The impact of innovation capability on company’s performance an empirical analysis of smes in vietnam

INTRODUCTION

The rationale of the study

Across countries at all levels of development, Small and Medium-Sized Enterprises (SMEs) play an important role in fostering economic growth through creating more jobs, enhancing the domestic productivity, supporting greater economic inclusiveness and etc (OECD, n.d.) Nowadays, SMEs represent about 90% of businesses and more than 50% of employment worldwide with their aggregate income accounting for at least 40% of national income (GDP) in emerging economies (The World Bank, 2021) Moreover, according to the most updated report “SME and Entrepreneurship

Policy in Vietnam” published by OECD, SMEs in Vietnam represent 96% of the total stock of companies, employ 47% of the labor force and account for 36% of national value added (OECD, 2021) Though these figures prove enormous contributions of SMEs to the economy, all figures significantly below the corresponding OECD averages, indicating some prevalent issues that Vietnamese SMEs are facing As a matter of fact, though limited R&D spending and the so-called “frugal innovation” are considered appropriate for Vietnam’s current economic background due to the opportunities for firms to reduce manufacturing costs and make products more accessible to customers, it is one of the challenges for SMEs in Vietnam to compete with others in an integrated world (OECD, 2021) In addition, the most recent report “Global Innovation Index 2021” published by World Intellectual Property Organization (WIPO) indicates that though Vietnam ranks first in lower-middle income group countries in terms of innovation score (37.0), the score still stands behind some regional countries such as Thailand (37.2) and Malaysia (41.9) (WIPO, 2021) Therefore, studies on innovation are critical for Vietnamese government and businesses, especially SMEs to foster innovative environment and accelerate economic growth in future prospects.

On the other hand, the increasing globalization and market competition has become an impetus for firms to innovate in order to survive and grow (Jeong, et al., 2016; Salojarvi, et al., 2015) In today’s fiercely competitive market, technological advances rapidly become obsolete, which shortened product and technology lifecycles while the customers’ demands constantly change and evolve overtime In light of this, innovation capability is recognized as a critical factor for firms to create sustainable performance and strengthen their competitive advantages, especially for SMEs (Rosenbusch, et al., 2011) Accordingly, governments, business practitioners and scholars all over the world have found the relationship between innovation and firm’s performance to be a significant subject for analysis and research. However, while prior studies have employed a range of approaches and perspectives to establish crucial basis for the field’s literature, some existing theoretical frameworks and practical insights are not well- founded, thus requiring further research (Terziovski,

2008) Moreover, there is a dearth of research concerning innovation capability and its relationship to performance of small enterprises (Forsman, 2011; Kyrgidou & Spyropoulou, 2013) while research on this group has been mostly undertaken in advanced economies (Bruton, et al., 2008) Consequently, findings from those could not be simply applied to SMEs from emerging countries, especially in such a dynamic economic context of Vietnam (Sok, et al., 2016).

Given the crucial role of SMEs as a central contributor to economic development (Ribiero-Soriano & Mas-Verdu, 2015) and the requirement to bridge the gap between existing research, the author would choose “The Impact of Innovation Capability on Company’s Performance: An Empirical Analysis of SMEs in Vietnam” as the topic for this graduation thesis Accordingly, this study aims to bring a holistic analysis about factors influencing innovation capability and firm performance of SMEs in Vietnam as well as the relationship between innovation capability and company’s performance Hopefully, this research would not only be a theoretical paper but also serve as a valuable reference to business practitioners and managers to foster a favorable environment for innovation and development.

Literature review

1.2.1 Research into the impact innovation capability on firm performance

Innovation capability has been identified as a significant factor to derive firm’s competitive advantage and sustainable performance As such, researchers have conducted various studies into the association of innovation capability with firm performance from both theoretical and empirical perspectives However, as those studies vary from different industries and business environment contexts within different period of time, the results are deemed to be inconsistent with Vietnam’s economic outlook and characteristics of Vietnamese SMEs – the scope of this thesis Following are the explanation and analysis of previous studies into the subject.

Firstly, the Doctor of Philosophy thesis “The impact of innovation capabilities on firm performance: An Empirical Study on Industrial Firms in China’s transitional economy” by Jing Zhang (2004), whose data was collected through China's largest official technological innovation of industrial firms across six important industrial regions since

1996, has identified multidimensional impact of innovation capabilities on Chinese firm performance Based on Resource-Based View (RBV) theory, the author found that R&D capability; absorptive capability of external technology resources; product development capability; process innovative capability have positive relationship with firm performance, while manufacturing capability and marketing capability have a relatively weak relationship to promote firm performance In addition, the author pointed out that regional development, innovation policy support, industry type and ownership could largely influence the interaction between innovation capability and firm performance (Zhang,

2004) Overall, though the study has indicated multidimensional nature of innovation capability and firm performance, thus producing specific findings regarding each individual dimension of innovation capabilities to different performance objectives, the adoptation of RBV is deemed to be insufficient Moreover, as the economic context of China is relatively different from the Vietnamese economic background examined in this thesis, the findings could be varying and not relevant to SMEs of Vietnam.

Secondly, the article of Kafetzopoulos & Psomas (2015) “The impact of innovation capability on the performance of manufacturing companies: The Greek case”, with a sample of 233 Greek manufacturing firms and quantitative methods using SEM, revealed that innovation capability has direct impact on operational performance through higher product quality Though innovation capability is confirmed to have no direct impact to these firms’ financial performance, it has an indirect influence through the moderator of operational performance, which offers clear implications for managers (Kafetzopoulos & Psomas, 2015) Overall, the research has contributed greatly to the literature by initiating new approach of measuring a firm’s performance, which includes product quality, operational performance and financial performance However, the measurements of innovation capability has been lacking of theoretical evidences and relevant theories of the field (such as RBV, DC, etc.), thus implying inconsistent results Moreover, as the empirical validation of the research is based on Greek manufacturing firms, the results might not be applicable to all company populations (Kafetzopoulos & Psomas, 2015).

While research into the relationship of innovation capability and firm performance in those aforementioned advanced economies has produced consistent findings of a positively dependent relationship, scholars have attempted to study the phenomenon in emerging economies The reasons behind this are to investigate how innovation capability could facilitate performance of firms characterized by low technological innovations in those countries and to verify whether existing findings could be applicable for a range of economic contexts (Radas & Bozic, 2009) Accordingly, the following are some relevant studies into the relationship of innovation capability and firm performance in emerging economies.

Rajapathirana & Hui (2018)’s article “Relationship between innovation capability, innovation type, and firm performance”, based on an empirical study covering insurance industry in Sri Lanka, revealed that innovation capability has a strong and significant impact on the product, marketing, and organizational innovation activities and accordingly, positively influences firm’s financial and market performance Though the findings are valuable for managerial implications of relevant businesses and industries, the limitations of the research should be acknowledged as follows Firstly, as the study adopts one dimension to measure innovation capability while it should be considered as a multi-dimensional concept, further research should add more factors to represent innovation capability (Rajapathirana & Hui,

2018) Secondly, as the findings are suggested being applicable specifically for Service sector and Banking industry, future research needs to be applied to different developing countries with different service sector industries to explore the impact of innovation on economic growth and market level (Rajapathirana & Hui, 2018).

Notably, the article of Andjarwati (2020) “Impact of Innovation Capabilities on Firm Performance of Pharmaceutical Industry in Indonesia”, added various breakthrough findings on the literature From a substitute theoretical perspective of innovation capability rather than traditional measurements suggested by RBV theory, the article posited that human resource- oriented knowledge management practices; technology-oriented dimensions of innovation including leadership, management and business processes have significant and positive influence on firm performance in Indonesian pharmaceutical firms (Andjarwati, 2020) However, similarly to the aforementioned studies, this research fails to design a thorough measurement scale for both innovation capability and firm performance due to the lack of solid and systematic theoretical background Therefore, though the study provides necessary insights to enrich the current literature regarding firm performance of pharmaceutical firms in Indonesia in the light of innovation capabilities, the author of this thesis would consider to address those weaknesses in the research.

With the dynamic economic growth and proven importance of SMEs for emerging economies, scholars have shifted attention to study innovation capability of those firms and its impact on the organizational performance Accordingly, the conference proceedings of Siahaan, et al (2016) “Innovation Capability and Business Performance ofICT SMEs in Indonesia” has generated valuable findings regarding the relationship of innovation capability and firm performance of Information and CommunicationTechnology Small-to-Medium Enterprises (ICT SMEs) in Indonesia The authors noted that as Indonesian government realized the importance of this key industry sector to the country’s economic master plan, the Indonesian government currently collaborates with academia and business to support firms generating innovations by establishing techno- parks, science parks and industrial clusters Therefore, apart from internal resources,capabilities and organizational management of firms to support innovation capability(Romijn & Albaladejo 2002; Hortinha, et al., 2011; Zhou, et al., 2005), the study has examined whether the role of interactions among organizations located in a geographical proximity would influence or hinder the presence of innovation capability (Fitjar, et al., 2013) With the adoptation of solid theoretical background of RBV, Dynamic Capability (DC) and Agglomeration Theory (AT) and analysis technique using SEM, the authors have identified valuable findings and insights regarding the proposed research questions Significantly, intellectual capital is the major contributor of innovation capability together with learning capability, technology orientation while innovation milieu is found to be non- significant in explaining the phenomenon Moreover, intellectual capital, learning capability and innovation milieu are confirmed to have positive relationship with firm performance while technology orientation is deemed to have no significant impact (Siahaan, et al., 2016) Overall, the research is well-conducted and the results are highly reliable for further research into the topic The only limitation concerning the study is that the results are applicable only for the Indonesian settings Therefore, generalizing and applying the outcomes of research results to other contexts without considering how other countries and environments may operate could provide unreliable outcomes (Siahaan, et al., 2016).

Hameed et al (2018), in the article “Determinants of Firm’s open innovation performance and the role of R&D department: Empirical evidence from Malaysian SME’s”, studying the determinants of innovation capability and performance of Malaysian

SMEs, found that external knowledge, internal innovation and R&D department are the major determinants of firm’s innovation capability Therefore, by promoting those factors, Malaysian SMEs could grasp tremendous benefits on its performance (Hameed, et al., 2018). Though the findings from the research are valuable and relevant for a developing economy like Malaysia, with thorough overview of a new conceptual definition known as “open innovation”, the authors only employed RBV as the theoretical framework for the study, which could be insufficient in scale measurements for the research variables.

