SEEDBED OF NEW INITIATIVES Technological Innovation in Manufacturing SMES: A Decisive Means of Competitiveness M H Bala Subrahmanya The author is the Chairman and a Professor of Economics at the Department of Management Studies, Indian Institute of Science (IISc), Bangalore. . He was the recipient of Commonwealth Fellowship Japan Foundation Fellowship (2004/2005); and Fulbright-Nehru Senior Research Fellowship (2009/2010). He has worked as a Visiting Research Fellow at University of Durham, UK (February-July 2000); National Graduate Institute for Policy Studies (GRIPS) Tokyo, Japan (March 2005 - February 2006); and at University of California, Davis, USA (September 2009 - April 2010). His field of specialization is Industrial Economics. Perhaps India has the second largest and diversified SME base (next to China) in the global economy today. Obviously, this would offer a potentially rich seedbed for innovations and economic f late, technological innovation has been assuming increasing importance as a means of competition between nations across the world. This is because technological innovation has the potential to induce growth of individual firms at the micro level and give a new direction to industry growth at the macro level. It has emerged as a major explanatory factor for why R T S
growth rates vary between firms, regions and nations. Therefore, technological innovation is considered as the prime factor of economic change. Technological innovation is the ultimate source of productivity and growth, and it is the only proven way for economies to consistently get ahead (Solow, 1987). Among different sectors of an economy, manufacturing industry sector has helped to drive economic growth and rising living standards for nearly three centuries and continues to do so in developing countries even now (McKinsey Global Institute, 2012). In fact, it is the manufacturing sector which has been always at the forefront of accelerating economic growth and transforming economic structure of nations through innovation and productivity growth. Thus, the stimuli for innovation and productivity growth led competitiveness emerges from the manufacturing industry (McKinsey Global Institute, 2012). Among firms of different sizes in the manufacturing industry, Small & Medium Enterprises (hereafter SMEs) including start-ups, have the unrealized potential for innovation (Chaminade and Van-Lauridsen, 2006). This is because SMEs by their very nature are more flexible, better adaptable and receptive, have efficient internal communication, simple organizational structure and effective among others, which are some of the “imperative qualities” for undertaking innovations (Harrison and Watson, 1998). What is more significant is that, there is empirical evidence to show that a number of SMEs in wide varieties of sectors across countries do engage in technological innovations, which play a crucial role in enhancing their economic performance (Hoffman, et al, 1998). Small firms are considered more efficient at performing innovative activities and are, in fact, the major source of innovations (Breitzman and Hicks, 2008; International Finance Corporation, 2010). That is why, small firms are alleged to be the seedbed of the new initiatives from which will emerge the successful businesses and industries of the future (Beesley and Hamilton, 1984). Given these, it is important to understand the following issues: What is technological innovation? What factors determine technological innovation? What are the pre-requisites for SME innovations? How do innovations benefit SMEs? How to promote innovations in the Indian SME sector? These issues are elaborated in the following four different sections of this article. Technological Innovation: Meaning and Importance Technological innovation is a concept that is sufficiently complex, and impossible to measure directly (Hansen, 2001).
