Subcontracting dimensions in the small and medium enterprises: Study of auto components' manufacturing industry in India

Small and medium enterprises occupy a place of strategic importance in the economic development of India. Growth of these enterprises depends on the large enterprises or the original equipment manufacturers as significant proportions of the small and medium enterprises are linked with the large enterprises through industrial subcontracting. Although the large enterprises have registered rapid growth with the advent of globalization and flow of foreign direct investment, a similar growth is not observed in the small and medium enterprises. Most of the small and medium enterprises are unable to perform as per the expectation of the partner large enterprises and are finding it difficult to maintain healthy subcontracting relationship with the large enterprises as the small and medium enterprises are constrained in their infrastructural resources such as technology, finance, marketing and human resources. In order to improve their subcontracting relationships, the small and medium enterprises need to develop their capabilities in line with the needs and the requirements of the large enterprises. In this article, a resource-based view of strategy is adopted to identify the key factors for the small and medium enterprises that would improve their sustenance. A survey on Indian automotive component manufacturing industry reveals that technological and financial dimensions are more important and fostering new components development, customized investments and market-oriented pricing are the key variables for the small and medium enterprises to develop healthy subcontracting relationships with the original equipment manufacturer.