Determinants of the adoption of Information Technology: a case study of electrical and electronic goods manufacturing firms in India

Research Policy 28 Ž1999. 667–680 www.elsevier.nlrlocatereconbase

Determinants of the adoption of Information Technology: a case study of electrical and electronic goods manufacturing firms in India K. Lal

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Institute of Economic Growth, UniÕersity EnclaÕe, Delhi 110007, India Received 28 September 1998; received in revised form 17 December 1998; accepted 14 January 1999

Abstract This study measures the intensity of adoption of Information Technology ŽIT. and identifies its determinants. In this paper, it is argued that the degree of IT adoption will be determined by the variables such as entrepreneurship, skill intensity, government policy, openness of economy, competitive environment, and other firm-specific factors. The results of Ordered Probit Model suggest that the qualification and information base of entrepreneurs and their attitude towards innovative activities and market share are significant determinants of the degree of IT adoption. The results also indicate that size of operations and skill intensity of the firms influenced the extent of IT use. q 1999 Elsevier Science B.V. All rights reserved. Keywords: Information Technology; Entrepreneurship; Degree of adoption

1. Introduction The consequences of adoption of Information Technology ŽIT. for firms’ performance have been analysed by Groove Ž1980., Rada Ž1982., Ebel Ž1990., Ayres Ž1991., Carlsson Ž1996., and many other scholars. Evidence for the developed countries ŽLoveman and Sengenberger, 1990; Piore, 1990. shows the extensive use of IT by small and medium firms. Mansell and Wehn Ž1998. also examined the use of IT in the developing countries. Katrak Ž1997a,b. analysed the determinants of adoption of new technologies in chemical, electrical and electronic goods manufacturing firms in India. In both )

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the industries he found evidence in favour of strong relationship between existing technological capabilities and the degree of adoption of new technologies. Some studies ŽRomijn, 1997; Doms et al., 1997. have analysed the relationship between the adoption of new technologies and the skill composition of the workforce. They found the qualifications of employees having a positive effect on the adoption and acquisition of new technologies. Entrepreneurial abilities play an important role in the acquisition and adoption of new technologies ŽDosi, 1988a; Utterback and Suarez, 1993; Cohen, 1995; Lal, 1998.. Though the innovative attitude of entrepreneur is important, it is not a sufficient condition for the successful adoption of IT. Along with entrepreneurial abilities, firm specific and other factors such as skill intensity, market share, size and govern-

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ment policies are equally important. The main objective of this study is to identify the causes that influence the varying degree of adoption of IT by Small and Medium-size Enterprises ŽSMEs. in India. Thus, while the earlier studies concentrated on the impact of IT on the performance of firms, this paper aims at identifying the factors that influence the adoption of IT. Despite the proven ability of IT in influencing performance, all firms across the board have not started using this technology. The degree of adoption of IT also varies among the IT-using firms themselves. In this paper, it is argued that the extent of use of IT will be determined by the variables such as entrepreneur’s qualifications and knowledge of IT, skill intensity, government policy, openness of the economy, competitive environment, and other firmspecific factors. The sample for the study consists of electronic goods manufacturing firms located in New Okhla Industrial Development Authority ŽNOIDA.. NOIDA is one of the recently developed industrial towns of the country. These firms are mainly entrepreneurial firms and are not registered in any of the stock exchanges. More than 75% of these firms were employing less than 50 persons. In this study, it is proposed to investigate the effects of the following three key factors on the degree of adoption of IT. First, we analyse the influence of entrepreneurial ability and entrepreneur’s vision regarding market share and the importance given to R & D and product quality in influencing the degree of IT adoption. Cohen and Levinthal Ž1989. have underlined the dual role of R & D, i.e., the creation of new knowledge and the exploitation of the existing information by training and learning. In the present context, most of the sample firms did not have separate R & D unit. However, it was found during the survey that entrepreneurs used to send their technical staff for training imparted by publicly-funded R & D institutions as and when such need arise. Such practices by SMEs from developing countries are also reported by Bell and Pavitt Ž1997. and Katrak Ž1997a.. Therefore, it is argued in this paper that adoption of IT is significantly influenced by the importance assigned to R & D by the Managing Directors ŽMDs.. Furthermore, there are several uncertainties associated with the introduction of new products and processes ŽMaggioni, 1997, p. 233..

