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Asian Journal of Technology Innovation

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Does firm size matter in export, technology, and

marketing activities of Indian garment firms?
a

Rajah Rasiah , Kiranjeet Kaur & Ashish Kumar

University of Malaya , Kuala Lumpur, 50603, Malaysia E-mail:

University of Malaya , Kuala Lumpur, 50603, Malaysia E-mail:

Orissa Investment and Export Promotion Office (OIEPO) , Govt. of Orissa , Orissa
Niwas, 4 Bordoloi Marg, New Delhi, 110021, India E-mail:
Published online: 24 Feb 2011.

To cite this article: Rajah Rasiah , Kiranjeet Kaur & Ashish Kumar (2010) Does firm size matter in export, technology,
and marketing activities of Indian garment firms?, Asian Journal of Technology Innovation, 18:1, 45-71, DOI:
10.1080/19761597.2010.9668682
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Asian Journal of Technology Innovation 18, 1 (2010)

Does Firm Size Matter in Export, Technology, and Marketing

Activities of Indian Garment Firms?
Rajah Rasiah*1), Kiranjeet Kaur** and Ashish Kumar***
*University of Malaya, 50603 Kuala Lumpur, Malaysia
(corresponding author: rajah@um.edu.my)

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**University of Malaya, 50603 Kuala Lumpur, Malaysia (kira_nj@hotmail.com)

***Orissa Investment and Export Promotion Office (OIEPO), Govt. of Orissa, 'Orissa Niwas',
4 Bordoloi Marg, New Delhi-110021, India (krashish@hotmail.com)

Summary
This article examines statistical differences in export, technological, and marketing intensities
between large enterprises (LEs), and small and medium enterprises (SMEs) in the garment
manufacturing industry in India. Results show that SMEs enjoy higher export and research and
development (R&D) intensities than LEs even after controlling for ownership, wages, and age.
Compared with SMEs, LEs enjoy higher technological (including human resource and process
technology) and marketing intensities even after controlling for ownership, wages, and age.
Despite showing lower technological and marketing intensities, SMEs are characterised by a
positive and strong relationship between their export intensity, and R&D and marketing intensities.
Despite enjoying higher technological and marketing intensities, LEs show a modest relationship
between their export intensity, and R&D and marketing intensities. Results also suggest that SMEs
are more strongly integrated with the global garment value chains as outsourcing firms compared
with LEs.
Keywords: export, marketing, firm size, garment firms, India

1. Introduction
Although the number of works using methodologies different from anecdotal and
production function approaches to understand technology is growing, few studies on the
1) I acknowledge the financial grant that was generously given by UNU-MERIT and used to fund data gathering on
garment firms in India. I am also grateful for the incisive comments from two anonymous referees. The usual
disclaimer applies.

45

Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

application of these approaches in comparing the influence of size on export and

technological and marketing intensities exist. This article seeks to build on the technological
capability methodology developed by Lall (1992) and Bell and Pavitt (1995), later expanded
by Figueiredo (2002), Ariffin and Bell (1999), and Rasiah and Gopi (2008), and Rasiah
(2009a, 2009b, 2009c) to examine size-based differences in technological intensities of
garment firms in India, and explain their statistical determinants of the size-based differences.
In addition to drawing the implications of the technological capability methodology, this
exercise aims to encourage further work on comparing size-based differences in technological
and marketing intensities.
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With a gross domestic product of US $1 trillion in 2008, India was the 12th largest
economy in the world. Indias economy is diverse, encompassing agriculture, manufacturing,
and a multitude of services. Its textile and garment industry is one of the countrys traditional
and key manufacturing industries. In 2005, textile and garments accounted for about 14% of
industrial production and 16% of export earnings. India is the worlds second largest producer
of textiles and garments after China. It is also the worlds third largest producer of cotton after
China and the United States. Being a direct employer of over 35 million people, a figure that
continues to grow, this sector is bound to have an increasingly important role in the Indian
economy as the country opens up further to trade.
The industry covers a wide range of activities that include the production of natural raw
materials, such as cotton, jute, silk, and wool, as well as synthetic filament and spun yarn.
Additionally, an extensive range of finished products is manufactured in the country. The
Indian textile industry accounts for about 23% of the worlds spindle capacity, the second
highest after Chinas, and around 6% of total global capacity. Moreover, it has the highest
loom capacity, including that for hand looms, with a 61% share of the global market. India
accounts for about 12% of the worlds production of textile fibres and yarns, including jute, of
which it is the largest producer. The country is the second largest producer of silk and
cellulose fibre and yarn, and the fifth largest producer of synthetic fibre and yarn.
Until the 1990s and particularly before the turn of the millennium, Indian garment firms
have largely been inward-oriented. These firms accumulated experience dealing with a highly
protected domestic market and became used to buyers who were not as demanding in terms of
quality, packaging, and after-sales service. Given their years of experience in inward activities,
Indian firms found it a daunting task to become competitive in the world market. Moreover,
supply market chains of Indian firms are fragmented and complex, and lack the discipline to
compete in external markets. Nevertheless, with the large size of the domestic market and the
long history of textile and garment production (cotton is a naturally abundant raw material in

46

Asian Journal of Technology Innovation 18, 1 (2010)

the country), firms operating in India enjoy relative comparative advantage over its
counterparts in a number of developing countries (Kumar and Desai, 1983).
As the date for the termination of the Multi-Fibre Agreement neared in 2004, a number of
Indian firms sought to take advantage of export markets by adopting global strategies and
investing in technology to raise production efficiency, as well as quality, to meet international
standards. Indian firms have also realised the importance of marketing, especially in creating
strong and well recognised international brands that will attract more foreign buyers. Indian
garment firms carrying foreign-owned brand names and those carrying nationally
distinguished brand names, e.g. sarees, Punjabi suits, and sports garments (e.g., Sahara), have
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made marketing an increasingly important focus.

