Technovation 29 (2009) 438

n
e

, L

F. K

1. Introduction

product innovations as a means to becoming competitive
to a higher extent than their large counterparts. In this

paper by innovation, we mean a new or signiﬁcantly

Because of the importance of the SME sector in creating
economic growth, both developed and developing coun-
tries are very interested in ﬁnding ways to stimulate SMEs

ARTICLE IN PRESS
in realizing innovations. But in which ways can SMEs be
helped to innovate? What is the best way for policy makers
to encourage innovation? Many efforts have been made in

doi:10.1016/j.technovation.2008.12.002

�Corresponding author. Tel.: +385 1 236 2238; fax: +385 1 2335 165.
E-mail addresses: sradas@eizg.hr (S. Radas),

ljbozic@eizg.hr (L. Bozˇic´).
Small and medium enterprises (SMEs in further text) are
considered to be the engine of economic growth and
employment. One of the primary means through which
SMEs are expected to accomplish this task is by developing
and commercializing innovations. Innovation may be even
more important for SMEs than for large ﬁrms: some
authors (Fritz, 1989; Sweeney, 1983) deem that SMEs use

improved product (good or service) introduced to the
market as well as new or signiﬁcantly improved process
introduced within the enterprise. We investigate both
incremental and radical product innovations. Incremental
innovation refers to product line extensions or modiﬁca-
tions of existing platforms and products, while by radical
innovations we mean products that are new to the market
as well as for the company.
Understanding forces that contribute to the success of small and medium enterprises (SMEs) is very important, as these enterprises are

vital for both developed and developing economies. Since innovativeness is among the most important means through which such

businesses contribute to economic growth, numerous research studies were conducted to determine which factors positively impact

SME’s innovative efforts. This is an even more important issue for developing economies, where SMEs are often faced with inadequate

infrastructure. Since there is a lack of studies on SME innovation in developing economies, often policy in such countries is based on

ﬁndings from developed countries.

In this paper, we explore factors that drive innovation activities in SMEs in a small emerging transition economy (Croatia), and

compare it with ﬁndings from developed economies. In addition to factors used in most previous studies, we consider market scope,

ﬁrm’s market orientation and presence of strategic, managerial and marketing changes. We ﬁnd that most factors that were found to be

important in developed economies are important in developing economies as well. In addition to that, market scope was discovered to be

a very important factor in both product and process innovation. Implementing corporate changes has positive impact on radical product

innovation while implementing new organizational structures has positive effect on incremental innovation. When investigating

determinants of product innovation, we distinguish new products of low novelty from new products of high novelty, and show that they

need to be supported by different policies. To gain additional insight in innovation efforts, we examine obstacles to innovation.

We ﬁnd that ﬁrms that report facing obstacles are not less likely to innovate less, which suggests that innovators are able to work

around obstacles without damaging effects to innovation. This study is based on a postal survey of 448 SMEs in Croatia, which was

performed in 2004.

Keywords: SME; Innovation; Developing country
Abstract
The antecedents of SME in
transition

Sonja Radas�

The Institute of Economics, Trg J.
–450

ovativeness in an emerging
conomy

jiljana Bozˇic´

ennedy 7, 10000 Zagreb, Croatia

www.elsevier.com/locate/technovation

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nov
that direction during the last few decades (Keizer et al.,
2002). If we could understand how SMEs innovate and
what propels them to innovate, answering these questions
would be much easier. Interestingly, despite the strong
commitment to supporting SMEs, the actual process by
which such ﬁrms undertake innovative activity remains
unclear (Hoffman et al., 1998). Therefore, the ﬁrst step in
devising the right incentives to support innovation in SMEs
is an investigation into which factors impact the innovation
efforts of SMEs and in which way (Keizer et al., 2002).
Since SMEs are integrated in the region in which they

exist to much larger extent than large ﬁrms, the determi-
nants of innovation for SMEs depend on speciﬁcities of
that region (Kaufmann and Todtling, 2002). For example,
Keizer et al. (2002) show that using innovation subsidies,
having links with knowledge centers, and the percentage of
turnover invested in R&D are the most important factors
for innovation in SMEs in Netherlands (more precisely, in
the Brabant region), which has direct impact on their
policy recommendations. However, basing policy measures
on these results may be ineffective for other countries
because the same factors may not be as crucial for
another region and another economy. For example,
Kaufmann and Todtling (2002) in their investigation of
SMEs in Upper Austria show that support measures that
are not in tune with real situation ‘‘on the ground’’ can be
rather ineffective.
Most published research studies, which deal with

determining factors signiﬁcant for SME innovation, come
from developed economies. As noted in Hadjimanolis
(1999) ‘‘The study of innovation, including the obstacles to
its successful implementation, while relatively well re-
searched in the industrialized countries is rather neglected
in less-developed countries.’’ It is not known to which
extent the ﬁndings from developed countries can be
generalized to developing economies. For example, in the
context of technology management, Cetindamar et al.
(2009) show the importance of questioning the appropri-
ateness of US-based management theories with regard to
their use in developing countries. Yet policy makers in
developing countries, faced with the task of crafting
regulations to support SME innovation, often draw upon
the stock of knowledge from investigation of SMEs in
developed economies. So an important issue for policy
makers would be to ﬁnd out to which extent they can rely
on these ﬁndings. In this paper, we shed some light on this
question by investigating factors that signiﬁcantly impact
innovation in SMEs in Croatia, a small developing
economy. In investigating these factors, we build upon
the existing ﬁeld of research about innovation determinants
in SMEs. Our data come from the Community Inno-
vation Study performed in 2004 and covers period from
2001 to 2003.
Following Keizer et al. (2002), we deﬁne a list of

variables and then proceed to examine their signiﬁcance for

S. Radas, L. Bozˇic´ / Tech
innovation in Croatian SMEs. We take relevant ﬁrm
characteristics (as is usual in the literature), but in addition
we include some new variables. We include (1) market
scope, (2) presence of organizational and strategic changes
in the ﬁrm and (3) market orientation of the ﬁrm. To the
authors’ knowledge, except for market orientation in
Salavou and Lioukas (2003) study of Greek SMEs, the
three mentioned variables were not considered in this
context before. We include market orientation because it
was shown to have strong link with innovation (Kohli and
Jaworski, 1990; Deshpande´ et al., 1993; Slater and Narver,
1994; Atuahene-Gima, 1996; Langerak et al., 2004). We
consider organizational and strategic changes because
willingness and ability to transform is important for ﬁrms
in developing economies which need to improve in order to
compete and survive. As Hadjimanolis (1999) points out
‘‘While ﬁrms in less-developed countries, in the recent past,
were operating within a relatively protected environment,
they must now face the global forces of competition. The
globalization of the markets requires the adaptation of
ﬁrms in order to survive.’’ We also investigate the effect of
market scope, i.e. ﬁrm’s dominant market on innovation
(dominant market can be local, national or international),
as this is an important issue for a small economy. Since
innovating with incremental innovations is different than
innovating with radical innovations in terms of factors
(Balachandra and Friar, 1997) and skills (Freel, 2005)
required, in this paper we distinguish new products of low
novelty (incremental innovations) from new products of
high novelty (radical innovations). In this respect, our
approach is similar to Amara et al. (2008) who considered
both the innovation and novelty of innovation in their
study of learning and innovation in SMEs.
By exploring determinants of innovation, we gain