In Vietnam, innovation capability has also triggered interests of scholars and practitioners to explore its relationship with firm performance, especially when the economy has faced various challenges of a digital-driven economy and socio-economic damages of COVID-19 pandemic that requires firms to constantly innovate (Nguyen, et al., 2020).For instance, Hoang and Hoang (2019)’s article “The Relationship between Innovation Capability and Firm’s Performance in Electronic Companies, Vietnam” has confirmed five determinants of firm’s innovation capability that have direct impact on firm’s financial performance, including support of policy-maker factors; sensing capability; combination capability; networking capability and learning capability while innovation capability is the third powerful factor that affect firm’s financial performance, following attitude of leadership factors and quality of human resources factors (Hoang & Hoang,

2019) Though the research adopts a wide range of indicators of innovation capability (17 indicators) with metrics developed by trusted sources, the theoretical background and the research model seems rigid and scattered, thus could produce overlapping results Moreover, the research only addresses the sample of electronic companies, which comprises various types of firms, the results might be different when considering the scope of SMEs in Vietnam.

In addition, the study of Nguyen et al (2019) “The Impact of Innovation on the Firm Performance and Corporate Social Responsibility of Vietnamese Manufacturing Firms” also enriched the literature by introducing another significant perspective regarding the relationship between innovation capability and firm performance More specifically, research findings suggest that process and product innovations accelerate firm performance in terms of market share and stakeholders’ satisfaction, but not returns on total assets,implying that innovative activities are not directly associated with positive changes in profitability, but it might help with increase customer loyalty and promote sustainability and goodwill through Corporate Social Responsibility (CSR) activities (Nguyen, et al., 2019).Though this study has derived interesting findings on the relationship between innovation capability and CSR, the impact on innovation capability on firm performance has not been highlighted appropriately More specifically, the scale of both innovation capability and firm performance has not properly developed yet and lacked of important variables.Evidently, firm performance in this research is only measured by economic performance and firm’s position in the market, while firm performance is regarded as a multi-dimensional concept Moreover, the research only focused on manufacturing firms, thus the results might be fluctuating when applying for other firms of different industries Overall, the limitations from this research would be addressed in the current thesis as the author would consider to look at SMEs firms while introduce a more reliable and multi- dimensional scale of firm performance.

The objectives of the study

The objective of the research is to explore the determinants of innovation capability and to examine to what extent they could influence firm performance of SMEs inVietnam Following that, the author could identify which factor of innovation capability has the most powerful impact and which factor has the least impact on Vietnamese SMEs’ performance to make relevant recommendations for those firms to accelerate growth.Moreover, the study also aims to make relevant implications for government to foster a supportive environment for creativity and innovation among SMEs in Vietnam to support domestic economic growth and increase living standards of Vietnamese people To achieve the aforementioned objectives, the author set specific goals as follows: i Gaining a thorough understanding of innovation capability and firm performance through reliable academic sources and business practitioners to create strong theoretical foundation and reasoning to demonstrate factors influencing innovation capability and firm performance and the relationship between those. ii Identifying the situation of innovation capability among SMEs in Vietnam, including its achievements to support business growth as well as its weaknesses and challenges to promote innovative activities among those firms. iii Identifying relevant antecedents associated with innovation capability including intellectual capital, learning capability, technological orientation and innovative milieu and understand to what extent they could facilitate or hinder performance of SMEs in Vietnam. iv Proposing some recommendations for Vietnamese SMEs and government to effectively promote innovative activities to accelerate firm performance and economic growth of the whole economy.

Research questions

With the key objectives to provide a comprehensive understanding of firm innovation capability and performance of SMEs in Vietnam, the major question for the study is: “What are the determinants of innovation capability and to what extent do those influence Vietnamese SMEs’ performance?” To address this major question, some sub- questions are: i What is innovation capability and firm performance? What are the determinants of innovation capability and firm performance? ii What is the situation of promoting innovative activities among SMEs in Vietnam? What are the achievements, weaknesses and challenges for promoting those activities? iii To what extent do intellectual capital, learning capability, technological orientation and innovative milieu significantly influence innovation capability and firm performance? iv What should businesses and government do to facilitate a supporting environment for innovation and positive changes to boost performance and economic growth?

The scope of the research

The main topic of this research is to investigate the relationship between innovation capability and firm performance of SMEs in Vietnam Accordingly, the sample of this research was collected through a survey using questionnaires sent out to managers of all level of SMEs whose headquarter is located within the Vietnam’s territory However, the business scope of SMEs is not limited within the Vietnamese territory but could expand overseas The time frame for this entire research is from August to December, 2021.

As of Decree 80/2020/ND-CP: “Elaboration of some Articles of the Law on provision of Assistance for Small and Medium Enterprises”, issued by Vietnamese Government on August 26, 2021 and officially coming into power on October 15, 2021, SMEs are categorized into micro-enterprises, small enterprises and medium enterprises (The Government of Vietnam, 2021) Accordingly, the criteria are specifically illustrated in the

Appendice 1 (Table 1.1), which serves as the basis for identification of SMEs adopted in this research.

Research methodology

To conduct the research, the author would adopt mixed research methodology, which integrates the use of quantitative and qualitative data collection techniques and analytical procedures in the same research project (Saunders, et al., 2019) This method is considered appropriate for the current study because they supplement each other in accomplishing the overall research objectives.

The author has employed various sources for collecting research data, which includes primary data sources and secondary data sources The details of data collection sources would be further demonstrated in Chapter 3 and outlined in the Figure 1.1 above.

With qualitative findings, the author would use Thematic analysis technique to analyze data sources With quantitative findings, the author would use various quantitative analysis techniques with the help of IBM SPSS Statistics and SmartPLS including

Exploratory Factor Analysis (EFA) and Partial Least Squares Structural Equation Modeling (PLS-SEM) From

Quantitative analysis techniques: EFA, PLS-SEM

Thematic Analysis the quantitative results, the author would use Hypothesis testing technique to derive final results In short, the figure below would outline the process of data collection and data analysis throughout this thesis.

Figure 1.1 The process of data collection and data analysis of the thesis

Source: Synthesized by the author, 2021.

Research significance

As illustrated through the rationale and literature review part, the research would contribute to existing literature of the field and to current knowledge of SMEs owners/ managers and policy-makers to promote firm innovation capability and firm performance.

Firstly, the research would contribute significantly to current knowledge of innovation and business as the author employs the combination of management and agglomeration theoretical foundation to justify the association between innovation capability and firm performance of SMEs in Vietnam, which has been insufficiently demonstrated or ignored in prior studies (Fitjar, et al., 2013) By introducing a new variable beyond traditional approach of firm-specific focus (which addresses the relationship among organizational resources and capabilities and innovation and firm performance) that has been largely adopted by previous researchers, the author would illustrate the impact of the interrelatedness and interconnectedness

Reliable academic journals, theses and reports from governments, relevant authorities and research agencies

A survey sample of 348 responses from managers of SMEs in Vietnam

Data analysis techniques Data collection

The thesis of actors in a defined region on Vietnamese SME’s innovation capability and performance, which is represented by the variable – innovation milieu Given that Vietnamese government has enacted a range of incentives and policies to support SMEs’ business growth and the emergence of “sharing economy”, the study about the relationship between innovation milieu and firm innovation capability and firm performance is deemed to be significant In addition, as this research would take place in a developing, dynamic and emerging Vietnamese economy, which has been overlooked by scholars in most of the prior studies (Martínez-Román, et al., 2015) the findings would reveal to what extent different socio-economic structure and characteristics could affect the association between innovation capability and firm performance by confirming or disconfirming the previous findings taking place in advanced economies (Seacoop, 2010).

Secondly, the research would serve as a reliable and trusted source for Vietnamese SME owners and managers for successfully develop organizational capability and leverage firm performance Practical and managerial implications would be presented comprehensively in Chapter 5

Last but not least, the research would provide valuable findings and insights for policy makers to propose appropriate incentives to foster innovation and business environment for SMEs in Vietnam Accordingly, knowledge regarding significant factors influencing innovation capability and firm performance will assist local government to identify priorities and methods to enhance regional and national innovation among SMEs The author would outline specific recommendations and implications in Chapter

Research structure

The main contents of this research is divided into 5 chapters, not to mention the supplementary parts Though each chapter would serve for separate purposes, there is a strong connection among chapters to demonstrate logical and evident findings regarding the proposed research topic The 5 chapters are as follows.

In this part, the author would justify the need for studying this topic through the rationale of the study and literature review and briefly introduce the research design, which includes the research objectives, research questions, scope of the research and research methodology to investigate (1) components of innovation capability and firm performance and (2) the relationship between these constructs.

This chapter aims at providing theoretical evidences and findings of concepts related to the research topic including innovation capability, firm performance and their determinants Following that, nine hypotheses would be clearly stated with supporting academic reasonings and a conceptual research model is also presented.

This chapter outlines the research paradigm and research design that the author has employed to study the whole research topic Accordingly, the author utilizes Pragmatic research philosophy, which implies that mixed research methods of quantitative and qualitative would be adopted in the research Following that, the author would illustrate the methods and techniques for data collection and data analysis as well as justify their advantages and limitations in accomplishing the research objectives Last but not least, a proposal of research ethics would be attached for the whole research procedure.

This chapter provides qualitative findings and analysis regarding the situation of promoting Innovation Capability and Business Performance of Vietnamese SME Along with that, quantitative analysis of determinants of Innovation Capability and their impact on Firm Performance among Vietnamese SMEs is also presented with appropriate data analysis techniques.

Chapter 5: Results discussions, Recommendations and Research limitations

From the findings of the previous part, the author would suggest some measures to promote innovation capability and performance among Vietnamese SMEs from managerial perspectives In addition, the author would propose some recommendations for policy makers to initiate appropriate initiatives to promote Vietnamese business environment towards a dynamic, strong and innovative one This chapter concludes with critical evaluation of research limitations and provides direction for further research into the topic.

This chapter aims at providing readers with analysis on theories and concepts underpinning the study’s conceptual model Accordingly, the chapter begins with presenting the solid theoretical foundation of two major concepts adopted in the current study – Innovation Capability and Firm Performance Following that, the author would demonstrate three relevant theories outlining the impact and determinants of innovation capability and firm performance including the Resource-Based View (RBV), Dynamic Capabilities (DC) and Agglomeration Theory (AT) and establish a conceptual research model with hypotheses to bridge the research gap and achieve the objectives of the current research.

Theoretical overview of Innovation Capability

2.1.1 Conceptual definition of Innovation and Innovation Capability

In today’s competitive marketplace, innovation is regarded as a critical factor for firms to facilitate sustainable development and maintain strong competitive position at either national or international levels, especially for SMEs (Carmona-Lavado, et al., 2013; Cakar

& Erturk, 2010; Lisboa, et al., 2011) As such, innovation has become one of the major research disciplines for both academic scholars and business practitioners (Salavou, 2004).