Hence, this paper seeks to examine size-based differences in export, technological, and
marketing intensities of garment firms in India using a sample of 50 firms from Delhi,
Gurgaon, and Ludhiana. The rest of the article is organised as follows. Section 2 discusses the
theoretical guide. Section 3 presents the methodology and data. Section 4 evaluates statistical
differences between large garment firms and small and medium enterprises (SMEs) in terms
of size of export, technological, and marketing capabilities. Section 5 analyses the effect of
size on these variables controlling for ownership and age. Section 6 presents the conclusions.

2. Theoretical Guide
The relationship between firm characteristics and technological capabilities, and its effect
on international competitiveness has been discussed in various studies on industrial
organization. Studies by Posner (1961), Krugman (1979), Fagerberg (1988), and Kumar and
Siddharthan (1994) emphasize that differences in technological capabilities are responsible
for inter-industry, as well as inter-firm variations in international competitiveness. Amit and
Schoemaker (1993) point to the overwhelming importance of firm-specific factors, on which
competitive advantages are built and from which economic rents can be realised (Jacobson,
1988; Hansen and Wernerfet, 1989). In this section some of the major arguments on the
influence of size on capabilities and performance are examined.
Industrial organization economists argue that minimum scale efficiencies vary with
industries because the long-term average cost curves of firms are determined by the scale
involved (Scherer, 1985; Pratten, 1971). Firms are expected to expand production so long as
marginal revenue is greater or equal to the marginal cost. Hence, industrial organization
economists tend to support large size, especially when involving heavy industries, such as

47

Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

automobiles and steel. Scale, however, may not be critical for garment manufacturing.
Industrial district (Marshall, 1890; Piore and Sabel, 1984; Pyke and Sengenberger, 1992;
Wilkinson and You, 1994; Rasiah, 1994) exponents argue that SMEs are better allocators and
coordinators of resources and production owing to the flexibility of their sizes and their agility
in entering and exiting markets. Because of scale and scope effects, industrial district
exponents have argued that small size offers firms better ability to coordinate better scale
effects at the industrial district level (Brusco, 1982; Piore and Sabel, 1984; Pyke and
Sengenberger, 1992; Best, 2001). Empirical evidence from the United States (Audretsch,
2002), Emilia Romagna (Brusco, 1982), and Taiwan (Rasiah and Lin, 2005) supports this
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argument. Unlike the impersonal large firm, SMEs are perceived to provide greater room for
horizontal relationships that foster trust and social capital. Bruscos (1982) account of Emilia
Romagna also shows the critical influence of socio-political factors in the development of
SMEs. Rasiah (2002) buttressed this point when explaining the greater success of electronics
SMEs in Penang compared to the Klang Valley in Malaysia.
Another group of economists working on large data sets also favours the role of small size
in economic performance. Audretsch (2002) and Acs and Audretsch (1990) present evidence
from the United States to argue that SMEs participate more than large firms do in research
and development (R&D) activities. Unlike the dynamic methodology used to capture
relationships by industrial district exponents, Audrestch (2002) and Acs and Audresch (1990)
use statistical evidence to argue over the allocation and flexibility advantages of small firms.
However, evolutionary postulations that deal with innovations and institutions, as well as
institutional change, do not take a fixated position on the influence of size. Whether size is
critical in explaining export, technological, and marketing intensities depends on the sectoral
characteristics of particular industries and the embedding characteristics of institutions and
meso-organizations operating around them (Nelson, 2008). Composition, technology type,
timing, nature of governance, demand structures, and competitors help explain whether scale
matters in particular industries. In semiconductor manufacturing for example, the large
integrated firm that handled all the production, marketing, and sales activities in the 1960s
and 1970sFairchild, IBM, Intel, Advanced Micro Devices (AMD), National Semiconductor
(NS), and Hewlett-Packard (HP) for examplehad downsized and specialised by the 1990s
as some activities were broken down and relocated at sites endowed with superior resources,
while others were outsourced.
This paper discusses the evolutionary position and examines the influence of size on
exports and technological and marketing capabilities using empirical evidence from a region
endowed with strong basic infrastructure, but technology deficient institutions and meso-

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Asian Journal of Technology Innovation 18, 1 (2010)

organizations. The assessment will also allow comparisons with the findings of Rasiah and
Asokkumar (2009, 2010) in Malaysia, where larger firms report higher human resource (HR)
and process technology (PT) intensities.

2.1 Export Intensity

Although competitiveness as a concept is widely used, no consensus has been reached over
its empirical measurement instruments. Nevertheless, there is general agreement that export

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intensities can be a useful proxy of competitiveness provided the estimation has considered
protection levels controlling for industrial specificity and location of firms in the value chain
(Rasiah, 2003). Hence, this paper uses export intensities as both a performance-based and
explanatory variable.
Smith (1776), Young (1928), and Hirschman (1958) argue that exports expand market size
and competition. Schumpeter (1934) and Solow (1956) contend that technology (innovation)
is the vehicle through which competitiveness is achieved. Although firms participating in
export markets can essentially improve their competitiveness, the relationship between
exports and performance is not straightforward. Technological capability may offer export
markets scale and learning opportunity through competition, which in turn influence
performance. Given this backdrop, exports may have both direct and indirect effects on
performance. Dhanaraj and Beamish (2003) confirm that innovation influences overall
performance indirectly via export performance.

