| dc.description.abstract | Promotion of small-scale industries (SSIs) has been given a lot of importance in developing countries because of the many virtues small industries have, such as, the potential to generate employment, nurturing of entrepreneurship, dispersal of industrial activity, so on and so forth. India has been a pioneer in the promotion of small-scale industries. Over the past five decades, an elaborate institutional infrastructure has been set up to provide various kinds of assistance to SSIs such as preferential credit, industrial sheds, technology assistance, marketing assistance, etc. In recent years however, economic reforms and globalisation have put severe competitive pressures on small firms in India. It has become imperative on the part of small firms to strengthen their technological base to be able to survive and grow in the highly competitive business environment. Researchers and policymakers alike have been underscoring the importance of building technological capability, which enables small firms to make minor and major changes to their products and processes and enables them to deliver high-quality goods and services. Technological capability reflects the process of development, which involves the ability to make independent technological choices, to adapt and improve upon chosen techniques and products, and eventually to generate new technology endogenously (Stewart, 1981). Firm-level technical changes take place due to the continuous efforts of a firm to improve the existing products and processes, as well as the absorption and adaptations of technologies to suit their needs. These changes/improvements are resorted to in order to improve the marketability of their products and bring down costs. Firms learn over time, accumulate technological knowledge, and can progressively undertake new activities and acquire new capabilities. Now, these activities are believed to lead to the acquisition of the so-called “dynamic core capability”, the ability to plan and manage technical changes effectively and efficiently. This dynamic core capability, which is more widely known as the technological capability, has assumed a lot of significance. It stems from the belief that, to acquire mastery over a given technology, efforts are to be made to assimilate the technology through the aforementioned activities, because its underlying principles would be understood only through practice (Lall, 1992). Recently, there has been a growing consensus among researchers that clustering of small enterprises is conducive for acquisition of technological capability in the individual firms in a cluster. Individual firms in a cluster are interlinked into a network of relationships that are believed to sustain their growth. The firms benefit from a cross-flow of information and opportunities for joint action. Particularly, they have the intrinsic potential to be technologically dynamic and innovative. This, in turn, is anticipated to contribute to their economic performance. Technological capability building has been given a lot of attention in the “Developing Countries Literature” (DCL) for the past 20 years. Two large projects appear to be the basis for the conceptualization of technological capabilities in the DCL. One was the research programme in Science and Technology of IDB / ECLA (IDB is the Inter-American Development Bank and ECLA is the UN Economic Commission for Latin America) directed by Jorge Katz. This included comparative research at the firm level of metalworking industries from six Latin American countries. The results are summarized in Katz (1986 and 1987). The other was the research project on “The Acquisition of Technological Capability” financed by the World Bank and directed by Carl Dahlman and Larry Westphal. This project covered a number of firm-level studies from four developing countries: India, South Korea, Brazil and Mexico. The results are summarized in Dahlman and Westphal (1982), Westphal, Kim and Dahlman (1985) and Lall (1987). Both the projects had individual firms as their focus and examined how firms learnt and built technological capability. These studies generated a tradition of firm-level analysis and a huge body of research based on case-study methodology. These studies try to identify the key characteristics of the learning processes, technology transfer processes and factors that stimulate and hamper innovations. However, the DCL has focused predominantly on the modern large-scale industrial sector in developing countries, which is perceived as the nucleus of industrial development. The existing literature on small-firm technological capability consists mainly of case studies that are rich in description of the nature of the process but have not attempted to quantify technological capability and the learning efforts that are required to build them up. There is hardly any study, in the small industry literature, which has focused on the acquisition of technological capability in the context of an industrial cluster. Given the foregoing gaps in the literature, it is a worthwhile exercise to probe whether interfirm cooperation promotes technological learning at the cluster level. A cluster is a heterogeneous network of small firms, large firms, suppliers, traders and supporting institutions. Is such a heterogeneous network of interlinked firms conducive to the acquisition of technological capability? Does acquisition of higher technological capability translate into better economic performance of the individual firms in the cluster? More empirical studies have to be done to test the contention that the “collective efficiency” of clustering is conducive to the process of technological learning and the accumulation of technological capability. Therefore, our study makes an attempt to develop an indicator for technological capability and thus facilitate quantitative analyses to understand the relationships between technological capability and the various learning mechanisms that give rise to technological capability. The capability indicator also enables us to assess the impact of technological capability on economic performance of firms in the cluster. The study has been confined to two small industry clusters in South India; the foundry clusters of Belgaum (in the State of Karnataka) and Coimbatore (in the State of Tamil Nadu). While Belgaum cluster is predominantly a foundry cluster with the foundry industry being the mainstay of the economy in the region, Coimbatore cluster is a multi-sectoral cluster having a large number of pump manufacturing units and textile units in addition to the large number of foundries. Since local pump industry is one of the main customers for local foundries, one would expect stronger linkages across the supply chain resulting in increased vertical cooperation. Considering these basic diversities between the two clusters, we decided that these two would provide a more balanced perspective for our study. | |