These are information, assessment, competence, and control gaps. Better qualified and informed managers can bridge these gaps and perform the entrepreneurial functions of introducing new methods and products. In several studies ŽEarl, 1989; Brown, 1992., MDs’ knowledge of the potential of IT was found to be the main factor that influenced the adoption of IT. Second, we intend to investigate the effect of firm’s size in the adoption of new technologies and innovative activities. The empirical research on the relationship between firm size and innovations have been subjected to some degree of controversy. Many studies ŽGalbraith, 1952; Nelson and Winter, 1982; Katrak, 1985; Cohen, 1995. have also found a positive relationship between firm size and the adoption of new technologies. Whereas, some studies ŽBound et al., 1984; Acs and Audretsch, 1987; Pavitt et al., 1987. indicate a non-linear relationship and the presence of threshold size effects. The statistical results of this paper support the conclusions of Galbraith Ž1952., Nelson and Winter Ž1982., and Cohen Ž1995., and suggest that size plays a very important role in influencing the degree of IT adoption. Third, we argue that firms employing more skilled workforce are likely to adopt more advanced IT tools. Several studies ŽRada, 1982; Sargent and Matthews, 1997. have concluded that as firms adopt more and more integrated manufacturing models, the interaction between different systems makes the skill content of the workforce more important. This interaction is expected to be more relevant in the case of IT as this provides an opportunity to perform several functions by using a single IT tool. The use of IT systems necessitates a skilled workforce of a higher degree. Furthermore, the results of Doms et al. Ž1997. and Romijn Ž1997. show that the adoption of new technologies is more likely to occur in units with skilled workforce. For the purpose of studying the factors influencing the degree of IT adoption, one can group the firm’s activities into three major categories, namely: Ž1. Managerial; Ž2. R & D and Manufacturing; and Ž3. Marketing. The IT tools used for managerial and office automation activities do not differ significantly across firms. Integrated Management Information System ŽIMIS. is being used for regular and timely flow of information from bottom to top deci-

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sion-makers. The integration of MIS, however, depends upon the type of industry and firm specific strategies. The nature of the products determines the type of IT to be used in R & D and production processes. For instance, computer assisted designrcomputer assisted engineering ŽCADrCAE. are well-known systems for design and engineering intensive industries. Total plant automation ŽTPA., computer integrated manufacturing ŽCIM., Local Area Network ŽLAN., and flexible manufacturing systems ŽFMS. are also being adopted in various production processes. However, the extent of IT used by firms in the production process differs substantially, even within an industry. IT tools such as Wide Area Network ŽWAN., e-mail, and internet facilities used in marketing and co-ordination of other activities is more or less the same across all industries. The extent of adoption, however, may vary among the firms. The rest of the paper is organised as follows. The hypotheses and the framework are presented in Section 2. Methodology and the database used are discussed in Section 3. In Section 4, the results of the analysis are discussed and interpreted. The main conclusions of the study are summarised in Section 5.

2. Hypotheses and the framework There is a growing recognition that investments in new technologies can play a crucial role in the overall performance of the firms. Several studies ŽAmsden, 1989; Ranis, 1990. have concluded that rapid economic growth in Newly Industrialised Countries ŽNICs. can be attributed to the investments in technologies to augment the productivity and competitiveness of export-oriented industries: IT is one of the most preferred technologies that have the potential to augment the efficiency in all industrial activities. Investments in IT enhance workers’ productivity and result in increasing return to investments in capital goods ŽRahim and Pennings, 1987; OECD, 1988; APO, 1990; Mody and Dahlman, 1992; OECD, 1993.. The contributions of entrepreneurial characteristics such as innovative attitude, foresightedness, and knowledge and awareness of IT in adopting IT

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tools have been studied by many scholars Žamong others, Ranis, 1990; Brown, 1992.. The study of Brown Ž1992. shows the crucial role of the MD in the development of IT strategy. He has argued that the introduction of IT depended upon top decisionmakers’ knowledge of IT and their capability to understand the potential of IT. Furthermore, inappropriate IT tools could result in the poor returns and adversely affect the performance of firms ŽNorman, 1992.. For the purpose of analysis, the factors affecting the use of IT are categorised in four groups, namely: Ža. Entrepreneurial characteristics; Žb. International orientation; Žc. Workforce; and Žd. Size of the firm. 2.1. Entrepreneurial characteristics Schumpeter Ž1947. made a distinction between an adaptive and creative response to new technologies. He defined creative response as a process, whereby the industry did something that was outside the range of existing practice. He also argued that the creative responses were influenced by the quality of brains available and the decisions and behaviour of social actors. In this paper, we have considered the adoption of new technology as a creative response of the entrepreneur as IT is outside the range of existing practice for the sample firms. This will depend upon the knowledge base of entrepreneurs, as well as their attitude towards innovative activities and market share. However, knowledge base and educational qualifications are not sufficient to perform entrepreneurial functions in terms of introduction of new technology. To qualify as an entrepreneur, the MD must give importance to factors like R & D, quality of the product and market share. In other words, the chief executive must have a long-term technological vision for the firm and aim at higher growth and market share through the introduction of new technology rather than be content with short-run profit maximisation. The role of entrepreneurial factors in influencing the degree of adoption of IT, such as the entrepreneur’s qualifications, quality consciousness, and the importance to given R & D activities, and market share are discussed below. 2.1.1. Entrepreneur’s qualifications Studies analysing the adoption of new technology and commercialisation of innovations emphasise the

