Economic performance of the ancillary industry in India: managerial and policy implications

Abstract

Ancillary units are small Firms that manufacture and supply intermediate goods to large Firms or master units. In India, the official definitions of a small scale unit and an ancillary unit, for registration, imply that both children produce a mix of intermediate quads and end products. As this nix varies Prom Firm to firm end over time, reliable data on the output of the ancillary sector in India are not available, One estimate is that the ancillary industry contributes barely 0.5 percent of the total output, while in Japan the corresponding figure is 30 per cunt, Several policy measures are being considered to stimulate the growth of the ancillary industry and step up its contribution to 15 per cent by 1965. This thesis inquires into the economic behavior of the ancillary industry. To carry out this research, primary cats for the period 1971-75 were collected from 43 Firms classified as Follows: Small-scale Unit: A small firm that manufactures and markets only end products. {A sample of 11 firms manufacturing industrial machinery was used as a central group.) Unsponsored ancillary Unit: A small firm that manufacture and supplies only intermediate goods to many master units and is not located within an industrial estate. (A sample of 11 firms manufacturing components for the electrical/electronic industry was selected.) Sponsored ancillary Unit Type I: A small Firm that manufactures and supplies only intermediate Quads and is located within an industrial estate and has the advantage of sharing the Facility of joint procurement of rem materials with other unite in the estate. (R 5cmplB of‘ 10 Firms manufacturing components for the industrial machinery industry was chosen.) sponsored ancillary Unit Type II: A small Firm that manufactures and supplies only intermediate goods and is located in an industrial estate but does not have the advantage of sharing the facility of joint purchase of ram materials. (A sample of 11 firms manufacturing components for the electronic industry was selected.) The Samples were drawn one non-random basis; the sample email scale units were located in one city while all other sample Firms were located in another city. The concerns of this research were: Do type 1 ancillary units perform better than small-scale units‘? Did type II unite perform better than unsponsored ancillary unite‘? What problem would a small-scale unit face if it manufactures and supplies intermediate goods? Would an ancillary unit's performance improve if’ it increased its dependence for sales on a particular master unit‘? The research Findings were as follow: The mean performance of the sample of’ type I ancillary unit and small-scale unite were not significantly different (T-test and Mann-Whitney test on the performance measures, gross profits/total assets, gross profits/total fixed assets, gross profits/soles). If sponsored ancillary units had received payments on time, perhaps their performance might have been superior. Employing the some tests on the variables, gross profits/total assets and gross profits/total fixed assets, un- sponsored ancillary units were observed to the superior performance than type II ancillary unite. The unsponsored ancillary units received payments more promptly. Employing multiple discriminant analysis, output quality and accounts receivable more identified to be the key areas that small-scale units would have to manage if‘ they were to start manufacturing intermediate goods. In the early life of sponsored ancillary unit, increasing dependence on the master unit for sales was found to improve performance (gross profits/total assets ratio). Later, when the unit had become a well—known producer of quality intermediate goods, reducing this dependence improved the performance. This result was the outcome of multiple regression analysis. Policy recommendations are: the proposed legislation to ensure prompt payments to ancillary units be expedited, long-term contract mode of purchase be promoted, and, an autonomous agency to mediate on disputes on pricing he established. In addition, offering of‘special incentives to consortia of mature ancillary units that plan to manufacture and market end products might be tried. Ancillary relationships with more than one master unit would also help improve a unit's performance.