Introduction
In the ongoing globalization process of national markets, the role of technological capabilities becomes critical for firms’ survival and growth. The disappearance of inward FDI and import barriers that once protected national markets and the introduction of product patent regime recently have vastly expanded the strategic role of technology in the evolving competitive environment of national markets. While the large firms are well positioned to face these globalizing competitive challenges with their better strategic asset bundle, the resource-starved small and medium enterprises (SMEs) are expected to be at greater risks.
It is no longer feasible for SMEs in emerging economies like India to use the competitive strategy of reverse engineering and innovative cost-effective processes to survive under the new technology policy regime. They also cannot take refuge in policy protection as current economic openness policies saw the removal of special treatment to SMEs in industrial policies like exemption from price controls, product reservation, preference in government procurement, etc. Therefore SMEs are required to develop or acquire necessary competitive resources like new technologies to compete with large national firms, foreign firms and cheap imports. Rapidly changing consumer preferences, shorter product life cycle and growing quality consciousness clearly call for SMEs to upgrade their technological assets
How SMEs fare compared to Large Companies in terms of R&D
It is apparent that Indian manufacturing firms in general are characterized by a very low incident of incurring in-house R&D and where they spend, the intensity of such activities is very weak. For instance, just about 38 per cent of the total number of large firms in the sample reported R&D expenses for at least single year during 1991−2008. This share slides to 16 per cent and 8.5 per cent for medium firms and small firms respectively. The period average R&D intensity ― R&D as a per cent of sales ― for these groups of firms falls below even 0.5 per cent.
As a result of large number of small firms not doing R&D, the overall intensity of all small firms is very small at 0.1 per cent. The elasticity of R&D expenses to total sales of these small firms, which was 2.53 in 1990s, fell to 0.94 in 2000s. The R&D intensity of small firms as a group declined in 2000s following a period of consistent growth from 1991 to 1997. The average R&D intensity of small firms experienced a 21 per cent fall from 0.12 per cent in 1991−99 to 0.09 per cent in 2000−08. This falling R&D intensity of small firms is a clear concern for policy makers interested in strengthening the capacities of small firms to meet the globalization process.
In contrast, large firms’ R&D intensity has generally been increased over 1991–2008. It has grown by 39 per cent from 0.27 per cent in 1990s to 0.38 per cent in 2000s. The R&D intensity of large firms not only exceeded that of SMEs throughout the study period, but the gap has only increased over time. Overall R&D intensity and proportion of R&D doing firms is greater for large firms.
