Small & Medium Enterprises (SMEs) across industries have unrealized innovation potential (Chaminade and Van-Lauridsen 2006). According to Harrison and Watson (1998), SMEs are generally more flexible, adapt themselves better and are better located to develop and implement new ideas. The flexibility of SMEs, their simple organizational structure, their low risk and their receptivity to changes are the essential features for enabling them to be innovative both within the organization and in the external market (Ussman et al. 2001). Therefore, they are promoted, among others, as the 'seed bed of innovations' in industrialized countries. Empirical evidence shows that they are innovative even in industrializing countries like India (Bala Subrahmanya 2005).
Despite their important role in innovation, SMEs have a number of resource disadvantages (Lee 2005). They have limited financial and technical manpower resources, narrow external technical networks, small marketing resources, and lack of management skill (Rothwell 1983). These disadvantages are likely to be more intensive in industrializing countries than in industrialized countries. With this backdrop, this paper attempts to analyze the role of internal factors visà- vis external factors for product innovations carried out by a SME in India relative to Japan.
SMEs account for a considerable proportion of industrial enterprises, employment, and production in Japan as well as in India (Bala Subrahmanya 2003; Bala Subrahmanya 2006). Japan is rather the most industrialized economy whereas India is one of the rapidly industrializing economies today. Both these economies have been following exclusive policies for the promotion of SMEs: since WWII in Japan and since I Five Year Plan in India. Both the economies have their own policies for modernization and technology up-gradation of SMEs.
It is in the above context that the nature and strategy of product innovations carried out by two different SMEs - one in Tokyo, Japan and another one in Karnataka, India - are comparatively analyzed. Both the SMEs belonged to the engineering industry. Japanese SME is located in Ota ward in Tokyo city whereas Indian SME is located in Mysore, a growing industrial city of Karnataka state in India. Ota's industrial structure is dominated by machinery & metal industry and so is that of Mysore, though not to the same extent (PIO 2004; DIC, Mysore 2002). Similarly, SMEs' dominate the industrial structure of Ota as well as Mysore. But Ota has acquired international reputation for its product innovations whereas Mysore is little known on the industrial map of India, leave alone that of the world.
This article is structured to contain five sections. Section 2 deals with definition of concepts and describes briefly the Innovation Policies for SMEs in Japan and India. Section 3 presents the industrial structure of Ota and Mysore respectively. Section 4 analyzes the technological innovations carried out by two SMEs in two different countries and section 5 brings out inferences and makes propositions. Section 6 comprises summary and conclusions.
2. DEFINITION OF CONCEPTS AND POLICIES FOR INNOVATIONS IN JAPAN AND INDIA
At the outset, it would be appropriate to define the concepts of SMEs and innovation and explain the policy support extended for SME innovations in Japan and India.
2.1 SMEs and innovation: definition of concepts
SMEs can be defined in terms of investment, employment or output or a combination of these three variables. SMEs in Japan are defined in terms of capital investment and employment under the Small and Medium Enterprise Basic Law. In general, SMEs refer to enterprises with capital of not in excess of ¥300 million or 300 or fewer employees. Small enterprises are defined as enterprises with 20 or fewer employees (SME Agency 2004). The official definition for an SME in India is of recent origin. According to the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 a small scale enterprise is defined in terms of investment in plant & machinery up to Rs. …