2.2 Technological Capability

Studies have also found that firms vary extensively within industries (Rumelt, 1991) in
terms of performance (Cool and Schendel, 1988), corporate strategies (Lefebvre, et al., 1997),
and choice of technology (Davies, 1979; Baldwin and Rafiguzzaman, 1998; Nelson, 2008).
The specific categories, phases, and processes of technological change are analysed by
Rosenberg (1975). Rosenberg and Firschtak (1985) define technological capability as a
process of accumulating technical knowledge or a process of organisational learning.
Dahlman and Westphal (1982), Westphal, Kim and Dahlman (1985) and Dahlman, RossLarson and Westphal (1987) emphasize the underlying concept of trajectory of deepening
capability, moving from technology-using production capabilities to innovation-driving
capabilities. They developed a sequence of capabilities running from production capability via
investment capability to innovation capability, which is consistent with Lalls (1992)
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Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

taxonomy of technological capabilities. Rasiah (2006) narrows the focus of capabilities to

embodied technology and differentiates it by taxonomies and trajectories. In this paper,
Rasiahs (2006, 2007) concept of embodied technological capabilities is used.
Lall (1992) outlined a functional categorization of technological capabilities based on the
tasks facing a manufacturing firm. The tasks and associated capabilities are characterised into
two groups: investment capabilities and production capabilities. These are further divided into
three levels. The first level is simple and experienced-based, the intermediate level is adaptive
and duplicative in nature but is research-based, and the advanced level is innovative and risky
but is also research-based. Figueiredo (2002) and Ariffin and Figueiredo (2004) refined Lalls
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classifications to consider the industry specificity of technology.

Wei (1995) integrates Lalls (1992) functional categories with Bells (1984) technology
flow classification. He concludes that (i) not all technology flows generate technological
capability, and (ii) linkages with local supplier and other groups within the local economy are
critical for enhancing capabilities.
Rasiah (2004, 2009b) extracted from Lalls (1992) concept of capabilities to solely focus on
technological capabilities, establishing in the process a typology by taxonomies and
trajectories. This framework allows the measurement of the different types of technological
capabilitiesHR, PT, and R&Dwhich this paper uses as the guide for examining the
technological capabilities of garment firms in India.

2.3 Marketing Intensity

Rasiah (2006), however, did not examine marketing capabilities. Value creation via
innovation and R&D, in conjunction with value appropriation through marketing and
advertising, can enhance firm value (Mizik and Jacobson, 2003). Brands have also been
acknowledged as having financial value to a firm because these are able to generate future
cash flows for the business (Aaker and Jacobson, 1994). Market intelligence (Czinkota, 1982)
and marketing capabilities (Haar and Ortiz-Buonafina, 1995) are shown to be prerequisites to
export entry and expansion. Marketing efforts are believed to help boost firm exports as
potential buyers are made aware of the products offered and samples are provided, thereby
boosting buyer confidence in purchasing a product. The large domestic market and the
significant protection level in India are expected to allow firms to use rents to support their
own brand names.
Firm-level marketing capabilities, even in highly globalised countries, differ across
industries and the size of domestic markets. Brand holders are critical in driving global value

50

Asian Journal of Technology Innovation 18, 1 (2010)

chains (Gereffi, 2002). Nevertheless, sophisticated subcontractors invest considerably to

market their products and delivery capabilities to brand holders, as well as chain stores that
take orders. These firms neither hold brand names nor conduct brand marketing. Brand
holders invest to build their brand names; integrated subcontractors often build their
reputation among chain store owners, their original equipment manufacturing capabilities, and
their original design manufacturing capabilities to expand and retain market share. Texmaco
in Indonesia and Pen Apparel in Malaysia are examples of firms undertaking such
sophisticated operations despite manufacturing for foreign brand names (Rasiah, 2009a).
Indias long history of garment manufacturing, and strong domestic and export demand for
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traditional costumes have also offered firms brand-holding opportunities that are reflected in
brand marketing operations. The Indian market is also sizeable for those seeking to purchase
the Indian sports brand, Sahara. Hence, establishing whether size-based differences in
marketing capabilities exist among garment firms in India is useful.

2.4 Significance of Ownership

Given the dominance of foreign multinationals in the large sample, the study also offers an
opportunity to test Dunnings (1974, 1995) ownership, location, and internalisation hypothesis
on the effect of relocation decisions by foreign firms. Where host-site conditions are
favourable, foreign multinationals may transfer superior, tangible, and intangible assets from
their parent plants, thereby showing technology intensity levels higher than those of local
firms. However, the advantages of foreign firms typically lie in HR practices and PT because
the superior embedding environment at parent sites discourages full-blown R&D at host-sites
(Vernon, 1971; Amsden, Tschang and Goto, 2001). HR and PT also do not involve firm-based
copyright provisions and are easier to relocate (Rasiah, 2007).
Foreign-dominated large firms may not show statistically significant higher technology
means than local firms if the strategies and motives of these firms have been influenced by
locational conditions that do not encourage strong technological widening (Cantwell and
Mudambi, 2005). Foreign electronics firms and human capital located in Johor largely support
the operations of regionally defined operations in Singapore; thus, these firms are not
expected to deploy cutting-edge technologies (Rasiah, 2007). The high labour turnovers
resulting from job-hopping to firms located in Singapore is expected to attract foreign firms
engaged in low-skill activities.

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Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

3. Methodology and Data

This section presents the methodology and data used to examine the relationship between
firm characteristics and size-based emphasis on export, technological, and marketing
intensities. Statistical differences between SMEs and large firms are examined using twotailed t-tests and Tobit regressions. Subsequently, the relationship between export intensity
and technological and marketing intensities are examined controlling for size, ownership, and

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age effects.

3.1 Specification of Variables

The variables used are specified in this sub-section. The firm-level variables defined refer
to export intensity, technological capabilities, and marketing intensity. Size is also an
important explanatory variable. The control variables of ownership, wages, and age are also
defined here.
Export Intensities: Firm level performance was estimated using export-intensity (X/Y),
which was measured as follows:
Export Intensity = Xi/Yi
where X and Y refer to exports and total gross output, respectively, of firm i in 2004.
Considering India is among the top five exporters of garments in the world, export intensity
levels are expected to be encouraging. Both local- and foreign-owned large firms in the
sample reflected export levels higher than those of SMEs (Table 2).
Technological Capabilities: Drawing on Rasiah (2009b), technological intensity (TI) was
measured by incorporating the three proxies HR, process and product technology (PPT), and
R&D (RD) intensities. The three indexes helped estimate firm-level embodied technology.
Human Resource: HR intensity is expected to have a positive relationship with export
intensities. HR intensities were measured as follows:
HR = 1/3 [ TMi , TEi , CHRi ]
where TM, TE, and CHR refer to training mode, training expenditure in payroll, and the
number of cutting-edge HR practices used by the firm i, respectively. TM was measured by
assigning the value of 4 if the firm had a separate training centre, 3 if the firm had a training
department, 2 if the firm had staff with training responsibilities, and 1 if the firm sent
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Asian Journal of Technology Innovation 18, 1 (2010)

employees for training outside. TE was estimated by dividing training expenditure with
payroll of firm i. CHR was measured as a score of 1 for each of the cutting-edge HR practices
ticked by firm Iteamwork, informal contact between managers and employees, multiskilling and cross-department skilling, interaction with marketing personnel, employee
participation in small group innovation activities, continual learning, and clear guidelines for
promotion. The proxies were then normalised as follows:
Normalization Score = (Xi Xmin)/(Xmax Xmin)

