India Economy

Innovation in SMEs

D. MURALI | Updated on July 28, 2012

If you are a small entrepreneur who likes to network, a spill-over benefit can be better innovation in your enterprise. “The role of networks in small and medium-sized enterprise innovation and firm performance’’ by Sarel Gronum, Martie-Louise Verreynne, and Tim Kastelle ( uses longitudinal data from 1,435 Australian SMEs and shows that strong, heterogeneous ties improve innovation in SMEs.

The authors, however, hasten to add that unless networks are used for productive means, efforts to cultivate and maintain them may be wasteful.

“SME owners and managers should, therefore, utilise their limited resources in establishing diverse and strong network links in adopting an open innovation orientation.” Such network links, in the authors’ view, should be primarily directed at increasing innovation breadth, a mechanism that unlocks the performance value of networks.

For starters, the definition of innovation cited in the paper is from the Oslo Manual (OECD 2005), thus: “Innovation is the implementation of any new or significantly improved product (goods or services), operational processes (methods of production and service delivery), any new marketing methods (packaging, sales and distribution methods), or new organisational or managerial methods or processes in business practices, workplace organisation or external relations.”

The authors inform that the bulk of research on the impact of both innovation and networks on performance has been undertaken in large firms; and that in smaller firms, much of the investigation focuses primarily on start-ups.

Reminding that the significant drivers of economic growth are the small and already established firms, the authors make a case for developing a better understanding of how networks and innovation contribute to SME performance, to overcome their liability of smallness without diverting time and money from core activities.

Imperative study.

Limiting factor

Access to finance is one of the biggest limiting factors in achieving significantly higher levels of entrepreneurial growth in India, rues “Financing start-ups and SMEs in India – 0076enture capital funds and bank finance’’ by Mrinalini Kochuipillai ( Acknowledging that there has been an increased availability of venture capital (VC) and private equity (PE) funding in India in recent years, the author adds that VCs and PE funds generally invest in reasonably established enterprises. And that the existing corpus available for seed funding is much less than is required.

“Private VC companies are slowly emerging as willing providers of angel funds. There is however a bias towards larger funds, information technology and proven business models.”

While the Indian VC market is relatively young, participation of foreign players and players who were themselves entrepreneurs before getting into the VC and PE business, has led to the emergence of several ‘expert’ VCs and the future looks promising, the author observes.

Among other findings in the paper are that Indian PE players are long-term players, willing to wait it out to reap benefits; and that several family-run start-ups prefer to keep a close personal watch over the growth and management of the business, something that is considered a plus by most VC/PE companies.

Instructive read.

Published on July 28, 2012

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