knowledge about what propels an enterprise to innovate.
This picture is not complete without the investigation of
hampering factors that prevent ﬁrms from innovating.
This is why in this paper, we also examine obstacles
to innovation.

2. Theoretical background and literature review

Stimulating innovation in SMEs is a very important
matter for an economy; a number of studies were
conducted recently with the goal to discover which factors
contribute to innovation efforts by SMEs (Keizer et al.,
2002). Following Keizer et al. (2002), the factors that have
effect on innovation can be divided into internal and
external, where internal variables refer to characteristics
and policies of SMEs while external variables refer to
opportunities that SME can seize from its environment.

2.1. Internal factors bearing impact on innovation

Among the internal factors shown to be the most
important determinants of innovative activity are high
incidence of qualiﬁed scientists and engineers, and strong

ation 29 (2009) 438–450 439
leadership provided by a highly educated director or founder
(Hoffman et al., 1998; Le Blanc et al., 1997), although some

consider a list of both internal and external variables.
Although for most of the described variables, the sugges-
tion is that they have a direct and a positive effect on
innovative efforts (Keizer et al., 2002), there is no absolute
consensus on that. For example, while Hoffman et al.
(1998) report that internal factors have more bearing on
innovation than external factors, Keizer et al. (2002) ﬁnd a
limited number of both external and internal variables that
have a signiﬁcant inﬂuence on innovation efforts where

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novation 29 (2009) 438–450
studies do not ﬁnd that effect (Keizer et al., 2002). Among
other internal factors, Docter and Stokman (1988) and
Oerlemans et al. (1998) report that existence of technology
policy instruments in the ﬁrm and planning for the future are
internal factors linked to innovation efforts. Larson et al.
(1991) and Meer et al. (1996) claim that application of
project management structures has bearing on the innova-
tion activities. Strategy is another internal factor that is
shown to have impact on innovation in SMEs. In particular,
Birchall et al. (1996) and Carrier (1994) mention explicit
strategies to increase and stimulate internal creativity and
risk taking behavior. Yet another internal variable is
investments in R&D (Birchall et al., 1996; Oerlemans et al.,
1998). Among other internal factors that were found to be
important determinants of success of innovative efforts are
the nature of the commercialization and marketing effort,
the degree of marketing involvement in product planning
and ﬁrm competence in the area of technology strategy and
technology management (Hoffman et al., 1998).

2.2. External factors bearing impact on innovation

Regarding external factors, Keizer et al. (2002) group
them into three sets: collaboration with other ﬁrms,
linkages with knowledge centers and utilizing ﬁnancial
resources or support regulations. Entrepreneurs consider
collaboration with other ﬁrms as a very important part of
their innovation efforts (Massa and Testa, 2008). In
particular, Kaminski et al. (2008) show that collaboration
with suppliers can contribute to innovativeness of SMEs.
Collaboration with suppliers may also have the goal to
overcome size constraints as reported in Lipparini and
Sobrero (1994), while collaboration with both suppliers
and customers may be performed for the purpose of co-
design (Birchall et al., 1996; Meer et al., 1996; Docter and
Stokman, 1988; Davenport and Bibby, 1999). Collabora-
tion with customers can be a source of improved
technology (Le Blanc et al., 1997). Strategic alliances are
also shown to be important inﬂuencers of innovative
efforts when they are integral part of ﬁrm’s development
plan (Forrest, 1990; Cooke and Willis, 1999).
Linkages with knowledge centers include contributions

by professional consultants, university researchers and
technology centers (Le Blanc et al., 1997; Hoffman et al.,
1998; Oerlemans et al., 1998), as well as contribution
by innovation centers and Chambers of Commerce
(Oerlemans et al., 1998).
Regarding variables which relate to utilizing ﬁnancial

resources or support regulations, availability of R&D
funding was shown to be an important inﬂuencer of
innovative efforts in SMEs (Le Blanc et al., 1997; Birchall
et al., 1996; Hoffman et al., 1998).

2.3. Internal and external factors in extant studies

S. Radas, L. Bozˇic´ / Tech440
Most of these studies explore just one or a few of the
mentioned variables, except for Keizer et al. (2002) who
external factors prevail. Even for a particular factor,
different studies may yield different results. For example,
regarding the education level of employees and managers,
Keizer et al. (2002) ﬁnd in their study of mechanical and
engineering sector SMEs that neither the education of the
manager nor the percentage of employees with high
education is signiﬁcant in explaining innovative efforts,
which is contrary to prior research (Hoffman et al., 1998;
Le Blanc et al., 1997). Contradictory results were also
found regarding linkages with sources of knowledge, as
reported by Hoffman et al. (1998). Similarly, different
views exist on the role of ﬁnancial funding (Hoffman et al.,
1998) and the proportion of turnover spent on R&D
(Oerlemans et al., 1998; Birchall et al., 1996).
All these ﬁndings point to the fact that it is still

unresolved which variables inﬂuence innovation efforts in
SMEs and in which way. Generalizations are difﬁcult due
to the complexity of the system we are observing; namely as
the behavior of SMEs differs by industry sectors and
geographically, it is hard to infer general rules that would
hold across the board. One way to learn more about
determinants of innovative efforts in SMEs is to conduct a
variety of studies under diverse economic conditions and in
different geographical areas.

3. Research model

In this section, we propose the research model which
contains determinants of innovation together with the
obstacles. Fig. 1 outlines our conceptual model.

3.1. Modeling factors that propel innovation

As the indicator of innovation effort, we use the fact
that the ﬁrm developed and launched any product
innovation or process innovation in 3-year period

Determinants of innovation
• External factors
• Internal factors

Obstacles to
innovation

Innovation

• Whether
innovated or
not

• Type of
innovation
Fig. 1. Conceptual model.