Therefore, technological innovation has been defined in various ways. But Mytelka (2000) defined innovation within the context of developing country as the process by which firms master and implement the design and production of goods and services that are new to them irrespective of whether they are new to their competitors, their customers or the world. the most widely quoted definition of technological innovation refers to OECD (1997): “Atechnological product innovation is the implementation/ commercialization of a product with improved performance characteristics such as to deliver objectively new or improved services to the consumer. A technological process innovation is the of new or significantly improved production or delivery methods. It may involve changes in equipment, human resources, working methods or a combination of these”. In developing countries, however, the concept has been given a wider meaning. Cooper (1980) defined innovation as the introduction of a process or product that is new to the economy of a particular developing country, regardless of whether it has been used before elsewhere. It includes all modifications or adaptations of processes or products that are new to the economy, however minor they may be. Mytelka (2000) defined innovation within the context of developing country as the process by which firms master and implement the design and production of goods and services that are new to them irrespective of whether they are new to their competitors, their customers or the world. According to UNU-INTECH (2004), innovation includes purchase of new machinery and equipment as well as licensing. According to the National Knowledge Commission of India, “Innovation is defined as a process by which varying degrees of measurable value enhancement is planned and achieved, in any commercial activity. This process may be breakthrough or incremental, and it may occur systematically or sporadically in a company; it may be achieved by: (i) introducing new or improved goods and services and/or, (ii) implementing new or improved operational processes and/or, (iii) implementing new or improved processes” (NKC, 2007). Thus, it is important to understand that there is no uniformly accepted definition of “technological innovation” and have defined it differently to suit their research contexts and environments. But broadly, Technological Product and Process (TPP) innovations may be defined to comprise ‘the development of new products and processes and significant improvements in products and processes by firms, which can be
altogether new to the industry or only to the firm concerned’ (Bala Subrahmanya, et al, 2010). As the above discussion indicates, technological innovation can be of different kinds. But the most notable dimensions of technological innovations are: (i) radical innovations (an altogether new product or new process to the world is introduced by a firm) and incremental innovations (improvements are made to the existing (ii) product innovations and process innovations. Further, technological innovation is just one form of innovation. Innovation may take place in any other functional area of management such as marketing innovation, financial innovation and organizational innovation, among others. But many see innovation as only technological in nature, resulting in the development of new products like Apple’s iPad or Boeing’s 787 Dreamliner (Atkinson, 2013). In fact, technological innovation is a key factor in a firm’s competitiveness and it is unavoidable for firms which want to develop and maintain a competitive advantage and/or gain entry into new markets (Becheikh, et.al. 2006). Technological innovation is a means to productivity growth and higher living standards (Zemplinerova and Hromadkova, 2012). It can be a critical driver of increasing productivity and competitiveness (Council on Competitiveness, 1999). technological innovation is a key factor in a firm’s competitiveness and it is unavoidable for which want to develop and maintain a competitive advantage and/or gain entry into new markets (Becheikh, et.al. 2006). Technological innovation is a means to productivity growth and higher living standards (Zemplinerova and Hromadkova, 2012). It can be a critical driver of increasing productivity and competitiveness By virtue of its relationship with competitiveness, technological innovation emerges as a factor promoting competitiveness and economic growth. It contributes significantly to the building up of national competitiveness. Improvements in national innovative capacity are not a zero sum game. If many nations can improve their technological innovation capability, all will enjoy more rapid growth in productivity and with it, an improved standard of living (Council on Competitiveness, 1999). Determinants of Technological Innovation: Basic Theoretical Underpinnings But it is important to understand what prompts to undertake technological innovations? The available literature on the determinants of technological innovation of firms is diverse and complex (Bala
Directorate of Industries and District Industries Centres. “Champion Innovators” among the SME entrepreneurs may be identified from different regions and enable them to periodically communicate their “innovation achievements” to other SME entrepreneurs. A motivated few should motivate the rest. Other things being equal, vertical linkages in the form of collaborations between SMEs and large firms (including MNCs) should be encouraged, by facilitating the latter to overcome information asymmetry through periodic arrangement of buyer-seller meetings at the state- level. In addition, an Collaboration Portal” may be set up with all the required information on the manufacturers of intermediate products (SMEs), provision for free registration for both buyers (large firms) and sellers (SMEs), information on (i) requirements for inter-firm collaboration, (ii) possible benefits arising out of such a collaboration, (iii) “success stories” of inter-firm collaboration from India and abroad, etc. This portal should be widely publicised. Horizontal collaboration involving interactions should be promoted for the benefit of SMEs. The vast network of engineering institutions across the country should be facilitated to move closer to local SMEs through collaborative work for innovations. This would mutually The Ministry of MSMEs may constantly propagate the “virtues of innovations” among the vast SME populace across the country through state level Directorate of Industries and District Industries Centres. “Champion Innovators” among the SME entrepreneurs may be identified from different regions and enable them to periodically communicate their “innovation achievements” to other SME entrepreneurs. A motivated few should motivate the rest. contribute to the up-gradation of quality. Particularly, engineering student projects should be linked to local SME technical problems towards ascertaining solutions. This exposure might even encourage innovative entrepreneurship to emerge gradually from our engineering institutions. To conclude, systematic and consistent policy efforts are imperative to exploit the innovation potential of the vast and growing SME sector in India. This can enhance SME competitiveness and thereby enable them to contribute more intensively to the economic prosperity of our nation in the future. Readings: Atkinson, D (2013): Competitiveness, Innovation and Productivity: Clearing up the Confusion, The Information Technology & Innovation Foundation, Washington, DC. Bala Subrahmanya, M H (2001): “Technological Innovations in Small Firm