The narrative surrounding the global semiconductor war is overwhelmingly dominated by the high-stakes brinkmanship between Washington, Beijing, and Taipei. The choke points of advanced microchip manufacturing, extreme ultraviolet lithography, and the geopolitical vulnerability of the Taiwan Strait draw the majority of academic and policy attention. Yet, beneath this headline conflict, a secondary realignment is quietly taking shape across the Indian Ocean.

As the United States intensifies its export controls on advanced technology and China accelerates its drive for technological self-reliance, the global electronics supply chain is being rapidly restructured. South Asia—traditionally viewed as a peripheral actor in high-tech manufacturing—finds itself thrust into the middle of this systemic realignment. The region is emerging as a critical yet highly fragile "silicon buffer" where Western multinationals seek to de-risk, Beijing attempts to retain market access, and regional capitals scramble to convert geopolitical spillover into domestic industrialization.

The Geopolitics of Supply Chain Realignment

The structural decoupling of the American and Chinese technology ecosystems has forced multinational corporations to abandon the hyper-efficient, single-source manufacturing paradigms that defined the post-Cold War era. The resulting "China Plus One" strategy is no longer a mere cost-saving exercise; it is an imperative of corporate survival driven by sanctions, tariffs, and potential blockades. 

In this search for alternative production nodes, South Asia presents a compelling, albeit asymmetrical, value proposition. Located along primary Indian Ocean trade routes, possessing massive pools of young engineering talent, and featuring domestic markets with explosive digital growth, the sub-continent is natural terrain for capital seeking a safe harbor. However, South Asia’s positioning as a silicon buffer is not uniform, exposing stark internal disparities in infrastructure, policy agility, and geopolitical alignment across the region.

India as the Anchoring Hub

India is at the center of South Asia's ambitions regarding the semiconductor industry and has therefore leveraged the US-China technology dispute to change its industrial profile. This is being done through initiatives such as the India Semiconductor Mission (ISM) and its subsequent versions through which the government has committed several billion dollars to establishing a vertically integrated semiconductor industry. India intends to avoid spending money on expensive, state-of-the-art chips below 5 nm, which are primarily manufactured by Taiwan Semiconductor Manufacturing Company (TSMC) and instead, focus on the older nodes, compound semiconductors and ATMP (Assembly, Testing, Marking, and Packaging).

By securing commitments from major American equipment suppliers, global foundry operations, and domestic industrial conglomerates to establish assembly and fabrication plants, India is carving out a vital role in the global back-end chip infrastructure. Washington actively views India's rise in this sector as a strategic hedge, codifying tech cooperation through bilateral frameworks designed to shift critical supply lines away from East Asia.

The Fragile Edge of the Periphery

Beyond India, the rest of South Asia approaches semiconductor decoupling from a position of acute vulnerability and selective opportunity. Smaller economies like Vietnam and Malaysia initially captured much of the redirected manufacturing capital due to established industrial bases, but South Asian nations are attempting to claim niche segments of the broader value chain. Sri Lanka and Vietnam-adjacent regional networks are attempting to position themselves as specialized assembly nodes for passive components or software-defined design testing. 

Bangladesh, despite its dominance in garment exports, recognizes that rising domestic wage floors will eventually necessitate an upgrade toward higher-value electronics assembly, making semiconductor integration a long-term economic imperative. Yet, these secondary markets face an uphill battle against deep structural headwinds, including chronic power shortages, fiscal deficits, underdeveloped port logistics, and political volatility that deter the massive, multi-decade capital outlays that the microchip industry demands.

The Multi-Alignment Dilemma

The central challenge facing South Asian capitals as they navigate this technological decoupling is the geopolitical price of economic participation. The semiconductor industry does not exist in a vacuum; it is governed by increasingly strict dual-use technologies and national security classifications.

Western capital and technology transfers have strict restrictions attached that mean the countries that receive this capital have to fulfil US export control regulations, limit the use of Chinese telecom infrastructure, and prevent the leakage of intellectual property. In contrast to this, China continues to supply raw materials and rare earth metals as well as intermediate electronic parts to the whole of South Asia.

When South Asian countries try to set up domestic semiconductor production facilities, they usually have to rely on machinery, chemicals, or supply chains provided to them by China. As a result, regional leaders need to achieve a delicate balance between meeting US security priorities and avoiding economic blowback from China.

Structural Obstacles to Industrial Escalation

While the narrative of South Asia as an alternative global tech hub is compelling, structural realities severely constrain its execution. Fabrication plants require hyper-reliable power grids, ultra-pure water supplies, highly specialized logistics, and billions in continuous capital expenditure — requirements that test even the most advanced South Asian states. Furthermore, the region’s primary historical contribution to the global semiconductor sector has been in chip design and software architecture rather than physical manufacturing. 

While tens of thousands of skilled engineers in hubs like Bengaluru and Hyderabad design chips for Western fabless firms —as outlined in the India Fabless Ecosystem & VLSI Design Overview— translating design leadership into physical fabrication requires a completely different industrial ecosystem that takes decades to mature. Without deep, localized supply networks for specialized chemicals, silicon wafers, and precision tooling, South Asia risks remaining an assembly-only destination —capturing lower margins while bearing high geopolitical exposure.

Strategic Imperatives for the Region

To avoid being crushed between the two superpowers, South Asian states must move from reactive positioning to proactive, multi-tiered industrial strategies. First, regional leaders must prioritize domestic infrastructure stability and policy continuity; semiconductor investments operate on decade-long cycles that cannot survive sudden regulatory shifts or fiscal crises. 

Second, South Asia should emphasize regional supply chain integration rather than isolated national competition. A collaborative framework—where Indian design and fabrication capacity is integrated with packaging, testing, or component manufacturing in neighboring states— would build a far more resilient regional cluster. 

Ultimately, South Asia’s role in the US-China semiconductor decoupling will not be defined merely by how many factories shift to its shores, but by its capacity to build a self-sustaining technological identity that can absorb global shocks without falling into technological dependency.

(The writer is a policy analyst with an M.A. in International Relations from Jadavpur University, Kolkata. The views expressed are personal. She can be reached at hridbina.chatterjee@gmail.com / https://www.linkedin.com/in/hridbina-chatterjee-75a575332 )