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crucial role of the entrepreneur ŽSchumpeter, 1943; Cohen, 1995.. However, to commercialise a new product or new method of production, the entrepreneur’s knowledge base and awareness of technology should be good. Thus, only an MD, endowed with a higher knowledge base, is likely to perform this entrepreneurial function. In this paper, we argue that the ability of the entrepreneur to get the things done or to exploit a new technology will be constrained by the knowledge and information base. Many studies ŽAmsden, 1989; Earl, 1989; Lal, 1996. have analysed the impact of the entrepreneurial knowledge and information base in the adoption of appropriate IT tools for their business. Lal Ž1996. found the MD’s qualification as one of the most important characteristics that discriminated IT and non-IT using firms. The most important reason cited by Earl Ž1989. for the low adoption of IT was the lack of appreciation of IT potential by the top management. These studies show that the exploitation of the full potential of IT is constrained by the management’s awareness of IT. Hanna et al. Ž1996. also emphasised that benefiting from Information and Communication Technologies ŽICT. requires intangible process re-engineering, managerial quality and leadership, flexible and multi-skilled labour, and institutional learning and experimentation. An MITI Ž1995. study showed that most of the Japanese small and medium-size enterprises, mainly managed by professionally qualified MD, had adopted IT tools and were reaping its numerous benefits. On the other hand, the study also showed that some firms derived very little or no benefit out of IT. Management’s lack of knowledge of IT was cited as the major reason for their failure. IT used in manufacturing activities is relatively complicated and costly. Only a qualified management can evaluate the merits and usefulness of such tools for the firm. Hence, a positive relationship is predicted between the intensity of IT use and the qualifications of the entrepreneur. 2.1.2. Importance giÕen to quality consciousness Pratten Ž1991. found that the quality of the product was the most important source of competitiveness. His analysis of computer system manufacturing firms in UK showed that the product differentiation and product quality were extremely important factors

in augmenting the competitiveness of the firms. In a study of OECD member countries, Dosi et al. Ž1990. found that the competitiveness of the firm was strongly associated with the technological profile in most of the science-based sectors. These studies suggest that the quality-conscious firms adopted new technologies faster than others. In view of this empirical evidence, we expect that those firms that assign higher weight to better quality of products will have a higher degree of IT adoption. 2.1.3. Importance giÕen to R & D R & D encompasses several activities. These include: Ž1. Devising methods for effective use of IT tools; Ž2. Development of new product designs; Ž3. Import substitution; and Ž4. Evolution of technological development at the firm level. R & D may not be of much relevance to the firms who use MIS in non-manufacturing activities. However, R & D activities become extremely important for those firms that use IT in production processes. This is because the product design and development, and reconfigurations of production processes are part of R & D activities. It is imperative for firms to modify the product designs very frequently to meet the fast changing market demands. The changes in product designs in turn, necessitate the reconfiguration of the production methods. IT-based production processes can be easily altered to accommodate the new product designs, thus adding a new dimension to R & D activities. IT firms that are using programmable equipments in the production processes need to develop efficient and user-friendly customised application systems suitable for their business. In sum, it can be argued that a greater degree of IT adoption necessitates a higher R & D intensity of the firm. On the other hand, lack of R & D activities may lead to inefficient use of IT tools resulting in poor returns. Therefore, the entrepreneurial characteristic in terms of the importance given to R & D activities is likely to influence the degree of IT adoption. 2.1.4. Importance giÕen to market share Our sample mainly covers small and medium firms so that several firms in our sample have no vision about market share. Nevertheless, some of the entrepreneurs do have a vision of the future prospects

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and plan to graduate and grow into large firms and gave importance to market share. These entrepreneurs exhibited better entrepreneurial abilities and qualities in that these go hand in hand with the adoption and commercialisation of new methods of productions. We hypothesise the positive relationship between the intensity of use of IT and entrepreneur’s perception of importance of market share. In this paper, a distinction is being made between entrepreneurs and mere managers. An entrepreneur apart from being qualified and aware of new technological opportunities will also be interested in introducing new technology. In the process, the entrepreneur unlike a mere manager will give importance to R & D, market share and to the quality of the product. In the empirical part, the MDs were asked to rank the importance given by them to these factors on a five-point scale. The hypothesis being those assigning higher ranks to these factors have higher entrepreneurial qualities and are more likely to introduce new technologies. 2.2. International orientation factors These factors include imports, exports, and collaboration of firms with foreign Multinational Enterprises ŽMNEs.. Many of the sample firms have a technological collaboration with multinational companies. In this industry, MNEs normally do not export their high-tech vital material at arm’s length to non-collaborating third partners. Nor do they generally import from unaffiliated third partners ŽSiddharthan and Kumar, 1990.. Government of India made several changes in its industrial policy after 1991 Žpost-liberalisation.. Two such policies, namely: Ž1. Creation of Electronic Hardware Technology Park ŽEHTP., and Ž2. Simpler Export–Import ŽEXIM. policies, were aimed at augmenting India’s share in the global market. The main purpose of EHTP scheme was to promote exports of electronic hardware. In new EXIM policy, the list of item covered under Open General Licence ŽOGL. was enlarged substantially. We expect a positive impact of international variables on the adoption of IT. 2.2.1. Imports intensity The Indian government’s general approach towards imports had been selective and restrictive

