Inter-firm scalar linkage in India: A class within the small scale industry

Abstract

Along with the growing industrial sector, functional complementarity between large and small scale enterprises has become a widely prevalent phenomenon. Expanding the base of the industrial production leads to division of processes where large and small scale units operate as complementary to each other. Such complementarity and division of labour between the different sized units results into cost minimization, and acceleration in growth of the manufacturing sector.

However the extent and the pattern of functional complementarity (between large and small scale enterprises) is likely to be conditioned by market as well as institutional factors. Therefore, in order to examine the impact of interscale complementarity in terms of growth as well as of distribution of gains across large and small scale enterprises it is very important to learn about the nature of interfirm linkages and the process through which linkages get established. It is in this context, the present paper furnishes details based on a case study of Textile Machinery Parts Manufacturing (TMP) industry in a metropolitan city (Ahmedabad). The industry represented is constituted by a large number of small scale firms that are engaged in fabricating replacement parts for the users of machinery equipments (i.e. Textile Mills) who operate on a large scale. Owing to wide range of products, and in case of some parts higher frequency of replacement, the TMP industry, at least till recently, has sustained a large number of small firms.

The major findings of the analysis are: (i) The incidence of inter-firm linkages is limited to about a third of the small scale firms; (ii) Among various forms of linkages the marketing linkages are the most predominant (iii) The linkage relationship has been a positive factor in determining the performance of the small scale firms; (iv) Personal contacts play an important role in inter-firm linkages, thus benefits of linkage relationship are mainly confined to a small social-group of industrialists; (v) While the small scale suppliers operate under a highly competitive market, the buyers often enjoy oligopsonist's advantage; hence the gains of competitive efficiency tend to favour the large scale sector.