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where Xi , Xmin , and Xmax refer to the ith, minimum, and maximum values of proxy X.
Process Technology: PT intensity refers to the PT competency of firms, and is expected to
have a positive relationship with export intensity. PT WAS measured as follows:
PPT = 1/2 [QMi ,QICi]
where QM, QIC, and PDV refer to the sophistication of machinery and equipment, cuttingedge quality, and inventory control systems, respectively. Likert scale scores ranging from 1
to 5 (world class to dated) used to measure QIC were estimated by adding a value of one to
the use of each cutting-edge quality and inventory control practice reported by the firms
materials requirement planning (MRP), materials resource planning (MRP1), statistical
process control (SPC), quality control circles (QCC), emphasis on reducing defects, and
emphasis on shortening throughput times. QM and QIC were then normalised using the same
formula used in the computation of HR.
Research and Development: Higher levels of RD intensity are expected to be correlated
with higher levels of economic performance. Hence, RD was estimated as follows:
RD = [RDEXi , RDEMi]
where RDEX and RDEM refer to R&D expenditure in sales and R&D employees out of the
total number of employees. RDEX was measured as R&D expenditure divided by total
expenditure of firm i. RDEM was measured as R&D employees divided by total employees of
firm i.
TI was then estimated by using the formula
TIi = HRi + PTi + RDi

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Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

Given no a priori arguments on the greater significance of any one of the three
technological capabilities, and because their significance is likely to vary with the location of
firms in the overall technological trajectories (Rasiah, 2004), no attempt is made to weigh the
technological capabilities.
Marketing Intensity: As firms with strong brand names generally fare better than those
with weak brand names in both domestic and foreign markets, a positive relationship between
marketing and export intensities is expected. Also, a reputed brand name, which is generally
the product of marketing efforts, needs to be supported with quality service that can be

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delivered through technology and innovation. A number of firms without strong brand names
also advertise their technological capabilities nationally and internationally to attract
outsourcing contracts. Thus, a positive relationship between marketing and technological
intensities may be expected. Marketing Intensity (MKT) was used separately to capture the
effects of marketing activitiesadvertising, brand building, and promotion of firm brochures
and products in both domestic and external markets. MKT was measured as follows:
MKT = 1/2 [MMi MEXi]
where MM and MEX refer to mode of marketing and marketing expenditure in sales,
respectively. MM was measured by a score of 4 for a designated marketing centre, 3 for a
designated marketing department, 2 for having staff with marketing duties, and 1 for seeking
external marketing support. MEX was measured as a marketing expenditure in sales. The two
proxies were then normalised using the same formula used in the estimation of HR.
Size: Throughout the paper, size is the key differentiating variable and is represented by the
number of fulltime workforce in the firm. The simple use of the number of actual employees
did not produce a significant result; thus, a dummy variable was used to classify size as SME
and large enterprises. Size was measured as
SME = 1- 200 employees= 0;

Large firms = 201 and above employees= 1

3.2 Control Variables

Age, wages, and ownership were used as control variables.
Age: Age was simply measured as follows:
Ai = Number of years of existence since establishment
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Asian Journal of Technology Innovation 18, 1 (2010)

Age is expected to be positively related to export performance and technological

capabilities because firms over time gather the required knowledge and technological knowhow to perform better than start-ups.
However, there are also arguments that new firms find it more convenient to begin their
production with already existing superior technology, or that foreign firms that have located
recently bring with them superior technology and have better access to foreign markets
(Rasiah, 2004). In view of the conflicting previous findings, a neutral hypothesis is assumed
at this stage.

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Wages: For the purpose of this thesis, labour market conditions are represented by wages.
Average wage (in Indian Rupees [INR]) per year was used in all the regressions and was
measured as follows:
Wagei = Average Wage = INRi / Li
where INR refers to total payroll in million INR of i firm in 2005 and Li refers to number of
employees in firm i in 2004.
Foreign Ownership: Only five joint venture firms were included in the sample, and all five
firms had a minimum equity of 10% of overall equity. The 10% equity level is acceptable
because foreign equity in Indian firms is generally low. Furthermore, it is believed that even
small amounts of foreign equity have some influence over the conduct of firms. Foreign
ownership (FO) was measured as follows:
FOi = 1 for firms with a minimum foreign equity of 10%
FOi = 0, if otherwise
On account of the greater reach of foreign firms in global markets (Hirschman, 1970;
Dunning, 1974), foreign ownership is expected to be positively correlated with export
intensities. According to the 2005 World Investment Report (UNCTAD, 2005), R&D by
foreign firms is highly concentrated in home countries. Rasiah (2003) show evidence that
firms tend to develop only process R&D in the host country. In another study, Rasiah and
Gachino (2005) show a positive relationship between foreign firms and technological
intensities in Kenyan manufacturing firms. Thus, both positive and negative relationships
between foreign ownership and technological intensities may be expected.

