2.1 Firm-Level Innovation
Schumpeterian (1943), firm innovation is the accumulation of knowledge and implementation of new ideas. Innovation is the implementation of a new or significantly improved product (good or service) or process, a new marketing method, or a new organizational method in business practices, workplace organization, or external relations innovation is the implementation of a new or significantly improved product (good or service) or process. Firm-level innovation is defined as the renewal, modification, or creation of more effective or beneficial processes, products, or methods of doing things in a company's day-to-day operations. This could include implementing new ideas, developing dynamic goods, or improving existing services (Mytelka, 2000). This could include implementing new ideas, developing dynamic goods, or improving existing services for businesses. If successfully managed, innovation is the generation of value from the knowledge and a driver of economic progress (Haskel, Goodridge and Wallis, 2012). From this point of view, in the world of firm innovation, can be defined as a change that is executed by a firm and then exposed to the market. This suggests that a company can innovate at several stages of its development, such as creation, R&D transfer, organization, and marketing. In turn, innovation becomes a catalyst for higher productivity and rapid economic growth.
Innovation is synonymous with confusion since it seeks to boost the firm's competitive position. As a consequence, there is no mention of technology in either the broad definition or the current definition. As a consequence, there is no mention of technology in either the broad definition or the current definition. It specifically considers "non-technological" aspects of innovation (marketing and organizational) that were not previously considered, thus encompassing a wider range of information sources and types besides scientific knowledge (OECD 2005). Therefore, the following four key subtypes of firm-level inventions are described in the Oslo Manual .
Product innovation: - the launch of a new or substantially improved good or service in terms of its characteristics or intended uses. Major changes in technological requirements, components, and materials, embedded software, user-friendliness, or other functional characteristics are examples. Traditional surveys have used three metrics to assess the complexity or novelty of an invention in this context: new products for the firm, new products for the business, and new products for the foreign market (OECD 2005).
Process innovation: - The introduction of a new or substantially enhanced manufacturing or distribution system is referred to as process innovation. Innovative methods for manufacturing goods or delivering services, Innovative logistics, shipping, or distribution methods for inputs, products, or services, and Innovative supporting behavior for processes, such as maintenance systems or operations for buying, accounting, or computing are all examples of major improvements in techniques, equipment, and/or software (OECD 2005).
Marketing innovation: - The introduction of a new marketing strategy involving major improvements in product design or packaging, product placement, product promotion, or pricing is referred to as marketing innovation. They are intended to improve marketing efficacy and productivity in order to achieve a competitive advantage (OECD 2005).
Organizational innovation: - The introduction of a new organizational approach in the firm's corporate processes, workplace structure, or external relations is referred to as organizational innovation. Structured developments that affect roles, accountability, command lines, and knowledge flows, as well as the number of hierarchical levels; the divisional structure of functions (R&D, development, human resources, financing, and so on) or the distinction between line and support functions; and procedural innovations. As a result, these technologies, such as simultaneous engineering or zero buffer rules, alter or introduce new procedures and processes within the organization (OECD 2005).
In general, According to the Organization for International Cooperation and Development (OECD, 2018), all science, technical, organizational, financial, and commercial measures that lead to the implementation of innovations, or are intended to lead to the implementation of innovations, are described as innovation activities. Some innovation practices are novel in and of themselves, while others are not but are needed for the implementation of innovations. R&D that is not explicitly linked to the creation of a particular innovation is often included in innovation activities. As a result, intangible assets like as R&D, data, software, patents, designs, unique organizational methods, and firm-specific talents are becoming increasingly valuable in today's economy. Knowledge-based capital consists of a mix of non-physical assets.
Lazonick, an economist, proposed Firm Innovation Theory to justify superior success in the face of imperfect markets. According to the theory, a firm's function is to convert productive resources into commercially viable goods and services. This can be accomplished by a company engaged in innovation. As a result, creative businesses produce higher-quality goods at lower costs, resulting in superior economic efficiency. Innovative businesses have the potential to turn productive capital into higher-quality, lower-cost goods and services, which benefits consumers and other economic participants (Lazonick, 2013).
