RIEB Discussion Paper Series No.2021-08

RIEB Discussion Paper Series No.2021-08


The Nexus between Small and Large Factories in the Supply Chain of Indian Assembly Industries


In India, numerous enterprises have entered the assembly industries to meet the expanding domestic demand. Due to competition, large enterprises chose only efficient suppliers of parts and components. Although some small enterprises grew to medium or large enterprises by joining the final assembly supply chain, several remain small enterprises. This study examines whether small factories are involved in the final assembly supply chain. We employed the least-squares dummy variable model to examine the effects of procurement by medium and large factories on the gross output of small factories, using pseudo-panel data at state- and industry-based cohort levels. The result shows the nexus between large factories and small factories in assembly industries is weak. On the other hand, the nexus between large factories in assembly industries and small factories in the material industries is strong; the small factories supply material to the large factories that are tier-one and -two suppliers. However, these small factories also face stiff competition. After assembly industries have developed, small factories in assembly and material industries face difficulty to join final assembly supply chain.


Manufacturing; Supply chain; Small and medium enterprise; Assembly industries

JEL Classification

L60, O14, O25, O53


School of Econimics, Senshu University

Takahiro SATO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059