In general, business sophistication positively correlates and substantially explains (67%) innovation outputs. It is the only statistically significant pillar and explains about 83% of knowledge and technology outputs and 60.8% of creative outputs of innovation. Knowledge absorption and innovation linkages are the business sophistication variables that significantly contribute to knowledge and technology outputs. A free flow of knowledge among the employees, stakeholders and other institutions are crucial to generate new ideas, products, or services. Price et al., (2013) points out a significant relationship between knowledge and innovation of firms. Especially, the innovation linkages among government, research institutions, and customers have been termed as the most significant linkages that boost innovativeness (Hadhri et al., 2016). In line with this, the level of interaction with different parties, especially with academic partners, is the key determinant to boost innovation performance of the developing country (Hadhri et al., 2016; Ortega & Serna, 2020; Qureshi et al., 2021). An industry perspective study by Giones (2019) unfolds that university–industry collaborations can be enhanced by training that focus on attitude change of firm owners, innovation vouchers and grants by a university.
Among pillars, human capital and research, and business sophistication are the decisive pillars in predicting knowledge and technology outputs. As shown by stepwise regression, a proper set of the business environment, regulatory environment, political environment, tertiary education, education, research, and development (R&D), ecological sustainability, general infrastructure, information, and communication technologies (ICTs), investment, trade, competition & market scale, credit, knowledge absorption, and innovation linkages is the best model to predict and enhance knowledge and technology outputs of innovation. The ample of previous studies also support this model; for instance, the credit system (Giang et al., 2019), access to finance (Osano & Languitone, 2015 and Fernandez, 2017), educational knowledge and skills of human resource (Farsi & Toghraee,2015; Uvarova & Vitola, 2019; You et al., 2021) play an important role in the innovativeness of firms. Also, partnership and technology transfer, and R&D activities (Hadhri et al., 2016; Qureshi et al., 2021), the pace of technological development, and population educational level (Grego-Planer & Kus, 2020) accelerate innovation Besides, weak institutions deteriorates the confidence of the investors, customers, and industries (Jovovic et al., 2017; Szalacha-Jarmużek & Pietrowicz, 2018). Technological infrastructure that includes mobile phones, internet access, online platforms, and digital workshops are believed to have a tremendous effect on innovativeness of, especially, SMEs in all business areas (ITC, 2018; Oyedele et al., 2014). In a regulatory environment, maintaining institutions like property rights significantly encourages firms to engage more in new products innovation in developing countries (Udimal et al., 2019).
Among these factors, the study further reveals that knowledge absorption, research and development, and innovation linkages, respectively, are the highest and statistically significant predictors of knowledge and technology outputs of innovation. In accord with this, several researchers prove that R&D and researchers are essential ingredients to enable and increase innovation performance (Hadhri et al., 2016; Farsi & Toghraee 2015; Qureshi et al., 2021; Uku, 2004). Hadhri, Arvanitis, M’Henni (2016) pinpointed a very strong relationship between R&D activities and innovation. They further explained that firms those spend more on R &D activities, innovate more in service, product, and process. In the study covering several countries from Asia- Pacific region and Latin America and the Caribbean, Qureshi et al., (2021) find R&D, human capital, and infrastructure access, among others, as the key determinants of innovation.
As happened to knowledge and technology outputs, innovation linkage is the main variable under business sophistication contributing to creative outputs of innovation. At pillar level, business sophistication and access to infrastructure are found to be the two key and statistically significant pillars to enhance creative outputs of innovation. Especially, infrastructure that ensures ecological sustainability is the most demanded and, therefore, it shows that utilities including energy alternatives or electricity, machinery, or transportation are needed to be eco-friendly. Also, the result pinpoints that, since almost all the variables are the same, the model that best predicts knowledge and technology outputs can also be applied to explain creative outputs. Hence, to accelerate innovation (including both knowledge and technology outputs and creative outputs), the desired effort need to be appropriated to all these factors (business environment, regulatory environment, political environment, tertiary education, education, R&D, ecological sustainability, general infrastructure, ICTs, investment, trade, competition & market scale, credit, knowledge absorption, and innovation linkages). Especially, the results imply that innovation linkages, knowledge absorption, infrastructure, and research and development exert preponderant influence on the innovation performance and may need to draw the utmost priority, including extra budget allocation. This supplements the argument made by Hadhri et al. (2016), Protogerou et al., (2017) and Ortega & Serna (2020) where they argue that technology collaborations & networking with universities, interconnection with government, research institutions and customers are the most significant linkages to boost innovation.
However, as shown by hypothesis (H6a) testing result, the determinants of innovation that are in a high-income country does not equally work for an upper-middle-income or a lower-middle-income country, and vice versa. Even if the determinants are the same in all groups, the level of priority and importance in predicting innovation performance is not the same. Further analysis, histogram illustration below, reveals the difference in the performance status of the groups and the bottleneck/s of each group, where poor performance is observed.
Table 5.1. Innovation activities as per countries’ income level
Source: Own study result, 2021
Therefore, the lower-middle-income countries are expected to give priority to human capital and research (especially focus on R&D activities), business sophistication (especially focus on innovation linkages followed by knowledge absorption), and infrastructure, respectively. Studies conducted in lower-middle-income countries such as Iran (Farsi & Toghraee, 2015), Asian countries including India, Vietnam, Bangladesh, and Sri Lanka (Qurashi, Park, Crespi, & Benavente, 2021) and Nigeria (Agwu, 2014) prove that human capital that promotes R&D and infrastructure is found to be the key to flourish the innovation. The upper-middle income countries are expected to equally consider both bottlenecks-R&D and innovation linkage, then pursue knowledge absorption and infrastructure, respectively. It also shows that innovation linkage is a bottleneck, where the high-income countries lag. Therefore, the countries and firms in a high-income category needs to prioritize innovation linkage, knowledge absorption, R&D, and infrastructure, respectively, to boost their innovation performance, respectively.