(2001–2003). Three types of product innovation are
studied: line extensions, ‘‘me-too’’ products, and radical
product innovation. The ﬁrst two types of innovations are
usually referred to as incremental innovations. Line
extension refers to minor modiﬁcation of an existing
product, while ‘‘me-too’’ products are imitations of
competitors’ products that already exist on the market.
Both incremental and radical innovations have an im-
portant role. Managers design incremental innovations to
satisfy a perceived market need with products that can be

3.1.1. External factors

A new external factor that we add to this analysis, one
which has not been investigated in this setting before, is
market scope (Table 1). By market scope, we mean the
most important market for the company (local, national or
international). For small countries in particular, the market
where the ﬁrm operates is important for the way business is
conducted. For example, ﬁrms that are present only in
small local markets can be more complacent and less
motivated to innovate than the ﬁrms that are active on
wider (international) markets. Firms that go international

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deﬁ

e ﬁr

rises

ﬁrm

sear

S. Radas, L. Bozˇic´ / Technovation 29 (2009) 438–450 441
Following Keizer et al. (2002), Birchall et al. (1996) and
Meer et al. (1996), as external factors we consider
innovation subsidies by municipality, innovation subsidies
by the government and collaboration with other ﬁrms or
institutions (Table 1). Within collaboration, we single out
cooperation with universities or research institutes. Re-
garding the industry–science collaboration, it is not clear
what we can expect to ﬁnd. Some studies show that
industry–university links in transition countries are quite
weak (Koschatzky, 2002; Radas, 2004; Radas and Veho-
vec, 2006); it is even more worrisome that although ﬁrms
may be satisﬁed with the quality of the collaboration, they
may not rate its commercial results highly (Radas, 2004).
This situation, which is in all likelihood caused by
weaknesses of both parties, can potentially have negative
effects on innovation.

Table 1

External factors: deﬁnition of variables.

External factors Factor

Innovation subsidies from a municipality 1 if th

Innovation subsidies from the government 1 if th

Collaboration with other ﬁrms or organizations 1 if th

enterp

Links with universities or research institutes 1 if the

and re
developed in a relatively short period of time (Ali, 1994).
The introduction of incremental innovation is critical for
the long time survival of ﬁrms (Banbury and Mitchell,
1995). On the other hand, radical innovation is a major
innovation, the product totally new to the market as well as
to the company. It could be based on new technology or on
satisfying a latent market need by disrupting incumbent
markets (Iyer et al., 2006). In this paper, each of the ﬁve
types of innovation (product, process, line extension, ‘‘me-
too’’ and radical) is represented by a dummy variable,
where 1 denotes that such innovation was introduced in the
time period 2001–2003, and 0 denotes otherwise.
Next we focus on deﬁning factors that impact innova-

tion. Following the work of Keizer et al. (2002), we classify
our independent variables as external and internal. All
variables refer to the period from 2001 to 2003.
National market 1 if the do

International market 1 if the do
encounter stronger competitors and therefore have to
innovate in order to gain and keep their position. Actually,
survival on a more competitive market requires a steady
stream of innovations. Additional push to innovate comes
from the fact that more competitive markets often offer
higher incentives for innovation (Sorescu et al., 2003). For
a small developing country, the further from the head-
quarters the company goes, the harder it becomes to
compete because among other things the ﬁrm has to solve
increasingly complex supply chain, logistic and marketing
issues while contending with incumbent companies. In the
model, we introduce two dummy variables; one indicates
ﬁrm’s presence on national market and the other indicates
its presence on international markets (Table 1).

3.1.2. Internal factors

We investigate two types of internal factors. The ﬁrst
group of factors is related to ﬁrm characteristics like ﬁrm
age, share of highly educated employees, and share of full-
time equivalent employees engaged in intramural R&D
(Table 2). We did not consider ﬁrm ownership because
almost all the ﬁrms in our sample are privately owned. The
second group of factors speaks about implementation of
changes in strategy, marketing, management and organiza-
tional structure (Table 3) and about market orientation
(Table 4). In the remainder of this section, we explain our
choice of factors and discuss their possible effect on
innovation efforts.

3.1.2.1. Firm characteristics. Firm age: Although there is
no result concerning age of SMEs and innovation, there is
some evidence (Hausman, 2005) that younger small ﬁrms
(up to 10 employees) are more innovative than older small
ﬁrms. Namely, small businesses become less innovative

nition

m received innovation subsidies from a municipality, 0 otherwise

m received innovation subsidies from the government, 0 otherwise

m had any cooperation agreement on innovation activities with other

, 0 otherwise

had any cooperation agreement on innovation activities with universities

ch institutes, 0 otherwise
minant market is national, 0 otherwise

minant market is international, 0 otherwise

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eﬁn

rms

of e

this

of F

s—

nov
over time as they become less aware of environmental
changes or innovative solutions (Hausman and Fotentot,
1999). This question is even more interesting in our
context, because transition countries have changed from
centrally planned to market economy. In our study, the
dividing point for old and new ﬁrms is 1990, which is
accepted as the beginning of transition period. Old ﬁrms

Table 3

Internal factors: strategy, management and marketing changes.

Internal factors

Factors related to strategic and managerial changes

Implementation of new or signiﬁcantly changed corporate strategies

Implementation of new, advanced management strategies

Implementation of new or signiﬁcantly changed organizational structures

Factors related to changes in marketing

Signiﬁcant changes in ﬁrm’s marketing concepts or strategies

Signiﬁcant changes in esthetic appearance or design

Table 2

Internal factors: ﬁrm characteristics.