Though innovation is simply defined as a different way of doing things, the concept of innovation was probably first coined by Schumpeter in the late 1920s, in which innovation was defined as a novel output that could create a new market, organizational structure, product or process for production (Schumpeter, 1947) Since then, scholars within this era had attempted to develop the literature by identifying innovation as key drivers of organizational changes and tools for firms to generate or penetrate into new market (Fagerberg & Verspagen, 2009; Mansfield, 1961; Schumpeter, 1947).

In addition, during the period between 1960 and 1985, researchers suggested that innovation could be measured by the outcomes of R&D and the number of patents(Forsman, 2011) as innovation involved technology and modernized equipment.However, as market orientation has gradually become one of the most prominent market paradigms, these measurements of innovation failed to generalize situations for all organizational types and goals

(Crossan & Apaydin, 2010) Therefore, in the 1990s, scholars asserted that innovation should be seen as a continuous process requiring efforts and commitment not only from management but also from other firm’s resources and capability (Damanpour, 1991; Gatignon & Xuereb, 1997; Hurley & Hult, 1998; Lawson & Samson, 2001) With this perspective, relevant studies started to adopt research frameworks that link innovation to organisational learning and knowledge by identifying the role of knowledge and learning in generating new products, processes, technologies and capabilities, which was later referred as a new emerging concept of innovation capability (Lawson & Samson 2001).

The flourish of innovation studies since 1990s has fostered a new theoretical development on innovation capability, which was built on the understanding that innovation capability requires knowledge and idea transformation to create new products, processes and systems, thus facilitating innovation growth (Lawson & Samson, 2001; Fagerberg

& Verspagen, 2009; Hogan, et al., 2011) However, a wide range of studies into innovation capability facets reflect to different definitions of innovation capability More specifically, Wang & Ahmed (2004) contended that “innovativeness” could overlap with innovation capability since these researchers defined innovation capability as an organizational process of combining product innovativeness, market and process innovativeness, behavioural and strategic innovativeness Against these justifications,Romijin & Albaladejo (2002) argued that innovation capability refers to the ability of an organization to utilize its knowledge and skills in developing and introducing new breakthrough products or services to the market However, a study conducted by Akman &Yikmaz (2008) indicated that innovation capability is associated with innovative culture and organizational characteristics that can provide understandings for organisations in responding to market challenges and fostering further innovation.Though these definitions vary in different perspectives, they altogether construct solid theoretical frameworks for further research into innovation capability Nevertheless, these definitions are insufficient in explaining the importance and mechanisms of innovation capability for organizations in a more complicated business environment, where competitors and relevant stakeholders could create enormous pressure.

For the purposes of this study, innovation capability is adopted from the study of Hogan et al (2011), who defined innovation capability as “a firm’s ability, relative to its competitors, to apply the collective knowledge, skills, and resources to innovation activities relating to new products, processes, services, or management, marketing or work organisation systems, in order to create added value for the firm or its stakeholders” This definition appropriately and thoroughly represents innovation capability for the following reasons. Firstly, it developed robust measurement items to assess firm innovation capability through rigorous procedures starting from an exploratory study to quantitative analysis (Shiahaan, 2016) Secondly, the definition implies knowledge generation and transformation in developing new products or services that is consistent with the concept of innovation capability previously developed by Lawson & Samson (2001).

Securing and expanding innovation capability is a critical challenge for the survival and growth of SMEs due to their relatively insufficient internal resources and limited capabilities to enhance environmental responsiveness (Kim, et al., 2018) Therefore, various studies have been conducted to explore factors that facilitate or hinder innovation capability development In general, there are two groups of factors including external environmental factors and internal environmental factors.

The first group – so-called external environmental factors – includes contextual factors that are often closely intertwined with the firm’s internal drivers, strategies and behaviours despite being beyond immediate control of management (OECD, 2018) As such, OECD (2018) identified spatial and locational factors, firm’s market environment,public policies and the social environment as significant influencers on organizational innovation capability while depending on the context, those factors could act as either a driver of innovation capability development or a barrier to it (OECD, 2018) More specifically, spatial and locational factors could facilitate innovation capability growth due to favorable political geographic locations and proximity advantages of product and labour markets (Audretch, 1998) Accordingly, these factors could influence the costs of doing business and increase understandings of consumer demand, thus encouraging firms to promote innovation capability (Kungman, 1991). Moreover, components of firm’s market environment such as customers’ demand, rivalry competition, industry standards, etc are deemed to have substantial impact on firm’s innovation capability (OECD, 2018) For example, competitive pressure, which comes from either the new entry of competitors or firms with competing innovations, could be an important driver of innovation activities in some countries Last but not least, the public policy environment, which includes governmental regulations, government support programmes, innovation and public infrastructure, could have profound impact on firm’s innovation capability That said, supporting regulations on product markets, financial affairs, IP rights, employment and the labour market, etc could foster innovation capability development while drastic policies could hinder this innovative process (OECD, 2018).

On the other hand, internal factors, which is the most closely related to businesses could also be regarded as significant factors influencing firm’s innovation capability A study conducted by Kim et al (2018) found that top management leadership and external networking could serve as facilitators, while organisational rigidity and insufficient resources could act as barriers to innovation capability (Kim et al., 2018) In contrast, Kayani and Abdullah (2017), when examining factors influencing innovation capability within the scope of employee reach, proposed that knowledge sharing, management support and trust and goal clarity are among critical determinants of firm’s innovation capability However, the research of Sudolka and Lapinska (2020) on innovation capability of manufacturing companies operating in Poland indicated that inter-organizational cooperation, enhancing human capital in R&D activities and firms’ internal expenditures on R&D are critical factors influencing innovation capability.

Though a variety of prior research have indicated a range of determinants associated with firm’s innovation capability, they lack some potential variables that are described in the theoretical grounding (Sudolka & Lapinska, 2020) However, it is noted that some research has not created a solid and sufficient theoretical background for constructing examined factors More specifically, researchers have only referred to Resource-BasedView (RBV) theory – a traditional theory in innovation discipline but not successfully addressed some complementary antecedents to this theory such as Dynamic Capabilities (DC) (Eisenhardt & Martin, 2000).Last but not least, previous research only adopted a specific scope of an industry or a company Therefore, it lacks the managerial implications for the whole group of SMEs that this thesis approach to explain Accordingly, in this thesis, the author would adopt relevant theories and scale measurements to examine potential aspects affecting innovation capability, which would be demonstrated in details in the next part.

Theoretical overview of Firm Performance

2.2.1 Conceptual definition of Firm Performance

Firms are considered as a key ingredient for development of every country in various aspects including economic, social and political development Therefore, every firm should operate in conditions of performance for its own survival and for achievements of organizational objectives Though firm performance has become a relevant concept in strategic management research and is frequently used as a dependent variable, there is hardly a consensus about its definition and measurement (Taouab & Issor, 2019).

Originally proposed in its earliest theoretical development, firm performance was considered as organizational efficiency, which represents the ability of firms, as a social system with some limited resources and means, to achieve its goals (Georgopoulos & Tannenbaum, 1957) Other researchers, however, contended that firm performance was attached with the organizational effectiveness (Price, 1968; Moh, 1972), which was associated with the organization’s ability to exploit its environment for accessing and using the limited resources (Yuchtman & Seashore, 1967) Significantly, researchers in the 1970s such as Lupton (1977) and Katz & Kahn (1978) argued that effectiveness and efficiency of an organization were similar, and both were crucial components of the firm’s performance regarding its productivity, levels of motivation and satisfactions of its members, its adaptability to the external environment and etc (Lupton, 1977; Katz & Kahn, 1966)

Notwithstanding, with the increasingly complex business environment, researchers in the 1980s and the following decades added various perspectives constituting the definition of firm’s performance More specifically, while Porter (1985) claimed that firm performance is the ability of business firms to create value for its clients (Porter, 1985), Adam (1994) asserted that employee’s performance quality is critical component to define firm’s performance (Adam, 1994) In addition, Harrison & Freeman (1999) posited that stakeholder’s satisfaction and participation in firm’s business activities are other respects in firm performance (Harrison & Freeman, 1999).

From different ideas and perspectives regarding the conceptual definition for firm’s performance in prior research, Peterson et al., (2003) introduced a thorough definition of firm’s performance and the definition later served as a creditable source in business research (Taouab & Issor, 2019) The authors defined firm’s performance as the capability and ability of an organization to efficiently exploit the available resources to achieve accomplishments consistent with the set objectives of the company, as well as considering their relevance to its users (Peterson, et al., 2003) Accordingly, this definition goes in line with prior accepted findings on firm’s performance such as firm’s efficiency and effectiveness (Lupton, 1977; Katz & Kahn, 1978) and is also consistent with the assimilation of Bourguignon (1997) that firm’s performance is rather than an “action” associated with certain “behaviors” of firms rather than “result” in terms of statistic views (Bourguignon, 1997) Therefore, the author of this thesis would adopt the conceptual definition of firm’s performance proposed by Peterson et al (2003).

Studies to explore determinants of Firm Performance have indicated that innovation capability is a critical factor influencing firm performance (Hult, et al., 2004).

As Panayides (2006) illustrated, innovation capability would help managers and executives smoothly manage client relationships, thus introducing innovative ideas and solutions to the market, which in turn accelerates Firm Performance However, with the concerted attention to this discipline, scholars have attempted to explore various factors associated with Firm Performance (Murphy, et al., 1996).

In the first domain, it is found that organization theory and strategic management are contributors to firm performance, although there are still inconsistencies with regards to the assumptions and terminologies used to describe firm performance across disciplines.Following that, firm performance is influenced and determined by a set of financial indicators, which represent firm’s economic achievements (Venkatraman & Ramanujam, 1986) For example, Nguyen et al (2021) outlined the positive relationship between growth of total assets is attached with the growth of firm performance, while debt-ratios (such as debt-to- total-assets, short-term debt to total labilities) have inverse relationship with firm performance In addition, Dodoo et al (2020)’s empirical findings indicated that firm size, growth and cash flow ratio significantly and positively determines firm's performance whereas debt to equity exerted negative influence on firm performance Similarly, Chytis et al (2018), when studying about firm performance in periods of financial crisis, claimed that those aforementioned findings are verified for most of firms in such recessions.

Notably, firm performance is a multidimensional concept that defines the success of a business as well as its level of achieving business objectives Therefore, factors including efficiency and effectiveness may be added besides traditional financial measurements of firm performance such as annual sales and firm size (Civelek, et al.,

2015) In fact, a range of new dimensions of performance (such as utilization of inputs, quality, innovation, and quality of work life) have been added to the performance criteria, and the idea of what constitutes successful, effective, or sustainable performance has been very much broadened recently (Civelek, et al., 2015) Accordingly, within this domain, scholars have outlined three theoretical approaches associated with organization theory to assess firm performance (Murphy, et al., 1996).