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before the mid-1980s. For instance, it was compulsory to produce a ‘Not-Manufactured-in India’ ŽNMI. certificate to import any equipment needed for Indian industry. Such restrictions were removed and import procedures were made simple in 1985. The new export–import policy for the period 1992–1997, announced on March 31, 1992, further liberalised the import of capital goods and raw materials. 1 Several studies—Cohen Ž1975. for South Korea, Taiwan, and Singapore; Riedel Ž1975 . for Taiwan—found that the export-oriented firms imported a greater proportion of their inputs. The presence of foreign firms and joint ventures in the Indian market also forced the Indian firms to improve the product quality. This in turn necessitated an increase in the proportion of imported material used by these firms in the production of electronic goods. By and large, the import substitution activities gave way to export promotion strategies that involved the production of goods of international standards. In several cases, it became imperative to use imported components to maintain the global standards of the products. These components include Large Scale Integrated circuits ŽLSIs. and Very Large Scale Integrated circuits ŽVLSIs.. Hence, firms that have been importing sophisticated components are more likely to use IT. 2.2.2. Exports intensity An ESCAP Ž1979. study suggested that the technological profile of exporting firms is much stronger than the domestic market oriented firms. Cohen Ž1975. and Riedel Ž1975. also analysed the relationship between new technologies and the export performance of electronics firm in developing countries. They found that the electronics firms that used advanced technologies also exported more. IT tools in production processes are needed to augment productivity and to manufacture products of an international quality. IT tools in non-manufacturing activities on the other hand, are used mainly to find information about the latest market trends and for the co-ordination of activities with foreign partners. After the introduction of the relatively liberal export–import policy beginning in the early 1990s, some Indian

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Monthly Newsletter—India Investment Centre, April 1992.

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firms have ventured to play into global markets. The government also encouraged export-oriented firms by providing institutional support to market their products in foreign countries. IT can play a major role in the co-ordination of these activities. For instance, firms having access to WAN and internet are in a better position to fulfil the specific needs of a particular market. Therefore, export-oriented firms are expected to achieve a greater adoption of IT. 2.3. Workforce The introduction of micro-electronics based technologies in general results in reduction of job categories at supervisory level ŽRada, 1982.. For instance, the automation of manufacturing could decrease the demand for supervisory skills ŽNilsen, 1980.. This can be attributed to the increased reliability of IT systems and self-diagnosis mechanisms. However, at the same time, complementary skills of a higher level are required for the design and implementation of such systems ŽJames, 1994.. IT systems such as CADrCAE require skilled employees to use these systems effectively. Firms using IT tools in manufacturing such as, Total Quality Management ŽTQM., FMS, TPA, and Process Control Management Systems ŽPCMS. require a very highly skilled workforce for the implementation of these systems in various production processes ŽAyres, 1991.. Higher skills are also needed for continuous improvements in these systems. Many studies ŽRahim and Pennings, 1987; Mody and Dahlman, 1992. have analysed the impact of skill intensity on returns to investments on IT. They have found a positive relationship between skill intensity and adoption of new technologies. A higher degree of IT adoption along with a more skilled workforce can contribute to augmenting the productivity of the firm. In view of this evidence, it is argued that the degree of adoption of IT tools largely depends on the skill intensity of the firm. 2.4. Firm size Most studies, following the Schumpeterian paradigm, postulated a positive relationship between

the size of the firm and technological progress. In a study of engineering industry, Lall Ž1983. had also found a positive relationship between size and technological absorptive capacity of the firm. Several studies ŽKatrak, 1985; Braga and Willmore, 1991; Kumar and Siddharthan, 1997. have concluded that firm size significantly increased the probability of adopting advance technologies. Larger firms are in a better position to appropriate the returns on innovative activities ŽNelson and Winter, 1982.. Moreover, firms with a larger size of operations have a considerable resource base to invest in this new technology. The study by Siddharthan Ž1988. showed that even when the sample was dominated by small firms, the positive relationship between size and innovative activities held good. Therefore, a positive relationship between the degree of adoption of IT and the size of the firm is hypothesised.

3. Database and methodology A semi-structured questionnaire was prepared to collect information on the firm’s history, financial situation, importance given by the MD to R & D, market share, and quality consciousness, nature of foreign collaboration arrangement, and technological data of the firms. Detailed information on the various types of IT tools used by the firms was also collected from 59 electronic and electrical goods manufacturing firms located in NOIDA. All electronic firms that were located in NOIDA were approached. However, we could get data from 59 out of 89 firms, that is, a response rate of 70%. The first survey was conducted during June–September 1994. I have been visiting these firms to update the information periodically. The last visit was in July 1997. We found that the technological profile of firms did not change significantly since 1994. Therefore, the data collected in 1994 is used in this study. Product profile of the sample firms is presented in Appendix A. Sample firms were not subsidiaries of multinational corporations, however, two sample firms—one, a computer manufacturing firm and the other, a telecommunication equipment manufacturing firm—had technological collaboration with HP

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Table 1 Level of adoption of IT and importance given to market share Level of IT

Not important

Below average important

Important

Above average important

Very important

Non-IT firms MIS MIS, CADrCAM MIS, CADrCAM, FMS

16 Ž66.7. 8 Ž38.1. 2 Ž22.2. 1 Ž20.0.

