IDEAS home Printed from https://ideas.repec.org/a/spr/ijlaec/v65y2022i4d10.1007_s41027-022-00413-6.html
   My bibliography  Save this article

Subcontracting in Unorganized Manufacturing: A Mode of Survival or a Strategy of Growth?

Author

Listed:
  • Samar Kumar Mishra

    (IIT Kharagpur
    Manipal University Jaipur)

  • Bimal Kishore Sahoo

    (IIT Kharagpur)

Abstract

This paper investigates the incidence and determinants of subcontracting (SC) in unincorporated non-agricultural enterprises, the nature of the relationship and the net accumulation fund of firms undergoing subcontract. The incidences of subcontracting in India among small manufacturing firms have remained stagnant over time. However, there have been some changes within the categories. States with relatively poor infrastructure and industries that involve relatively low skill and technology have higher incidences of subcontracting. The profit share of SC firms is higher than those who do not subcontract, owing to low assets, location and ownership of firms. The higher profit share of the SC firms is because it consists of more OAEs. A considerable portion of the profit of OAEs comprises the wage of working proprietors and unpaid family workers. The net accumulation fund (NAF) of these firms is very low. Low NAF of SC firms is a major obstacle to firm size and output growth and is an important cause behind stagnant and contracting firms’ decisions to subcontract. The study also finds that the subcontracting relationship and aftermath of own account firms (without hired workers) and establishments (with at least one hired worker) are different. The institutional intervention in terms of credit and provisions of subcontracting exchanges may lead the unorganized firms to grow and develop stable contracts for the benefit of firms and the economy.

