Conclusions
This review of empirical studies highlights five key issues in researching innovation
capacity for SMEs. First, these empirical studies have illustrated that innovation capacity
conceptualized either as the processor as the outcome, affects firm performance. Secondly, the
number of empirical studies on innovation capacity in SMEs at this stage in a single sector is
equivalent to that of many general industries. Third, there is more empirical research in the general
and manufacturing sectors than in the service sector and there is a small amount of research
comparing the characteristics of innovation capacity between manufacturing and services.
Fourthly, the empirical researches focused mostly on the questionnaire survey, only a few studies
have used qualitative research.
Finally, the empirical research group considers the innovation capacity as a process to
confirm decisive factors such as knowledge factors (knowledge management, knowledge of
managers, employees, suppliers, distributors) contribute to generating innovation capacity.
Emphasizing the dominant mediator role of innovation capacity between market orientations,
corporate social responsibility, and networking is a new and outstanding issue in the research that
contributes to the success and growth of small businesses.
For practitioners, the findings have shown that small businesses could utilize numerous
forms of innovation capabilities. Whilst some businesses can be able to create innovation capacity,
others need to set up many different activities to take advantage of innovation. Truly, not all
businesses receive optimal success from innovation, being able to innovate and innovation
capacity. Therefore, business managers need to choose the right and appropriate aspect of the
innovation capacity based on their specific business needs.
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146 Truong Hoang Oanh et al. Journal of Science Ho Chi Minh City Open University, 10(4), 146-154
Innovative capacity in Micro, Small and Medium Enterprises:
Review of international articles on empirical research
Truong Hoang Oanh1*, Duong Ngoc Thanh2, Truong Thi Be Hai3
1University of Economics Ho Chi Minh City - Campus in Vinh Long
2Can Tho University
3Tra Vinh University
*Corresponding author: oanhtth@ueh.edu.vn
ARTICLE INFO ABSTRACT
DOI:10.46223/HCMCOUJS.
econ.en.10.2.585.2020
Received: July 22nd, 2020
Revised: August 08th, 2020
Accepted: August 15th, 2020
Keywords:
innovation capacity, small
businesses, MSMEs, review
The purposes of the article are to evaluate the current status
of innovation capacity studies and propose directions for future
research. Thirty - six articles in international empirical research
on business, in particular micro, small, and medium-sized
enterprises (MSMEs) were identified from Springer, Emerald,
and ScienceDirect. Findings reveal most studies on innovation
capacity focus on two lines of research: determinants of
innovation capacity (process) and consequences on innovation
capacities (outcome). The quantitative approach is the dominant
research method. Some research directions are proposed that
cover outstanding themes as follows: (1) considering quantitative
research method, (2) exploring innovation capacity on the service
sector, (3) identifying innovation capacity on stakeholders in
supply chain perspectives, (4) delving into how firm results can
be affected in each type of innovation capacity, (5) examining the
mediator of specific types of innovation capacities in the
relationship between many other factors such as customer
orientation, or market orientation or/and corporate social
responsibility and / knowledge management and networking with
business outcomes in term of the supply chain perspectives.
1. Introduction
Small and medium-sized business growth is the foundation and driving force of the
economic development of many countries (Donkor, Donkor, Kankam-Kwarteng, & Aidoo, 2018).
Thanks to the advantages of nature and scale, the types of small and medium enterprises are very
flexible because they can be easily and quickly adjusted, changed tactics and new strategies to
compete and develop in the uncertainty of the business environment. One of the weapons of
competition, building core competencies for both business level (Cardozo, McLaughlin, Harmon,
Reynolds, & Miller, 1993) and the national level is innovation (Beaver & Prince, 2002; Sandvik
& Sandvik, 2003). Innovation helps improve and enhance the organization’s performance,
discover new opportunities in the business environment (Bakar & Ahmad, 2010), form a
competitive advantage (Naranjo-Valencia, Jiménez-Jiménez, & Sanz-Valle, 2016) through new
processes, systems, and products to adapt to the market, the competitive environment and
technology changes (Utterback, 1994).
