Empirical Determinants of Product Innovation in Micro-Enterprises in Pakistan - An Exploratory Analysis

Saeed, Syed Mohammad1, Nishat, Mohammed1
Institute of Business Administration, Karachi
ssaeed@iba.edu.pk; mnishat@iba.edu.pk

Abstract: Product innovation is assumed to increase consumer utility but is effective only if the innovating firm invests in marketing, so that consumers become aware of the newly developed product. Firms first decide whether or not to conduct product innovation and then determine their expenditure for bringing the new product to the market. In the later stage they are involved in competition on the product market. This study investigates the determinants of product innovation in small firms in various industries of Pakistan. This study is an exploratory effort based on a sample of 200 plus respondents and uses logistic model. The empirical model identifies the factors that are key drivers of product, firm, and market innovation process. Controlling for size and age differences, the analysis reveals some major differences to the extent small firms use innovative practices and their connection with new product introduction. The dependent variables are described as proxies for innovation of a new product to the firm, and that to the industry. The explanatory variables are identified as proxies for innovative practices such as managerial focus, defined innovative plan, external network for learning, market research by firms, inter cooperation, involvement of frontline workers and training and development. The empirical results indicate that firms who have with internal knowledge management system, well documented plan and co-operative effort with other organizations have higher tendency for product innovation. The comparatively smaller firms and those that have some improvement in their product, and those exports are less motivated for product innovation. This study also distinguishes the product innovation behavior among manufacturing and services sector firms.