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Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

3.3 Data
Data from the UNU-MERIT Survey of 50 Indian garment manufacturing firms carried out
in Delhi, Gurgaon, and Ludhiana in India were used in this paper. Tables 1 and 2 show the
profile of the firms studied. The firms were chosen by a structured random sampling
framework on the basis of size. Out of the 50 firms, 37 firms are involved in both exports and
domestic business, and 13 are focused only on the domestic market. Moreover, 90% or 45
firms are state or locally owned, and 10% or 5 firms are joint venture firms, with local and

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foreign ownership.
Table 1: Ownership, Size, and Export Experience, Garment Firms, India (2004)
Export Experience

Ownership
LEs

SMEs

Total

FO = 1

4(75.0)

1(25)

5(12.5)

FO = 0

21(65.6)

11(34.4)

32(87.5)

25

12

37

Total
Source: UNU-MERIT Survey (2005).

Table 2: Profile of Garment Firms, India (2004)

Details

LEs

SMEs

Total

29 (58.0)

21(42.0)

50

State Owned

3 (100.0)

0 (0.0)

100% Local Owned

22 (52.3)

20 (47.6)

42

Joint Venture

4 (80.0)

1 (20.0)

Domestic only

4 (30.8)

9 (69.2)

13

Domestic & Export

25 (69.5)

11 (30.5)

36

Export Only

0 (0.0)

1 (100.0)

Located in EPZs

3 (37.5)

5 (62.5)

Workers Unionized

26 (57.8)

19 (42.2)

45

Number of firms
Ownership Structure

Nature of Sales

Source: UNU-MERIT Survey (2005).

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Asian Journal of Technology Innovation 18, 1 (2010)

3.4 Statistical Models

Presented below are the statistical models for XY, MKT, and TI. Tobit regressions were

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preferred over OLS because of censored variables on both sides.

Tobit : XY = + 1 TI + 2 SIZE + 3 FO + 4 AGE+ 5 WAGE + 6 MKT

(1)

Tobit : MKT = + 1 XY + 2 TI + 3 SIZE + 4 FO + 5 AGE+ 6 WAGE

(2)

Tobit : TI = + 1 XY + 2 SIZE + 3 FO + 4 AGE+ 5 WAGE+ 6 MKT

(3)

Tobit : HR = + 1 XY + 2 SIZE + 3 FO + 4 AGE+ 5 WAGE+ 6 MKT

(4)

Tobit : PPT = + 1 XY + 2 SIZE + 3 FO + 4 AGE+ 5 WAGE + 6 MKT

(5)

Tobit : RD = + 1 XY + 2 SIZE + 3 FO + 4 AGE+ 5 WAGE+ 6 MKT

(6)

The equations above were repeated for SMEs and large firms to measure the effect of size
while controlling for other variables. All variables have values between 0 and 1 except for TI,
which is represented by a non-weighted aggregation of HR, PPT, and RD.
The expected relationships between the dependent and independent variables, which were
drawn from the theoretical guide, are displayed in Table 3. Export intensity is expected to be
positively correlated with technological and marketing intensities. FO is also expected to
contribute positively to export performance at firm-level. Firms with high levels of R&D
intensities tend to pay higher wages. The relationships between any two of the rest of the
variables is unclear at this stage because these may vary according to industry and
geographical locations. The descriptive statistics of the dependent, explanatory, and control
variables are shown in Appendix 1.
Table 3: List of Variables and Their Relationship with Dependent Variables
Independent variables

Acronym

Export Intensity

XY

HR Index

HR

Training Expenditure

TE

Mode of Training

MT

Cutting Edge HR
Policies

CHR

Dependent Variables
XY

TI

HR

PT

RD

MKT

+ve

unclear

unclear

unclear

unclear

57

Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

Table 3: List of Variables and Their Relationship with Dependent Variables(Contd.)

Independent variables
Process Technology
Index
Machine Capacity
Utilization Rate

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RD Index
R&D expenditure in
sales
R&D personnel in
workforce
Technological Intensity

Acronym

Dependent Variables
XY

TI

HR

PT

RD

MKT

PPT
MC
RD
RDEX
RDEM
TI

+ve

MKT

+ve

+ve

unclear

unclear

unclear

Wage

unclear

unclear

unclear

unclear

+ve

unclear

Foreign Ownership

FO

+ve

unclear

unclear

unclear

unclear

unclear

Size

unclear

unclear

unclear

unclear

unclear

unclear

Age

unclear

unclear

unclear

unclear

unclear

unclear

Age

unclear

unclear

unclear

unclear

unclear

unclear

Marketing Intensity

4. Statistical Analysis
In this section, the statistical evidence is examined in terms of statistical differences and the
statistical relationships between the dependent and independent variables. The first analyses
examine the statistically significant differences between SMEs and large firms, the second
examines these differences controlling for other variables. All independent variables have
passed colinearity and the White tests (for heteroskedasticity).

4.1 Statistical Differences

Two tailed t-tests of means are used in this sub-section to examine the statistical differences
among SMEs and LEs in export, marketing, and technological intensities. The t-tests yielded
mixed results (Table 4). SMEs reflected XY means higher than those of large firms. However,
58

Asian Journal of Technology Innovation 18, 1 (2010)

the results were statistically insignificant. TI and its componentsHR, PPT, and RDwere
all significant. TI was significant at 10% with large firms showing higher means compared to
SMEs, revealing that scale may be an important influence on technological intensities.

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Table 4: Two-tailed T-tests by Size, Garment Firms, India (2004)

LE (n= 29)

SME (n=21)

T=values

XY

0.3864

0.4086

0.2372

MKT

0.4647

0.3548

-1.3834

TI

1.2598

1.0444

-1.7336***

HR

0.5089

0.3668

-3.2515*

PT

0.6429

0.4683

-2.2568**

RD

0.1080

0.2093

-2.4507**

Notes: *, **, and *** refer to significance levels of 1, 5, and 10%, respectively.
Source: Computed from UNU-MERIT Survey (2005) using SPSS 10.0.