Truong Hoang Oanh et al. Journal of Science Ho Chi Minh City Open University, 10(4), 146-154 147
Researchers think that innovation helps to reach customers’ needs more because innovation
manifests itself in many forms such as ideas, methods, techniques, or tools that are applied more
effectively and efficiently than before (Raghuvanshi, Agrawal, & Ghosh, 2019). In business
administration, innovation is essential to the survival of the business, by developing innovation
capacity. Innovation capacity can be understood as the ability to create new or valuable knowledge
or products (Zheng, Liu, & George, 2010) and to know how to deliver that value to other
businesses and its customers (Budhwar, Pereira, Mellahi, & Singh, 2019). Therefore, innovation
capacity is at the heart of what small businesses need to look forward to competing with more and
bigger resources competitors. Many empirical studies on innovation capacity in the small business
contexts have accomplished into two lines of research: determinants of innovation capacity
(process) and consequences on innovation capacities (outcome). Although the number of reviews
on innovation is not small, most do not pay much attention to innovation capacity in the context
of small businesses. This paper aims to clarify the characteristics of innovation capacity in the case
of small and medium-sized enterprises, including microenterprises, through a system of
prestigious international articles on empirical research. The article structure is organized in four
sections including Introduction; Research Methods; Research results and discussion; and
Conclusion and future research directions.
2. Research methods
This article summarizes the empirical research results of international articles on
innovation capacity in business, in particular Micro, Small and Medium-sized Enterprises
(MSMEs). The articles are extracted from databases with highly respected academic and business
journals such as Springer, Emerald, and Science Direct. Articles are selected based on the
following criteria:
Table 1
Criteria for selecting articles in the review
Criteria
Select (+) or
Not selected (-)
Reasons
Articles with empirical evidence +
Provide empirical results on the innovative
capacity of MSMEs
Articles in peer-reviewed journals + Ensure quality articles
Articles in English + Covers high replicability
Articles in subject categories of
Business, Administration and
Accounting
+
Enhance practical contributions to the
sector
Innovation capacity within the
industry
+
Contribute to the enterprise and industry
level
Innovation capacity is at the national,
international and individual scope
-
Do not contribute to business or industry
level
Research results at the project level -
Do not contribute to business or industry
level
Articles in the theoretical or
conceptual model theory
- Do not offer empirical evidence
Working papers, conference papers,
books, handbooks, case studies
-
Ensure articles quality and limit research
scope
Source: Data analysis result of the research
148 Truong Hoang Oanh et al. Journal of Science Ho Chi Minh City Open University, 10(4), 146-154
The implementation process consists of 5 stages. The first stage was to select articles from
database journals and was limited to research papers with the keywords "innovation capacity" &
"small and medium enterprises", "innovation capacity"& “Micro, small and medium-sized
businesses” or “SMEs” or “small businesses”. The total number of articles found was 859. The
following stage was to select the subject area of "Business, Administration and Accounting", and
limit the time of the article published in the period from 2010 to 2020, the total number of articles
decreased to 156. In the third stage, the articles were filtered through the title based on the criteria
in Table 1, the number of articles decreased to 69. Next, the number of articles that continue to fall
to 48 in the fourth phase is done through reading the abstract. In the fifth period, the author has
read the full text of the articles. The number of articles excluded was based on the criteria in Table
1. Therefore, the final number of valid articles was 36.
3. Research results and discussions
3.1. Concept and classification of innovation capacity
In terms of innovation capacity for small businesses, there are two lines of research:
innovation is a process and innovation is an outcome. Therefore, there are two concepts of
innovation capacity.
