Characteristics: A Study of Indian Basic Chemical Industry
11.5 Summary and Conclusions
184 S. Bhat and K. Narayanan Table 11.15 Distribution of type of R&D with respect to firm characteristics
Sl. Type of No. None Affiliation type Govt. MNC Mean firm characteristics
R&D Obs. business house MS% AGE PROFIT% VI%
1 Incremental 123 49 54 9 13 0.6 28.87 5.69 33.12
2 Rigorous 125 14 64 5 40 2.19 34.23 9.38 33.44
Mean values of firm characteristics for all 637 observations 0.89 25.74 4.37 35.18
Table 11.16 Correlation matrix between the variables
Variables RDI LRI MKI AGE PROFIT VI MS
RDI 1
LRI −0.042 1
MKI −0.018 0.043 1
AGE 0.266** 0.187** −0.027 1
PROFIT 0.093* 0.098* 0.092* 0.005 1
VI −0.025 −0.055 0.004 0.022 −0.405** 1
MS 0.523** 0.155** 0.017 0.293** 0.092** −0.109** 1
Notes: ** and * represent 1 and 5% significance level respectively.
Age is positively correlated to R&D and disembodied technology import inten- sities implying that older and more experienced firms are the ones investing in higher proportions on these two technological strategies. Market share is also pos- itively correlated to R&D and import of technology intensities, indicating that Schumpeter’s (1943) theory (larger firms are more technologically active) might hold for the Indian Basic Chemical industry. Again market share is positively corre- lated to age; which means that older firms are also the ones that are large. Degree of vertical integration is negatively correlated to both profit-margin and market share, at the same time profit-margin is positively correlated to market share suggesting that highly vertically integrated firms are the loss making small firms. Finally, it should be noted that there is no statistically significant positive correlation between the intensities of investments on the three basic technological strategies suggesting that though package deal of the technological strategies seem to be a popular tech- nological strategy among Indian Basic Chemical firms, the relationship between the sources of technology on the whole may not be complementary.
11 Indian Basic Chemical Industry 185 investigate the existence of a possible complimentary relationship between the indi- vidual technological strategies. The important insights gained from the study that are especially relevant for Indian Basic Chemical industry are:
1. The firms in this industry are investing on various sources of innovation. During the study period, nearly 2/3rd of the observations in the sample were technolog- ically active with many investing in technological strategies of degree two and higher.
2. The firms that are unaffiliated and those affiliated to business houses are pre- ferring investments in individual sources of technology. In contrast the MNC affiliates are investing on technological strategies of order three and four. This implies the foreign firms are using a package deal of technology transfer. Further, as compared to domestic unaffiliated firms more numbers of foreign affiliates and nearly half of the R&D doing business house firms are investing on rigorous R&D. It is likely that foreign affiliates are trying to introduce new products in the market through adaptation of imported technology. Some of the business house affiliates may also be trying a similar strategy. However, the domestic unaffiliated firms seem to be merely trying to improve upon the existing technologies, most probably due to lack of sufficient resources.
3. As compared to smaller firms the larger firms are technologically more active.
Moreover, larger firms are also the ones that are doing more rigorous R&D. The correlation matrix too shows statistically positive coefficients for market share with R&D as well as import of disembodied technology imports. This means that the larger firms with their vast resources are in a better position to invest on technological activities in Indian Basic Chemical industry.
4. Higher percentages of older and experienced firms are technologically active.
Again, positive correlation coefficients between age of the firm and, R&D inten- sity and import of disembodied technology intensity suggest that the framework provided by the evolutionary and capability economists holds for the Indian Basic Chemical industry. In other words the quality of the entrepreneur becomes bet- ter over time due to capability acquisition and thereby positively influencing the innovative efforts of the firm.
5. Moderately vertically integrated firms are technologically more active than either the highly sub-contracting or the highly integrated types. Again, the moderately vertically integrated firms are also the ones that are investing on technological strategy of degree four. This implies that some amount of internalization of pro- duction which would determine the production capability of the firm might be necessary before the firm can explore other technological sources.
6. Some of the loss-making firms are also investing on technological strategies with only R&D and foreign equity being popular among the technologically active loss-making firms. The firms with relatively better profit margins are investing on rigorous R&D. The correlation coefficient between profit and technological investments is also positive. This justifies the idea that the entrepreneur’s ability to generate internal resources is also quite important for deciding the amount and type of technological strategy to invest on.
186 S. Bhat and K. Narayanan 7. While profit margin is positively correlated to firm size, vertical integration is negatively correlated to both firm size and profit margin. Thus one can say that high vertical integration results in high cost of management in the small organi- zations leading to losses in those firms. In other words smaller firms may benefit from being sub-contracting types in the Indian Basic Chemical industry.
8. Although, by and large, the active firms in the Indian Basic Chemical industry prefer a combination strategy, suggesting a package deal of the technological strategies, the complementary relationship between the four major technolog- ical strategies may not hold since there is no statistically significant correlation between the intensities of R&D, import of capital goods and import of disembod- ied technology. However, a thorough analysis of the causal relationship needs to be carried out to draw firmer conclusions.
Thus, the present study highlights how the differences in the quality of the entrepreneur due to ownership, scale of operation, experience, degree of vertical integration and ability to raise internal finances can affect the type of technolog- ical strategy that the entrepreneur chooses to invest on. It seems that the firms in this industry are mainly adopting the technologies bought from abroad. Though the industry is quite a matured one, still, being the backbone for many other industries, it is an important one. Therefore there is a need to encourage the unaffiliated firms in this industry to do pioneering research.
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