INNOVATION CAPABILITY OF MICRO ENTERPRISES IN INDIA

Abstract

Advancements in technology, communication and transportation have led to a rapid growth in global business. Reduced trade barriers because of globalization have considerably facilitated selling of services and goods to other countries. Nevertheless, globalization has also given rise to various challenges for indigenous businesses, the most conspicuous being a tremendous increase in competition between domestic and foreign firms. Domestic companies have faced stiff challenge especially where the quality of foreign products is better than that of indigenous ones. Further, advancements in technology have decreased the need for human labor resulting in loss of jobs for many people. Such impact of globalization made firms around the world look for ways to enhance their efficiency and effectiveness. Organizations were forced to devise new practices, processes and managerial approaches to cut down costs and raise productivity in addition to offering good products and services. Increased competition also led to greater customer expectations and they demanded better products and services at lower costs. Easy access to information enabled consumers further as they could make informed and intelligent decisions regarding what to buy, and where to buy from. Thus, innovation became a necessity for businesses in order to survive in the global competitive market. Innovation can be understood as an idea, method, technique or instrument that is more effective or efficient than the previous one. It can also be seen as the implementation of better and improved solutions that fulfill new needs, or meet existing needs better. In business parlance, innovation may be defined as an instrument through which organizations manufacture new products, systems and processes to adapt to changes in markets, technological and competitive environment and consider innovation as a key driver of corporate success. The fact that innovation is vital to the survival of organizations today, has led them to constantly strive towards developing their innovation capability (IC). Existing literature also highlights the significance of innovation Capability for better firm performance. Regardless the importance of innovation to every kind of organization, earlier studies has been specifically targeted on technology-rich (Hi -tech industries) and production industries. Even though various researches in the past decade have started to address this concern. According to, various researchers’ innovation in technology- dark environment (Micro and Small enterprises) is not properly understood. Adoption of innovation strategies by firms also contributes to economic growth, new employment, and greater wealth. On the other hand, smaller firms not embracing innovation as a core business strategy may rendered competitiveness due to outdated processes and products. iv Most firms today recognize the importance of innovation and seek to develop their innovation capability. Existing literature also underscores the significance of innovation capability for better firm performance. Scholars have defined innovation capability from several different perspectives. The identification of the factors of innovation capability is important for the firms who are willing to develop their innovation capability. However, to be aware about the current position of a firm with regard to its innovation capability, it needs to be measured. To develop innovation capability, its measurement is important, and by extension, a proper measuring tool is required that measure innovation capability and its effects. In India, micro enterprises make up 94% of the Indian MSME sector. The micro sector’s contribution to the national growth, its enormous potential to contribute further, and need to innovate gave the researcher concrete reasons to investigate which factors led to development of innovation capability in this particular. While there are several studies that have examined drivers of, and barriers to innovation capability in various contexts, to the best of the authors’ knowledge, no study in the past has identified factors of innovation capability especially in context of micro enterprises in India. The present study on the basis of existing literature, expert’s opinion, and empirical analysis, identifies the various factors of innovation capability and determine the causal relationship among them in context of micro enterprises in India. Further, the study develops a scale to measure innovation capability of micro enterprises in India and identified four major dimensions (resources, networking, risk taking, and involvement) of innovation capability, and suggested four strategies (defensive, clustering, follow up and aggressive) to develop their innovation capability. This study also provides suggestions to policy makers and micro enterprise owners to develop the sector.