Innovation capacity as a process and is a component includes many activities that could be
carried out to improve small business performance (Abdulai Mahmoud & Hinson, 2012; Castela,
Ferreira, Ferreira, & Marques, 2018; Song, 2015). Accordingly, innovation capacity is the ability to
continuously transfer knowledge and ideas to create new systems, processes, and products that
benefit businesses and stakeholders. In other words, “Innovation is an improvement anywhere in the
enterprise; not only in products, services, and processes but also on other factors such as leadership,
personnel, communications, organization, marketing and any other activities” (Csath, 2012, p. 10).
Small businesses have to be constantly involved in the innovation process to survive and thrive in a
competitive environment. Therefore, the first research line consists of two cases. In the first case,
innovation capacity is a component divided into three branches: direct impact on firm performance
(Omri, 2015); or as a mediator for other factors in the enterprise to interact such as market
orientation, corporate social responsibility (Abdulai Mahmoud & Hinson, 2012) to connect each
other to improve the performance of the business; or a component that affects another intermediary
so that the business can achieve higher performance. In the second case, innovation capacity consists
of many dimensions that combine and complement each other, contributing to the creation of
innovation capacity - like the potential to create innovation results (Boly, Morel, Assielou, &
Camargo, 2014; Emre Yildiz, Murtic, Klofsten, Zander, & Richtnér, in press; Martínez-Román,
Gamero, & Tamayo, 2011; Saunila & Ukko, 2014; Taneja, Pryor, & Hayek, 2016). The innovation
capacity recognized by these authors is the contribution of many different elements including
leadership, organizational culture, knowledge management, skills, management, optimization of
external knowledge, and creativity of employees. Some other studies defined innovation capacity as
a combination of competencies including academic competency, entrepreneurship, marketing,
networking, knowledge-building competencies, change management capacity, development
capacity (Forsman, 2011); service innovation, technological process innovation, management
process innovation (Baba, 2012); Innovativeness and capacity to innovate (Tamayo-Torres,
Gutiérrez-Gutiérrez, Llorens-Montes, & Martínez-López, 2016); internal innovation capacity and
open innovation (Agostini, Nosella, & Soranzo, 2017); Resource exploitation capacities, resources,
networking capacities, risk-taking and involvement (Raghuvanshi et al., 2019; Raghuvanshi & Garg,
2018). Specially, the research and development index of small businesses is considered as a small
part of the above dimensions to create innovation capacity.
Truong Hoang Oanh et al. Journal of Science Ho Chi Minh City Open University, 10(4), 146-154 149
Innovation capacity as an outcome of MSMEs or characteristics of innovation capability
of MSMEs is considered by the second line of research. With this perspective, innovation capacity
is conceptualized as the ability to produce explicit types of innovation such as product innovation,
process innovation, organizational innovation, marketing innovation, management innovation.
Product innovation is the most researched (Çakar & Ertürk, 2010; Chatzoglou & Chatzoudes,
2018; Landoni et al., 2016). Next, organizational innovation was much less studied (Ali,
Zwetsloot, & Nada, 2019; David, Ryman, & White, 2014). Production innovation capacity and
process innovation capacity were also studied together (Wahyuni & Sara, 2020). Most studies have
identified and recognized innovation capacities through a combination of innovation capacity
including product innovation, process innovation, organizational innovation, and marketing
innovation (De Martino & Magnotti, 2018; Kafetzopoulos & Psomas, 2015; Kafetzopoulos &
Skalkos, 2019; Rajapathirana & Hui, 2018). One study suggested that management innovation is
the essential action and capability to implement innovation of any organization (Maldonado-
Guzmán, Garza-Reyes, Pinzón-Castro, & Kumar, 2019); divided innovation capacity into radical
and incremental (Al-Ansari, Pervan, & Xu, 2013; Lewrick, Chen, Raeside, & Omar, 2012).
3.2. Context
Some studies have demonstrated that there are no substantial divergences in innovation
capacity between the service and manufacturing sectors; between different sizes of business
(Forsman, 2011; Saunila & Ukko, 2014). Small firms have put more emphasis on leadership that
supports innovation capacity (Saunila & Ukko, 2014). In other words, small businesses are more
innovative than medium businesses because small business managers pay attention to guide and
lead employees to enhance innovation capacity.