For example, the goal-based approach states organizational goals are directly linked to firm performance However, this approach has come into a lot of criticisms and has been regarded as invalid since there are various conflicting goals across organisations that create difficulties in making proper comparisons (Murphy, et al., 1996) As such,researchers have developed the second approach to examine the determinants of firm performance, which emphasizes on hierarchal measurements including financial performance and subjective measures (Venkatraman & Ramanujam, 1986) More specifically, the first component – financial performance could represent organizational effectiveness although it is not sufficient on its own to give a complete picture of overall effectiveness (Chakravarthy, 1986) Whereas, the second component of firm performance – subjective measures, refers to a more perceptual evaluation factors including relative market position, sales growth and change in profitability relative to a firm’s competitors (Venktraman & Ramanujam 1986). Significantly, the third approach of identifying factors associated with firm performance is the multiple constituency approach which assess whether stakeholders’ expectations are fulfilled (Murphy, et al., 1996).

Overall, there are a range of factors having diverse influence on firm performance that are acknowledged in various previous research As such, by identifying relevant factors and measurements to firm performance, the author could design a thorough, valid and reliable scale for this dependent variable that is adopted in the research, which is demonstrated further in Chapter 3.

The Underpinning Theories

The Resource-Based-View (RBV) theory, which was originally proposed by Penrose (1959), has been regarded as a canonical reference in explaining resources and firm performance This theory denotes the heterogeneity of organizational resources among various firms to develop, manufacture and commercialize certain products or services (Penrose, 1959) Accordingly, the term “resource heterogeneity” implies that some firms perform better than others because not all firms have the same level of access to those resources (Peteraf & Barney, 2003), thus some of which underpin a firm’s sustainable competitive advantages (SCAs) over other competitors (Barney, 1991; Penrose, 1959; Peteraf, 1993).

With the prominence of RBV in the early 1990s (Barney, 1991), scholars supporting this proposition argued that a firm is a composition of unique resources and capabilities that can shape organizational strategies (Penrose, 1959; Wernerfelt, 1984) For the first object of RBV – “unique resources”, scholars note that only valuable, rare,inimitable and non-substitutable resources are the propensities assumed to form SCAs of a firm and improve firm performance (Eisenhardt & Martin, 2000; Sirmon et al., 2011).Otherwise, those resources and a firm’s SCA will be easily obtained and copied by rivals.This implied that a firm usually needs a combination of diverse resources to create the uniqueness and inimitability of assets such as marketing or technological skills that could give firm superior position in the market and support business growth (Hadjimanolis, 2000) On the other hand, “capabilities” refer to “an organizationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm” (Makadok, 2001) In light of this, capabilities could be regarded as a process involving assembling, integrating and arranging firm resources (Amit & Schoemaker, 1993) Therefore, while it is critical for firms to obtain relevant resources or materials for promoting production, innovation and knowledge, capabilities could help firms to advance their outputs to effectively deploy, integrate and change firm resources into useful offerings or solutions for customers (Makadok, 2001; Grant, 1996) Taken together, two major components under RBV – resources and capabilities are critically required for firms to enhance competencies and gain superior performance (Barney, 1986).

Though RBV is useful for researchers to grasp initial understandings regarding to factors influencing firm innovation capability and performance, there are certain criticisms for the adaptation of RBV in relevant field of research (Priem & Butler, 2001). Significantly, five out of eight criticisms were addressed by Kraaijenbrink, et al (2010): (1) the RBV does not contain any managerial implications; (2) the RBV implies infinite regress;

(3) the RBV is too limited in practical application; (4) there is ambiguous explanation for the achievability of firm’s SCA and (5) the RBV does not belong to the organizational or firm theories In addition, scholars also argued that RBV is insufficient in explaining and elaborating how capabilities and resources can be developed and how firms can obtain them (Makadok, 2001) Similarly, the implication of RBV that resources could generate firm’s SCAs is against some researchers’ arguments that RBV fails to differentiate two terms

“resources” and “capability” and the mechanisms to create firm’s SCAs (Priem & Butler,

2001) Following those arguments, further research also indicated that resources and capability do not necessarily generate SCAs because the deployment and creation of SCAs could largely depend on a range of factors (Peteraf & Barney, 2003).

Overall, beyond those aforementioned weaknesses, RBV has laid various implications for the development of SMEs in Vietnam Given the nature of aggressive competition between a large number of firms and limited access to resources in a developing economy, SMEs are required to obtain valuable, rare, inimitable and non- substitutable resources and capabilities to ensure sustainable business growth and success themselves Moreover, in the quest to obtaining these strategic resources and SCAs among SMEs, RBV is deemed to be applicable for explanation and recommendations for those firms to boost their business performance Accordingly, RBV adopted in this current thesis does not only address the components of Firm’s Innovation Capability but also serve as a theoretical framework for justifying how firms could leverage their performance (Hadjimanolis, 2000). Therefore, RBV is regarded as an underpinning theory for the whole research, which helps the author propose hypotheses and measurement scales for variables in the following parts.

In attempt to explore the “hidden” factors behind the process of transforming from organizational resources to organizational capabilities, Teece & Pisano (1994) proposed dynamic capabilities (DC) theory as the “subset of the competences or capabilities which allow the firm to create new products and processes and respond to changing market circumstances” Accordingly, the term “dynamic” implies the holistic and ever-changing business environment, where firms are required to constantly and strategically response and innovate in a timely manner (Teece & Pisano, 1994) Consequently, changes in the market competition would largely influence on the firm’s resources and capabilities to prolong its prominence of these resources and capabilities as in some cases, these might become obsolete and be replaced by updated ones As a matter of fact, DC suggests that it is critical for firms to quickly organize and obtain necessary resources to compensate the demands of a changing market (Kraaijenbrik, et al., 2010; Kozlenkova, et al., 2014) Within this domain, Teece et al (1997) and Eisenhardt & Martin (2000) argued that a firm’s unique resources and capabilities are not readily available in the market but should be built by organizational structures and processes and require organizational know-how. Therefore, DC is regarded as a complementary aspect of RBV theory, indicating the evolutionary transformation of organizational resources into capabilities through a firm’s operational routines and resources configuration (Eisenhardt & Martin, 2000).

In attempt to extend theoretical implications of DC, further research indicates that it is the adoptation of firm’s unique resources and capabilities in coping with changes in the market that can generate superior innovation resources and ultimately, facilitate and improve organizational performance (Hewitt-Dundas 2006; Newbert, 2008; Sok & O’Cass, 2011). More specifically, researchers suggest that in response to factors present in dynamic marketplaces, firms could utilize their business processes, structures and innovative systems to transform their current resources into capabilities that support the production and generation of new and innovative products, services, ideas, methods, etc That said, scholars concluded that DC could contribute to explaining the concept of innovation capability in relation to resource integration, reconfiguration, and recreation (Hadjimanolis, 2000; Lawson & Samson, 2001; Wang & Ahmed, 2007).

Overall, while RBV outlines the heterogeneity of organizational resources among different businesses’ context and the role of SCAs in leveraging firm’s innovative processes and performance, DC addresses the ability of firms to transform these resources and capabilities to introduce new products/ services as response to dynamic changes in the market. That said, two theories are relevant to explain firm’s innovation capability and performance of Vietnamese SMEs, especially for today’s intensively competitive marketplace in Vietnam as justified above.

With the prominence of RBV and DC in outlining the role of firm’s resources and capabilities to generate firm’s SCAs, facilitate innovation capabilities and leverage firm performance, scholars, however, argued that these resources and capabilities could only grow and extend in interactions and connections with other institutions and partnerships, collaborations and networks (Powell, et al., 1996) Therefore, scholars have initiated Agglomeration Theory (AT), which emphasizes on the external benefits that firms can obtain in a defined region.

Originally introduced by Alfred Marshall and further developed by a range of researchers, AT adopted in this research is credited to Lundvall & Johnson (1994). Accordingly, AT is deemed to reflect the benefits firms could attain through being located in a geographical proximity with the existence of clusters (Lundvall & Johnson, 1994),which are defined as geographical concentrations of interconnected companies with close supply links, specialist suppliers, service providers, and related industries and institutions (Monga, 2013).

As such, scholars argued that AT could help to explain the extent to which clusters and partial proximity could facilitate a firm’s innovation process and performance, especially for the case of SMEs, where their development and attainment of organizational resources could largely depend on external factors (Herliana, et al., 2014) Firstly, Asheim & Isaksen (1997) outlined the importance of interactive learning in facilitating a firm’s innovative activities, implying that a favorable location for localized learning could be regarded as a crucial element to enhance this innovation process Moreover, researchers such as Tsai (2000), Kogut & Zander (1992), Cooke & Morgan (1998) and Maskell (2001) also contended that firms located in close geographic proximity could easily obtain knowledge acquisition and knowledge exchange, thus producing more innovative ideas and solutions Secondly, Bathelt (2007), Capello (1999), Malmberg, et al (1996), Storper & Venables (2004), etc argued that co-location and face-to- face connections among actors could facilitate information and communication ecology, thus promoting knowledge spillovers and enhancing firm’s innovation capability Within this domain, Molina- Morales & Martínez-Fernández (2010) added that stakeholder engagement into and interactions with firm’s innovative and business activities also helps firms to acquire knowledge, develop networks and discover better opportunities Last but not least, Marshall (1920) and Von Hippel (1988) stated that convenient location and favorable infrastructures could help firms to minimize transportation and information costs and easily get access to shared public intermediate inputs, labor pooling, etc Thereby, it is of no doubt that firms could greatly benefit from territorial networks to enhance innovation capability and performance.

From the aforementioned points, the author justifies that AT could be appropriate in explaining the impact of favorable clusters on firm’s innovation capability and performance Thus, the adoptation of a new variable in this research – innovation milieu is deemed to be appropriate and could potentially derive valuable findings regarding the determinants of innovation capability and their impact on firm performance ofVietnamese SMEs.

Research hypotheses and research model

From a comprehensive review of literature in the discipline of innovation capability in

Chapter 1 and the justifications of the three aforementioned theories, this section presents the hypotheses and conceptual model used in this current research More specifically, four independent variables (Intellectual Capital, Learning Capability, Technological Orientation and Innovation Milieu) are taken into consideration to extend current knowledge in the field Among which, the first three independent variables are drawn from RBV and DC theories, while the last independent variable reflects AT, which aims to describe how a range of actors outside the firm could influence innovation capability and firm performance.

