Degree of Competition in Indian Manufacturing Firms

 

P. Naresh Kumar¹, V. V. Narsi Reddy²

¹Econometrician, Andhra Pradesh Capital Region Development Authority, Vijayawada – 520 002

²Associate Professor, School of Management Studies, Lakireddy Bali Reddy College of Engineering,

Mylavaram - 521230.

 

ABSTRACT:

Manufacturing is an essential part of a country's economy. The competitiveness of a firm is the complex array of interdependent factors relating to its quality, innovation, efficiency, effectiveness, customer satisfaction, employee satisfaction and empowerment, and how these functions contribute to the products being made. To be more competitive, a manufacturing firm would have to identify their core competencies and develop them to achieve their strategic and competitive advantage. In the present study enterprise survey(2014) data of World Bank is used (i) to study the use of foreign owned technology in Indian manufacturing firms and also to make a state-wise comparison (ii) to study the degree of obstacles faced from the practices of competitors in the informal market. Thestudy came with the findings that the size of the firm is a key determinant where the firms choose use of foreign owned technology while location of firms didn’t play role in the use of foreign technology. Market for the main product such as local, national or international is highly dependent on size of the firm.

 

 

 

INTRODUCTION:

Manufacturing is an essential part of a country's economy. The competitiveness of a firm is the complex array of interdependent factors relating to its quality, innovation, efficiency, effectiveness, customer satisfaction, employee satisfaction and empowerment, and how these functions contribute to the products being made (Dingli, 2012).To be more competitive, a manufacturing firm would have to identify their core competencies and develop them to achieve their strategic and competitive advantage. There are three intangible assets that contribute to the firm's strategy and competitiveness: human capital, organizational capital and information capital.

 

A manufacturing company that has operations in the USA, Mexico, France and Turkey faces unique challenges in managing these assets globally.

 

The purpose of this paper is to discuss the unique challenges a manufacturing company with operations in these four countries would face in managing their human capital, organizational capital and information capital. Global Manufacturing has increased due to technological innovations, exports and trade amongst countries.

 

STUDY OBJECTIVES:

The study ha the following specific objectives:

1.       To study the use of foreign owned technology in Indian manufacturing firms and also to make a state-wise comparison

2.       To study the degree of obstacles faced from the practices of competitors in the informal market

About Enterprise Survey of World Bank:

Enterprise Surveys provide firm-level data from over 125,000 establishments in 139 countries. Data are used to create over 100 indicators that benchmark the quality of the business environment across the globe. Each country is surveyed every 3 to 4 years. In addition to country-level aggregated data, firm-level data are available to registered users. The Enterprise Surveys, through interviews with firms in the manufacturing and service sectors, capture data covering measures of firm performance, firm structure as well as business perceptions on the biggest obstacles to enterprise growth, and the business environment in general. The present research is based on the enterprise survey 2014.  That is on the data collected in India between June 2013 and December 2014. The objective of the Enterprise Survey is to gain an understanding of what firms experience in the private sector.

 

REVIEW OF LITERATURE:

Gary S. Hansen and BirgerWernerfelt (1989) decomposed the inter-firm variance in profit rates in to economic and organizational components to study the firms’ performance. The study proved that the two effects are independent. Also organizational factors explain about twice as much variance in profit rates as economic factors. Donald A. Hay and Guy S. Liu (1997) made an attempt to trace out the impact of competition on the efficiency of firms by considering 19 UK manufacturing sectors using frontier production function techniques. According to the analysis, the incentives are greater in markets where firm behaviour is more competitive. Also the short run declines in market shares and profits induce the firm to improve efficiency relative to its 'best practice' whereas the long run differences in efficiency are correlated with differences in gross investment. N. S. Siddhartha and K. Lal (2003) studied the relation between liberalisation and growth of firms in India covering 8000 firms. The data extracted from capital line data set. The results of the study show that during the initial years, firm size, MNE affiliation, capital intensity, vertical integration and import of capital goods had a negative impact on growth. However, in recent years the impact of these variables has turned positive and significant, indicating the important changes brought about by globalization.

 

Cassey Lee (2004) has studied determinants of Innovation in the Malaysian Manufacturing Sector. The study was based on Malaysian manufacturing sector comes from the NSI which was conducted between December 2002 and May 2003. That large firms are more likely to innovate than small firms. Ownership structure is also found to be an important determinant of innovation, with private limited and public limited firms twice as likely to innovate as sole proprietorship firms. However, the influence of industry's technology level is inconclusive, the propensity to innovate is positively correlated with market concentration.

 

David B. Audretsch and Dirk Dohse (2007) links the performance of new technology firms, measured in terms of employment growth, to geographic location. The study is based on the model of firm growth that is specific to characteristics of the location as well as the firm and industry. The model is estimated using a unique data set identifying the growth performance of small technology-based firms in Germany. The empirical evidence suggests that being located in an ag- glomeration rich in knowledge resources is more conducive to firm growth than being located in a region that is less endowed with knowledge resources. These results suggest the economic value of location as a conduit for accessing external knowledge resources, which in turn, manifests itself in higher rates of growth.