The focus of the majority of research on innovation capacity for micro, small and medium
enterprises in general (Al-Ansari et al., 2013; Castela et al., 2018; Saunila, 2017). On the other
hand, empirical studies on innovation capacity in the manufacturing sector are also numerous
(David et al., 2014; Kafetzopoulos & Psomas, 2015; Rajapathirana & Hui, 2018). The number of
studies in each specific industry is also of considerable interest such as high-tech industry
(Maldonado-Guzmán et al., 2019), food industry (De Martino & Magnotti, 2018; Kafetzopoulos
& Skalkos, 2019), banking services (Baba, 2012), telecommunications industry (Abdulai
Mahmoud & Hinson, 2012); textile industry (Wahyuni & Sara, 2020).
3.3. Determinants of innovation capacity
Based on the classification and concept above, the determinants of innovation capacity
include a multi-aspect. The first research perspective shows that innovation capability in small
businesses is determined by various dimensions. These key determinants include the ongoing
learning of the organization, including managers and employees (Song, 2015); elements of
knowledge, people and organizations (Martínez-Román et al., 2011); knowledge management
(Raghuvanshi & Garg, 2018); resources include knowledge and skills, involvement, networking
(Raghuvanshi et al., 2019). Other considerable factors that create innovation capacity are
considered strategic innovation including internal resources (humans, skills, cultural
organizational structure, and technology) and external resources (suppliers, distributors,
customers) and the collaborative factors of stakeholders such as employees, distributors, customers
(Taneja et al., 2016).
Innovation capacity is also determined by two components: innovativeness and capacity to
innovate collaborate with business strategy to improve business efficiency (Tamayo-Torres et al.,
2016). Innovation capacity is recognized and identified through diverse types of innovation
capabilities such as product, processes, organization, marketing, management, and networking.
150 Truong Hoang Oanh et al. Journal of Science Ho Chi Minh City Open University, 10(4), 146-154
3.4. Research methodology and the relationship between innovation capacity and firm
performance
The majority of empirical studies performed quantitative research methods through surveys
are chief executive officers, marketing managers, business expertise; business owners with a
structured questionnaire after consulting experts (group discussion, hand-to-hand discussions, and
collecting opinions via email) about the reality of the questionnaire, adjusting the questionnaire
through the pilot test.
It is worth noting that the researchers and scholars in this article used the medium sample
size from 436 samples (Kafetzopoulos & Skalkos, 2019); 340 samples (Donkor et al., 2018) in
view of Hair et al. (2006) to small sample size (115 samples) (Abdulai Mahmoud & Hinson, 2012)
for factor analysis, linear regression analysis by SPSS software. In addition, causal/causal model
analysis by partial least squares PLS (Latan & Ghozali, 2012) has been investigated by many
researchers. The research is highly appreciated for its convenience and small sample sizes, such
as Wahyuni and Sara (2020) using only 70 sample sizes for their research. In other cases, a
relatively small number of samples (122 sample sizes) were also used in cluster analysis and one
- way ANOVA and Post hoc Duncan test to identify the type of innovation capabilities in food
firms (De Martino & Magnotti, 2018).
Most studies emphasize the positive relationship between innovation capacity and firm
performance in SMEs. The role of innovation capacity is the foremost contribution to the business
results of the enterprise. Therefore, innovation capacity is discovered by many decisive factors
such as organizational capacity, knowledge management (Chatzoglou & Chatzoudes, 2018) to
create a competitive advantage to help enhance business performance.
Based on the review, studies have found and confirmed relationships through the following
table:
Table 2
Research methodology and the relationship between innovation capacity and firm performance
Research Methods
The relationship between
innovation capacity and firm
performance
Authors
Quantitative research, hypothesis
testing, expert interviews, surveys,
factor analysis; T-test, correlation
regression analysis; decentralized
regression analysis; linear
regression
Tools: SPSS
Industry: single industry such as
telecommunications; high
technology; banking services; food
industry; Textile industry
Affirming the consequence of
innovation capacity assists managers
understand why innovation is
necessary;
- There is a positive contribution to
the correlation (positive correlation)
between market orientation,
corporate social responsibility and
innovation capacity (mediator
factor) and firm performance; or
quality orientation, knowledge
orientation in an uncertain business
environment.