2 Ž8.3. 2 Ž9.5. 1 Ž11.1.

2 Ž8.3. 3 Ž14.3. 1 Ž11.1. 1 Ž20.0.

3 Ž12.5. 6 Ž28.6. 3 Ž33.3. 2 Ž40.0.

1 Ž4.2. 2 Ž9.5. 2 Ž22.2. 1 Ž20.0.

Figures in parentheses are row percentage.

ŽUSA. and CASIO ŽJapan., respectively. Four CTV manufacturing firms also had technological collaboration with MNCs such as GOLDSTAR ŽSouth Korea., Toshiba and JVC ŽJapan.. It can be seen from Appendix A that a fairly large number of firms Ž27.12%. were electronic component manufacturers. Whereas ‘high-tech end product’ manufacturing firms, i.e., computer and communication equipments were 10.17% and 8.47%, respectively. Remaining firms Ž54.24%. were engaged in manufacturing of consumer electronic goods. The sample firms are grouped into four categories depending on their intensity of IT use. These are: Ž1. Non-IT firms Žfirms that do not use IT tools.; Ž2. Low level of IT users Žfirms using only MIS for office automation.; Ž3. Moderate level of IT users Žthese firms have adopted CADrCAM in addition to MIS.; and Ž4. High level of IT using firms Žfirms that have adopted FMS in addition to CADrCAM and MIS.. Since ordered probability models ŽPROBIT. are used in situations where the dependent variable is assigned with some sort of ordinal ranking, it was considered to be the most appropriate technique to be applied in the present situation. The estimates are obtained by maximum likelihood method.

The general relationship between the degree of IT adoption and characteristics of the firms is likely to be: IT s f ŽEntrepreneurial characteristics, International orientation, Workforce, Size.. 3.1. Dependent Õariable (intensity of IT use) This variable has been measured on a four-point scale depending on the extent of use of IT tools by the firm. The values of the dependent variable are: Ž0. Non-IT using firms; Ž1. Low level of IT using firms; Ž2. Moderate level of IT using firms; and Ž3. Highest level of IT using firms. 3.2. Independent Õariables 3.2.1. Opinion Õariables MDs of the firms were requested to give their opinion about the importance they assign to variables such as market share, quality of product, and R & D intensity, etc. Their responses were recorded on a five-point scale: Ž0. not important; Ž1. below average important; Ž2. important; Ž3. above average important; and Ž4. very important. Three opinion variables namely: Ž1. Importance of market share ŽMS.; Ž2.

Table 2 Level of IT adoption and quality consciousness Level of IT

Not important

Below average important

Important

Above average important

Very important

Non-IT firms MIS MIS, CADrCAM MIS, CADrCAM, FMS

2 Ž8.3. 1 Ž4.8.

1 Ž4.2.

2 Ž8.3.

2 Ž8.3. 4 Ž19.0. 1 Ž11.1. 2 Ž40.0.

17 Ž70.8. 16 Ž76.2. 8 Ž88.9. 3 Ž60.0.

Figures in parentheses are row percentage.

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Table 3 Level of adoption of IT and importance given to R & D Level of IT

Not important

Below average important

Important

Non-IT firms MIS MIS, CADrCAM MIS, CADrCAM, FMS

13 Ž54.2. 6 Ž28.6. 4 Ž44.4. 2 Ž40.0.

3 Ž12.5. 2 Ž9.5. 2 Ž22.2. 1 Ž20.0.

4 Ž16.7. 3 Ž14.3. 1 Ž11.1.

Above average important 6 Ž28.6. 1 Ž11.1. 2 Ž40.0.

Very important 4 Ž16.7. 4 Ž19.0. 1 Ž11.1.

Figures in parentheses are row percentage.

The quality consciousness of the firm ŽQUAL.; and Ž3. Importance assigned to R & D activities ŽRD. have been used in this analysis. We begin by examining the responses of the MDs about these variables. 3.2.1.1. Importance giÕen to market share. The distribution of importance to market share is shown in Table 1. As can be seen from Table 1, the majority of non-IT using firms Ž66.7%. did not give importance to market share. On the other hand, MDs of 80% of FMS using firms and 66.7% of CADrCAM using firms gave importance to market share. This indicates that MDs who aimed at higher growth and market share have adopted more advanced IT tools. In view of this evidence, it is expected that the entrepreneurial attitude represented by the greater importance given to growth and market share may emerge as a significant factor in influencing the degree of adoption of IT. 3.2.1.2. Importance giÕen to product quality. It can be seen from Table 2 that most of the firms Ž60 to 88.9%. assigned a very high importance to product quality.

