R&D strategy of small and medium enterprises in India: Trends and determinants

Pradhan, Jaya Prakash (2010): R&D strategy of small and medium enterprises in India: Trends and determinants.

Abstract

The liberalization of economic policies in the last two decades and intensifying market competition tend to be a cause of policy concern for the survival of SMEs in emerging economies like India as these firms accounts for the largest chunk of industrial units and employment. Given their limited financial and intangible resources, the promotion of R&D among SMEs has become a very important policy parameter. The aim of this paper is to contribute to the literature on Indian R&D by analyzing the trends and patterns of R&D investment by Indian manufacturing SMEs during the period 1991−2008 and exploring various factors that determine their R&D behaviour. The results show that Indian SMEs have lowest incidence of doing in-house R&D and their R&D intensities have fallen in the last decade. A number of factors that play important role in determining SME R&D have been identified based on the three steps Censored Quantile Regression and some useful policy implications are suggested for enhancing R&D activities of small firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: SMEs; R&D; Business Groups; Foreign Firms
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

References

Alagh, Y.K. (1998)’ ‘Technological Change in Indian Industry’, Economic and Political Weekly, 33 (4), pp. 181−184.

Amiti, M., and J. Konings (2007), ‘Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia’, American Economic Review, 97(5), pp. 1611–1638.

Aw, B.Y., M. J. Roberts and T. Winston (2005), ‘The Complementary Role of Exports and R&D Investments as Sources of Productivity Growth’, NBER Working Paper, No. 11774, National Bureau of Economic Research, Cambridge, MA 02138.

Bala Subrahmanya, M H (2006), ‘Technological Innovations in Indian Small & Medium Enterprises (SMEs) Sector: Does Firm Size Matter?’, International Journal of Innovation and Learning, 3 (5), pp 499−517.

Basant, R. (1997), ‘Technology Strategies of Large Enterprises in Indian industry: Some Explorations’, World Development, 25(10), pp. 1683−1700.

Bhattacharya, S., S.C. Sharma and K. Lal (2007), Study of R&D and Innovation Activity of Firms in India, A Report Prepared by the National Institute of Science, Technology and Development Studies (NISTADS) for the Department of Science and Technology, Government of India.

Chay, K. Y. and J. L. Powell (2001), ‘Semiparametric Censored Regression Models’, Journal of Economic Perspectives, 15 (4), pp. 29–42.

Chernozhukov, V. and H. Hong (2002), ‘Three-Step Censored Quantile Regression and Extramarital Affairs’, Journal of American Statistical Association, 97 (459), pp. 872–882.

Cohen, W.M. and S. Klepper (1996), ‘A Reprise of Size and R&D’, The Economic Journal, 106, pp. 925–951.

Deolalikar, A. B. and R. E. Evenson (1989), ‘Technology Production and Technology Purchase in Indian Industry: An Econometric Analysis’, The Review of Economics and Statistics, 71 (4), pp. 687–697.

Drukker, D. M. (2002), ‘Bootstrapping a conditional moments test for normality after tobit estimation’, The Stata Journal, 2(2), pp. 125–139.

Etemad, H. (2004), ‘Internationalization of Small and Medium-sized Enterprises: A Grounded Theoretical Framework and an Overview’, Canadian Journal of Administrative Sciences, 21(1), pp.1–21.

Fishman, A. and R. Rob (1999), ‘The Size of Firms and R&D Investment’, International Economic Review, 40(4), pp. 915–931.

Freeman, C. and L. Soete (1997), The Economics of Industrial Innovation (3rd Edition), Reprinted in 2004 by Routledge, London.

Gustavsen, G.W., D. Joliffe and K. Rickertsen (2008), ‘Censored quantile regression and purchases of ice cream’, Food Economics, 5(3), pp. 152–163.

Halpern, L., M. Koren and A. Szeidl (2005) ‘Imported Inputs and Productivity’, CEPR Discussion Paper, No. 5139.

Himmelberg, C. P. and B. C. Petersen (1994), ‘R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries’, The Review of Economics and Statistics, 76(1), pp. 38–51.

Kacker, S. (2005), ‘Overcoming Barriers to Innovation for Indian SMEs’, Paper presented at the INSME Annual Meeting on International Cooperation to Seize Innovation Opportunities for SMEs, Barcelona, Spain, 13−15 April.

Kathuria, V. (2008), ‘The impact of FDI inflows on R&D investment by medium- and high-tech firms in India in the post-reform period’, Transnational Corporations, 17(2), pp. 45–66.

Katrak, H. (1985), ‘Imported Technology, Enterprise Size and R&D in a Newly Industrializing Country: The Indian Experience’, Oxford Bulletin of Economics and Statistics, 47, pp. 213−230.