As a result of an evolutionary (continuous) process of innovation (diversity generation) and market selection, firms' innovative behaviors, industry dynamics, and economic outcomes are all affected (Nelson and Winter, 1982). Endogenous growth theories, which are based on R&D activities, externalities, and the AK models, the most basic version of the endogenous growth model, established techniques in which technological spillover, R&D efforts, and international technology transfer are the major growth contributors (Cohen and Levinthal, 1990). “R&D is a fundamental source of information that constitutes a firm's absorptive capacity, meaning, its ability to recognize, assimilate, and exploit new knowledge from the environment,” according to the author. These theories are used to investigate the relationship between knowledge input and knowledge output, as well as the output of innovation (firm performance). Evidence shows that companies that invest heavily in knowledge are more likely to create innovation. There is a virtuous circle in which R&D, innovation, and productivity all reinforce one another, ensuring long-term growth (Guloglu and Tekin, 2012)
The knowledge and skills needed by businesses to select, install, operate, maintain, adapt, improve, and develop technologies are referred to as technological capacity. The firm's ability to develop technological capacity, which is dependent on the firm's current knowledge, is a major determinant in innovation. Learning, obtaining, and transferring knowledge, as well as adjusting company behavior to reflect new knowledge and insights, are all required to acquire this competence. Informal and incremental problem solving and experimentation inside the firm, which are closely related to production, organization, and marketing, may make up a significant portion of the learning in small firms, rather than well-defined R&D programs and other formalized ‘technological endeavor (Mungila Hillemane, 2012).
Technological innovation has the potential to boost individual business growth at the micro level while also giving industry growth a new dimension at the macro level. They provide a significant reason for why growth rates differ at the firm, regional, and national levels. As a result, technological advancement is at the center of economic transformation. The ultimate source of productivity and growth is technological innovation. It is the only proven method for economies to continue to grow. (Solow, 1987). They are the driving forces of modern economies because of their diversified contributions in terms of employment, exports, and technical developments. Its ability to innovate is notable among its accomplishments, as current economic theory assigns a significant significance to innovation in the evolution of industries. Technological innovation is an essential component of a company's competitiveness, and it's inescapable for businesses looking to gain and maintain a competitive advantage or enter new markets (Becheikh, Landry and Amara, 2006).
Firm-level innovation management requires models that enable prioritization of innovation activities and resource allocation in the context of current and future competitive needs. The importance of external actors in the conception, development, and commercialization of innovation has expanded in the age of the World Wide Web and globalization. Strategists are debating the best ways to take advantage of, and protect against, the challenges posed by the "democratization of innovation" thanks to the concept of "open innovation.” (Palangkaraya, Spurling and Webster, 2016).
In different contexts, technological innovation has been described in various ways. It is defined as the process by which enterprises master and implement the design and manufacture of goods and services that are new to them, regardless of whether they are new to their competitors, consumers, or the rest of the world, in the context of a developing country. It's a process or product that's brand new to the economy of a developing country, regardless of whether it's been utilized before. The OECD definition, however, is the most commonly quoted: "implemented technologically novel products and processes, as well as significant technological advancements in products and processes?" However, all definitions emphasize the importance of providing a new or improved product or technique that can provide a firm, industry, or economy a new direction (Mytelka, 2000).
Innovation has been identified as a stimulus for industrial progress in several studies. Firms require innovations in order to enter new markets, obtain a competitive advantage, expand market share, and achieve significant economic growth. Firms in Hong Kong, Singapore, South Korea, and Taiwan (the Asian Tigers), for example, have used innovation to achieve industrial growth and long-term competitiveness. Because of the quick pace of change in sectors, as well as the tough difficulties provided by competition and globalization, businesses must innovate to be competitive. Innovation is undoubtedly a fundamental driver of disparities in productivity, income variations, business growth, and industrial competitiveness catch-up in emerging nations. (Baek, Yongchun, & Randall 2005).
2.1.4 Role of Innovation in the Firm Level
Innovation on growth have been analyzed at different levels of aggregation and using different types of growth variables: revenues, value-added, employment, competition. Our focus is on labour growth at the firm level. As more aggregated levels are considered, it becomes harder to disentangle growth stemming from innovation and growth due to industrial restructuring, entry, exits, and businesses cycle effects, to mention a few
The importance of innovation for the survival of market-competing enterprises was highlighted by Schumpeter (1942). The introduction of new combinations triggers a process of competition with a decisive cost or quality advantage, striking not at the margins of incumbent enterprises' earnings and outputs, but their fundamental foundations and life. “under capitalism, the innovative activity becomes necessary, a life-and-death matter for the firm and innovation has replaced pricing as the name of the game in many major industries” (Baumol, 2002) has reinforced the importance of innovation as a critical activity of a firm.