Internal factors Factor d

Firm age 1 if the ﬁ

Proportion of highly educated employees in the ﬁrm Number

compute

Proportion of full time equivalent employees engaged in

intramural R&D

Number

employee

S. Radas, L. Bozˇic´ / Tech442
are more entrenched and experienced, but they also may be
organized in an old fashioned way, lacking in entrepre-
neurial spirit and necessary skills. Thus, we may expect that
they will be less innovative. However, since the period
covered in our study was 2001–2003, which comes 11 years
after beginning of transition, it is possible that all the
differences between the old and new ﬁrms had disappeared.
Proportion of highly educated employees: As we discussed

in the previous section, one of the internal factors shown to
be among the most important determinants of innovative
activity for SMEs is a high incidence of highly qualiﬁed
employees (Hoffman et al., 1998). These highly qualiﬁed
employees represent the knowledge base of the company,
which is a source of ideas for new product and process
development. In support of that claim, Mohnen and Ro¨ller
(2005) show that human capital is one of the crucial factors
in innovative activities, and that absence of necessary skills
is a serious impediment to innovation. Modern literature
emphasizes importance of knowledgeable employees in all
business functions, not just in R&D (Leiponen, 2005), as
innovation in modern ﬁrms requires technical, marketing
and integrative competencies (Iansiti, 1995; Kogut and
Zander, 1992). This is in particular case in smaller ﬁrms
where functional boundaries are sometimes blurred. Keizer
et al. (2002) also consider the proportion of all highly
educated employees. Literature shows that highly educated
employees positively affect ﬁrm’s innovative capability, so
we also expect to ﬁnd that for a transition economy the
proportion of highly qualiﬁed employees in SMEs has
positive inﬂuence on innovative capability.
Proportion of full-time equivalent employees engaged

in intramural R&D: Although for innovation in SMEs, it
is important to have highly educated employees across all

Factor deﬁnition

1 if such a change was implemented in 2001–2003, 0 otherwise

1 if such a strategy was implemented in 2001–2003, 0 otherwise

1 if such a structure was implemented in 2001–2003, 0 otherwise

1 if such a change was implemented in 2001–2003, 0 otherwise

ition

was founded after 1990, 0 otherwise

mployees with university degree divided by total number of employees—we

ratio for 2001 and 2003 and then take the average number

TE employees employed in the R&D divided by total number of

we compute this ratio for 2001 and 2003 and then take the average number

ation 29 (2009) 438–450
business functions (Leiponen, 2005), it is possible that
R&D is the strongest driver of innovation. To investigate
that issue, we consider proportion of FTE employees in
R&D. We expect that indeed the stronger the R&D
function is, the more innovative the ﬁrm would be.

3.1.2.2. Strategy, management and market orientation. In
order to understand innovation at a yet deeper level, we
need to get into issues of strategy, management and
marketing.
Strategic and managerial changes: Well-deﬁned corpo-

rate strategy, sound management practices and organiza-
tional structures are shown to be important enablers of
innovation in developed countries (Birchall et al., 1996),
while their absence can seriously undermine innovation
(Kaufmann and Todtling, 2002; Freel, 2000). SMEs in
developing countries, in particular transition ones, started
with very low levels of corporate, managerial and
organizational expertise. In order to remain competitive,
they needed to adopt signiﬁcant changes in all three areas.
We posit that these changes, which involve adoption of
new skills and practices, are certain to have signiﬁcant
positive effect on innovation.
We deﬁne three variables, one for each area.

Since corporate strategy is recognized as an internal factor
that is shown to have impact on innovation in SMEs

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Table 4

Internal factors: marketing orientation.

Market orientation index: componentsa

Customer orientation index

1. We constantly monitor the level of orientation to serving customers’

needs

2. Our business objectives are driven primarily by customer satisfaction

3. Our strategy for competitive advantage is based on understanding of

customer needs

4. Our business strategies are driven by our beliefs about how we can

create greater value for customers

5. We measure customer satisfaction systematically and frequently

6. We give close attention to after sales service

Competitor orientation index

1. We rapidly respond to competitive actions that threaten us

2. Our salespeople regularly share information within our organization

concerning competitors’ strategies

S. Radas, L. Bozˇic´ / Tech
(Hadjimanolis, 1999), we include variable implementation
of new or significantly changed corporate strategy (Table 3).
We consider management’s strategies because as pointed
out in Freel (2000) innovation, being a complex and
inclusive process, requires an eclectic base of managerial
competency, and managerial deﬁciencies can present a
serious obstacle for innovation. This is why we deﬁne
variable implementation of new advanced management
strategies (Table 3). Finally, in order to optimally make
use of human capital and other resources available to the
ﬁrm, the ﬁrm has to have a suitable organizational
structure. In extant research, it was shown that continuous
adapting of the organizational structure is one of the basic
functions of innovation management (Tomala and Se´ne-
chal, 2004). Leonard-Barton (1988) also found that
innovation is closely connected with organizational change.
To assess the impact of organizational change, we deﬁne
the variable implementation of new or significantly changed
organizational structures (Table 3).

3. Top management regularly discusses competitors’ strengths and

strategies

4. We target customers where we have an opportunity for competitive

advantage

Inter-functional coordination index

1. All of our business functions (marketing/sales, manufacturing, R&D,

etc.) are integrated in serving the needs of our target markets

2. All of our business functions ad departments are responsive to each

other’s needs and requests

3. Or top managers from every function regularly visit our current and

prospective customers

4. We freely communicate information about our successful and

unsuccessful customer experiences across all business functions

5. Our managers understand how everyone in the business can contribute

to creating customer value

aFor each of the items, ﬁrms indicated their agreement with the

following statements on the scale from 1 (completely disagree) to 5

(completely agree).
Changes in marketing: To investigate the dynamic aspect
of marketing function, we use two indicator variables
(Table 3). First we measure whether significant changes in
marketing concepts or strategy were implemented. Second,
we investigate possible significant changes in esthetic
appearance or design of products. As with strategic and
managerial change, in transition countries these changes
signal adoption of new knowledge and skills, which is
expected to positively impact innovation.
Market orientation: Among internal factors that are

shown to have impact on the success of SMEs innovative
efforts are marketing effort and the degree of marketing
involvement in product planning (Hoffman et al., 1998).
We broaden the scope to include several dimensions of
market orientation. Simply deﬁned, market orientation is
implementation of marketing concept, or the process of
generating and disseminating market intelligence for the
purpose of creating superior value for the customer
(Narver and Slater 1990; Kohli and Jaworski, 1990).
Numerous studies have found that the market orientation
is positively related to business performance (Narver and
Slater, 1990; Slater and Narver, 2000; Cano et al., 2004;
Tse et al., 2003; Hooley et al., 2000). Market orientation
represents business culture (Narver and Slater, 1990) or
business behavior (Kohli and Jaworski, 1990) that leads to
superior performance partially because it encourages
innovation activities (Langerak et al., 2004). Innovation
is important contributor to the business performance.
Therefore, positive market orientation–innovativeness re-
lationship is frequently hypothesized and empirically
supported in many studies in marketing literature (Kohli
and Jaworski, 1990; Deshpande´ et al., 1993; Slater and
Narver, 1994; Atuahene-Gima, 1996; Langerak et al.,
2004). However, evidence about link between market
orientation and innovation comes mostly from study of
large ﬁrms, and this connection is under-researched in
SMEs (Salavou and Lioukas, 2003). Therefore in this
paper, we include market orientation among possible
drivers of innovation in SMEs.
Market orientation is measured by widely accepted

