Capital-Technology and Management Practice Complementarity
Advanced, high-markup production machinery cannot be successfully deployed or monetized in factory environments that lack foundational quality control, preventive maintenance, and operational tracking routines.
Picture this
Imagine a commercial kitchen upgrading from basic ovens to an expensive, delicate computer-controlled baking system. If the kitchen floor remains covered in flour dust and workers never perform routine maintenance, the delicate computer sensors will jam within a week, destroying the investment. The expensive oven only generates profit after the kitchen enforces strict daily cleaning and maintenance routines.
What the evidence says
Following quality defect reductions (43.1%) and TFP gains (16.6%), treatment firm directors began replacing older Sulzer and Rapier looms with advanced Jacquard looms starting in September 2010 to produce higher-markup textiles.
- Who
- 20 experimental plants across 17 large cotton woven fabric firms near Mumbai, India.
- How
- Randomized field trial tracking post-treatment physical capital upgrades and machinery replacements following a 5-month management intervention.
What to do
Establish robust operational monitoring and preventive maintenance protocols prior to investing in advanced manufacturing equipment to protect capital expenditure returns.
From the source
"The firm directors began replacing older Sulzer and Rapier looms with Jacquard looms, which produce higher mark-up fabric but require more advanced quality control and maintenance practices."
541 Management in India QJE.pdf