Academic journal article Innovation: Organization & Management

What Affects the Innovation Performance of Small and Medium-Sized Enterprises in China?

Academic journal article Innovation: Organization & Management

What Affects the Innovation Performance of Small and Medium-Sized Enterprises in China?

Article excerpt

(ProQuest: ... denotes formulae omitted.)

KEYWORDS: innovation, innovation performance, SMEs, factor analysis

In the increasingly competitive global market, small and medium-sized enterprises (SMEs), which exert a strong influence on the economies of many coun- tries through their ability to innovate new products and processes (Baranano, Bommer, & Jalajas, 2005; Xie, Zeng, & Tam, 2010), have been the engine of economic growth and technological progress (Bruque & Moyano, 2007). The ongoing globalization pro- cess highlights the importance of innovation in all SMEs (O'Regan et al., 2006). However, many failure stories of SMEs in technology innovation reveal that there are various factors impairing their innovation process (Banyte & Kuvylaite, 2008; O'Regan et al., 2006; Zeng, Xie, &Tam, 2010).

Although innovation of SMEs has captured the interest of many scholars and practitioners, few studies focus on the issue from the perspec- tive of emerging economies. The uneven focus invites further investigation into innovation of SMEs in China - the largest emerging economy. Since the rapid development of current market economy, the role of SMEs has been expanding in this changing socio-political context of China (Anderson, Li, Harrison, & Robsoii, 2003; Zeng, Xie, Tam, & Wan, 2009). They not only play a greater role in the economies (accounting for more than 99% of all firms), but also contribute in a large extent to the increased levels of business activity and employment (Siu, 2005). However, many SMEs face various challenges in achieving successful innovation. Hence, it is necessary to explore the factors affecting innovation for SMEs to improve their innovation performance.

Using methods of factor analysis and categorical regression, this article explores the factors affecting innovation performance of SMEs in China. The objectives of this study focus on the following:

* To identify key factors affecting innovation per- formance of SMEs

* To explore relationship between the factors and innovation performance of SMEs

* To provide some recommendations for improving innovation performance of SMEs.

It is hoped to provide a better understand- ing on how to improve innovation capability for SMEs which are without such experience in the emerging economies.

Previous works and concept model

Some researchers have identified some critical factors affecting SMEs' performance (Ghosh & Kwan, 1996; Ghosh, Liang, Meng, & Chan, 2001; Smallbone, North, Roper, & Vickers, 2003). Ghosh and Kwan (1996) conducted a cross-national study and found some factors contributing to the success of SMEs, including: having a good customer rela- tionship; effective management; and marketing. DeHayes and Haeberle (1990) highlighted seven critical success factors: i.e., the ability to develop and sustain technological advantage; the ability to identify and focus on one or several market niches; strong leadership on top; significant people bond- ing' mechanism; strong management team; strategic alliance with customers; and strategic use of infor- mation technology. Based on an investigation of the 50 top SMEs in Singapore, Ghosh et al. (2001) indi- cated that the top six key success factors determining the firms' performance included: a supportive and strong management system; leadership; a correct strategy; focusing on market; developing and sus- taining capabilities; and a good customer and client relationship. According to their profiles of product innovativeness (PI), Salavou and Avlonitis (2008) provided insights into supportive actions for dif- ferent groups of SMEs. They provided evidence in support of three groups featuring different levels of PI, namely the straight imitators (low PI), the prod- uct innovators (high PI) and the concept innovators (medium PI). Further, it shows that these groups demonstrate differences in their performance poten- tial at the product but not at the firms' level. …

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