 

T N Srinivasan and VaniArchana (2011) investigated to find out the determinants export decision of firms. The data on 800 operating firms for 1995 to 2006 was collected from PROWESS database.The data collected covers six types of labour-intensive manufacturing activity (at the 4-digit level). The study is based on Tobit model with binary observations which incorporates the decision of whether or not to export and the level of exports relative to sales, conditional on exporting. The explanatory variables consists of firm-specific characteristics like firm size, labour productivity, R and D, selling costs, wages and salaries, net fixed assets, foreign ownership dummy, etc,  The analysis came with the results  that the firm heterogeneity is an important determinant of the decision to export. Exporting firms are significantly larger, more RandD-intensive, low wage-intensive, more productive and more profitable than non-exporting firms. The multinomial results reveal that the probability of survival of new firms in export markets is lower when compared to those which have been exporting in the previous years.

 

Aditya Bhattacharjea (2003 in his paper examined the Competition Act, especially several amendments that were introduced as it was being passed, including one that explicitly arms the Competition Commission with the authority to impose import restrictions, and several others that will be self-defeating or difficult to implement. The important points that the review brought out are (i) though many amendments made to the competition bill, it permitted injections on imports is self-defeating and probable violation of WTO rules (ii) some amendments are in favor of foreign firms. For e.g. in allowing an efficiency defense without the conditions that would be imposed in their home jurisdictions, or the ‘meet the competition’ defense even in predatory pricing, which will help firms with  financial deep pockets.

RESULTS AND DISCUSSION:

Table-1: Cross Tab of Size of organisation and use of foreign owned technology

Screener size	Do you use Technology Licensed from a foreign-owned company?			Total
	Don’t know	Yes	No
Small>=5 and<=19	16	95	2,121	2,232
	18.1	225.5	1,988.4	2,232.0
	0.22	1.33	29.60	31.15
Medium >=20 and <=99	20	316	2,915	3,251
	26.3	328.5	2,896.2	3,251.0
	0.28	4.41	40.68	45.37
Large >=100	22	313	1,347	1,682
	13.6	170.0	1,498.4	1,682.0
	0.31	4.37	18.80	23.48
	58.0	724.0	6,383.0	7,165.0
	0.81	10.10	89.09	100.00

χ 2=442.5198, d/f=6,   p-value=0.000

 

Here the attempt is to test the independence of the attributes size of organisation and use of foreign owned technology. The chi-square calculated is significant at 1 percent level of significance since the calculated value (442.5198>16.812) is greater than the critical value. Therefore size of the organisation will play an important role in choosing use of foreign owned technology.Moreover, the percentage of firms not using technology from a foreign owned company is 89 percent and that of firms using such technology is 10 percent.Out of the 724 firms using foreign technology, there is no significant difference in the percentage of medium and large firms. These two categories are having 43.65 percent and 43.23 percent respectively. However, 13.12 percent small firms are using such foreign technology.

 

Table-2: Firm location and use of foreign owned technology

Is this city the official capital city?	Do you use Technology Licensed from a foreign-owned company?			Total
	Don’t know	Yes	No
Yes	2	13	364	379
	3.1	38.3	337.6	379.0
	0.03	0.18	5.08	5.29
No	56	711	6,019	6,786
	54.9	685.7	6,045.4	6,786.0
	0.78	9.92	84.01	94.71
Total	58	724	6,383	7,165
	58.0	724.0	6,383.0	7,165.0
	0.81	10.10	89.09	100.00

χ 2=20.2091, d/f=2   ,  p-value=0.000

 

Certain firms are situated in official state capital cities. It is believed that this element can influence the use of foreign technology by such firms. From the above table, the chi-square calculated (20.2091 > 9.210) is significant at 1 percent level of significance. Therefore, it inferred that the attributes location of firms and use of foreign technology are dependent.Out of 724 firms who use technology licensed from a foreign owned company, only 1.80 percent firms are situated in financial city and the rest 98.20 percent firms are not.

 

 

 

Table-3: Main Market for Establishment’s Main Product

χ 2=442.5198, d/f=6    p-value=0.000

 

 

The above cross tabulation is about the size of enterprise and the nature of main market (i.e. domestic and international). Out of 7165 only 8.28 percent enterprises said that their main market for their main product is international market whereas for 63.20 percent national market is the main market and for 28.42 percent it is local market.Out of the 593 enterprises having international market as main market, 50 percent are large enterprises and 40.13 percent are medium enterprises. The size of the firm and the main market are expected to have association in general. From the above table, the chi-square observed is significant at 1 percent level of significance. Therefore, the null hypothesis of independence is rejected and the alternative is accepted.

