls those factories, who designs their products, who owns their technologies and who ultimately captures their profits.

The Future: Development Is No Longer About Joining the Global Economy. It Is About Changing One’s Position Within It.

The defining question for the coming decade is not whether international trade will continue growing. It almost certainly will, although the pace and direction remain uncertain.

The question is who will capture the value generated by that trade.

Developing countries can increase exports, attract foreign investment and expand manufacturing employment while remaining dependent on external technology, finance and market decisions.

That is why the geoeconomics of development demands a new industrial policy framework.

For India, particularly its MSME clusters, the priority must shift from subsidising capacity to building capability, from attracting anchor investors to developing domestic supplier networks, and from measuring export volumes to measuring value retention and technological progress.

The industrial winners of the future will not necessarily be the countries that manufacture the most. They will be the countries that progressively control more of what makes manufacturing valuable.

And that is the real challenge posed by the emerging geoeconomics of development.

Source and verification: The report’s publication date, global growth forecast of 2.6%, and projected trade growth of approximately 4% are confirmed by UNCTAD. The India-specific cluster analysis and policy proposals are independent interpretations rather than direct UNCTAD recommendations.

Original report: UNCTAD — Trade and Development Report 2026⁠