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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
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    References listed on IDEAS

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    1. 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.
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    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

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