Narver and Slater (1990) market orientation scale that
covers three behavioral components of market orientation.
These are Customer orientation, Competitor orientation and
Interfunctional coordination and they are equally important
components of market orientation. Each of these compo-
nents is an index measured by a set of questions (Table 4).
The value of each index is computed as the average value of
the items comprising the index. Reliability analysis was
performed for each of the indices, and Cronbach a’s are
0.84, 0.83 and 0.83, respectively. Average inter-item
correlations are 0.48, 0.54 and 0.51, respectively. These
numbers indicate a very high level of reliability of these
indices. Market orientation index is average of respon-
dents’ scores on customer and competitor orientation as
well as interfunctional coordination. All three components

ation 29 (2009) 438–450 443
of market orientation are strongly correlated and therefore
converge on a common construct (Narver and Slater,

1990), the market orientation index. Reliability analysis for
this index yields Cronbach a of 0.91 and inter-item
correlations of 0.45, which indicates very high degree
of reliability.

3.2. Obstacles to innovation

To gain more complete understanding of innovation in
SMEs, we inquire about obstacles and hampering factors.
SMEs are expected to have more problems with barriers to
innovation than large ﬁrms due to inadequate resources
and expertise. Obstacles to innovation can be classiﬁed as
external and internal (Piater, 1984). External obstacles
include those that are supply related, demand related or
environment related. Internal obstacles have to do with
difﬁculties that are related to resources within the ﬁrm or
human capital. In this study, we look at the mixture of
internal and external obstacles, seeking to identify the most
important ones (Table 5). In particular, we consider
demand for ﬁrm’s products, ﬁnancing issues, state support,
business environment, organizational issues, and availabil-
ity of information about markets and technology. We ask
ﬁrms (1) if they encountered obstacles in their innovation
activities, and then (2) we ask them to rate each obstacle. In
this paper, we seek to examine if obstacles have any bearing
on whether ﬁrms innovate. In his study of SMEs in Cyprus,

ARTICLE IN PRESS

statements on the scale from 0 (no importance) to 3

S. Radas, L. Bozˇic´ / Technov444
(high importance):

� Lack of qualiﬁed staff
� Lack of information concerning technology
� Lack of information concerning market
Table 5

Variables related to obstacles to innovation.

Variable Deﬁnition

Encountered

obstacles

1 if any of the statements below is true about any

innovation activity, 0 otherwise

� It was seriously delayed
� It was prevented from being started
� It was burdened with serious problems

Hampering factors

Financing and

expenses

Firms indicated their agreement with the following

statements on the scale from 0 (no importance) to 3

(high importance):

� Innovation costs are too high
� Lack of appropriate source of ﬁnance
� Insufﬁcient support from the state for innovation
activities

The three above statements are used to form the index

Internal factors Firms indicated their agreement with the following
The three above statements are used to form the index
Hadjimanolis (1999) found that obstacles are not corre-
lated to innovation. The explanation he offers for this
interesting result is that innovative ﬁrms are somehow able
to get around obstacles, so that although they recognize
barriers to innovation those barriers do not cripple them.
To investigate that issue in Croatia, we analyze the
relationship between barriers to innovation and the fact
that the ﬁrm innovated.
We measure hampering factors by two indexes that are

formed each from three statements that require answers on
the scale from 0 (indicating no importance) to 3 (high
importance). Indexes are named financing and expenses,
and internal factors (Table 5). We performed reliability
analysis for each of these indexes. The Cronbach a for the
indexes is 0.72 for financing and expenses (average inter-
item correlation is 0.47), 0.82 for internal factors (average
inter-item correlation is 0.6). The two a’s together with
high inter-item correlations indicate high index reliability
for ﬁnancing and expenses and internal factors. The value
of the index is computed as the average value of the items
that comprise the index.

4. Research methodology

The data presented in this study were collected as part of
Community Innovation Survey conducted on Croatian
companies from manufacturing and service sectors during
year 2004. The companies were chosen depending on two
characteristics: main activity and number of employees.
The data were collected by mail survey followed up by two
telephone prompts. This particular survey was the ﬁrst CIS
performed in Croatia and it refers to innovation activities
over the period from the beginning of 2001 to the end of
2003. We deﬁne SME as a ﬁrm employing between 10 and
250 people (microﬁrms are excluded). Both service and
manufacturing ﬁrms are included. The response rate for the
SMEs was 16%. More precisely, the response rate for
the service sector was 17.5% while the response rate for the
manufacturing sector was 15% (in comparing our sample
with the population we ﬁnd no statistically signiﬁcant
difference in proﬁts and exports; however, since our ﬁrms
are on average somewhat larger in number of employees
care should be taken when generalizing the results of this
papers to very small ﬁrms.). After examining and cleaning
the data, 448 ﬁrms were used in this analysis.
In this study, we deﬁne a list of possible factors that have

bearing on innovation (Tables 1–4). Our goal is to ﬁnd
those factors that have signiﬁcant impact on innovation in
SMEs in a small developing country. The dependent
variables in our study are binary (indicating the presence
of innovation or not), which calls for logit modeling.
Following the approach in Keizer et al. (2002), we start

by examining bivariate relationships between these factors
and the dependent variables that describe product and
process innovation, and only those factors that are

ation 29 (2009) 438–450
signiﬁcantly related to dependent variables are retained.
The signiﬁcance is determined on the bases of w2 statistics

(this statistics indicates whether the model obtained by
addition of that one variable signiﬁcantly differs from the
intercept-only model).
Those retained factors are then used in ﬁve new

multivariable logit models. Two models have product and
process innovation, respectively, as dependent variable;
while the other three models consider three types of new
products, namely line extensions, ‘‘me-too’’ products and
radical new products. w2 statistics and McFadden’s R2 are
computed for every model.
In the analysis of obstacles to innovation, we use

ANOVA analysis and the Pearson w2 test.

