Subcontracting and knowledge transfer from TNC to Indian SMEs in the automobile industry: how significant is it?

Abstract

Trans National Corporations (TNCs) with production bases in developing countries provide increasing opportunity for local Small and Medium Enterprises (SMEs) to have subcontracting relationships with these TNCs. Even though some theoretical and a few empirical studies have thrown light on the nature of assistance provided by TNCs to local SMEs through subcontracting relationships, none of the studies have so far analysed the diversity of assistance that the subcontracting SMEs of India would be able to obtain from a TNC by using quantitative measurement. This paper probes the extent of linkages and diversity of assistance that Indian subcontracting SMEs would be able to obtain from a TNC customer based on primary data from SME subcontractors of a major TNC automobile manufacturer. Statistical analysis of direct assistance revealed that SMEs receive more product and purchase process assistance. The extent of assistance for their process-related, marketing, human resource and financial requirements is low, whereas the assistance for their organisational know-how requirements is moderate.