This shows that a majority of the firms, irrespective of the extent of IT adoption, are very qualityconscious. Given this uniform response, quality consciousness is unlikely to be a significant determinant of adoption of IT. 3.2.1.3. Importance giÕen to R & D. It is evident from Table 3 that most of the non-IT firms did not give importance to R & D activities. It was seen that 54% Žnon-IT firms. to 40% Žhigh IT using firms. did not give importance to R & D activities. The possible reason for this behaviour could be that many of the sample firms were not involved in product development and design activities. The IT tools used by them did not require reconfiguration frequently. Hence, R & D might be irrelevant for these firms. However, the percentage of firms using design and development tools, that assign importance to R & D, increases as the extent of IT use increases. Thus, 33% of CADrCAM and MIS-using firms considered R & D to be important for the efficient use of IT, whereas 40% of CADrCAM, MIS and FMS using firms assigned above average importance to R & D. Therefore, the entrepreneurial characteristics measured by the im-

Table 4 Level of adoption of IT and MDs’ qualification Level of IT

Under graduate

Graduate

MBA and BE

M. Tech.

Non-IT firms MIS MIS, CADrCAM MIS, CADrCAM, FMS

10 Ž41.7. 2 Ž9.5. 1 Ž11.1.

11 Ž45.8. 7 Ž33.3. 2 Ž22.2. 1 Ž20.0.

2 Ž8.3. 10 Ž47.6. 5 Ž55.6. 3 Ž60.0.

1 Ž4.8. 1 Ž11.1. 1 Ž20.0.

Figures in parentheses are row percentage.

Doctorate degree 1 Ž4.2. 1 Ž4.8.

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Table 5 IT, skill, size, and international orientation factors Level of IT

Skill intensity

Size in ŽRs. million.

Imports intensity

Exports intensity

Non-IT firms MIS MIS, CADrCAM MIS, CADrCAM, FMS F-statistics Significance

0.07 Ž0.10. 0.21 Ž0.23. 0.19 Ž0.16. 0.22 Ž0.06. 3.29 0.0273

139.68 Ž445.8. 485.16 Ž1034.8. 1326.54 Ž2195.7. 2612.76 Ž3149.5. 5.31 0.0027

– 0.118 Ž0.21. 0.023 Ž0.05. 0.072 Ž0.12. 3.25 0.0286

0.045 Ž0.12. 0.082 Ž0.26. 0.029 Ž0.09. 0.296 Ž0.43. 1.78 0.1616

Figures in parentheses are standard deviations.

portance given by MDs to R & D is very likely to emerge as an important factor in determining the degree of IT adoption. 3.2.2. Other independent Õariables 3.2.2.1. QualitatiÕe Õariable. Managing Director’s Education ŽMDEDU. has been measured on a fivepoint scale namely: Ž0. least qualified Žbelow graduate.; Ž1. Graduate; Ž2. MBA and BE; Ž3. M. Tech.; and Ž4. most qualified Ždoctorate degree.. It can be seen from Table 4 that a majority Ž76.92%. of undergraduate MDs own non-IT firms, while the percentage of graduate MDs decreases, as the intensity of IT adoption increases ŽTable 4, column 2.. On the other hand, the percentage of professionally qualified MDs increases with the firms adopting IT tools. In view of the fact that the use of IT results in new method of productions, its adoption can be considered as an entrepreneurial function. Therefore, it appears that qualifications of entrepreneur have an important role to play in the adoption of advanced IT tools. Two firms in the sample were being managed by the persons having a doctorate degree. One of them was an electronics consultancy firm and was not involved in the manufacturing of electronics goods. Therefore, the firm was using an office automation tool, i.e., MIS. The MD of the second firm was a specialist in diagnosing and identifying the fault of colour television picture tubes. This firm also did not require any IT tools and hence, was classified as a non-IT firm. It is thus evident from Table 4 that entrepreneur’s knowledge base viewed in terms of MDs qualification influenced the degree of adoption of IT.

3.2.2.2. QuantitatiÕe Õariables. The quantitative variables included in the study are: Ž1. Skill intensity of the firm ŽSKILL.; Ž2. Sales turnover ŽSIZE.; Ž3. Imports intensity of raw materials ŽIMPORTS.; and Ž4. Exports intensity Žexports.. Table 5 presents a cross tabulation of these variables according to IT use. Skill intensity is defined as the ratio of the sum of MBA 2 and BE 3 to the total employees. Sales turnover has been measured in Rs. million, whereas the imports and exports intensities are computed as ratio of imports and exports to the sales turnover. Table 5 indicates a positive relationship between skill intensity, size of operation and extent of adoption of IT. It can also be seen from above that the import intensity increases just as the degree of IT adoption increases, except in MIS-using firms. The value added by MIS-using firms on imported components ŽLSI and VLSI. is much less than the CADrCAM and FMS using firms. MIS-using firms are mainly involved in semi-knock-down ŽSKD. activities. Consequently, the imports intensity of MISusing firms is higher than the others. The exports intensity also shows an increasing trend except in the second category of IT using firms. This is because few television manufacturing firms invested heavily on IT as they concentrated in the domestic market. The F-statistics also indicate that the mean values of SKILL, SIZE, and IMPORTS differ significantly between non-IT and other category of IT using firms.

2

MBA: No. of persons having master of business administration ŽMBA. degree. 3 BE: No. of persons having a bachelor of engineering ŽBE. degree.