“The effects of innovation for employment are of special importance, yet the relationship between innovation and employment is not well-known,” according to (Harrison et al., 2014) Long-term, innovation is unquestionably good for growth and prosperity. In the short and medium run, however, the aggregate consequences of innovation on employment growth might go either way: one firm's success may lead to the demise of another due to business-stealing effects, or the innovative firm may reduce sections of its previous production. Hence, it seems critically important to comprehend the effects at the micro-level to design an appropriate long-term innovation policy. The link between innovation and employment can thus, and should, be studied at different levels. Apart from creating employment, new and growing firms introduce products, processes, and business model innovations, develop new markets, and change the rules of the game of their industries (Bhide, 2000).
(Herstad, Sandven and Ebersberger, 2015) innovation output may affect firm growth in basically two ways. First, the direct market response as a specific innovation is launched, which will influence the firm’s incentive to adjust capacity to profit-maximizing levels. Second, indirect effects imply learning and the accumulation of knowledge, which may translate into other types of innovations that can either reinforce or dampen the direct market response. And new ventures are more prone to develop, use, and introduce radical, market-making products that give the firm a competitive edge over incumbents.
Moreover Accord to (ERTÜRK, 2009), In science and technology, technological innovation is the most essential element affecting firm competitiveness. In today's society, innovation has become a crucial notion. Every industry and segment of Western culture is concerned about product innovations, production methods, and organizational changes in their surroundings. International commerce, industrial structure, the establishment and development of new enterprises and industries, and the expansion and survival of existing firms and industries have all been influenced by technological innovation. This broad spectrum of consequences has piqued people's interest and sparked debate. One of the most fundamental and strong forces affecting both the economy and society is technological innovation. National goals and public demands continue to provide obstacles for science and technology, especially as these goals and demands shift. Firms that engage in R&D boost their competitiveness and profit potential. R&D is commonly thought to have a substantial impact on a company's sales, productivity, and profit. Demonstrate that a company's sales success is determined by the stochastic outcome of its R&D, physical capital, human capital, marketing, and competitive pressure from within and outside the industry. Individual firms benefit from higher returns on their innovation investments, the mobilization of resources to invest in innovation, and the likelihood of greater revenues from innovation as a result of their performance. As a result, the success of a firm has a positive impact on innovation (Heshmati and Lööf, 2008).
According to the literature, the primary goal of innovation is to improve people's lives. When it comes to running a business, innovation is the key. Firm-level innovation enhances your ability to adapt to change and discover new opportunities. It can also give you a competitive advantage by allowing you to offer better products and services to your customers. Additionally, at this firm level to expand market share and maintain a competitive edge, one of the most important tools in a company's growth strategy is innovation. Firms in developed countries have grasped the importance of innovation, which rapidly changes the value-added of products and services, as the global market becomes more competitive. Firms can use innovations to gain a strategic perspective on how to solve problems and maintain a competitive advantage in the long run. Firms with the ability to innovate are better able to respond to environmental concerns than non-innovative firms.
Firms innovate in order to create value and preserve or improve their market position. Firm-level innovation is a means to attaining business success and higher market value, which is reliant on: A market with appropriate size or growth. Firms can use innovation to:-introduce more product and service variations, allowing for better market segmentation and penetration, improve existing products and services to provide better utility to customers, improve production processes, allow for faster and better delivery of products, and services. Furthermore, firm-level innovation refers to the commercialization of an idea and its effective implementation. Introducing a new product or service into your firm. Not only will innovation help your firm survive, but it will also help it expand and generate more revenues. There are several practical ways to determine whether your ideas have profit potential, including increasing productivity, lowering expenses, becoming more competitive, increasing brand value, forming new alliances and relationships, and increasing turnover and profitability.
