Is R&D A Measure of Manufacturing Performance? Answer from Labor Intensive Industries

This study attempts to address the impact of R&D on manufacturing performance of labor intensive industries. Convenience sampling method has been used to conduct this research. Two categories of industries such as R&D and Non R&D industries have been chosen to perform this study. Inputs–outputs data of manufacturing operations of sample industries have been analyzed by using standard statistical techniques in order to establish relationship between dependent and independent variables. A significantly positive correlation is found between R&D knowledge and manufacturing performance. The study concludes that the R&D expenditure which generates new knowledge on manufacturing process is important inputs to labor intensive manufacturing process which is positively associated with performance. Key Word: R & D knowledge, Manufacturing Process, Plant Efficiency, Performance 1.Introduction The labor intensive manufacturing industries are generally defined as the industry where labor costs are more important than capital costs. More specifically, labor intensive means use of manpower in production process with little of technology. Labor intensive companies generally have greater earnings stability compare to the capital intensive ones, due to low capital intensity. It is evident that the remuneration package of this type of industry is much less compared to capital intensive one, but why? As stated by Shahidul and Anwar [1], lower working capacity of workforce, unfavorable working environment and poor R&D intensity and low process capability of manufacturing system are main causes of low productivity which leads industry towards poor performance. The meaning of performance of manufacturing industries can be stated in different ways but the most common aspects available in literatures is some indicator relating to productivity, outputs produced, revenue rearmed and share value of firms. 2. R&D on Manufacturing Process and Outputs Production schedule, materials movement planning and process layout design are the important components of manufacturing system. Quality of these parameters is dependent on R & D activities of manufacturing enterprise. Eventually, R&D could improve process capability of manufacturing systems and contributes to reduce non value added inputs of manufacturing process. Dirk Czarnitzki and Niall [2] pointed out that R&D intensity in manufacturing industries is playing a vital role in increasing process capability which could lead to achieve higher outputs. Furthermore, they added, the accumulating R&D expenditure of a firm are often interpreted as its knowledge stock on manufacturing process. Gregory Tassey [3] found that at 8.6 percent positive changing in R & D intensity contributed to increase about 38 per cent output. Griliches [4] reports that at an elasticity of 0.07, a ten percent increase in R & D expenditure will bring 0.7 percent increase in output. However, the research found that the rate of return on R & D is significantly high and it is about 10 to 27 percent. Peter and Phil [5], in a study on Taiwanese integrated circuit industry found that R & D capability is positively correlated with manufacturing performance.