2.4.1 The relationship between Intellectual Capital, Innovation Capability and Firm Performance

Intellectual capital was firstly introduced by Galbraith in 1969 (Bontis, 1998) with two perspectives in defining this phenomenon In the first domain, intellectual capital refers to “knowledge capital”, reflecting the sum of organizational knowledge employed to derive and develop competitive advantage for firms (Nahapiet & Ghoshal, 1998; Youndt, et al., 2004) Whereas, the second perspective denotes a broader scope and context by including “intangible resources” – the knowledge, abilities and experiences of a firm’s employees, databases, systems and other external assets such as linkages to suppliers, customers, or other related partners (Aramburu & Sáenz, 2011) For the purposes of this study, intellectual capital would be understood under the first perspective, which denotes the total knowledge a firm generates and utilises in the process of creating advantage over its competitors (Subramaniam & Youndt, 2005).

Accordingly, intellectual capital includes three subsets based on how knowledge is collected and generated among different levels of organizations (individual, organizational and network levels): organizational capital, human capital and social capital (Reed, et al.,2003; Subramaniam & Youndt, 2005) More specifically, human capital is defined as all skills, know- how and knowledge embedded in firm’s employees (Subramaniam &Youndt 2005); social capital is defined as the knowledge and capability derived from the inter-personal networks that reside within a firm (Nahapiet & Ghoshal, 1998); organizational capital refers to all documented and codified knowledge in databases, manuals, formal structures or procedures and so forth (Youndt, et al., 2004; Walsh & Ungson, 1991) Notably, scholars have argued that there are significant interactions among three elements of intellectual capital For instance, as outlined by Shih, et al (2010), the processes of employees interacting and identifying customers’ demands are associated with both social capital and human capital. Moreover, as suggested by Delgado- Verde, et al (2011), business organizations have to maintain and effectively manage organizational capital so that all provision of organizational capital could facilitate human capital and social capital to derive firm performance Thereby, the examination of intellectual capital should be performed in the presence of the three aforementioned categories.

Regarding the impact of firm’s intellectual capital to firm’s innovation capability, Chang & Lee (2008) claimed that knowledge accumulated through three subsets of intellectual capital can serve as useful resources to enhance firm’s ability to accelerate innovative activities and provide novel products and services to the market Moreover, empirical findings within service firms of Carmona-Lavado et al (2013) also indicate that social capital, human capital and organizational capital have positive relationship with innovation capability enhancement of firms Moreover, as RBV implies, knowledge could be regarded as superior, valued, rare, hard- to-imitated and non-substitutable resources of firms if it greatly contributes to firm’s capability to generate new ideas and products Thus, it is clear that prior studies have demonstrated the positive relationship between firm’s intellectual capital and firm’s innovation capability Therefore, to study the relationship between these constructs of Vietnamese SMEs, the author would propose the following hypothesis H 1

H 1 : Intellectual capital positively influences innovation capability in Vietnamese SMEs.

Regarding the impact of intellectual capital on firm performance, Riahi-Belkaoui

(2003) claimed that intellectual capital is the firm’s resources of knowledge that could leverage firm performance Based on implications of Amit & Shoemaker (1993), he further explained that knowledge derived from intellectual capital is useful for firms to deploy organizational resources in generating new services, technologies and strategies to facilitate firm performance Moreover, Riahi-Belkaoui (2003) had provided empirical findings that justified these arguments, taking a sample of US multinational companies In addition, Reed et al (2006) also empirically examined this relationship in the US banking industry and found that there is also a positive link between intellectual capital and firm’s business performance As such, the author postulates that intellectual capital could positively influence Vietnamese SMEs’ performance and proposes the hypothesis H 2 as follows:

H 2 : Intellectual capital positively influences firm performance in Vietnamese SMEs.

2.4.2 The relationship between Organizational Learning Capability, Innovation Capability and Firm Performance

Literature into organizational learning capability indicates that this concept could either be associated with the process that allows institutions to learn itself (Crossan, et al.,

1999) or focus on determinants that enable organizations to become learning institutions (Chiva, 2004) Though scholars have adopted different approaches to further explain two domains, they both highlight that organizations and employees develop learning capability constantly, where organizations actively engage and provide holistic environment for employees to learn and transform themselves (Jerez-Gómez, et al.,

2005) Accordingly, organizational learning capability in this research would follow the definition of Chiva, et al (2007), who combines both aforementioned perspectives to propose that organizational learning capability is “the organizational and managerial characteristics that facilitate organizational learning process or allow an organization to learn”.

Regarding the impact of organizational learning capability to innovation capability and firm performance from theoretical perspectives, a range of studies (e.g., Calantone, et al., 2002; Chiva, et al., 2007; Jerez-Goméz, et al., 2005; Hult, et al., 2004) have argued that learning capability facilitates firm to generate, distribute and effectively use its current knowledge and resources to foster creativity and new knowledge, procedures and novel ways of doing business, and thus improve business performance (Prieto & Revilla, 2006).Whereas, other studies emphasize the role of firm’s learning capability to encourage employees to learn and generate ideas, to initiate new business methods, models and operations (e.g., Hurley & Hult, 1998; Lemon & Sahota, 2004) through the informal interaction among employees or their practical observation and collection of updated and reliable information external to firms (Alegre et al., 2012; Jerez-Gómez, et al., 2005) As such, organizational learning capability is crucial for firms to get adaptive to changing environments and market uncertainty such as unexpected changing patterns of customer demands, turbulent competition, technological changes within the sector and industry, etc., which is directly linked to the improvement of firm innovation capability and firm performance (Alegre & Chiva, 2008).

In addition, empirical findings, which are mostly conducted using quantitative methods (e.g., Yang, et al., 2004; Goh, et al., 2012; Jahaspara, 2003; Rose, et al., 2009;

Wu & Fang, 2010) also reveal that organizational learning capability enables firms to identify, exploit and adjust their performance to the changing environment (Jiménez- Jiménez & Cegarra-Navarro, 2007) Accordingly, it is regarded as a driver enhancing a firm’s capability to offer better solutions to the market, thus being critical for firm’s existence and growth in future prospects (Akgun, et al., 2007) For instance, Yang et al.

(2004) confirmed that organizational learning capability and financial performance are positively related, whereas Goh et al (2012) found a significant influence of organizational learning capability on firm performance in general Though the relationship of organizational learning capability and firm performance has been intensively investigated by researchers, few studies have described the association between learning capability and innovation capability (Camps, et al., 2011).

Overall, based on prior findings, it is relevant to incorporate “organizational learning capability” as a variable to explain innovation capability and firm performance in the present study Therefore, with the aims to study the relationship between these constructs among Vietnamese SMEs, the author would propose two hypotheses as H 3 and H 4 follows:

H 3 : Organizational learning capability positively influences innovation capability in Vietnamese SMEs.

H 4 : Organizational learning capability positively influences firm performance inVietnamese SMEs.

2.4.3 The relationship between Technological Orientation, Innovation Capability and Firm Performance

Technology orientation refers to the ability and determination of firms to acquire technological skills and knowledge for the purposes of producing products and services that are relevant to customers’ emerging needs and accelerate customer satisfaction (Gatignon & Xuereb, 1997) Accordingly, scholars have outlined the essential role of firm’s technological orientation to pursue organizational goals and objectives when competing in today’s turbulent market More specifically, Ritter & Gemunden (2004) argued that firms are required to foster an organizational culture that is subjective to the constant adoption and diffusion of new technologies, from which organizational resources would be effectively allocated to enhance firm’s research and development capability and firms could employ technologically competent staff nurturing organizational learning and creativity (Athuahene-Gima & Ko, 2001; Ritter & Gemunden 2004) Similarly, according to Zhou et al (2005) and Hortinha et al (2011), the practice of adopting state-of-the art technological advances is compatible to the concept of innovation.

Significantly, technological orientation would positively affect firm’s innovation capability and performance According to Yalcinkaya et al (2007), technological proficiency would serve as effective grounds for firms to pursue innovation capability. Similarly, Akman and Yilmaz (2008) highlighted that the efforts to advance a firm’s technological competences would go in line with the increase in firm capability to innovate.

In addition, study of Barczak (1994) had provided prominent insights into a synergistic relationship between technological orientation and firm performance More specifically, the researcher argued that technological orientation would allow firms to be more competent and flexible in producing products and services thanks to most superior technology, which is likely to result in the identification and development of new products and new markets (Barczak, 1994) Consequently, firms with technological orientation would have more opportunities to improve performance (Barczak, 1994).

Overall, technological orientation is deemed to be a relevant construct in the current research to describe the ability of firm to produce rare and difficult-to-replicate competitive advantages, thus somehow being directly linked to innovation capability and firm performance (Hakala, 2011) Accordingly, to study the impact of technological orientation on innovation capability and firm performance of Vietnamese SMEs, the author would propose two hypotheses H 5 and H 6 as follows:

H 5 : Technological orientation positively influences innovation capability in Vietnamese SMEs.

H 6 : Technological orientation positively influences firm performance in Vietnamese SMEs.

2.4.4 The relationship between Innovation Milieu, Innovation Capability and Firm Performance

RESEARCH METHODOLOGY

Research Paradigms and Research Design

A research paradigm is regarded as a set of beliefs, values, perceptions and aesthetics that determines the way a phenomenon of interest is investigated (Denzin & Lincoln,

2000) Identification of a research paradigm for a particular study is important for the researcher as it determines how the world works, how the knowledge was gained, what type of questions should be asked, how data collected should be interpreted and what criteria underlies adequate answers to research questions (Perry & Bellamy, 2012) Although this sounds rather profound, research paradigms comprise of practices that reveal precisely what researchers are doing when embarking on research: developing knowledge in a particular field (Saunders, et al., 2019) Accordingly, there are five philosophical assumptions including: Positivism, Critical Realism, Interpretivism, Post-Modernism andPragmatism (Saunders, et al., 2019), whose interrelationships with research design are illustrated as the “research onion” in the following figure.

Figure 3.1 The “research onion” framework

2019 For the current study, Pragmatism is adopted for the following reasons.

Firstly, Pragmatism emphasizes that when researchers conduct a research project, they often start with a problem, and eventually aim to contribute practical solutions that inform future practices (Saunders, et al., 2019) However, for Pragmatists, “real world” phenomenon could contain various facts that are open to many avenues of experiential investigations. Accordingly, there are many different ways of interpreting the world and undertaking research, that no single point of view can ever give the entire picture and that there may be multiple realities Therefore, in the search for the truth and reality to reflect the phenomenon, multiple methods are often possible, and possibly highly appropriate within one study rather than a specific mono-method (Creswell & Plano-Clark, 2007). Consequently, researchers who adopt this paradigm combine both quantitative and qualitative data in an effort to offer better insights into a problem and to offer practical outcomes (Creswell, 2009) Given that Vietnam is a strongly developing economy with different characteristics and economic background compared to other economies, along with the intense competition and dynamic development of Vietnamese SMEs, the author chooses to conduct the study to (1) explore the situation of promoting innovation capability and performance among SMEs; (2) justify SMEs’ achievements and challenges in future prospects ( Chapter 4, part 4.1) Moreover, in this research, the author also attempts to assess whether findings regarding factors affecting innovation capability and their relationship with firm performance of Vietnamese SMEs confirms or disconfirms current theories and literature (Chapter 4, part 4.2) As such, a range of research methods are required for the author to propose practical implications for relevant parties involved in the subject matter, indicating that Pragmatism is an appropriate research philosophy deciding the whole research design.