HR was highly significant (at 1%), and LEs once again reflected means higher than those
of SMEs. It appears that scale is again essential to motivating firms to invest in training and
absorb cutting-edge HR practices. PT was statistically significant at the 5% level with LEs
enjoying higher means than SMEs, which explains that large firms are able to access superior
technology to create product and process innovation. RD was also significant at the 5% level.
Interestingly, means of SMEs were higher than those of LEs, demonstrating that scale may
not be essential to supporting R&D in garment manufacturing. However, no statistical
difference in MKT was found as the results were not statistically significant. Size clearly does
not matter in driving marketing operations of garment firms. Overall, the analysis generated
mixed results. Large firms enjoyed higher overall technological intensities, as well as HR and
PT intensities higher than those of SMEs. However, SMEs showed RD intensities higher than
those of LEs. No obvious size-based statistical differences were observed in export and
marketing intensities.

4.2 Statistical Relationships

This sub-section examines size-based differences in export and technological and
marketing intensities controlling for age, wages, and foreign ownership. All regressions
passed the White test for heteroskedascity and the chi-square (2) statistics for model fit. The
59

Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

independent variables also passed the correlation coefficient tests.

Table 5: Export and Marketing Intensities, Garment Firms, India (2004)
XY
All firms

LEs

MKT
SMEs

XY

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TI
FO
Age
Wage
Size
MKT

All firms

LEs

SMEs

0.021

-0.223

0.57

(0.218)

(-1.852)***

(3.533)*

1.01

0.831

1.031

0.3069

0.449

-0.15

(5.167)*

(3.054)*

(7.087)*

(3.067)*

(3.282)*

(-1.027)

0.159

0.181

0.511

0.025

0.025

-0.039

(0.949)

(0.988)

(3.114)*

(0.255)

(0.217)

(-0.240)

0.007

0.004

0.022

-0.001

-0.001

-0.002

(2.430)**

(1.341)

(2.267)**

(-0.945)

(-0.464)

(-0.211)

0.089

4.294

-1.821

-0.782

1.229

-0.418

(0.070)

(2.267)**

(-0.477)

(-1.187)

(0.984)

(-0.662)

-0.236

0.036

(-2.006)**

(0.534)

0.072

-0.572

0.716

(-0.277)

(-1.905)***

(3.562)*

-0.922

-0.616

-1.345

0.061

-0.036

0.309

(-3.804)*

(-1.727)***

(-5.118)*

(0.606)

(-0.197)

(2.139)**

LRX

-18.676*

-7.780*

5.494*

10.602*

6.826*

11.849*

50

29

21

50

29

21

Notes: *, **, and *** refer to the significance level of Z-test at 1, 5, and 10%, respectively.
Parenthesis for the log-likelihood ratio presented as * refers to significant level of 2 at 1%.
Source: Computed from the UNU-MERIT Survey 2005 using E-Views 5.0.

Export Performance
Table 5 presents the econometric results of XY and MKT Equations 1 and 2. Against XY,
size was statistically significant at the 5% level, but its coefficient was negative, which shows
that SMEs enjoy export intensities that are stronger than those of LEs. Overall, TI enjoyed a
statistically significant relationship with XY, and the SME and LE sub-samples at 1% with a
positive coefficient, supporting the existing theory that firms facing greater competition seek
technological capabilities to compete better in external markets (Schumpeter, 1934;
Hirschman, 1958). Both the coefficient and statistical significance of TI in the SME sub60

Asian Journal of Technology Innovation 18, 1 (2010)

sample were much higher than those in the LE sub-sample, suggesting that their influence on
XY is stronger than that of the former.
Although MKT showed a statistically high level of significance (1%) in the SME subsample and its coefficient was positive, its coefficient was negative in the LE sample and was
barely significant (10%). SMEs showed greater participation in marketing activities than LEs
did, demonstrating that smaller Indian garment firms focus more on export markets to
participate in marketing activities. It could also mean that SMEs are engaged in outsourcing
activities as suppliers, and their marketing expenditure is targeted at advertising their original
equipment manufacturing capabilities rather than promoting their own brands. The
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insignificant relationship between MKT and XY in the overall regression may actually
indicate this. Large firms may also be much more focused on marketing their brand names in
the domestic market.
Foreign ownership may shed some light on the significance of marketing in exporting
activities of the SMEs in the sample. FO was highly significant (1%) in the SME sub-sample,
but not at all significant in the LE and overall samples. SMEs may actually be enjoying some
equity taken up by MNCs targeting outsourcing activities. Hence, the SMEs may not be
engaged in branding, but participate in the promotion of their production and delivery
capabilities to brand holders, given that the latter drives the lions share of garment value
chains (Gereffi, Humphrey, and Sturgeon, 2005; Rasiah, 2009a).
Marketing Intensity
Against marketing intensity, size was statistically insignificant. MKT produced no
statistically meaningful sized-based results even when controlled for other influences,
confirming that scale may be irrelevant in the nature of marketing carried out by garment
firms in the three locations in Northern India. Only when SMEs are exposed to external
markets does marketing become important to these firms, as XY is statistically highly
correlated with MKT with its coefficient positive.
TI showed a statistically highly significant (1%) relationship with MKT in the LE subsample, but was insignificant in the SME sub-sample. These results not only strengthen the
argument that SMEs are strongly engaged in promoting their production and delivery
capabilities, but also that large firms have higher marketing outlays; the branded products of
large firms, however, target the domestic market. The control variables of FO, age, and wages
were insignificant in all three samples. Overall, ownership, age, and wage rates did not matter
in the marketing intensities of the sampled firms. LEs enjoyed higher marketing intensities
than SMEs, but their efforts appear to be targeted more at domestic markets.
61

Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

4.3 Technological Capability

This sub-section analyses size-based differences in overall technological intensities and the
component intensities of HR, PT, and RD controlling for ownership, wages, and age. Many of
the relationships examined above are reversed in this sub-section.
Technological Intensity