5. Results

5.1. Factors that impact innovation

Examining bivariate relationships between independent
factors and dependent variables shows that the factors not
signiﬁcantly related to innovation are innovation subsidies,
ﬁrm age and proportion of full-time equivalent employees
engaged in intramural R&D. Although other authors
(Keizer et al., 2002) have shown subsidies to be signiﬁcant
drivers of innovation, our data interestingly show no

evidence that having received municipality or government
subsidy increases the probability that the ﬁrm innovates
(the proportion of innovators that received subsidies is not
signiﬁcantly different from the proportion of innovators in
the other group as evidenced by the Pearson w2 of 0.87).
There is a possibility that we do not observe the connection
because there is a time lag between subsidy and its result.
However, this absence of impact on innovation may be
caused by the fact that subsidies in Croatia are not
sufﬁciently large to enable a ﬁrm to make signiﬁcant
investment in innovation activities.
Subsidies, ﬁrm age and proportion of full-time equiva-

lent employees engaged in intramural R&D are omitted
from further analysis. The remaining factors are used as
independent variables in a logit model with innovation
variables as dependent. We ﬁt a logit model for each
innovation variable. Table 6 shows the results.
All the models in Table 6 are signiﬁcantly different from

null model. McFadden’s R2 in every model is acceptable
for a cross-sectional data model obtained from large-scale
surveys of this type.
Out of the external factors, collaboration with other

ﬁrms or organizations has positive signiﬁcant impact on
process innovation and incremental product innovation,
but it has weak negative effect on radical product

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Table 6

Relationship between factors and innovation.

Factor Product

tion

Process Line Me too Radical

strategies

S. Radas, L. Bozˇic´ / Technovation 29 (2009) 438–450 445
(0.46)

Implementation of new, advanced management strategies 0.05

(0.42)

Implementation of new or signiﬁcantly changed organizational

structures

0.36

(0.4)

Signiﬁcant changes in ﬁrm’s marketing concepts or strategies �0.09
(0.44)

Signiﬁcant changes in esthetic appearance or design 1.32***

(0.38)

Marketing orientation �1.74
(0.28)

LR w2(11) 82.62
Log-likelhood �109.0
McFadden’s R2 0.27
innova

Collaboration with other ﬁrms or organizations 0.84

(0.59)

Links with universities or research institutes 1.72

(1.19)

National market 0.73***

(0.19)

International market 0.66***

(0.17)

Proportion of highly educated employees in the ﬁrm 1.42

(0.89)

Implementation of new or signiﬁcantly changed corporate 0.59
Coefﬁcients marked by * are signiﬁcant to 0.1 level, those marked by ** are s

Standard errors are shown in parentheses under coefﬁcient value.Due to delet
innovation extension product

innovation

product

innovation

1.55*** 1.27** 1.22** �0.79
(0.55) (0.53) (0.55) (0.6)

�0.61 0.81 �0.63 2.01***
(0.73) (0.71) (0.71) (0.74)

0.39** 0.63** 0.89*** 0.28

(0.19) (0.26) (0.22) (0.21)

0.48*** 0.68*** 0.54*** 0.16

(0.16) (0.21) (0.18) (0.18)

0.62 1.26 0,49 2.5***

(0.79) (0.87) (0.8) (0.82)

0.57 0.06 0.22 0.85*

(0.42) (0.50) (0.45) (0.47)

0.40 0.87* 0.27 �0.07
(0.40) (0.5) (0.44) (0.47)

0.48 0.24 1.01** �0.32

(0.37) (0.44) (0.39) (0.42)

�0.19 �0.1 �0.36 0.36
(0.39) (0.47) (0.43) (0.43)

0.55 0.61 0.72* 0.67*

(0.35) (0.42) (0.37) (0.38)

�0.12 �0.14 0.09 0.14
(0.27) (0.34) (0.29) (0.3)

52.18 65.65 61.44 39.49

�121.32 �90.31 �109.6 �105.52
0.18 0.27 0.22 0.16
igniﬁcant to 0.05, and those marked by *** are signiﬁcant to 0.01.

ion of missing cases, number of observations N ¼ 218.

ARTICLE IN PRESS
nov
innovation. This conﬁrms some of the ﬁndings from the
literature (Birchall et al., 1996). However, having links with
academic and research institutions has very strong positive
effect on radical product innovation, while the effect on
other types of innovation is lacking. Kaufmann and
Todtling (2000) report similar effect, which is consequence
of the fact that radical innovations need creative ideas and
advanced knowledge that usually resides in academia and
research community. This is congruent with Massa and
Testa (2008) ﬁnding that for academics only the radical
innovation is considered as innovation, while entrepreneurs
tend to deﬁne the term more broadly. In general, our
results conﬁrm those in the literature concerning external
collaboration, in particular the ﬁnding from Keizer et al.
(2002) about positive effect that links with knowledge
centers have on innovation. This ﬁnding is especially
interesting in transition setting, because it suggest that
although the cooperation between industry and academia
may be infrequent and burdened with problems, it bears
some fruit and therefore should be encouraged by policy.
Another signiﬁcant external factor is market scope,

which has positive signiﬁcant effect on every kind of
innovation except on radical innovations. Presence on
national and international market has a strong positive
effect on probability to innovate. This ﬁnding is in line with
the fact that wider markets are more competitive, and
survival on more competitive markets requires innovation.
The result that market scope is highly signiﬁcant for all
types of innovations except for radically new products
makes sense because of a large difference between radical
innovations and innovations of lower novelty. Radical
innovation, being something completely new to the market,
is a much less controllable event than incremental
innovation due to much higher level of risk and unpredict-
ability, which is offset by the product’s possibility to open
up new markets and generate very high proﬁts (Ali, 1994).
It is not just the consequences of innovation but also the
antecedents that differ. In the study of small ﬁrms by
Subrahmanya (2005), it is reported that radical innovation
depends on internal factors, while incremental innovation
depends more on external factors. This is why market
competitiveness (reﬂected in market scope) as an external
factor does not have impact on radical innovation while it
is a very signiﬁcant factor in incremental innovation.
Additional explanation is that ﬁrms that operate on
competitive markets need a steady stream of innovations
to sustain their position and thus cannot afford to take
time and resources away from incremental innovations to
invest it in risky radical innovations.
Regarding internal factors, data show that the propor-

tion of highly educated staff has a positive effect on radical
product innovation, while it has no effect on other types of
innovation. This is understandable since radical innova-
tions require substantive creative effort, while introducing
products that are similar to those already existing on the