Although Pragmatists often introduce a combination of deductive and inductive approach for studies, the current research adopts mostly deductive approach, which implies that on the basis of what is known about the domain and the theoretical considerations within it, the author would deduce a hypothesis (or hypotheses) that must be subjected to empirical scrutiny (Bell, et al., 2019) This is considered an appropriate research approach for the study as there have been a range of prior research into the topic, with quite well-founded theoretical background Therefore, based on systematic literature review of the field and self- expansion of theoretical frameworks, the author could generate hypotheses, collect data and verify the validity of existing findings on innovation capability and firm performance applied for the scope of SMEs in Vietnam.

Accordingly, to empirically test the current knowledge of innovation capability and firm performance of Vietnamese SMEs under Pragmatism, the research employed mixed research methods to collect, analyze and integrate research data in discovering answers to research questions (Johnson & Onwuegbuzie, 2004) More specifically, mixed research method is a branch of multiple research methods integrating the use of quantitative and qualitative data collection techniques and analytical procedures in the same research project (Saunders, et al., 2019).

Firstly, qualitative method is defined as the methodology which requires researchers to combine different viewpoints, opinions, assumptions or observations of other people or to systemize and evaluate different data sources to acquire a better knowledge of the underlying reasons and tendency or infer the nature and development trend of the phenomenon based on the predictor's subjective judgment and analysis ability (Saunders, et al., 2019) That said, qualitative method would enable the author to collect data and information more easily as most of which is subjective information More specifically, qualitative method could assist author in outline the overall picture of innovation capability and performance of SMEs in Vietnam to form basis for arguments, findings and recommendations in the later parts.

Secondly, for the quantitative method, it is defined as “a research tactic that focuses on the quantification in the whole process from data collection to data analysis” (Bryman, 2012).With that being said, the overall research method’s purpose is to investigate the answers to the questions starting with how many, how much, to what extent (Bryman, 2012) To do that, the method requires the researchers to divide the social phenomena into separated empirical components referred to as variables, which are usually presented numerically as rates, scale level or frequencies and then apply the statistical techniques to find out the dependent relationships between one another In addition, quantitative methods look deeply into the objective measurements and the statistical, mathematical, or numerical meaning of data collected through various approaches, thus it allows researchers to generalize findings for the whole groups of people and/or to explain a common phenomenon (Babbie, 2010) Significantly, this research method is beneficial for the author to accomplish the research objectives for the following reasons Firstly, the quantitative findings could trustfully represent a whole population or a sub- population’s characteristics if the sample is large enough and is randomly selected (Carr, 1994) Besides,this analysis method is less time-consuming, more effective and trustworthy because of modern and objective analytical software utilization such as SPSS, Excel, (Connolly,2007).

Overall, with deductive approach and mixed research methods, the author could effectively examine and justify the current theories and knowledge of innovation capability and firm performance, from which the author could generate reliable findings regarding the phenomenon of SMEs in Vietnam.

Data collection and time frame

As this thesis employs both quantitative and qualitative research methods, there are two major data collection techniques employed by the author.

The first data collection technique, which is directly linked to the qualitative findings in Chapter 4, is archival and documentary research With the digitalization of data and the creation of online archives, along with open data initiatives by governments and businesses, this strategy would enable the author to conduct research in a considerable scope and grant the author access to certain types of documentary sources such as annual reports, company results, financial highlights, press releases and regulatory news (Saunders, et al., 2019) Moreover, this strategy would assist the author to find relevant theoretical evidences from archived academic journals, articles, reports, theses and etc However, this technique to collect secondary data sources also brings some uncertainty and considerations to the researchers The first and foremost challenges is to determine the validity and reliability of the data sources (Saunders, et al., 2019) That said, researchers should be mindful about the purposes of the sources because some documents were not originally created for a research purpose (Saunders, et al., 2019) Moreover, the documents could vary in quality as some data may be missing or not presented in a consistent way, making comparison difficult or potentially leaving gaps in the analysis (Saunders, et al., 2019).

The second data collection technique, which aims at collecting primary data for prevalently generate quantitative findings is survey strategy using questionnaires.

Firstly, survey is a common research strategy adopted in business and management research which offers the author opportunities to provide answers to various types of questions, thereby tends to be appropriately used for exploratory and descriptive research(Saunders, et al., 2019) Next, survey strategy not only allows the collection of standardized data from a large number of respondents in an easy and economical way but also allows the easy comparison between answers, thus implying that the findings would be reliable and statistically representative of the whole population at a lower cost than collecting the data for the whole population (Saunders, et al., 2019) Moreover, the author could control the whole research process more effectively with the help of survey strategy using questionnaires.

Accordingly, questionnaire used in the current research comprises of two major parts including the first part for gathering information of participants as well as information of the surveyed company and the second part concerning questions to examine the determinants of innovation capability and their impact on firm performance of SMEs in Vietnam As such, the detailed questions and scale measurements for the variables in the second part would be illustrated separately in the following part.

As illustrated above, for the primary data sources, the author would collect through a self-designed survey using questionnaires sent out to mangers of all level of SMEs operating in Vietnam The survey had been conducted from beginning of September to the end of November, 2021 and comprises of 348 respondents The time frame and the sampling technique would be presented in the following part and the profile of respondents would be also presented in the Chapter 4

In addition, the author would collect the secondary data sources through various trusted sources, including published academic paper, articles and thesis of highly recommended sources and reports from departments of government or reliable research agencies More specifically, the list of documents and reports adopted in the current research is as follows:

(1) “SME and Entrepreneurship Policy in Vietnam” published by OECD.

(2) “Global Innovation Index 2021” published by World Intellectual Property

(3) Relevant decrees and laws related to SMEs and businesses issued by VietnameseGovernment such as Decree 80/2020/ND-CP , etc.

(4) “2020 Vietnamese Enterprises White Book” , published by Vietnam’s Ministry of Planning and Investment (VMPI)

(5) Other reports, articles, news from relevant Governmental Departments and Internet sources.

3.2.3 Sampling technique and time frame of the research

The sampling technique adopted to collect primary data in the current research is convenience sampling technique, which has allowed the author to collect data economically and timely during two months As the author has actively participated in forums for SMEs and competitions for start-ups, the author has employed his relationship with various managers and owners of SMEs to inquire them to fill out the form Accordingly, after data collection phase, 348 responses have been returned, all of which are valid and taken to further analysis Significantly, this sample size is deemed to be in accordance with the rule proposed by Stevens (2002), whose formula states that the minimum sample size should be

15 times to the number of variables adopted in the research (12*15 = 180 < 348; 12 variables would be specifically stated in the following parts) Moreover, it also satisfied the required sample size of at least 200 to use Structural Equation Modeling (SEM) as suggested by Hoelter (1983).

Notably, the time horizon of the research is cross-sectional, which involves the study of a particular phenomenon at a particular time This is an appropriate time frame for the current study and complies with the whole research design stated above (Saunders, et al.,2019).

Measurement scales

This part aims at justifying how the author has designed the measurement scales for the constructs Innovation Capability (IC), Intellectual Capital (ITC), Learning Capability (LC), Technological Orientation (TO), Innovation Milieu (IM) and Firm Performance (FP) that are adopted in the current research To begin with, the author would present and argue the reflective construct specification and hierarchical component models, which are employed when designing the constructs and measurement scales Therefore, the nature of each variable would be clearly stated and comply with relevant theoretical foundation.

Firstly, all constructs taken into study are regarded as reflective indicators, which means that the measurement items altogether reflect the characteristics of a particular construct Put it in another way, these reflective items could conceptually describe the propensities of the construct (Hair, et al., 2011) Moreover, according to Khan et al (2016), reflective or formative indicators could be used interchangeably across various contexts and should be based on underlying theories Therefore, the deployment of reflective measures is deemed to be relevant in this research for two reasons: (1) it could help the author to easily analyze data and justify the level of model fit using EFA and PLS-SEM technique and (2) the constructs and their measurement items adopted in the current study have been well-established by previous researchers and supported by relevant theories.

Secondly, in this current study, IC, ITC, LC are defined and measured as multi- dimensional constructs (or second-order/ higher-order constructs), which comprise of some inter-related dimensions (or first-order/ lower-order constructs) that are theoretically justified in Chapter 2 and in various studies (e.g., Alegre & Chiva, 2008; Hogan et al., 2011; Subramaniam & Youndt, 2005; Hogan and Coote, 2014; Saenz, et al., 2009; Youndt, et al., 2004; Hsu & Fang 2009; Hsu & Sabherwal, 2011; Hsu & Sabherwal, 2012) That said, with lower-order constructs (TO, IM, FP), these variables altogether establish a model known as a hierarchical component model (Becker, et al., 2012) Subsequently, Hair et al (2014) argued that a hierarchical component model consisting of a number of second-order constructs could reduce the model complexity and obtain a model parsimony that support the justifications of the underlying theory Therefore, the second-order constructs adopted in this research are relevant and consistent with prior studies and could help the author derive solid and reliable results Moreover, as suggested by Ringle, et al.

(2012), there are four types of hierarchical component models based on the relationships between first-order constructs and indicator items and the relationships between higher- order constructs and lower-order constructs Accordingly, this thesis adopts Reflective- Reflective Hierarchical Component Models (Type I) , implying that higher order and lower order constructs are measured by reflective indicators (Ringle, et al., 2012) By justifying the hierarchical component models, the author could conduct data analysis more easily with the combination of EFA and PLS-SEM techniques, which would be illustrated further in part 3.4.

Lastly, for measurement scales, the author has adopted the Likert scale, with answers ranging from 1 to 5 that denotes respondents’ ideas about a certain statement More specifically, “1” refers to “Totally disagree” and 5 refers to “Totally agree” and the measurement scales of variables are specifically illustrated as follows.

The measurement scales of Innovation Capability (IC) in this thesis are adopted from the work of Hogan et al (2011), which have been specifically developed and tested through various service environment such as service firms and manufacturing companies (Cakar & Erturk, 2010; Hult, et al., 2004) According to findings of Hogan, et al (2011),

IC embraces three components: Client-focused Innovation Capability, Technology- focused Innovation Capability and Marketing-focused Innovation Capability (hereafter denoted as CFIC, TFIC and MFIC respectively), implying that IC is a second-order construct comprising of three lower order constructs: CFIC, TFIC and MFIC.

