For Poor Countries, Well-Worn Path to Development Turns Rocky

But today, parts of South Asia, Africa and Latin America are failing to create thriving manufacturing sectors even though their wages remain low. Manufacturing employment and output are peaking and declining at vastly lower levels of income and development than they did in the West.

Economists' worry is that the factory-led model of advancement--which, for more than a century, has offered the quickest route out of poverty--is simply no longer available to today's poorest nations... Harvard economist Dani Rodrik, who began compiling data on manufacturing world-wide a few years ago, says he is seeing growing evidence of what he calls "premature deindustrialization"--the idling or shrinking of manufacturing sectors as a share of the economy in poor countries like India that never industrialized very much in the first place.

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Lower trade barriers and better communication have made it easier for supply chains to be spread over farther-flung locales, bringing more countries into direct competition for factory investment. India must joust more often with other cut-rate producers like Bangladesh or Vietnam for slices of the manufacturing process--a component or an assembly here, some product development there--rather than for "start-to-finish industry," as Chidu Narayanan, an economist at Standard Chartered, calls it.

"It's more of a ‘Made in the World' kind of thing rather than ‘Made in India' or ‘Made in China,'" Mr. Narayanan said.

More factories also might not translate into as many jobs, at least not for humans. According to the International Federation of Robotics, sales of industrial robots shot up by 29% last year to a record of nearly 230,000 units and are expected to keep climbing, especially in Asia.

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In manufacturing, too, India has done better at using skilled workers--but not necessarily many of them--to make sophisticated products. Baba Kalyani says his company, Bharat Forge Ltd. , became a heavyweight auto-parts exporter through technological innovation, not low-cost labor. It is too late, he said, for India to try to beat China at its own game.

"We are past that time," Mr. Kalyani said. "If we try moving in that direction, we will just simply fail."