IMPACT OF R&D ON FINANCIAL PERFORMANCE IN TEXTILE INDUSTRY

Under the Guidance ofDr. R. SaradhamaniAssociate Professor

Department of Management StudiesSNS College of Engineering

Coimbatore – 641107 INDIA

P. RajendranAssociate Professor

Department of Management StudiesSNS College of Engineering

Coimbatore – 641107 INDIA

P. Rajendran - R&D vs Performance in Textiles

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CONTENTS

• Introduction• Overview of Indian Textile Industry• Indian Textiles – Forecast• Value Chain• Strength & Weakness• Research Problem• Need & Purpose of The Study• Objectives• Hypotheses• Research Design• Tools Of Analysis• Variables• Data Analysis• Findings• Conclusion• Publications

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DISCLAIMER

• The research work is in the 80% completion rate, a few key factors and its outcomes are in the process of testing.

• With the outcomes of the pilot study this presentation is made.

• This report contains the partial figures and findings as on date.

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INTRODUCTION• R&D stands for Research and Development. • Organisation for Economic Cooperation and Development

(OECD) defines it as ‘creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications’.

• R&D has become essential in the corporate world as the requirement for new product design and development has increased with reducing product life cycles.

• Firms willing to relinquish current profits to enhance future performance by investing in R&D are expected to be more competitive in the long run.

• Law of Diminishing Marginal Utility, Product Life Cycle and NPD are processed with continuous R&D only.

P. Rajendran - R&D vs Performance in Textiles

P. Rajendran - R&D vs Performance in Textiles

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OVERVIEW OF INDIAN TEXTILE INDUSTRY• Leading Textile Industries in the world.• Next to Agriculture• Predominantly unorganized.• Largest in the world with 27% Foreign Exchange

through Textile Exports• Contributes 14% of the total foreign exchange.• Contributes around 4% to GDP of the Country.• Direct Employment to 3.9 ± 4 million people.• Global share 4% to increase 8% to reach US$80b by

2020.

P. Rajendran - R&D vs Performance in Textiles

6INDIAN TEXTILES - FORECAST

INDIAN TEXTILES - FORECAST

7INDIAN TEXTILES - FORECASTP. Rajendran - R&D vs Performance in Textiles

INDIAN TEXTILES - FORECAST

P. Rajendran - R&D vs Performance in Textiles

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VALUE CHAIN

P. Rajendran - R&D vs Performance in Textiles

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STRENGTH & WEAKNESS

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RESEARCH PROBLEM

• Meeting shorter PLC is not possible without R&D.• Most of the manufacturing sector invest

reasonable portion on their revenue.• R&D investment of Revenue-making Textile

sector is found negligible.• Proposing to study the impact of R&D

investment on–– Continuous pattern– Intermittent– Regular Basis.

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NEED & PURPOSE OF THE STUDY• Largest in the world with 27% Foreign Exchange

through Textile Exports• Contributes 14% of the total foreign exchange.• Contributes around 4% to GDP of the Country.• Direct Employment to 3.9 ± 4 million people.• Global share 4% to increase 8% to reach US$80b by

2020.• Poor Technology• Low Investment on Research and Development

compared to other Sectors.

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OBJECTIVES1. To study whether companies invest in R&D on a

regular Basis/pattern.2. To Examine the Trend of R&D and non-R&D

Textile Firms.3. To evaluate the Impact of R&D on the Operating

Performance.4. To analyse the Impact of R&D on the Financial

Performance.5. To arrive necessary/suitable measures and

recommendations for the benefit of Textile Sector.

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HYPOTHESES

1. Firms with no investment on R&D gained increased Growth and Performance.

2. Firms with limited investment on R&D gained increased Growth and Performance.

3. Firms with large investment on R&D gained increased Growth and Performance.

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RESEARCH DESIGN

• No. Companies / Textile Units : 21436.• No. of Companies with Data on CMIE for the

Period: 1995 – 2010.• Purposive sampling.• Companies invested > Rs. 2500 Lakhs.• Segment-wise: Processing to Garmenting .• No. of Companies Selected: 1352.– Source: CMIE-Prowess, Ministry of Textiles.

P. Rajendran - R&D vs Performance in Textiles

P. Rajendran - R&D vs Performance in Textiles

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TOOLS OF ANALYSIS• Descriptive Statistics

– Mean, Standard Deviation, Correlation and Regression• Tobin’s Q (Chung and Pruitt, 1994, p. 70)

– Proposed a simplified formula for approximating Tobin’s Q that requires only publicly available financial and accounting information.

– Approximate Q defined as follows can explain at least 96.6% of the variability of Tobin’s Q.

Approximate Q = (MVE+PS+DEBT)/TA• MVE = product of share price and common stock shares outstanding,• PS = liquidating value of outstanding preferred stocks,• DEBT = value of the firm’s short-term liabilities net of its short-term

assets, plus the book value of the firm’s long-term debt, and • TA = total assets of the firm.

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TOOLS OF ANALYSIS• R&D Intensity– ratio of R&D expenditures to the total assets

• Return on Investment – = Net Profit/Average Total Assets

• Return on Capital Employed– = EBIT / Average total Capital Employed

• R&D Efficiency – = patents received/R&D expenses (Rs.)

• R&D Effectiveness– Grant patents per R&D expenditure (Individual Projects)

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VARIABLES• Independent Variable– R&D Investment

• Dependent Variables– Total Capital– Total Assets– Sales – Total Income– Net Income– Total Expenditures– EPS

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DATA ANALYSIS*• Tobin’s Q value

Mean = 0.896 SD = 0.591

Correlation R&D / TA = 0.49 R&D/Sales = 0.32 R&D/Net Profit = 0.39

*Partial Analysis

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FINDINGS

• The mean R&D investment of the industry is very less (less than 1%) whereas the developing and developed countries spend on R&D is above 5% of the Sales.

• Correlation, R&D Intensity, R&D Efficiency are found insignificant (i.e) less correlated or negatively correlated.

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CONCLUSION• Despite the industry grows in the positive trend

with the negligible R&D Expenditure, the Ministry of Textiles may focus on low-cost superior quality textile products since India is the destination of cheaper cost with superior Quality.

• The existing firms should plan in the long-run to enjoy the benefit of market opportunity by realizing the nearest competitors China whose R&D of the Textile industry is 5.4% average.

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PUBLICATIONS• P. Rajendran, Dr. E. Venugopal and Dr. R. Saradhamani , A Study Segments -

Children: The Growing Market Segments - An Empirical Study, SNS Journal of Marketing, Volume – II 2011, pp: 68-71. ISSN: 0975 – 7627.

• P.Rajendran, R & D Strategy: Effectiveness on firm's growth-Asian Journal of Product Development, ISSN 4571-9240, Vol IV Issue I, Jan 2014.

• P.Rajendran ,Investing in R & D harvesting profits, International journal of innovation research, ISSN 2742-5412,Vol XI, Issue IV, November 2013.

• P.Rajendran ,Research and Development( R & D), Synthesizing Profitability and Productivity, International EM Journal of Pollution Research - Annexure II, ISSN No 0257-8050, Vol 33,Issue 1, 2014.

• P. Rajendran & Dr. R. Saradhamani , Effects of R & D Metrics on Firm’s Profitability of Indian Textile-cum-chemical-based Companies : A Review , Int. J. Chem. Sci. Annexure II : 13(1), 2015, 73-79, ISSN 0972-768x.

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THANK YOU

P. Rajendran - R&D vs Performance in Textiles