functions, and procedural innovations, which consists of changes to routines, processes, and operations of a company. Thus, these innovations change or implement new procedures and processes within the company, such as simultaneous engineering or zero buffer rules.

Marketing innovation is a change made to incorporate the advances in marketing science, technology or <u>engineering to increase the effectiveness and efficiency of marketing, to gain competitive advantage.</u> In order to examine the innovative behavior of firms in the South Asia region, we use the World Bank Enterprise Survey and its specific innovation module implemented in the region during the 2014 and 2015 years. The survey, which compiles data from face-to-face interviews, uses a stratified sampling method where firms are stratified by industry, size, and location. Firm-size levels are 5-19 (small), 20-99 (medium), and 100+ employees (large-sized firms). Since in the South Asia region most firms are small and mediumsized, the Enterprise Survey oversamples large firms. Overall, the data set has around 5,500 observations unevenly distributed between the four South Asian countries. For instance, the number of firms surveyed in India surpasses what was surveyed in the other three countries jointly (see Table 1). Regarding the sector composition of the sample, more than 4,000 firms belong to the manufacturing sectors, while only 1,266 firms operate in services. The survey targeted formal firms only and excludes micro firms, although few firms in the survey are de facto micro as they had fewer than 5 employees.

Table 1. Sample composition

||**M**<br>**small(<20)**|**anufacturing**<br>**Medium**<br>**(20-99)**|**Large**<br>**(100 and**<br>**over)**|**Ser**<br>**small(<20)**|**vices and oth**<br>**Medium**<br>**(20-99)**|**er**<br>**Large**<br>**(100 and**<br>**over)**|**Total**|
|---|---|---|---|---|---|---|---|
|Bangladesh|228|323|301|80|44|11|987|
|Pakistan|191|222|107|41|45|18|624|
|India|647|1,199|791|261|334|196|3,428|
|Nepal|89|102|43|188|42|6|470|
|Total|1,155|1,846|1,242|570|465|231|5,509|

Source: Enterprise Survey (2014) The innovation survey differentiates between two types of technological innovations (product and process) and two types of non-technological innovations (organization and marketing). However, since the survey relies on subjective interpretations of innovative activities, there is significant confusion when identifying the different types of innovation. For example, new marketing processes, like discounts, new packaging or new client segments, are sometimes misconstrued with process or product innovations. The fact that interviewees provide a recorded description of product and process innovations allows the user to verify the identified innovations and reclassify wrongly attributed cases to their respective category or invalidate cases that do not constitute an innovation at all. This exercise has been conducted by Cirera and Sabetti. 2019, who provided “clean innovation data” (see Appendix for methodological description). For the overall sample of South Asia firms, the cleaning exercise conducted by the authors has decreased both product innovation - from 53% to 51% - and process innovation rates from 64% to 58%. Although the cleaning exercise reduced innovation rates for most countries, Nepal is an exception where product innovation increased from 10% to 12% as the result of reclassification from process innovations.

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