 

 

 

Table-4: Main Market for State-wise Establishment

 

Of the 593 enterprises which are having international market as their main market, Haryana occupies first place with 16.69 percent enterprises and West Bengal with 13.49 percent. However, in the category of enterprises finding national market as main market, Gujarat occupies first place with 7.91 percent and that of second place occupied by Punjab with 6.71 percent.Karnataka state is having a share of 11.15 percent who find local market as the main market and Tamil Nadu with 9.72 percent.

 

Table-5: Practices of Competitor- An Obstacle

Screener size	How much of an obstacle: Practices of competitors in Informal sector?							Total
	DON’T KNOW	DOES NOT	NO OBSTAC	MINOR OBS	MODERATE	MAJOR OBSTA	VERY SEVE
Small>=5 and <=19	8	80	1,151	775	554	406	91	3,065
	9	56.1	1,263.5	819.3	517.2	320.7	78.3	3,065.0
	0.09	0.86	12.40	8.35	5.97	4.37	0.98	33.02
Medium >=20 and <=99	13	43	1,683	1,112	720	413	104	4,088
	13.2	74.9	1,685.2	1,092.8	689.8	427.7	104.4	4,088.0
	0.14	0.46	18.13	11.98	7.76	4.45	1.12	44.05
Large >=100	9	47	992	594	292	152	42	2,128
	6.9	39.0	877.2	568.9	359.1	222.6	54.3	2,128.0
	0.10	051	10.69	6.40	3.15	1.64	0.45	22.93
Total	30	170	3,826	2,481	1,566	971	237	9,281
	30.0	170.0	3,826.0	2,481.0	1,566.0	971.0	237.0	9,281.0
	0.32	1.83	41.22	26.73	16.87	10.45	2.55	100.00

χ 2=122.2405, d/f=12    p-value=0.000

 

The practices of the competitors can be an obstacle for the firm’s various activities reaching towards growth. From the above table the size of the firm and the level of obstacle that the practice of the competitor is found to be significant at 1 percent level of significance as evident by the chi-square value (122.2405). About 41.22 percent firms agreed that the practices of their competitor are not an obstacle whereas it is moderate for 16.87 percent, major for 10.46 percent and very severe obstacle for a small percent of 2.55.Of the 971 firms who agreed that the practices of competitor is major obstacle, a majority 42.53 percent medium sized enterprises and 41.81 percent are small enterprise. In the very severe obstacle category, 43.88 percent are medium sized enterprises and 38.39 percent belong to small enterprises.

 

CONCLUSION:

From the analysis, the following are the key findings: (1) it is verified that the size of the firm is a key determinant where the firms choose use of foreign owned technology. (2) However, the location of firms didn’t play role in the use of foreign technology. (3) Market for the main product such as local, national or international is highly dependent on size of the firm and 50 % of large firms agreed that their main market if international market (4) Haryana and West Bengal are dominated states where the market for their main market is international market with 16.69 percent and 13.49 percent respectively. However, in the category of national market as main market, Gujarat occupies first place with 7.91 percent and that of second place occupied by Punjab with 6.71 percent. (5) The practices of the competitors can be an obstacle for the firm’s various activities reaching towards growth. This relationship is found to be significant at 1 percent level of significance as evident by the chi-square value (122.2405). Majority 42.53 percent medium sized enterprises agreed that the practices of competitor are major obstacle.

 

REFERENCES:

1.        Audretsch, D. B., and Dose, D. (2007). Location: A neglected determinant of firm growth. Review of World Economics, 143(1), 79-107.

2.        Bhattacharjea, A. (2003). India's Competition Policy: An Assessment. Economic and Political Weekly, 38(34), 3561-3574.

3.        Dingli, D. J. (2012), The manufacturing industry – Coping with challenges, Working Paper No. 2012/05, Maastricht School of Management, Maastricht.

4.        Hansen, G. S., and Wernerfelt, B. (1989). Determinants of firm performance: The relative importance of economic and organizational factors. Strategic management journal, 10(5), 399-411.

5.        Hay, D. A., and Liu, G. S. (1997). The efficiency of firms: what difference does competition make?.The Economic Journal, 107(442), 597-617.

6.        Lee, C. (2004). The Determinants of Innovation in the Malaysian Manufacturing Sector: An Econometric Analysis at the Firm Level. ASEAN Economic Bulletin, 21(3), 319-329.

7.        Siddharthan, N., and Lal, K. (2003). Liberalisation and Growth of Firms in India. Economic and Political Weekly, 38(20), 1983-1988.

8.        Srinivasan, T., and Archana, V. (2011). Determinants of Export Decision of Firms. Economic and Political Weekly, 46(7), 49-58.

 

 

 

 

 

 

Received on 20.12.2017          Modified on 18.01.2018

Accepted on 28.01.2018           ©A&V Publications All right reserved