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Against TI, size enjoyed a statistically highly significant (1%) and positive relationship
even when controlled for ownership, wages, and age (Table 6). Size seems to have mattered in
the technological capabilities of Indian garment firms. XY was also statistically highly
correlated (1%) with TI in all three samples. XY had a positive indication in all samples. The
coefficient of XY in the SME sub-sample was much higher than that in the LE sample,
suggesting that SMEs are much more export-oriented than LEs even when controlled for other
variables.
The strong and positive relationship between MKT and TI (1%) in the overall and LE
samples was reproduced when it was reversed, confirming that the marketing activities of
large firms correlate strongly with their technological activities. This relationship was not
significant in the SME sub-sample, supporting the view that large firms are engaged in
branding and other marketing activities that require strong development of HR and PT
capabilities, although they tend to be targeted toward the domestic market2).
FO displayed a statistically significant relationship at the 10% level in the SME sample, but
its coefficient was negative, suggesting that foreign equity-based SMEs connect in global
value chains to access technology from their parent sites to support their production activities
in India. Hence, foreign joint venture SMEs are engaged largely in using their international
capabilities to meet overseas demand, whereas locally dominated LEs invest in technology to
manufacture their output
HR Intensity
Size was statistically highly correlated (1%) with HR, and its coefficient was positive
(Table 6). Large firms showed intensity of HR practices higher than that of SMEs. However,
although XY showed a statistically highly significant relationship (1%) with HR intensity in
the SME sub-sample, it was barely significant in the LE sub-sample. The much higher
2) Interviews conducted on 9 April 2008 by Rajah Rasiah in Delhi show that large firms have several retail outlets
in the country where Indian branded garments are sold to both nationals and foreigners.

62

Asian Journal of Technology Innovation 18, 1 (2010)

coefficient of XY in the SME sub-sample than in the LE sub-sample clearly shows that
changes in XY intensities have a much higher effect on HR intensities in the SMEs.
Against HR, XY was only statistically significant at the 10% level and was not significant
at all in the LE sub-sample. Although the signs were all positive, no obvious difference in HR
intensities between inward and outward-oriented firms was observed. MKT was statistically
highly correlated with HR in all three samples with its coefficient in the SME sub-sample
slightly higher than its coefficient in the LE sub-sample. The results show that although LEs
enjoy higher HR intensities, a unit increase in MKT is likely to raise HR intensity higher in

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the SME sub-sample than in the LE sub-sample.

PT Intensity
Against PT, size was statistically highly significant (1%) and its coefficient was positive.
Large firms still show process technology intensity higher than that of small and medium
firms in the Indian sample. Against PT, XY was significant in all three samples,
demonstrating that the emphasis of export-oriented garment firms on process technology
including cutting-edge inventory and quality control systemsis strong.
However, both the coefficient and the degree of statistical significance of XY is much
higher in the SME sub-sample than in the LE sub-sample, confirming the relative importance
placed by SMEs on cutting-edge process flow, control, and quality techniques in driving
garment exports. MKT was positively correlated only in the LE sub-sample, confirming that
the more elaborate marketing activities that require involvement of in-house HR is undertaken
more in LEs than in SMEs.
RD Intensity
Against RD, size was statistically significant (5%), but the coefficient was negative,
showing that small firms invest more in R&D activities than LEs (Table 6). Interviews show
that SMEs specialize in both process and product R&D, but without an emphasis on brand
names. LEs tend to focus on branding, but many of their garments sold in the domestic market
have been in existence for a while now.
XY was positively correlated in all three samples and were statistically highly significant
(1%). The coefficient of XY in the SME sub-sample was much higher than that in the LE subsample, demonstrating that emphasis on R&D activity helps SMEs penetrate export markets
better than LEs.

63

64

29

21

3.90*

(5.16)*

0.797

(-1.03)

-0.319

50

42.21*

(6.74)*

0.256

(3.13)*

0.226

29

23.03*

(6.37)*

0.41

(2.14)**

0.207

(-0.78)

-0.585

(-1.35)

-0.001

(1.17)

0.078

(1.02)

0.069

LEs

HR

21

24.46*

(3.58)*

0.208

(2.25)**

0.263

(3.03)*

0.986

(0.03)

0.0001

(-1.23)

-0.102

(1.72)***

0.111

SMEs

50

10.00*

(3.95)*

0.272

(2.36)**

0.307

(3.33)*

0.203

(0.56)

0.364

(-2.15)**

-0.003

(-0.26)

-0.025

(3.62)*

0.283

All
firms

29

11.34*

(5.71)*

0.52

(2.48)**

0.341

(-0.32)

-0.342

(-2.47)**

-0.003

(-0.13)

-0.012

(1.66)***

0.158

LEs

PT

21

3.92*

(2.24)**

0.326

(-0.81)

-0.234

(0.87)

0.704

(-0.55)

-0.005

(-0.13)

-0.027

(4.14)*

0.661

SMEs

50

41.06*

(3.63)*

0.141

(0.00)

0.0003

(-2.44)**

-0.084

(0.28)

0.103

(-0.20)

-0.0001

(0.23)

0.013

(3.69)*

0.164

All
firms

29

40.22*

(0.25)

0.009

(1.50)

0.08

(0.71)

0.296

(0.64)

0.0003

(2.59)*

0.096

(3.42)*

0.127

LEs

RD

21

14.71*

(2.60)*

0.239

(-1.82)***

-0.339

(-0.18)

-0.093

(-0.50)

-0.003

(-2.14)**

-0.283

(3.43)*

0.351

SMEs

64

Notes: *, **, and *** refer to the significance level of Z-test at 1, , and 10% ,respectively. Parentheses for the log-likelihood ratio presented as *
refers to significant level of 2 at 1%.
Source: Computed from the UNU-MERIT Survey 2005 data using E-Views 5.0

50

3.58*

(7.43)*

(7.43)*

-1.23*

0.936

(3.27)*

(3.04)*

0.673

0.621

0.523121

(3.76)*

(1.24)

(2.98)*

(1.79)***

0.448

(-1.29)

-0.001

(0.88)

0.047

(1.70)***

0.074

All firms

0.127

(-0.38)

