Innovation Capabilities in Small Catching-Up Economies: Evidence from Food Production and Tourism Sector SMEs

Abstract

This chapter presents the results of the study of the innovation capabilities of small- and medium-sized enterprises (SMEs) in Estonia, Latvia and two catching-up regions in Poland and Germany. We distinguished between various capabilities, such as a company’s basic assets (e.g., human, technological, and financial resources) and competencies (e.g., available knowledge and skills, and the ability of the company to use its basic assets and develop an innovation-facilitating culture), and aimed to identify their relationship with the company’s past and planned innovations and performance, and to compare results across countries. We interviewed 245 top managers from SMEs involved in tourism (mainly accommodation) and food production. Quite positive estimations revealed that managers of SMEs in catching-up economies believe that they possess the necessary innovation capabilities and have the potential to introduce innovations. SME competencies were found to be related to turnover, profit, and the presence of past and planned innovations. Access to financial resources combined with entrepreneurial orientation and an innovation-facilitating culture contributed most to new product development, the number of undertaken or planned innovations and profit and turnover. The differences between countries were more salient in tourism sector enterprises. Latvian managers gave the lowest estimate for almost all competencies, and were less involved in introducing innovations compared with their counterparts in Estonia, Poland, and Germany. We imply that while striving to introduce new products/services to the market, SMEs in catching-up economies may overlook the importance of improving their competencies; that is, internal resources, which may contribute better to developing a competitive advantage.