CORDIS - EU research results

Key factors for the SMEs competitiveness in the context of globalisation

Final Report Summary - SMES COMPETITIVENESS (Key factors for the SMEs competitiveness in the context of globalisation)


University of Surrey, SHTM Marie Curie Fellow Prof Zhelyu Vladimirov Principal Coordinator Prof Allan Williams

Framework of SME Competitiveness Factors
Research findings on the relationship between innovation and performance have often been contradictory, probably due to the different contributions of different types of innovations to performance, and the interactions amongst these innovations.
The literature review indicates that both competitiveness and innovation depend on similar, groups of internal and external factors. As innovation also influences performance, it is a mediator between environmental and organizational factors and performance. The research has therefore proposed a new, unified framework to connect the main theories of firm competitiveness and innovation.
The factors in the framework have two dimensions.
- The traditional distinction between the firm’s internal and external factors, and the role of entrepreneurial/ managerial characteristics;
- A new division based on the firm’s primary versus innovation-related factors. The innovation-related factors are firm specific and lead to sustainable competitive advantages. These include product and process innovations, use of advanced technology, adoption of IT and international standards, creation of own trademarks and patents, internationalisation, networking, and new marketing strategies.

The Changing Configuration of Innovations
Some of the firm’s basic factors shape both innovation and performance. Managers can use this valuable information to identify and use effectively these key factors (structure, staff, marketing, technology, etc.). This can result into both increased firm innovativeness and sustainable performance. Although some SMEs can perform well without innovations, their advantages are not sustainable. In contrast, small firms even in less favourable conditions, can use stronger innovation to achieve long lasting advantages.
The configurations of basic and innovation-related factors in respect to business success is dynamic: in times of crises basic factors are dominant, while in times of post-crises recovery both factors are equally important for SME performance.
SMEs which use a bundle of innovation factors are more competitive and perform better, and SMEs which follow combination strategies outperform firms which follow a generic strategy, or have no strategy at all. The configuration approach, however, cannot reveal the interaction of different types of innovations, nor the mediating role of leading types of innovations.

Product Innovations Mediate Performance in Manufacturing SME
Another study tested a path model (on 500 manufacturing SMEs) wherein product innovations played a mediating role between process innovations and other external and internal factors, and performance.
The results revealed that only product innovations impact directly and positively on performance, while process innovations and external factors have positive and significant, but indirect influence on performance. Firm size and export orientation have a direct and significant impact on both product innovations and performance. Therefore product innovations mediate fully the effects of process innovations and external factors and partially the effects of internal factors on performance. The positive indirect effects of process innovations suggest some important implications for managers: arriving at a successful product innovation requires significant preparatory work, which includes changes in organisational, technological, and marketing processes. All these changes have certain costs, which do not translate directly into better performance. These activities can contribute to higher level performance indirectly through the success of the new or improved products.

The Critical Role of Staff Related Innovations in Tourism Service Enterprises (Hotels)
The following research project investigated innovations in the tourism service sector (hotels) and their impact on performance in two countries (the UK and Bulgaria). The exploratory factor analysis provided six factors - three hybrid innovations, two factors related to government policy and hotel infrastructure, and one factor on innovation obstacles. The hybrid character of innovations is due to the specificity of service innovations, where it is difficult to separate product and process changes. These constructs have been used in a path model of “innovations-performance” relationships which focussed on the mediating role of staff-related innovations. The main findings reveal that only staff-related innovations impact directly and significantly performance, while other types of innovations contribute to hotel performance indirectly (through the staff innovations). Others internal and external factors have both direct and indirect influences on performance.

Taken together, these results can better inform the practices of entrepreneurs and SME policy makers, as they indicate specific measures and policies that can be adopted. Additionally, the finding provide an useful basis for constructing an SME competitiveness index, as they reveal the relative weights of different types of innovations and other factors on performance.