(1.05)

1.554

(-0.90)

-0.009

(-1.88)***

-0.417

(6.53)*

1.116

SMEs

0.24

-0.554

(-2.158)**

(-2.10)**

0.907

-0.004

(1.28)

(0.31)

-0.004

0.168

(2.66)*

(4.99)*

0.039

0.35

LEs

0.517

LRX

MKT

Size

Wage

Age

FO

XY

All firms

TI

Table 6: Technological Capabilities, Garment Firms, India (2004)

Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

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Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

Asian Journal of Technology Innovation 18, 1 (2010)

Although barely significant, MKT showed a negative relationship with RD in the SME subsample. As noted earlier, this result simply shows that R&D in SMEs is not related much to
marketing because of the lack of emphasis on brand names. Instead, marketing in SMEs
seems to be targeted at promoting manufacturing capabilities to attract international orders.
This relationship was not significant in the LE sub-sample, although the coefficient of MKT
was positive.
The control variable of FO showed opposing signs in the LE and SME sub-samples.
Although the former was highly significant (1%) with a positive coefficient, the latter was
significant (5%) with a negative coefficient. Foreign equity appears to drive R&D effects only
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on more inward-oriented LEs with an opposite effect on the more export-oriented SMEs. The
latter is consistent with Rasiahs (2004) findings on Taiwanese electronics firms, where local
firms tend to participate in R&D more than foreign firms do3).

5. Conclusions
A set of mixed results were generated, supporting the evolutionary argument on the
influence of size on exports and technological and marketing capabilities. The two-tailed ttests showed LEs with statistically significant HR, PT, and TI higher than those of SMEs.
However, SMEs showed higher RD intensities. XY and MKT showed differences in means
but were statistically insignificant. Smaller firms clearly engage in more R&D activities than
larger firms do in garment manufacturing, while size does not matter in penetrating export
markets. LEs also showed marketing intensities higher than those of SMEs.
Even after controlling for ownership, wages, and age, export intensity in the garment firms
enjoyed a statistically significant and negative relationship with size, while the coefficient of
XY in the SME sub-sample was much higher than that in the LE sub-sample. The results
show that SMEs are much more export-oriented than LEs among the garment firms. Although
size was positively correlated in TI (including its components of HR and PT) and MKT, the
coefficient of XY was higher in the SME sub-sample than in the LE sub-sample. Hence,
despite enjoying intensities lower than those of LEs, marketing and TI were more extensively
used by SMEs to compete in export markets.
TI and its components of HR and PT were strongly and positively correlated with size.
Although XY was positively correlated with TI and its components of HR and PT, its
coefficients were much higher in the SME sub-sample than in the LE sub-sample. The results
3) This finding is also consistent with the evidence gathered by Amsden, Tschang, and Goto (2001).

65

Rajah Rasiah, Kiranjeet Kaur and Ashish Kumar

imply that many of the technological capabilities of SMEs in the garment sample are targeted
towards the international market.
MKT showed a strong and positive relationship with XY in the SME sub-sample, whereas
it was negative in the LE sub-sample. Thus, although SMEs have not participated in branding
and related activities, they spend considerable energy on advertising their production and
delivery capabilities to connect and strengthen their links with foreign buyers.
The econometric results also show that SMEs enjoyed R&D intensities higher than those of
LEs. Not only was size negatively correlated with RD, the coefficient of XY in the SME subsample was higher than that in the LE sub-sample, strongly demonstrating the greater focus of
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the former on export markets. The coefficient of MKT was negative in the SME sub-sample,
suggesting that a minimal link between their R&D and marketing activities exists. Indeed, the
overall technological capabilities of SMEs were minimally correlated with their marketing
intensities even though market promotion has been a critical tool in their export-expansion
forays. Although size does not matter when competing in export markets and engaging in
R&D activities, the evidence provides support for the advocates of the global value chain
approach, who argue that garment chains are largely driven by brand holders who participate
minimally in manufacturing (Gereffi, Humphrey, and Sturgeon, 2005; Rasiah, 2009a, 2009b).
Consistent with evolutionary theory, the mixed results show that the effects of size depend
on compositional (structural), locational, technological, and institutional influences. The
puzzle of export and technological and marketing capabilities, the agents involved, the
institutions and meso-organizations embedded in them, and the nature of integration in global
markets (for both demand and sources of knowledge) make replications impossible (Nelson,
2008). Given the huge variance in garment technologies, the evidence from three locations in
Northern India cannot be the rule for comparisons with garment manufacturing operations in
other parts of the world. Hence, the evidence questions the fixation over the superiority of
size-whether negatively or positively-on the conduct and performance of firms.

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Appendix 1: Descriptive Statistics, Garment Firms Sample, India (2004)

Pair 1

Pair 2

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Pair 3

Pair 4

Pair 5

Pair 6

Pair 7

Pair 8

Pair 9

Mean

Std. deviation

Std. error of mean

XY1

0.4086

21

0.4290

0.0936

XY2

0.3864

29

0.3540

0.0772

MKT1

0.3548

21

0.2399

0.0524

MKT2

0.4647

29

0.2392

0.0522

TI1

1.0444

21

0.4584

0.1000

TI2

1.2598

29

0.3524

0.0769

HR1

0.3668

21

0.1296

0.0283

HR2

0.5089

29

0.1361

0.02971

PT1

0.4683

21

0.3010

0.0657

PT2

0.6429

29

0.2254

0.0492

RD1

0.2093

21

0.1624

0.0354

RD2

0.1080

29

0.0849

0.0185

Age1

12.7143

21

4.7554

1.0377

Age2

25.5714

29

24.3753

5.3191

FO1

0.0476

21

0.2182

0.0476

FO2

0.0476

29

0.2182

0.0476

WAGE1

0.0242

21

0.0543

0.0119

WAGE2

0.0178

29

0.0355

0.0077

Notes: 1 and 2 refer to SMEs and LEs, respectively.

Source: UNU-MERIT Survey (2005).

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