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However, exports intensity does not seem to differ significantly.

4. Discussion and interpretation Ordered Probit Model was used to test the hypotheses developed in Section 3. Many equations were tried. However, the equations shown in Table 6 were considered to be the best. The statistical results are presented in Table 6. The correlation coefficient matrix is presented in Appendix B. Most of the variables were qualitative and hence, the rank correlation coefficients were computed. While analysing the rank correlations, we ignore the actual distance between observations. Therefore, there may be a strong association between the variables even if the correlation coefficient is small ŽNorusis, 1990.. In equation I, MDEDU, SKILL, SIZE, and MS have emerged as significant determinants of the degree of adoption of IT. In this equation, RD was omitted as it was correlated with MS. In equation II, MS was replaced with RD. It is evident from Table 6 that the significance of the variables in equation II remains more or less the same as that of equation I except that of SKILL. This is because the SKILL and RD are highly correlated Ž r s 0.450.. Therefore, in equation III SKILL was dropped. Several empirical studies ŽMcLoughlin, 1993; Alsene, 1994. have also found the qualification of the entrepreneur to be the most important factor in implementing IT-based production systems. The complexities of IT tools vary across industries.

Therefore, the entrepreneur’s knowledge is essential to understand the functions, features, and the solid state technology of the ‘information machines’, i.e., IT embodied in machines ŽBoyson, 1993.. In some industries, IT tools are complex and require a high degree of skill to understand their potential. The base system should be capable of meeting the firm-specific needs. The other features such as upgradability, expandability, errors detecting and correcting mechanism need to be evaluated thoroughly. Professionally qualified entrepreneurs are in a better position to assess and evaluate these features properly. Therefore, the qualification of the entrepreneur has emerged as the most significant determinant in all the three equations. Importance of managerial skill in the adoption of IT has also been cited by Davidow and Malone Ž1992. in their work on revitalizing the enterprises for the 21st century. The importance given by the entrepreneur to market share has also turned out to be a significant factor in determining the degree of adoption of IT. A large number of the sample firms Ž27.12%. were manufacturers of electronic components such as Printed Circuit Boards ŽPCBs., tuners and other parts of CTV, digital panel, and motherboards. These components are needed to manufacture ‘end products’ in the electronic and electrical goods sector. The demand for such components is a derived demand and they depend on the attitude of the prospective purchasers, who are few in number Žsee Appendix A.. From the demand point of view it is an oligopsonistic market structure. Suppliers can also erect technical entry barriers by setting electronic networks ŽPorter and Miller, 1985.. This can lead to

Table 6 Maximum likelihood estimates of IT adoption Dependent variable: intensity of IT adoption Independent variables

Equation I

Equation II

Equation III

MDEDU SKILL SIZE MS RD Log-likelihood Chi-square

0.53865 Ž3.619. 2.0835 Ž1.522. 0.000276 Ž2.066. 0.26176 Ž2.093.

0.56061 Ž3.829. 1.2882 Ž1.000. 0.000315 Ž2.331.

0.54987 Ž3.785.

0.19418 Ž1.886. y56.554 31.980

0.25888 Ž2.639. y57.495 30.099

y55.678 33.733

Figures in parentheses are t values of the coefficients. All chi-square values are significant at 1%.

0.000317 Ž2.378.

K. Lal r Research Policy 28 (1999) 667–680

an oligopolistic market structure. However, competition and buyers’ pressure can eliminate much of the oligopolistic advantages of the sellers ŽClemons, 1991.. Buyers’ pressure can be in the form of better quality of components and just-in-time delivery systems. The positive interaction between buyer and seller market structure in influencing technology adoption and innovative activities has been emphasised by several studies ŽFarber, 1981; Kumar and Siddharthan, 1997.. The results are in line with the findings of earlier studies. The results show that the size of the operation is another important determinant in the adoption of IT. Firms with a strong financial resource base have a better capacity to invest more in the adoption of IT tools. Larger firms can also afford to employ more qualified persons and can invest more on other activities such as R & D and development of differentiated products. Several other studies ŽKatrak, 1985; Pavitt et al., 1987; Siddharthan, 1988. also found a positive relationship between innovative activities of the firm and size of operation. The results further confirm the findings of literature ŽKamien and Schwartz, 1982; Dosi, 1988b; Cohen, 1995. relating to size and innovative activities. Emergence of skill intensity as a determinant of adoption of IT is in accordance with some findings ŽNilsen, 1980; Rada, 1982; Romijn, 1997; Doms et al., 1997.. Nilsen Ž1980. found that the adoption of micro-electronics based technologies results in reduction of the demand for unskilled labour. At the same time, the adoption of such technologies generates more employment for technical staff. These studies concluded that firms having higher skill intensity are more capable of adopting advance technologies. Doms et al. Ž1997. also found a positive relationship between the education of workers and technology use in both production and non-production activities. It is also evident from this study that the skill intensity of the firm influenced the adoption of IT. Equations II and III in Table 6 show that the importance given to R & D by entrepreneur has a significant role to play in the adoption of IT. However, it becomes insignificant in the presence of the SKILL Žskill intensity. and MS Žperception of market share. variables. This is because R & D is correlated with SKILL and MS. Imports intensity was

677

also found to be highly correlated with sales turnover of the firms.