Firstly, CFIC refers to the readiness and ability of firms to offer novel and useful products, services and solutions to clients (Hogan et al., 2011) Significantly, this construct was deemed to be crucial for every firm and links to various dimensions of IC as confirmed by Hogan et al (2011) Secondly, MFIC illustrates the extent to which firms could develop and apply innovative marketing programs for certain purposes This measurement scale is relevant to the current research as Hogan et al (2011) argued that firms could maintain dominant position in the market and promote their brand awareness if they could develop new, creative and attractive marketing programmes Thirdly, TFIC reflects how firms could adopt new technologies to generate and upgrade their product offerings to the market As such, this component is embedded within product and process innovation and could be appropriately measure IC (Hogan et al., 2011).

Overall, the measurement scales of IC in the current research is taken from the work of Hogan et al (2011) However, to make the questions relevant to the context of SMEs in

Vietnam, the author has modified some questions that were suggested in the original scale such as the elimination of questions identifying the comparison of IC across different firms within the same industry, etc Accordingly, the details on measurement items of IC are summarized in Appendice 3.1.

The scale measurements of Intellectual Capital (ITC) is adopted from the work of Subramaniam & Youndt (2005), which consists of three components: Organizational Capital (hereafter denoted as ORC), Human Capital (hereafter denoted as HMC) and Social Capital (hereafter denoted as SOC) More specifically, indicator items of ORC indicate the organizational skills to manage, store and distribute organizational knowledge repositories such as the company’s records, patents, manuals and databases; indicator items of SOC reflect how organizational skills, expertise and knowledge are distributed and improved among key organizational stakeholders such as customers, employees, management, suppliers, etc.; and HMC denotes the competences, ability, know-how and knowledge of organizational employees (Subramaniam & Youndt, 2005) Overall, this measurement scale for ITC is prevalent to the research into Vietnamese SMEs as Aramburu

& Saenz (2011) outlined that the scale is highly recommended due to a number of highly distinctive citations and robust nature Accordingly, the details on measurement items of ITC are summarized in Appendice 3.2.

According to Chiva et al (2007) and Chiva & Alegre (2009), learning capability (LC) was suggested to be made up of by five dimensions, which incorporates features of both organizational learning and a learning organization as specified in the literature part Significantly, five components including (1) firm’s experimentation; (2) risk- taking; (3) interactions with the external environment; (4) dialogue and communication and

(5) employee’s engagement and participation in decision-making, have provided a comprehensive scale to explain LC However, in the current research background, for simpler scale measurement, the author combines five original components to derive three components of (1) Experimentation and Risk-taking (ERT); (2) Interactions with the External Environment (IEE) and (3) Employee Engagement, Communication and Participation in Decision-Making (ECDP).

More specifically, experimentation in ERT is defined as the extent to which a firm looks for new, innovative and creative solutions, ideas and ways of doing things through different methods and procedures while risk-taking in ERT reflects the extent to which a firm could accept uncertainty, risks, ambiguity and mistakes upon doing so (Chiva, et al., 2007) Meanwhile, IEE refers to the extent a firm could preserve and develop knowledge from interactions and relationships with other actors in the broad business environment Lastly, ECDP refers to (1) good dialogue and communication among individuals and groups to share different perspectives and ideas; (2) employee’s engagement and proactive involvement in decision-making.

Data analysis techniques

3.4.1 Data analysis procedures and tools

Data analysis refers to a number of activities in which the author assesses, cleans, transforms and models data to obtain research answers (Creswell & Plano-Clark,

2011) In this thesis, the author would process data collected from the survey by coding some qualitative variables (such as demographic variables) with relevant numerical values for further analysis using Excel, then the author would finalize and store the database in Google Sheet and Google Drive Next, data would be processed by a number of data analysis techniques using IBM SPSS Statistics latest version and SmartPLS latest version For qualitative findings, the author adopts Thematic analysis to assess data and derive relevant findings.

3.4.2 Data analysis techniques 3.4.2.1 Thematic analysis

Thematic analysis is the data analysis technique adopted to derive qualitative findings. More specifically, the essential purpose of this approach is to search for themes, or patterns, that occur across a data set (Saunders, et al., 2019) That said, it is appropriate for the purposes of the research as the author aims to explore the situation of promoting innovation capability among SMEs in Vietnam by dividing the phenomenon into different themes: its achievements in supporting business growth as well as the weaknesses and challenges that SMEs have to face, etc Moreover, this technique offers a systematic yet flexible and accessible approach to analyze qualitative data, thus giving author a range of benefits in presenting the research orderly and logically (Braun & Clarke, 2006).

EFA is an analytical approach to reduce the set of observed variables with close relationships into a number of factors without reducing the information of the original variables The basis of this reduction is based on the linear relationship of factors with observed variables (Nguyen, 2014) In the current thesis, EFA is used to justify validity and reliability of first-order constructs before examining their reliability and validity of the hierarchical component model with presence of second-order constructs in PLS-SEM.

EFA generally starts with the Reliability Test of observed variables using Cronbach’s Alpha Scale Accordingly, many researchers agree that when Cronbach’s Alpha is greater than 0.8 or more than 1, the scale is best; if the scale ranges from 0.7 to nearly 0.8, it is deemed usable (Hair, et al., 2017) However, Hoang & Chu (2009) argued that Cronbach's Alpha could only essentially be greater than 0.6 in case the concept of measurement is new to respondents in the research context Moreover, in Reliability Test, the Corrected Item- Total Correlation Coefficients are also taken into consideration, with requirements of being greater than 0.3 (Hoang & Chu, 2009) For this current study, the author recommends that the acceptable level of Cronbach’s Alpha is greater than 0.6.

After all variables are qualified from Reliability Test, EFA is officially conducted.Significantly, as the author adopt three second-order constructs, EFA is effective in validating and verifying the first-order constructs (CFIC, MFIC, TFIC, HMC, SOC, ORC, ERT, IEE, ECDP) constituting these second-order constructs Accordingly, the requirements for EFA would be attached in Appendice 7.1.

3.4.2.3 Partial Least Squares with Structural Equation Modelling (PLS-SEM)

Partial Least Squares with Structural Equation Modelling approach (PLS-SEM) is adopted in this study because this method is appropriate for prediction and explanation of the relationship between constructs (Hair, et al., 2014) Given that the study aims to explore the extent to which ITC, LC, TO, IM influences IC and the relationship between these constructs with FP of Vietnamese SMEs, the use of this analysis technique to analyze and interpret data is considered to be appropriate.

A PLS-SEM model consists of two components of assessment and analysis:outer model (the Measurement Model) and inner model (the Structural Model).Accordingly, the outer model outlines the relationships between constructs and their indicator items (Hair, et al., 2011) Therefore, in developing the outer model,researchers should rely on theoretical justifications to ascertain items as whether a good predictor in explaining the constructs or not (Jarvis, et al., 2003) In contrast, the inner model exhibits the relationships between variables and measured constructs (Hair, et al., 2011).Overall, with the support of EFA in prior step to verify the validity and reliability of the first-order constructs, the author would justify the Measurement Model containing hierarchical component models and assess the Structural Model to derive Hypothesis testing results in the following parts.

FINDINGS AND ANALYSIS

The situation of promoting innovation capability and performance among

4.1.1 The significance and performance of Vietnamese SMEs

According to OECD’s (2021) report “SME and Entrepreneurship Policy in Vietnam”, Vietnamese SMEs are a critical actor of the economy and contribute largely to the socio- economic development of the country Significantly, SMEs account for 96% of the total stock of companies, employ almost a half of total labour force and contribute 36% of national value added (OECD, 2021) However, a large informal sector, which consists of mostly household businesses, own-account workers and micro-enterprises, entails that these official statistics might underestimate the real contribution of SMEs to the economy (OECD, 2021) More specifically, according to data from Vietnam’s General Statistics Office (GSO), informal workers represent 57.2% of total (non- agricultural) employment and there are 5.1 million unregistered businesses, compared to only about 500,000 registered business organizations, implying that SMEs are crucial to the country’s development (OECD, 2021).

By realizing the importance of SMEs in strengthening the economy and supporting higher living standards among citizens, Vietnamese government has implemented various incentives and supporting programmes to facilitate SMEs growth (Das, 2017; Shira, 2020) As such, for the past few years, the performance of SMEs has accelerated significantly According to “2020 Vietnamese Enterprises White Book”, published by Vietnam’s Ministry of Planning and Investment (VMPI), though the pandemic has adversely influenced the business operations of SMEs in Vietnam, these businesses have successfully maintained and accelerated substantial performance and growth To begin with the number of SMEs, in 2018, the number of micro-enterprises,small enterprises and medium-sized enterprises was 154.8%; 136.9% and 143.3% compared to that of 2011 respectively (VMPI, 2020) Secondly, the average income for each worker in SMEs had increased significantly, with the growth rate of micro-enterprises,small enterprises and medium enterprises standing at 140.0%, 148.8% and 143.8% respectively during the period 2011 – 2018 (VMPI, 2020) In addition, with favorable policies and incentives from governments and increasing FDI inflows into the country, the growth rate of the operating capital of micro-enterprises, small enterprises and medium enterprises had increased by 101.6%, 48.7% and 85.7% respectively, in accordance with the increase in revenues by 42.5%, 38.6% and 73.4% during the period

2011 – 2018 (VMPI, 2020) Significantly, the majority of other financial ratios of SMEs indicated that companies belonging to this group had also fostered sustainable and strong business growth (VMPI, 2020).

Moreover, in terms of managerial and business operating skills, report of OCED

(2021) also reveals that Vietnamese medium-sized manufacturing firms have shown great progress and performed better than peers from other large emerging economies including Brazil, China and India The report also added that the gap in managerial skills between medium-sized enterprises and large firms is much smaller in Vietnam than the OECD average, indicating bright prospects to promote performance among Vietnamese SMEs Another notable achievement of SMEs performance is associated with the increased effectiveness of entrepreneurial activities and dynamic progresses of tech start-ups and social start-ups in Vietnam thanks to more business opportunities in the market and excessive rise of customer demands (OECD, 2021).

However, SMEs in Vietnam also face some challenges in promoting performance and managing business operations Evidently, though Vietnamese SMEs have achieved remarkable financial results over the period 2011 – 2018, there has recorded a decline in the number of labors employed recently (VMPI, 2020) Moreover, the percentage of SMEs firms generating profitability had slightly decreased from 2017 – 2018, with micro-enterprises declining from 33.9% to 33.7%; small enterprises from 63.2% to58.8%; medium-sized enterprises from 76.3% to 73.2% Overall, these figures altogether imply the challenges for sustainable development and outline the need for enhancing organizational innovation capability As such, the following part would illustrate the situation of promotion innovation capability among Vietnamese SMEs.

