Determinants of Development, Adaptation and Absorption: A Study of Indian Auto Parts Industry

Warsaw School of Economics, Research Institute for Developing Economies, Economic Papers 25, Warsaw

18 Pages Posted: 23 Jan 2013

See all articles by Pawan K. Chugan

Pawan K. Chugan

Nirma University - Institute of Management; AIIM - Ahmedabad; SPM - PDPU

Date Written: 1993


There is a great gap between the technology in developed and developing nations. However, the importance of R&D holds true for both groups. It is imperative to study the factors affecting and their impact on research and development activities namely development, adaptation and absorption (DAA) in developing economies. This paper focuses on the Indian automobile ancillary industry. By focusing on a particular industry, it offers many insights. By using the multiple regression equations, the study attempts to analyze the impact on R&D, measured as DAA expenditure (as a dependent variable), of the various variables such as size of the firm, export performance, age of firm, number of foreign collaboration agreements, foreign equity participation, expenditure on highly paid employees, average wages and salaries, net profit (loss) and nature of product manufactured (critical or other product). Data were collected with the help of a questionnaire from the seventy five units, and three multiple regression equations worked out – the first one for all units of the study, the second for large size industries and third for small size industries.

The study concludes that the technological efforts in Indian automobile industry are mainly directed towards development (not innovation), adaptation and absorption. It is found that the size, age, foreign collaboration, foreign equity, highly paid employees, net profit/loss, and manufacturing of critical components, etc. influence the firm’s DAA efforts/capacities positively. Size and age, however, may not have desired impact on DAA’s of small size firms, because their coefficients, though positive, statistically are insignificant. Both these variables have significant coefficients for large size units and therefore, expected to influence their technological capacities positively. Average wages and salaries too have the expected positive sign, but because of insignificant statistical relation its role in inconclusive.

Export performance though has positive impact on the technological efforts of small size units, has negative significant relation for large size units as well as the industry as a whole. This reveals that the export orientation has rather reduced their DAA capacities. This may primarily be attributed towards their attitude of concentration on the domestic market by manufacturing the lion’s share of their production for local O.E. (vehicle manufacturers) supplies and spending large sum of R&D resources either on quality control or adapting the components to the local O.E. requirements rather than for exports. Hence, export performance has not been found a crucial factor in determining the DAA capacities of large units, but has played a key role for those small size units whose production schedule are in consonance with the outward orientation.

Keywords: Research and Development Expenditure, Automobile Ancillary Industry, Export Performance, Technological Efforts, Development Adaptation and Absorption

JEL Classification: D21, F14, F23, L62, O3, O31, O32

Suggested Citation

Chugan, Pawan Kumar, Determinants of Development, Adaptation and Absorption: A Study of Indian Auto Parts Industry (1993). Warsaw School of Economics, Research Institute for Developing Economies, Economic Papers 25, Warsaw, Available at SSRN:

Pawan Kumar Chugan (Contact Author)

Nirma University - Institute of Management ( email )

Sarkhej Gandhinagar Highway
Ahmedabad, GUJARAT 382481


AIIM - Ahmedabad ( email )

Adani Shantigram, Vaishno Devi Circle
S.G. Highway
Ahmedabad, Gujarat 382421


SPM - PDPU ( email )

Gandhinagar, Gujarat 382007


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