2.3 Empirical Review of Selected Cases on Factors Affect Firm-Level Innovation
The function of formal institutions at the regional level innovation, according to Qu (2014). It is proposed that regional formal institutions and FDI influence Chinese firm innovation as well as regional innovation. The WBES2012, China Statistical Yearbook, and the NERI Index of Marketization of China were used in the study. The main findings were reached: FDI has no spillover effects on innovation, and regional formal institutions promote Chinese firms to innovate, while the study has found no such effect from legal institutions, and regional formal institutions encourage regional innovation. The study examined the factors that influence a firm's innovation in Nigeria (Abdu and Jibir, 2018), The study employed data from the World Bank's enterprise survey, which was evaluated using probit and Tobit regression models. The findings revealed that investing in R&D, formal training, a business's size, exporting status, rivals, location, type, industry, or firm activities all positively influence a firm's tendency to innovate.
NGWADLEKA (2017), investigates the relationship between innovation and firm-level export intensity using pooled ordinary least squares (OLS) and a Tobit regression on a cross-sectional dataset from 2016. By focused on the relationship in three southern African countries, the study contributes to the body of knowledge. The findings show that simultaneously implementing product and process innovations has a positive influence on direct firm-level export intensity. Meanwhile, R&D has a significant and positive influence on the indirect export intensity at the firm level.
Kiveu et al.(2019), the purpose of this study was to see how innovation influences firm competitiveness in manufacturing SMEs in Kenya's Nairobi County. Data was collected from a sample of 284 firms from 2012 to 2014. Multiple linear regression was used to investigate the influence of innovation on competitiveness. According to the data, 97 percent of manufacturing SMEs were evolving with different ideas, with the majority of them making minor changes. Innovations have a significant positive effect on competitiveness.
Bigsten et al., (1998), Between 2002 and 2011, the World Bank, Kenya National Bureau of Statistics, Central Bank of Kenya, United Nations Industrial Development Organization, and Institute of Policy Analysis and Research collected secondary data for 30 manufacturing businesses. The panel fixed effects model was used to examine the data. The study discovered a favorable relationship between capital stock and manufacturing company growth in Kenya. However, the study found a significant and negative relationship between leverage, salary bill, power cost, and fuel cost, and manufacturing firm growth in Kenya. According to Ndemezo & Kayitana (2020), also The data utilized comes from the World Bank's 2006 enterprise survey in Rwanda, which is referred to as "ID RWA 2006 ES v01 M WB." This impacts resulting three key findings: Product innovation is closely associated to process innovation, which means that firms that participate in process innovation deliver new or better goods to the market; however, innovation output, such as ‘international quality-recognition,' is unrelated to firm innovation. It is connected to the use of technology licensed from foreign firms, and the main determinant of a firm's financial performance is its "international quality-recognition."
Feldman & Kogler (2010), Firms are located in regions, and regions differ in terms of the supply of fostering factors that help firm innovation, such as favorable institutions, infrastructure, and the amount of R&D stock accumulated in the region. Region-specific variables are essential for regional-based companies' innovation because they can promote externalities and knowledge spillovers between firms within a region. Attempt to identify the major determinants of innovation in manufacturing and non-manufacturing firms in South Africa via Oerlemans and Pretoriu (2006). The findings are based on data collected during in the 2001 South African Innovation Survey. The amount to which firms have internal knowledge resources and use internal and external knowledge and information sources affect innovative outcomes, according to this theory-based exploratory, empirical research. Sub-samples, on the other hand, yield different findings. Imitators are incremental and non-manufacturing innovators, whereas radical and manufacturing innovators exclusively profit from their resources. Seenaiah & Rath (2018), use selected manufacturing firms in India to examine the determinants of innovation. The study is based on a survey of 190 manufacturing firms in the India cities of Bengaluru and Hyderabad. The findings of the panel probit model show that in the manufacturing sector, exports and R&D investment have a positive and significant impact on innovation. Other important factors, such as import intensity, the experience of managers, and holding employee training sessions at the firm level, have a favorable impact on innovative activities.
Lynskey ( 2004), investigated the factors of innovation in Japanese technology-based start-up firms as measured by patent applications and new products using original firm-level data. Examine these factors in terms of both firm and management traits. According to the findings, technological capacity, internal funds, venture capital funding, and university-industry relationships are all important firm-level determinants of innovation. Determinants of innovation in low- and high-tech sectors (Jang, 2017). The data for this study comes from the South Korean Survey of Business Activities for the years 2014 and 2015. To deal with the over-dispersed dependent variable, a negative binomial model is used. Export, foreign ownership, and inter-firm collaboration all exhibited substantial positive effects on innovation output in the whole sample, but profit had no such effect.*