S. Radas, L. Bozˇic´ / Tech446
market does not require as much original input from ﬁrm’s
own staff (i.e. the work can be completed by less-skilled
employees). It is more surprising that proportion of highly
educated staff is not a signiﬁcant predictor in process
innovation. This ﬁnding can be explained by considering
characteristics of the ﬁrms in the sample. Namely, a large
majority of the sampled ﬁrms are in medium and low
technology sectors (this is a consequence of the structure of
Croatian economy), where process innovation is of
relatively low novelty. Being of low novelty, it does not
require high employee skills.
Interestingly, proportion of full-time equivalent employ-

ees engaged in intramural R&D was not found to have any
relationship with innovation. This ﬁnding is a reﬂection of
the fact that in modern ﬁrms innovation is not conﬁned
only to R&D (Leiponen, 2005), in particular in small and
medium ﬁrms ‘‘where R&D activity is being distributed
across a number of operational areas, rather than
concentrated within a single and discrete R&D function’’
(Freel, 2005).
Among factors that address strategic and managerial

changes, implementation of advanced management strate-
gies is not signiﬁcantly related to probability of innovation
(except for line extensions), which is most likely because
SMEs are small enough that informal and more horizontal
management styles are still quite effective. Implementation
of signiﬁcantly changed corporate strategies has a positive
effect on radical innovation. This is the reﬂection of the
fact that the top management (including CEO) has a very
inﬂuential position in SMEs; in particular, top echelon is
playing an important role in determining strategic orienta-
tion of the ﬁrm. Salavou and Lioukas (2003) show that
strategic choices by top management (for example adopt-
ing entrepreneurial orientation) have signiﬁcant positive
impact on radical innovation in SMEs. One way to explain
this is that entrepreneurial orientation supports proactive
new product development that favors novelty, in contrast
to defensive strategies that favor imitation. Being risky and
expensive, radical product innovation requires time and
involvement of the best and the brightest people in the
company. To devote all those resources to radical
innovation is a deliberate decision that only top manage-
ment can make.
Those ﬁrms that have implemented new or signiﬁcantly

changed organizational structures have higher probability
of me-too innovation, but the positive effect does not
extend to other types of innovation. Because me-too
innovations are copies of competitors’ products, creativity
and proactive stance are not all that important in their
development. The challenge here is to produce the product
at the lowest cost and deliver it to customers in the shortest
time, and this is where good organizational structures
become essential to ensure that these activities be
performed efﬁciently and on time.
Interestingly, having implemented changes in ﬁrm’s

marketing concepts or strategies has no effect on the
probability to innovate. However, ﬁrms that had imple-

ation 29 (2009) 438–450
mented signiﬁcant changes in esthetic appearance and
product design are more likely to product–innovate.

ARTICLE IN PRESS
nov
It seems that innovators pay serious attention to
all aspects of their product portfolio, not neglecting
the ‘‘superﬁcial’’ changes in products like appearance
and design.
Although literature has documented a link between

market orientation and innovation, our study does not
support that. Previous studies (performed mostly on large
ﬁrms) showed that market orientation has impact on both
radical (Christensen and Bower, 1996) and incremental
innovation (Sandvik et al., 2000), but it is possible that
SMEs are different in that respect. Our result conﬁrms
Salavou and Lioukas (2003) who in their study on Greek
SMEs did not ﬁnd connection between market orientation
and innovation. We offer the same explanation as Salavou
and Lioukas (2003): namely in the presence of other
variables market orientation appears to play a lesser role or
no role at all.

5.2. Obstacles to innovation

Regarding obstacles, our ﬁrst goal is to investigate if
ﬁrms that report obstacles tend to innovate less. Although
40% of ﬁrms in our sample report having faced serious
problems in innovation activities, interestingly, we do not
ﬁnd that having obstacles prevents ﬁrms from innovating.
Data show that there is no difference in process

innovation between ﬁrms that report obstacles and those
that do not (N ¼ 172, w2 ¼ 1.9, p ¼ 0.17). Regarding
product innovation, there is a weak relationship showing
that far from being less innovative, ﬁrms that reported
obstacles are more innovative compared with other ﬁrms
that did not report obstacles (81.16% of those that
reported obstacles innovated compared with 68.93% of
those that did not report obstacles—N ¼ 172, w2 ¼ 3.2
and p ¼ 0.07).
It is possible that although obstacles do not prevent ﬁrm

from innovating, there might be other damaging effects.
Namely, obstacles may cause decrease in the number of
new introductions and/or their share in income. In order to
investigate that issue, we looked into the number of new
products and their share in the income. We performed
ANOVA and found no signiﬁcant relationships on either
the number of new products or on their share in income,
although on average those ﬁrms reporting obstacles have
introduced smaller number of line extensions and radical
new products. All these ﬁndings suggest that ﬁrms that
report obstacles are somehow able to deal with problems
and prevent the potential serious negative impact on
innovation. This conﬁrms the result from Hadjimanolis
(1999), who in the study of SMEs in Cyprus shows that
barriers to innovation are not correlated to innovativeness
nor economic performance. To quote Hadjimanolis (1999),
‘‘The reason may be that innovative ﬁrms although facing
important barriers tend to ﬁnd ways to overcome them,
while non-innovative ﬁrms which do not make serious

S. Radas, L. Bozˇic´ / Tech
efforts to innovate tend to underestimate (or not be aware
of) the pitfalls/problems associated with innovationy’’
Next we focus on hampering factors. Firms that report
obstacles quote both financing and expense and internal
factors as signiﬁcantly more important (ANOVA results
are N ¼ 95, F ¼ 4.46, p ¼ 0.04 for financing and expense
and N ¼ 98, F ¼ 6.7, p ¼ 0.01 for internal factors).
Although extant research shows both factors to be
challenging for SMEs (Freel, 2000), in our sample financing
and expense is the factor that presents the most problems.
The fact that ﬁnancing and innovation cost is rated as

the most important hampering factor by all ﬁrms conﬁrms
ﬁndings from other studies that indicate ﬁnancing as one of
the most important issues for SMEs (Hadjimanolis, 1999;
Kaufmann and Todtling, 2002; Bertlett and Bukvicˇ, 2006).
More detailed investigation of data shows that sources of
ﬁnancing are indeed lacking: most Croatian SMEs ﬁnanced
their innovation activities internally (145 ﬁrms), followed
by bank credits (48 ﬁrms) and supplier credits (31 ﬁrms).
Other ﬁnancing instruments are very rare. This ﬁnding is in
line with other studies that ﬁnd that SMEs generally show
lack of awareness of alternative sources of ﬁnance (Freel,
2000). Regardless of problems with ﬁnancing, data reveal
that 85.5% of the ﬁrms that reported obstacles managed to
secure sources of funding (mostly internal followed by
credits from banks and suppliers), which suggests that
SMEs in Croatia somehow ﬁnd a way to work around
that problem.
Internal factors encompassing lack of qualiﬁed staff and

lack of information about technology and markets are also
rated as signiﬁcantly more important by the ﬁrms that
report obstacles, although in general these issues are not as
important as ﬁnancing and innovation expenses. This
conﬁrms ﬁndings from extant research, because problems
with attracting qualiﬁed employees, as well as with having
skills and knowledge are well documented in other studies
(Freel, 2005; Kaufmann and Todtling, 2002).

