The Gist of Yojana: January 2015
Technological Innovation in Manufacturing SMES: A Decisive Means of
Competitiveness
Of 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 growth rates vary between firms, regions and nations. Therefore,
technological innovation is considered as the prime factor of economic change.
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.
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.
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 playa 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, 20
I 0). 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.
Technological Innovation: Meaning and Importance
Technological innovation is a concept that is sufficiently
complex, multi-dimensional and impossible to measure directly (Hansen, 2001).
Therefore, technological innovation has been defined in various ways. But the
most widely quoted definition of technological innovation refers to OECD (1997):
“A technological 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 implementation/adoption 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.
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 products/processes); (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.
By virtue of its relationship with competitiveness,
technological innovation emerges as a major 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.
But it is important to understand what prompts firms to
undertake ‘technological innovations? The available literature on the
determinants of technological innovation of firms is diverse and complex (Bala
Subrahmanya, 2001). However, broadly, there are two major approaches to describe
technological innovations: they are classified as “demand-pull” and
“technology-push” theories of innovation:
On the one hand, economists have often emphasized the role of
demand in prompting firms to undertake technological innovations. They argued
that ‘necessity is the mother of invention’ and without a market need, an
innovation is unlikely to emerge and even if it emerges, it will not be
successful. Thus, it is the market demand that is primarily responsible for
innovation.