Kharbanda, V. P. (2001) ‘Facilitating innovation in Indian small and medium enterprises–The role of clusters’, Current Science, 80 (3), pp. 343−348.

Kumar, N. and A. Aggarwal (2005), ‘Liberalization, outward orientation and in-house R&D activity of multinational and local firms: a quantitative exploration for Indian manufacturing’, Research Policy, 34(4), pp. 441–460.

Kumar, N. and M. Saqib (1996), ‘Firm Size, Opportunities for Adaptation, and In-house R&D Activity in Developing Countries: The Case of Indian Manufacturing’, Research Policy, 25(5), pp. 712–722.

Lall, S. (1983), ‘Determinants of R&D in an LDC: The Indian Engineering Industry’, Economic Letters, 37 (3), pp.379−383.

Mahmood, I.P., and W. Mitchell (2004), ‘Two Faces: Effects of Business Groups on Innovation in Emerging Economies’, Management Science, 50 (10), pp. 1348–1365.

Morris, S., R. Basant, K. Das, K. Ramachandran and A. Koshy (2001), The Growth and Transformation of Small Firms in India, New Delhi: Oxford University Press.

Narayanan, K. and R. Thomas (2010), ‘R&D and Internationalisation in the Pharmaceutical Sector in India’, in Siddharthan, N.S. and K. Narayanan (eds.) Indian and Chinese Enterprises: Global Trade, Technology and Investment Regimes, Routledge, New Delhi, pp. 211–238.

National Science Foundation (2008) ‘Science and Engineering Indicators 2008’, Arlington, Virginia, USA.

Pavitt, K (1984), ‘Sectoral Patterns of Technical Change: Towards a Taxonomy and a Theory’, Research Policy, 13(6), pp. 343–373.

Powell, J.L. (1984), ‘Least Absolute Deviations Estimation for the Censored Regression Model’, Journal of Econometrics, 25, pp.303–325.

Powell, J.L. (1986), ‘Censored Regression Quantiles’, Journal of Econometrics, 32, pp. 143–155.

Pradhan, J. P. (2002), ‘Liberalization, Firm Size and R&D Performance: A Firm Level Study of Indian Pharmaceutical Industry’, Journal of Indian School of Political Economy, 14(4), pp. 647–666.

Pradhan, J.P. and P. P. Sahu (2008) Transnationalization of Indian Pharmaceutical SMEs, Bookwell Publisher, New Delhi.

Pradhan, J.P. and S. Puttaswamaiah (2008) ‘Trends and Patterns of Technology Acquisition in Indian Organized manufacturing: An Inter-Industry Exploration’, The Indian Journal of Economics, LXXXIX(353), pp. 269–315.

Rasiah, R. (2007), ‘Export Orientation and Technological Intensities in Auto Parts Firms in East and Southeast Asia: Does Ownership Matter?’, Asian Economic Papers, 6(2), pp. 55–76.

Sahu, P. P., (2008), ‘Technological Constraints of Small Scale Industries in India: Some Evidence from a Field Survey’, in S. K. Bhaumik (ed.), Reforms in Indian Agriculture for Employment Expansion and Poverty Reduction, Sage Publications: New Delhi, pp. 498–516.

Schmillen, A. and J. Möller (2009), ‘Determinants of Lifetime Unemployment - A Micro Data Analysis with Censored Quantile Regressions’, Working Papers, No. 275, October 2009, Osteuropa-Institut Regensburg, University of Regensburg.

Siddharthan, N. S. (1988) ‘In-house R&D, imported technology, and firm size: Lessons from Indian experience’, The Developing Economies, XXVI-3, pp. 212−221.

Siddharthan, N. S., and R.N. Agarwal (1992), ‘Determinants of R&D Decisions: A Cross-Section Study of Indian Private Corporate Firms’, Economic Innovation and New Technology, 2(2), pp.103–110.

Siddharthan, N.S. (1992), ‘Transaction costs, technology transfer, and in-house R&D’, Journal of Economic Behavior and Organization, 18 (2), pp. 265−271.

Sikka, P. (1999), ‘Technological innovations by SME's in India’, Technovation, 19 (5), pp. 317−321.

Skeels, C. L. and F. Vella (1999), ‘A Monte Carlo investigation of the sampling behavior of conditional moment tests in tobit and probit models’, Journal of Econometrics, 92, pp. 275–294.

Tobin, J. (1958), ‘Estimation of relationships for limited dependent variables’, Econometrica, 26(1), pp. 24–36.

Wilhelm, M. O. (2008), ‘Practical Considerations for Choosing Between Tobit and SCLS or CLAD Estimators for Censored Regression Models with an Application to Charitable Giving’, Oxford Bulletin of Economics and Statistics, 70(4), pp. 559–582.