6. Conclusion and policy implications

Both developed and developing countries are very
interested in ﬁnding ways to stimulate SMEs in realizing
innovations, due to importance of SME sector in creating
growth and employment. Most studies on determinants of
innovation are performed in developed countries, and
consequently policy makers from developing countries
mostly look at those ﬁndings when crafting policy
measures. However, as few studies in developing economies
were performed on this topic, it is not known to which
extent it is possible to generalize those ﬁndings. It is also
known that drivers of SME innovativeness depend on
geographic area, which adds another layer of complexity
that policy makers have to consider.
Summarizing the main ﬁndings of our study, we can say

that most factors that are found to be important in studies
of SMEs in developed economies are also conﬁrmed to be
important in this study, such as having external links

ation 29 (2009) 438–450 447
with other companies and having links with academic
and research institutions. We conﬁrmed ﬁndings from

ARTICLE IN PRESS
nov
developed economies about the positive impact that
proportion of highly educated staff has on product
innovation (Freel, 2000; Hoffman et al., 1998), but we
did not ﬁnd that innovation is related to the number of
people employed in R&D.
Unlikely developed economies (Keizer et al., 2002), we

found that innovation subsides are not linked to innova-
tiveness, which may be the consequence of poor design of
those incentives. This together with the fact that a very
small number of ﬁrms received a subsidy suggests that the
existing subsidy schemes are not effective, and that policy
makers need to devise better incentives.
In developing countries, in particular in transition

countries, SMEs started with very low level of skills and
expertise including corporate, management and organiza-
tional. We found that implementation of signiﬁcantly
changed corporate strategies raises probability of radical
innovation, while implementation of new or signiﬁ-
cantly changed organizational structures raises probability
of me-too innovation. Interestingly, the ﬁrms that had
implemented signiﬁcant changes in esthetic appearance
and product design are also more likely to introduce
product innovations.
We also ﬁnd market scope to be very important in

fostering innovativeness; namely ﬁrms operating on
wider markets are more likely to innovate. This result is
very important for a small open developing economy
like Croatia, because it suggests that by encouraging
exporting it may be possible to encourage innovation
as well.
Regarding factors that hamper innovation, ﬁnancing

and innovation cost is the most important problem,
which corresponds to ﬁndings from developed economies
(Hadjimanolis, 1999; Bertlett and Bukvicˇ, 2006). This
factor is followed by lack of qualiﬁed employees and
information about technology and markets, which is also
recognized as a problem in developed economies. Interest-
ingly, we ﬁnd that ﬁrms that report facing obstacles are not
less likely to innovate less, which suggests that innovators
are able to work around obstacles without damaging
effects to innovation. Similar effect is found in Cyprus,
another developing economy.
All in all, our ﬁndings show that there may be many

similarities between developed and developing economies.
In other words, if Croatian case is indicative of other
developing countries, ﬁndings from developed economies
may travel across geographic and economic boundaries
better than could be expected. However, there may be some
particularities that policy makers in developing countries
should address. In Croatia, we found that policy should be
encouraging SMEs to implement changes involving corpo-
rate strategy and organizational structure. This can be
done through offering training for SMEs, so that ﬁrms can
become informed about possible organizational and
corporate structures, trends and strategies. Another way

S. Radas, L. Bozˇic´ / Tech448
to enable changes could be through sponsored consulting
programs run with the purpose to help enterprises assess
what is right for them and assists them in making necessary
changes. Another policy measure (in particular in small
economies) should be encouraging SMEs to become
exporters. First step would be to determine what
possible obstacles to exporting there are and then
address those with a set of targeted measures. Incentives
that would help ﬁrms to access wider markets could also
encourage innovation.
Policy should encourage employment of highly qualiﬁed

people by SMEs. Employing educated people has potential
to strengthen ties with academic community, so that would
most likely also improve external networks. Policy could
encourage inter-company cooperation by aiding in cluster
formation—this strategy has shown good results in
Slovenia (Bertlett and Bukvicˇ, 2006). That later strategy
should be easier to implement than forging ties with
academics, as Massa and Testa (2008) ﬁnd that entrepre-
neurs prefer collaborating with their peers, other entrepre-
neurs and/or their social networks.
One thing to consider when devising innovation incen-

tives is that SMEs traditionally face high transaction costs
in accessing government programs. This may be particu-
larly difﬁcult for SMEs in transition countries where
system is undergoing constant changes. For example, we
ﬁnd that very small percentage of Croatian SMEs received
existing subsidies which seem to be non-efﬁcient.
Apart from designing effective incentives, policy makers
need to think about making the application process easy
and enterprise-friendly. In addition, we have shown that
radical and incremental innovation have different ante-
cedents, so policy makers can devise different incentive
schemes depending on which type of innovation they wish
to encourage.
We also ﬁnd that some of our ﬁndings conﬁrm those

from Cyprus (Hadjimanolis, 1999) and Greece (Salavou
and Lioukas, 2003). Although we have to be careful in
drawing conclusions in the absence of other studies on
SME innovation drivers from the geographic region of
South Eastern Europe, this suggests that SMEs in the same
geographic region may share many similarities in their
innovation practices.
Future research should involve simultaneous investiga-

tion of several developing countries as well as several
developed countries using the same survey instrument to
address the same set of factors.

Acknowledgments

This paper was presented at the 2005 Technology
Transfer Society Conference (special session on R&D and
Regional Economic Performance). Authors would like to
thank session chair and participants for useful comments.
Authors would also like to thank participants of the
Opportunity Discovery mini-conference at the Olin School
of Business, Washington University in St. Louis for helpful

ation 29 (2009) 438–450
remarks, and to two anonymous reviewers for their
valuable suggestions and advice.

ARTICLE IN PRESS
nov
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ARTICLE IN PRESS
S. Radas, L. Bozˇic´ / Technovation 29 (2009) 438–450450

The antecedents of SME innovativeness in an emerging transition economy
Introduction
Theoretical background and literature review
Internal factors bearing impact on innovation
External factors bearing impact on innovation
Internal and external factors in extant studies

Research model
Modeling factors that propel innovation
External factors
Internal factors
Firm characteristics
3.1.2.2. Strategy, management and market orientation

Obstacles to innovation

Research methodology
Results
Factors that impact innovation
Obstacles to innovation

Conclusion and policy implications
Acknowledgments
References