Factors Affecting Innovations in Small and Medium Scale Enterprises (SMEs)

Small and Medium scale Enterprises (SMEs) are considered as the backbone of every economy, due to their multifaceted contribution towards employment generation, GDP, export and industrial production. However, in this knowledge based economy the sustainability of these firms are significantly influenced by their innovativeness and uniqueness in their operation. Research results show that, in order to succeed in the competitive market, the entrepreneur or manager should have an innovative edge against rival firms. Innovation is the only solution to sustain and thrive in the competitive market. Innovative capacity of SMEs varies significantly depending on their size, sector, resources and business environment in which they operate. Innovative firms have registered a high growth rate as compared to non-innovative firms in terms of sales, investment and employment. As compared to larger firms, small firms are flexible and non-bureaucratic in operation which is considered as the focal point of innovation. Innovation, competitiveness and firm's performance are interconnected. This study makes an attempt to expose various factors affecting innovation in SMEs. Intellectual Property Rights (IPRs), investment in R&D, number of products produced, new method of production and new technology used for the last three years are taken as the proxy for measuring innovation. Data were collected by using a questionnaire and analyzed by using logistic regression method. The study concluded that, the age of the firm and the size of the firm have a significant impact on determining innovation in SMEs, whereas the location in which the firm is operating and nature of ownership does not have any significant role in distinguishing innovative firms from non- innovative firms.