DOI: 10.17169/refubium-39563
title: Three essays on analyzing and addressing SME innovation heterogeneity

description: Small- and medium-sized enterprises (SMEs) are an important force for promoting innovation in China as they represent the bulk of China’s industrial fabric and have the most innovative vitality and potential due to entrepreneurial dynamism, organizational flexibility, and fast responsiveness. However, SMEs generally lack financial, technological, and human resources to develop innovation. Furthermore, innovation gives rise to externalities, which could reduce the incentive of SMEs to engage in innovation. Therefore, public aids are needed in support of SME innovation. In light of the variety of innovation behavior among SMEs, innovation policies should be designed to target certain SMEs and support them according to their specific characteristics. In addition, with a strong focus on formal R&D and main types of technological innovation (i.e., product and process innovation), prior research restricts a comprehensive understanding of diverse innovation activities, especially non-R&D activities, and different innovation types, especially non-technological innovation. Given the need for targeted innovation policies and the under-researched heterogeneity among innovating SMEs, the general aim of this dissertation is to analyze and address SME heterogeneity in terms of innovation activities and types. This dissertation is organized into five chapters. Chapter 1 introduces research motivations, theoretical background, research design, and an overview of the three articles presented in Chapters 2, 3, and 4. Chapter 5 concludes by discussing the contributions to innovation research, innovation policy, and innovation management, along with the limitations of this dissertation and the directions for future research. Three empirical articles in Chapters 2, 3, and 4 constitute the core of this dissertation and they are summarized in the following. The first article in Chapter 2 empirically analyzes SME heterogeneity in innovation activities by exploring how SMEs undertake distinct internal and external activities. This article, focusing on non-R&D sources of innovation, compares non-R&D and R&D SMEs with respect to the separate and combined effects of non-R&D activities on product and process innovation. Drawing on a database collected from 1,392 manufacturing SMEs in China, empirical result reveals heterogeneous importance of non-R&D activities to product and process innovation for non-R&D and R&D SMEs. Specifically, non-R&D SMEs rely mainly on embodied knowledge to introduce technological innovation, while R&D SMEs can access external knowledge from customers and scientific sources to develop product innovation and also from suppliers to introduce process innovation. In addition, substitutability is found between internal and external innovation strategies composed of non-R&D activities, which is limited to product innovation for non-R&D SMEs and process innovation for R&D SMEs. The second article in Chapter 3 contributes to the empirical analysis of SME heterogeneity in innovation types with the use of different combinations of innovation types. This article investigates SMEs’ combined use of different innovation types as well as the effect of the combination of innovation types on SME performance. The empirical analysis is based on data from 1,139 Chinese manufacturing SMEs. The results of factor analysis imply a tendency of combining product, quality, and organizational innovation and the other tendency of combining efficiency and flexibility innovation. A conditional approach to supermodularity is used to test for the relationship between different types of innovation. The results show that product, quality, and organizational innovation are neither complements nor substitutes, meaning that their combination generates only additive effects on SME performance. It is also found that substitutability between efficiency and flexibility exists without organizational innovation but it disappears with organizational innovation, which suggests that simultaneous organizational innovation is required for better use of efficiency and flexibility innovation in combination. The third article in Chapter 4 addresses SME innovation heterogeneity through a comprehensive identification of SME innovation patterns. Based on a sample of 1,127 Chinese manufacturing SMEs, this article identifies SME innovation patterns in innovation activities and innovation types and uses the identified innovation patterns to analyze the relationship between innovation and SME performance. The innovation activities associated with internal and external knowledge sourcing characterize three innovation sourcing patterns, namely internal sourcing group, low sourcing group, and open sourcing group, which differ in activeness and openness of knowledge sourcing. The innovation types involving technological and non-technological types of innovation profile three innovation introducing patterns, namely production innovators, product innovators, and multifaceted innovators, which differ in the variety of innovation types introduced. Regarding the relationship between innovation sourcing and introducing patterns, being active in innovation activities increases the likelihood of introducing various innovation types and being open is most likely to capture a variety of innovation types. The results for the relationship between innovation introducing patterns and SME performance show that production innovators combining efficiency and flexibility innovation experience decreased performance while product innovators focusing on product innovation and multifaceted innovators combining technological and non-technological innovation achieve better performance.