- Affirming that many types of
innovation capabilities such as
product or service innovation
technological process innovation;
Abdulai Mahmoud and
Hinson (2012), Baba
(2012), Kafetzopoulos
and Psomas (2015),
Lewrick et al. (2012),
David et al. (2014),
Wahyuni and Sara
(2020)
Quantitative research, hypothesis
testing, expert comments via
email/group discussions,
questionnaire surveys, factor
analysis, CFA, SEM; or PLS SEM
Tamayo-Torres et al.
(2016), Al-Ansari et al.
(2013), Omri (2015),
Donkor et al. (2018)
Truong Hoang Oanh et al. Journal of Science Ho Chi Minh City Open University, 10(4), 146-154 151
Research Methods
The relationship between
innovation capacity and firm
performance
Authors
Analytical tools: SPSS or
SmartPLS
Industry: multi-industry
innovation management process;
organizational innovation;
Marketing innovation contributes to
business performance through
analysis and evaluation of non-
financial indicators such as customer
satisfaction, sales growth, profit
growth, market share or/and
financial criteria such as revenue,
profit level, ROS, ROI.
Source: Summary of the author, 2020
4. Conclusions and future research directions
4.1. Conclusions
This review of empirical studies highlights five key issues in researching innovation
capacity for SMEs. First, these empirical studies have illustrated that innovation capacity
conceptualized either as the processor as the outcome, affects firm performance. Secondly, the
number of empirical studies on innovation capacity in SMEs at this stage in a single sector is
equivalent to that of many general industries. Third, there is more empirical research in the general
and manufacturing sectors than in the service sector and there is a small amount of research
comparing the characteristics of innovation capacity between manufacturing and services.
Fourthly, the empirical researches focused mostly on the questionnaire survey, only a few studies
have used qualitative research.
Finally, the empirical research group considers the innovation capacity as a process to
confirm decisive factors such as knowledge factors (knowledge management, knowledge of
managers, employees, suppliers, distributors) contribute to generating innovation capacity.
Emphasizing the dominant mediator role of innovation capacity between market orientations,
corporate social responsibility, and networking is a new and outstanding issue in the research that
contributes to the success and growth of small businesses.
For practitioners, the findings have shown that small businesses could utilize numerous
forms of innovation capabilities. Whilst some businesses can be able to create innovation capacity,
others need to set up many different activities to take advantage of innovation. Truly, not all
businesses receive optimal success from innovation, being able to innovate and innovation
capacity. Therefore, business managers need to choose the right and appropriate aspect of the
innovation capacity based on their specific business needs.
4.2. Future research directions
This review brings many directions for upcoming research. First, upcoming research needs
to consider qualitative research instead of quantitative research using structured survey
questionnaires. Second, upcoming innovation studies are more focused on the service sector or a
combination of manufacturing and service sectors rather than on joint research or manufacturing.
Further, the research can delve into how firm results can be affected in each type of
innovation capacity; or more research on management process innovation capacity, process
innovation capacity, and marketing innovation capacity. Further in-depth research can examine
152 Truong Hoang Oanh et al. Journal of Science Ho Chi Minh City Open University, 10(4), 146-154
the mediator of specific types of innovation capacities in the relationship between many other
factors such as customer orientation, or market orientation, or/and corporate social responsibility
and / knowledge management and networking with business outcomes in terms of the supply chain
perspectives.
Studies show that the method of collecting data using structured questionnaires has been
used only for business owners, executives, marketing/sales/production/service/sales managers.
There is a lack of surveys of suppliers, distributors, and customers to review the overall impact of
innovation capacity on firm performance.
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