Suggested Citation

  • Samar Kumar Mishra & Bimal Kishore Sahoo, 2022. "Subcontracting in Unorganized Manufacturing: A Mode of Survival or a Strategy of Growth?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 65(4), pages 1029-1051, December.
    • Handle: RePEc:spr:ijlaec:v:65:y:2022:i:4:d:10.1007_s41027-022-00413-6
    DOI: 10.1007/s41027-022-00413-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s41027-022-00413-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s41027-022-00413-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hayashi, Mitsuhiro, 2002. "The role of subcontracting in SME development in Indonesia:: Micro-level evidence from the metalworking and machinery industry," Journal of Asian Economics, Elsevier, vol. 13(1), pages 1-26.
    2. Shayequa Zeenat Ali, 2021. "Beyond the Polemics: Subcontracting in the Unorganised Food Manufacturing Sector in India," India Studies in Business and Economics, in: Seema Bathla & Elumalai Kannan (ed.), Agro and Food Processing Industry in India, chapter 0, pages 209-225, Springer.
    3. Udai Bhan Singh, 2020. "Subcontracting Linkages in the Informal Manufacturing Sector in Uttar Pradesh," India Studies in Business and Economics, in: Nripendra Kishore Mishra (ed.), Development Challenges of India After Twenty Five Years of Economic Reforms, pages 261-277, Springer.
    4. House, William J, 1984. "Nairobi's Informal Sector: Dynamic Entrepreneurs or Surplus Labor?," Economic Development and Cultural Change, University of Chicago Press, vol. 32(2), pages 277-302, January.
    5. Ben Arimah, 2001. "Nature and Determinants of the Linkages between Informal and Formal Sector Enterprises in Nigeria," African Development Review, African Development Bank, vol. 13(1), pages 114-144.
    6. Moser, Caroline O. N., 1978. "Informal sector or petty commodity production: Dualism or dependence in urban development?," World Development, Elsevier, vol. 6(9-10), pages 1041-1064.
    7. Mike Bresnen & Carolyn Fowler, 1994. "The Organizational Correlates And Consequences Of Subcontracting: Evidence From A Survey Of South Wales Businesses," Journal of Management Studies, Wiley Blackwell, vol. 31(6), pages 847-864, November.
    8. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-123, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohamed Amara, 2016. "The linkages between formal and informal employment growth in Tunisia: a spatial simultaneous equations approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(1), pages 203-227, January.
    2. Ana Moreno-Monroy & Janneke Pieters & Abdul Erumban, 2014. "Formal sector subcontracting and informal sector employment in Indian manufacturing," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-17, December.
    3. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
    4. Usman Ladan & Colin C. Williams, 2019. "Evaluating Theorizations Of Informal Sector Entrepreneurship: Some Lessons From Zamfara, Nigeria," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 24(04), pages 1-18, December.
    5. Ishengoma, Esther K. & Kappel, Robert, 2006. "Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter?," GIGA Working Papers 20, GIGA German Institute of Global and Area Studies.
    6. Marcus H Böhme & Rainer Thiele, 2014. "Informal–Formal Linkages and Informal Enterprise Performance in Urban West Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 26(4), pages 473-489, September.
    7. Surbhi Kesar, 2022. "Nature and Pattern of Subcontracting Linkages in the Informal Economy in India: Implications for Possibilities of Economic Transformation," Working Papers 254, Department of Economics, SOAS University of London, UK, revised Dec 2022.
    8. Paul Wellings & Michael Sutcliffe, 1984. "‘Developing’ the Urban Informal Sector in South Africa: The Reformist Paradigm and its Fallacies," Development and Change, International Institute of Social Studies, vol. 15(4), pages 517-550, October.
    9. Amit Basole & Deepankar Basu & Rajesh Bhattacharya, 2014. "Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector," UMASS Amherst Economics Working Papers 2014-04, University of Massachusetts Amherst, Department of Economics.
    10. Amit Basole & Deepankar Basu & Rajesh Bhattacharya, 2014. "Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector," Working Papers 2014_08, University of Massachusetts Boston, Economics Department.
    11. Greer, Monica L., 2008. "A test of vertical economies for non-vertically integrated firms: The case of rural electric cooperatives," Energy Economics, Elsevier, vol. 30(3), pages 679-687, May.
    12. Roland Kirstein & Matthias Peiss, 2013. "Quantitative Machtkonzepte in der Ökonomik," FEMM Working Papers 130004, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    13. Peter G. Klein & Michael E. Sykuta, 2010. "Editors’ Introduction," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 1, Edward Elgar Publishing.
    14. Michal Plaček & Martin Schmidt & František Ochrana & Michal Půček, 2017. "Do the Selected Characteristics of Public Tenders Affect the Likelihood of Filing Petitions with the Regulators of Public Tenders?," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(3), pages 317-329.
    15. Isabelle Guérin & Bert D'Espallier & G. Venkatasubramanian, 2015. "The Social Regulation of Markets: Why Microcredit Fails to Promote Jobs in Rural South India," Development and Change, International Institute of Social Studies, vol. 46(6), pages 1277-1301, November.
    16. Christopher Hansman & Jonas Hjort & Gianmarco León-Ciliotta & Matthieu Teachout, 2020. "Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3570-3625.
    17. Feng, Fenling & Zhang, Jiaqi & Liu, Chengguang, 2023. "Integrated pricing mechanism of China Railway Express whole-process logistics based on the Stackelberg game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 609(C).
    18. Mathilde Bouvier & François Roubaud & Mireille Razafindrakoto & Roberta Teixeira, 2022. "Labour market transitions in the time of Covid-19 in Brazil:a panel data analysis," Working Papers DT/2022/02, DIAL (Développement, Institutions et Mondialisation).
    19. Banterle, Alessandro & Stranieri, Stefanella, 2008. "The consequences of voluntary traceability system for supply chain relationships. An application of transaction cost economics," Food Policy, Elsevier, vol. 33(6), pages 560-569, December.
    20. Ndoya, Hermann & Okere, Donald & Belomo, Marie laure & Atangana, Melissa, 2023. "Does ICTs decrease the spread of informal economy in Africa?," Telecommunications Policy, Elsevier, vol. 47(2).

    More about this item

    Keywords

    Subcontracting; Manufacturing sector; Unorganized enterprises; Profit share; Net accumulation fund;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:ijlaec:v:65:y:2022:i:4:d:10.1007_s41027-022-00413-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.