The WaPo reports that software and services are great bootstrap industries because, unlike heavy manufacturing and chip fabs, they don’t have a lot of dependencies on infrastructure (via Globalisation Institute):

Chennai also shows why India succeeds in software and services. To do software, you only need one functional buildingTo do software, you don’t need a broad infrastructure base; you need one functional building. I visited Tidel Park, a gleaming office block here that houses 31 software firms, two-thirds of which are foreign. There aren’t any power cuts here because the building has its own backup generators. There are no connectivity worries because it is served by six competing broadband providers. And it certainly is safe. Tidel Park boasts 150 guards and a security control room that would not look out of place on Darth Vader’s Death Star. [Link]

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p>However, eventually you need a manufacturing base and the ability to generate economies of scale. The khadi cloth era of protecting domestic industries only made them sluggish and unresponsive and postponed global competitiveness. Relative to centralized planning, few of India’s early leaders understood adaptive systems or emergent effects:

… the opening of India’s economy has forced its manufacturers to reinvent themselves. Chennai’s auto-components firms have done this almost manically. Ten years ago, their brakes and valves were crummy enough to scare away the international car majors that considered manufacturing in India. Today, you can’t spend an hour with any of the components Actually, getting rid of the tariff barriers is where you startfirms without hearing about the international quality certifications they’ve amassed; the Deming Prize, awarded for manufacturing excellence by a Japanese committee, has acquired talismanic status… the city’s business leaders pepper their conversation with Japanese management lingo.

The results are dramatic. The TVS Group, the largest of India’s auto-components firms, now exports around a third of its output — proof that it meets international standards. The rival Rane Group reports that it has reduced defects from 10,000 parts per million to 250 and that 28 percent of its engine valves are now exported. One of the TVS companies, Sundram Fasteners, has won a General Motors “Supplier of the Year” award five times, and it supplies 100 percent of GM’s radiator caps.

Because Indian car parts are now reliable, international car majors have reversed their attitude. Ford and Hyundai have opened factories in Chennai; BMW recently announced that it would follow; Volkswagen and GM seem interested. Multinational parts makers are arriving, too, strengthening Chennai’s attraction as a hub. [Link]

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p>Globalisation Institute summarizes:

Once again, we observe the futility of trying to build an internationally competitive industry behind high tariff barriers. Actually… getting rid of the tariff barriers is where you start. [Link]