Government policy, technology development, industry structure and performance of industry; an analysis of three industries

Abstract

Several research studies indicate a significant deterioration in performance of industry in India over the last two decades. The growing concerns in this regard are (i) inadequate growth in industrial production (ii) high cost industry structure and poor competitiveness and (iii) lack of technological innovation and self-reliance. Literature reviewed suggests strong relationships between structure and performance of industry. Other perspectives indicate that government policy and technology are strong intervening variables that influence industry structure which in turn determines performance. A framework with more explanatory power has been developed in the study and it indicates that a nexus of relationships between government policy, technology and industry structure, influence industry performance. This study is designed to explain and understand the interrelationships within the nexus to study the overall impact of the nexus on industry performance. Case study methodology is used to evolve a historical and exploratory perspective of the research issues in three industries namely the detergent industry, the electric motor industry and the electronic switching equipment industry. These industries are chosen on the basis of the status of technological change. The three industries represent technologies that are mature, stable and rapidly changing respectively. The conceptual framework suggested in the study to understand the nexus of relationships of Government policy, Technology, and Industry structure with the performance of industry is validated by an analysis of three case studies. The case studies are backed up by an analysis of secondary data compiled from sources like Annual reports of companies, published reports of the Ministries of Planning and Industry and Foreign Trade. A quantitative analysis to understand the individual impacts of licensing policy, technology and industry structure on the performance of industry is also attempted with the help of a regression analysis to supplement the case study. The variables chosen for the study are as follows: a) Industry structure: size, concentration, competition, diversification, integration. b) Government policy: licensing, and import policies. c) Technology: import, research and development, choice. d) Performance: growth, efficiency, innovation, self-reliance. The research study supports the framework that the performance of an industry can be explained better by examining the nexus of relationships between policy, technological change and industry structure. The major findings of the study are: a. A restrictive licensing policy influences a major technological change in the form of labour intensive technologies in the unorganized sector. This policy and technological intervention increases the concentration of the industry. However, despite a larger spending on R&D, performance of the organized sector declines in terms of value added, factor productivity. On the other hand, development of the small scale sector units helps in increasing the price efficiency and output of the industry as a whole. b. In a liberal licensing policy environment, research and development in the industry decline. However, growth of labour intensity in the organized sector increases, resulting in higher growth in output, value added and labor productivity and reduced concentration in the industry. c. Rigid technology import policies reduce the technological content of collaborations of large firms in the industry. Transfers of such technologies reduce the long run efficiency in terms of value added, factor productivity and innovativeness, and price efficiency. d. Technology and structure are stringer intervening variables on performance of the detergent industry, whereas policy and structure influence output levels, and growth in output in the electric motors industry.

The study helps in i. Understanding and managing the relationships between government policy, industry structure and technology ii. Providing a methodological framework for policy analysis and development in managing the growth of industry in any given context.

This would prove useful to policy planners and industry leaders for designing intervention strategies in order to improve growth, competitiveness, efficiency and innovation in industry.