Firm-level innovation in emerging markets. The effect of inter- and intra-firm resources and institutions

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For emerging markets to continue to emerge, it is important that these markets develop economically. As SMEs are the backbone of an economy and innovation stimulates economicdevelopment, this study focuses on SMEs’ innovation in an emerging market context. SMEs originating from such an environment are characterised by resource constraints. The analysis tests whether interfirm resources obtained through cooperative arrangements further strengthen the relationship between resources internal to the firm and innovation. In addition, theory suggest that institutions influence the degree to which businesses can extract value from their resources. Emerging markets are characterised by less developed institutions, which can hamper innovation. Therefore, regional institutional quality is taken into consideration when analysing the relationship between intrafirm resources and innovation. These relationships are analysed using secondary data collected by the World Bank Group and its partners through the Enterprise Survey and Innovation Follow-up Survey in 2013 and 2014 in India. Using a sample of 1695 indigenous Indian manufacturing SMEs, the findings show that of the intrafirm resources, internal R&D and managerial experience are significantly and positively related to innovation. The human capital factors do not enhance innovations in this particular study. Moreover, interfirm resources significantly increase the number of innovations but do not moderate between intrafirm resources and innovation. The last finding points out that regional institutional quality directly and positively affects innovation, but only weakly moderates between intrafirm resources and innovation. It shows that for the sampled SMEs, the influence of managerial experience on innovation depends on the institutional quality within a region. An important finding is that the traditional factors included in this analysis explain little variance in the number of innovations and it is therefore recommended to explore yet unexplored non traditional factors that enhance innovation in emerging markets. In addition, this study provides theoretical, policy, and managerial implications and avenues for future research.
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