Firm level technological learning and performance: an empirical study in the Indian drugs and pharmaceutical industry

Abstract

Firms acquire technological capability through a process of technological learning. The extant literature indicates that the process of technological learning influences a firm’s technological performance. The conceptual literature has identified various forms of technological learning; learning by doing; learning from users of the product; learning by risk taking; learning through failures; learning by inter-industry and intra-industry spillover of knowledge; learning by searching; learning by interacting with suppliers; learning from advances in science and technology; as also from threats to learning due to imitation/duplication by competitors. Most empirical studies of firm level technological learning and performance have, however, focused on ‘learning by doing’ which has been associated with yield improvements only. In the Indian context, there are a few case studies that deal with learning by doing and firm level technological performance. There is however a dearth of empirical research that covers a variety of technological learning processes and their impact on performance. This research attempts to fill this void. This study has focused on the Indian drugs and pharmaceutical (D&P) industry which is an important industry with over 16,000 firms. Of late the industry has acquired prominence, in view of its increasing contribution to the nation’s exports. Compared to other industries, it has a relatively high R &D intensity. Since the enunciation of the new economic policy by the government in 1991, the industry has been in the news because of several developments; the impending change in the Indian Patents Act, and the increasing globalization of India’s economy. Several firms have entered into strategic alliances to augment their technological expertise and secure beach heads in international markets. This research attempts to answer the following broad research questions: 1. Are there difference in technological learning processes across firms within the D&P industry? 2. How do these learning processes influence the technological performance of the D&P firms? The methodology used for this study comprised the following: a)a pilot study, conducted in five firms in Ahmedabad with the help of a questionnaire, designed on the basis of an earlier one used by Levein in the United States in 1987 and also a survey of relevant literature. b)The final structured questionnaire was personally administered by the researcher in forty-two D&P firms located in Hyderabad, Madras and Bangalore. The chief of production and R&D were chosen as the respondents. c)Data analysis was done using standard statistical techniques; viz., correlation analysis, cluster analysis, discriminant analysis using canonical forms and regression analysis. Researchers have used the concept of trajectory to measure technological performance. This study has also used this concept. A firm’s emphasis on a technological activity is expected to result in observable changes in various technological parameters. The path of technical changes has been defined as technological trajectory. A variety of trajectories have been identified in literature like, improving production through higher capacity utilization or new process development; changes in scale of production, improvements in material quality, changes in product design/packaging etc., The major findings of the study are: 1. Firms use a variety of technological learning processes. Of these, learning by doing, learning from feedback given by users, learning through knowledge spillover from other industries and advances in sciences and technology, have been found to be more important than the other learning processes. 2. The sample of firms reveals two distinct groups on the basis of technological learning processes. One group, the high performing one, has given emphasis to learning by doing and risk taking, and through spillover of knowledge, by searching, through advances in S&T and failures. The other group has given importance to learning from users of its products, and also learning from imitating competitors. It is evident therefore that the high performing group has utilized a greater variety of learning processes. 3. Product and process trajectories are orthogonal in nature for the high performing group. The low performing group however has given emphasis to both product and process trajectories. 4. High performers have shown emphasis on vertical product differentiation strategies leading to changes in intrinsic product performance features and launch of combination drugs. This was associated with entry into new markets. The low performers on the other hand focused on horizontal product differentiation strategies like changes in design and packaging form and were associated with increasing sales in existing markets. 5. The higher the intensity of learning and the larger the number of learning process used, the higher is the technological performance. 6. Learning by doing is found to be significantly related to new process development and incremental changes in scale of operation, while learning by searching is associated with the trajectories of technology adaptation and upgradation.