5. Summary and conclusion The main objective of the study was to identify and analyse the factors that influenced the adoption of IT in electrical and electronic goods manufacturing firms in India. Following the Schumpeterian and neo-Schumpeterian literature of technological change, three broad factors were considered as determinants of the degree of adoption of IT. First, entrepreneurial characteristics, emerged as the most important factor in implementing innovations. These characteristics consist of quality consciousness, importance given to market share and R & D activities. The second factor, knowledge base of the entrepreneur, is emphasised in neo-Schumpeterian literature represented by Nelson, Winter, Freeman, Dosi, Rosenberg, and Soete ŽHeertje, 1993.. We have measured the knowledge base as the qualification of the MD. The third set of factors comprises of quantitative variables such as size of operations, skill composition, intensity of imported raw material used, and export performance of the firm. Ordered Probit Model was used to identify the relative importance of these variables. The data used in the analysis were collected from 59 firms located in NOIDA. Of the sample firms, 75% were small and medium-size firms employing less than 50 persons. The PROBIT analysis results showed that the qualification, and knowledge and information base of the entrepreneur played a key role in implementing IT strategies. This is in accordance with the neoSchumpeterian literature. The role of qualified entrepreneur in implementing IT has been given utmost importance by Mansell and Wehn Ž1998.. They concluded that the introduction of ICT requires new forms of organisation. These organisational changes need to be identified and implemented by informed managers. The results also showed that the size of operations and entrepreneurial characteristics such as importance given to the market share and R & D activities are significant determinants of the degree of IT adoption. The crucial role of size and entrepreneurial abilities leading to commercialisation of innovations have also been underlined in the

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Schumpeterian literature on technological change. The emergence of skill intensity as a crucial factor in determining the intensity of IT use is consistent with the findings of other scholars ŽJames, 1994; Doms et al., 1997.. This study measures the intensity of adoption of IT and identifies its determinants. Earlier studies like that of Doms et al. Ž1997. measured technology intensity as number of technologies used by firms irrespective of the relative importance of the technologies. As the authors themselves have rightly pointed out that this was not an appropriate measurement of technology intensity. In this study, MIS, CADrCAM, and FMS using firms have been assigned different ranks depending on the importance of IT tools used. It also contributes to the literature on technological change by quantifying variables and including them in the statistical analysis. For instance, the conclusions arrived at in several studies ŽEarl, 1989; Amsden, 1989; Brown, 1992; MITI, 1995. about the importance of the MD’s qualification in planning and implementing IT strategy were based on case studies. The primary data used in this study has allowed us to test empirically the signifi-

cance of qualitative variables like entrepreneur’s knowledge of IT, the entrepreneurial characteristics measured as the importance to market share and R & D, the role of the chief executive, and the skill intensity of the workforce in influencing the degree of IT adoption. The results of this study support the findings of Sargent and Matthews Ž1997. and Doms et al. Ž1997. regarding advance technology adoption and skill complementarity. In developing countries’ context where IT is being adopted rapidly, the use of IT tools including the internet feature could create a strong demand for skilled workers and make small and medium-size firms globally competitive. Acknowledgements The study was undertaken at the V.K.R.V. Rao Centre for Studies in Globalization, Institute of Economic Growth. An earlier version of the paper was presented in a seminar at Erasmus University, Rotterdam, The Netherlands on June 20, 1998. I am indebted to Professors N.S. Siddharthan and J. George Waargenburg for their valuable guidance and encouragement in the preparation of this paper. I am

Appendix A. Product profile of firms Core sector Product range Computer PCs, Scanners, Plotters, Application and System Software Communication Dish-antennae, EPABXs, Network equipments Terminators and Adopters, Satellite Receivers, Signal Boosters Electronic components PCBs, Digital Panels, Computer Motherboard and Keyboard, Electronic Metal Sheets, TV Chassis and Parts, Consultants Audiorvideo products CTVs, VCRrVCPs, Stereo, Walkman, Cassettes General purpose Surveillance Systems, Programmable electronic goods Calculators, UPS, Invertors, CVTs

Appendix B. Correlation matrix IT-LEVEL IT-LEVEL 1.000 MDEDU 0.414 SKILL 0.304 SIZE 0.452 RD 0.386 MS 0.340

No. of firms 6

Percentage 10.17

5

8.47

16

27.12

19

32.21

13

22.03

MDEDU

SKILL

SIZE

RD

MS

1.000 0.094 0.092 0.134 0.199

1.000 0.143 0.450 0.063

1.000 0.210 0.298

1.000 0.365

1.000

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grateful to three anonymous referees for their extremely useful comments. My thanks go to the staff of the IEG Computer Unit for their co-operation. I would also like to take this opportunity to thank the Managing Directors of the firms, who spared their valuable time in meeting me and answering all my questions.

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