Why Are Indian Firms Badly Managed? A Survey and a Randomized Field Intervention
Title: Why Are Indian Firms Badly Managed? A Survey and a Randomized Field Intervention
Principal Investigator: Nicholas Bloom
Dates: March 3, 2008 - October 29, 2010
Sponsor: Presidential Fund for Innovation in International Studies
Our approach to addressing these questions is to test three broad hypotheses. The first is that modern management practices are like technologies that many firms are essentially unaware of, so some managers may not realize that their firms are badly managed and this phenomenon is more prevalent in developing countries such as India. For example, lean manufacturing was developed in the Japanese automotive industry in the 1960s, conferring the Japanese significant cost and quality advantages over their American counterparts. However, it took over two decades for the US automotive industry to start the copy these techniques. Lean manufacturing is still very uncommon in India today and our first hypothesis suggests that this absence is an issue of knowledge transfer. However, weaknesses in human capital and other infrastructure may separately slow the diffusion of such technologies into poor countries. A second hypothesis is therefore that the lack of educated workers, human capital and physical infrastructure in poor countries makes the adoption of management best practice sub-optimal or infeasible. For example, if transport services are highly unreliable, adopting just-in-time production may simply not be feasible because large inventory stocks provide a buffer against supply interruptions. A third hypothesis is that the legal, regulatory and institutional frameworks that exist in poor countries do not provide firms with incentives to adopt best practices. For example, if the government makes it illegal to fire workers with six months of tenure, implementing a performance-based employment policy will be difficult.
Our approach to addressing these questions is to test three broad hypotheses. The first is that modern management practices are like technologies that many firms are essentially unaware of, so some managers may not realize that their firms are badly managed and this phenomenon is more prevalent in developing countries such as India. For example, lean manufacturing was developed in the Japanese automotive industry in the 1960s, conferring the Japanese significant cost and quality advantages over their American counterparts. However, it took over two decades for the US automotive industry to start the copy these techniques. Lean manufacturing is still very uncommon in India today and our first hypothesis suggests that this absence is an issue of knowledge transfer. However, weaknesses in human capital and other infrastructure may separately slow the diffusion of such technologies into poor countries. A second hypothesis is therefore that the lack of educated workers, human capital and physical infrastructure in poor countries makes the adoption of management best practice sub-optimal or infeasible. For example, if transport services are highly unreliable, adopting just-in-time production may simply not be feasible because large inventory stocks provide a buffer against supply interruptions. A third hypothesis is that the legal, regulatory and institutional frameworks that exist in poor countries do not provide firms with incentives to adopt best practices. For example, if the government makes it illegal to fire workers with six months of tenure, implementing a performance-based employment policy will be difficult.