4.1.2 The situation of promoting innovation capability among Vietnamese SMEs 4.1.2.1 Achievements in promoting innovation capability among Vietnamese SMEs

According to WIPO (2021), Vietnam ranks 44 th among the 132 economies featured in Global Innovation Index Report 2021, which has substantially increased over the last two years This is deemed to be largely attributed to the enhancement of innovation capability across various business organizations in general and Vietnamese SMEs in particular.

Notably, Vietnamese SMEs appear to be quite innovative according to data from the World Bank Enterprise Survey (WBES) (OECD, 2021) Evidently, Vietnamese SMEs performed quite well in product, process and marketing innovation among regional countries, with the index surpassing that of ASEAN average and some emerging, innovative economies such as Thailand and Indonesia (see Figure 4.1) Moreover, regarding the adoptation of innovative approaches in doing businesses such as introduction of new-to-market products; introduction of automate manual process; enhancement of digital transformation; etc., Vietnamese SMEs also proves their superiority over regional competitors and performs better than average of ASEAN countries

Figure 4.1 The percentage of innovative SMEs firms of Vietnam and regional countries in 2015

Figure 4.2 The percentage of innovative SMEs firms with specific innovative approaches of Vietnam and regional countries in 2015

Moreover, though the number of patent applications proposed by Vietnamese SMEs has increased by 35% compared to 2019, according to Mr Phan Ngan Son (2021) - Deputy Director of the Department of Intellectual Property, Vietnam’s Ministry of Science and Technology, it is evident that foreign actors have superior performance over domestic firms (Intellectual Property Office of Vietnam, 2021) Accordingly, the following part would summarize some key challenges in promoting innovation capability among Vietnamese SMEs.

4.1.2.2 Weaknesses and challenges in promoting innovation capability among Vietnamese SMEs

Overall, from various data sources, the author has come up with the following justifications regarding weaknesses and challenges in promoting innovation capability among Vietnamese SMEs.

Capital insufficiency and limited investment among SMEs to promote innovation capability: As outlined by a range of forums, conferences on SMEs’ performance, the first and foremost challenge of SMEs is lack of capital in promoting innovation and technological advancement (Vietnam Prime Minister, 2021) As a result,both the public and private sectors, including Vietnamese SMEs have spent limited investment and expenditure on science and technology, which accounts for only about0.44% of GDP, behind Singapore with 2.22%;

Malaysia with 1.44% and Thailand 0.78% (VMPI, 2021) Moreover, VMPI (2021) also highlights that Vietnamese enterprises only spent 1.6% of their annual revenue on research and development, lower than most of countries in the region In addition, a survey by Vietnam’s Ministry of Science and Technology also shows that the majority of businesses innovate through investing in new technology applications associated with production of goods, machinery and equipment (39.4% of enterprises); upgrading or modifying existing technology and equipment (39.3% of enterprises) with little efforts on R&D of new technology Hence, this could be regarded as both weaknesses and challenges for Vietnamese SMEs to promote innovation capability.

Barriers to maintain and promote quality of human resources : The study of Voeten, et al (2016) indicated that the majority of workforce of Vietnamese SMEs are unskilled, despite gradual increase in labour productivity and performance in recent years Moreover, high turnover rate of workers is also a challenge facing Vietnamese SMEs’ owners and managers to foster a holistic environment for constant learning and innovation As further illustrated by WIPO (2021), lack of R&D department and specialists within this domain has resulted in poor performance of coordinating and managing new ideas and preparations for the innovation, technical details and the product launch of Vietnamese SMEs, which represents poor performance of Vietnam in terms of human capital and research under GII pillars.

Rigid partnership among actors to promote innovation capability: According to VMPI (2021), about 80% of enterprises said that they have not cooperated with other organizations or institutions to carry out innovation activities, which is deemed to be a weakness among Vietnamese SMEs to effectively accelerate innovation capability As highlighted by WIPO (2021) in Global Innovation Index 2021, Vietnam performed poorly in terms of institutions (ranked 83th), indicating that there is rigid partnership and collaboration between SMEs and other organizations in co-creations and co-innovations.Moreover, though Vietnamese government has enacted various incentives and favorable policies for entrepreneurship, start-ups and SMEs development, it is recorded that there are still a range of barriers for these firms to get access to the aforementioned support.

Other weaknesses and challenges: Apart from three aforementioned weaknesses and challenges to promote innovation capability, lack of managerial experiences in leading organizational changes and innovation is another weakness among Vietnamese SMEs, that could lead to uncertainty and risks in future prospects Moreover, other external forces such as the impact of COVID-19 pandemic, etc could adversely influence Vietnamese SMEs performance and innovative processes and results.

Overall, this part has illustrated the overall picture of Vietnamese SMEs’ performance and situation of promoting innovation capability, which could support the author to empirically study the determinants of innovation capability and their impact on these firms’ performance As such, empirical findings associated with quantitative analysis would be presented in the following part prior to result discussions and recommendations.

Empirical study on the impacts of Innovation Capability on Firm Performance

As shown in Appendice 4.1, there are total 348 respondents (SMEs’ owners and managers) to the survey with 55.17% are male and 44.83% are female Regarding the educational level, the majority of respondents have a Bachelor’s Degree (85.63%) Regarding their position in the company, more than half of surveyors are executive managers (57.76%), which is the lowest managerial level of a firm, while higher managerial level including Exclusive/ Senior/ General Manager accounts for 35.34% and the rest 6.9% is SMEs’ owners and founders.

In addition, the characteristics of Vietnamese SMEs sample adopted in the research (the company profile) is illustrated in Appendice 4.2 More specifically, firms operating in Agriculture, Forestry, Industry, Construction, Commerce and Service are made up of 16.95%; 3.45%; 18.97%; 11.21%; 22.41% and 27.01% respectively compared to the entire sample Among which, 59.77% firms are categorized into Micro-enterprises,followed by 20.98% and 19.25% Small Enterprises and Medium Enterprises In terms of firm’s location to illustrate the significance of the variable Innovation Milieu (IM), the majority of firms are located in big cities and provinces, while only 11.21% of firms are located in rural areas Significantly, when it comes to support granted by government and other institutions, taxation and training is two major incentives and support which firms could easily get access to, while 39.94% respondents revealed that their firms had not received any support or had been in collaboration with other institutions or organizations Moreover, most firms stated that their business goals is to fulfill customers’ needs (95.40%) and to make profits (82.76%).

In this current research, EFA shall be conducted before PLS-SEM to justify and test the validity and reliability of the scale measurements of first-order constructs and derive variables for three second-order constructs (ITC, IC, LC) As such, Reliability analysis using Cronbach’s Alpha for the observed variables of first-order constructs including CFIC, MFIC, TFIC, HMC, SOC, ORC, ERT, IEE, ECDP, TO, IM, FP would be completed before conducting EFA analysis with the help of IBM SPSS Statistics latest version.

4.2.2.1 Results of Reliability analysis using Cronbach’s Alpha

The results of the first Reliability analysis using Cronbach’s Alpha indicate that the observed variables: TO3, TO4, TO6, IM2, IM3, IM4, IM6, IM9, IM10, FP4, FP5, FP7 have been eliminated from further analysis as their Corrected Item-Total Correlation coefficients do not meet the criteria of being greater than 0.3 Accordingly, the author would omit these observed variables and conduct the Reliability analysis again At the second time, all variables are qualified and could be taken into the next step The results of these two Reliability analyses would be attached in the Appendice 6.

The purpose of EFA is to determine the validity of the scale measurements of first- order constructs including CFIC, MFIC, TFIC, HMC, SOC, ORC, ERT, IEE, ECDP, TO,

IM, FP by identifying components or latent variables associated with observed variables In this research, the author would employ Principal Axis Factoring and Promax Rotation as the data analysis method as according to Grieder & Steiner (2021), this combination of settings would maximize performance and is regarded as the best way for researchers to jungle, discuss and validify the scale construction Significantly, the results show that all 12 aforementioned first-order constructs are valid and reliable for further analysis Moreover, the dataset is also deemed to be consistent and significant in explaining the components as it satisfies all required criteria

(see Appendice 7.1) The next step involves taking the average of the observed variables of

CFIC, MFIC, TFIC, HMC, SOC, ORC, ERT, IEE, ECDP for the validity and reliability test of second- order constructs (IC, ITC, LC), while the valid observed variables of first-order constructs TO, IM, FP would remain for further analysis in SmartPLS during PLS-SEM analysis The results of EFA would be attached in the Appendice 7.

4.2.3 Results of PLS-SEM 4.2.3.1 Assessment of Measurement Model

Hair et al (2017) suggest that the outer loading factor should be greater than or equal to 0.708 for observed variables to be qualified for further analysis As shown in Appendice 8.1 , in the first PLS Algorithm running, HMC is disqualified as its outer loadings is 0.609

(which is smaller than 0.708) Therefore, HMC is eliminated from further analysis and the author would run PLS Algorithm again with the new model At the second time, all outer loadings of variables are higher than 0.708, and all indicator reliability values (the square of outer loadings) are higher than 0.5, which means that the latent variables explain at least 50% of the variation of the observed variable Therefore, all variables from EFA are qualified in Indicator Reliability test, except for HMC The final results would be illustrated in Appendice 8.2

Cronbach's Alpha and Composite Reliability (CR) were used to examine the internal consistency reliability of all of the latent variables (Fornell & Bookstein, 1982). According to Mitchell and Jolley (2010), a score of at least 0.7 is required to claim that a measure is internally consistent However, according to SAGE’s guideline for PLS-SEM analysis, Cronbach’s Alpha could only be higher than 0.6 for minimal acceptance (SAGE,

2019) In addition, Hair et al (2017) claimed that CR is better criteria in measuring internal consistency reliability than Cronbach’s Alpha, though a combination of these indicators would generate more reliable and consistent results As such, the author has conducted the analysis using both indicators and finds that all constructs have met the aforementioned requirements As shown in the

Appendice 8.3 , all constructs (FP, IC, IM, ITC, LC, TO) reach high level of CR, ranging from 0.791 to 0.914, while IC, ITC, LC is minimally accepted with Cronbach’s Alpha of 0.606, 0.606 and 0.655 respectively.

Another important indicator for internal consistency reliability test is rho_A, which is required to at least higher than 0.6 (Ha & Bui, 2019; Vuong & Sid, 2020) Accordingly, the results shown in Appendice 8.3 reveals that all constructs have rho_A being higher than 0.6, thus producing consistent and reliable results.

Firstly, to test Convergent Validity of constructs, Fornell and Larcker (1981) suggested that their Average Variance Extracted (AVE) scores should be greater than 0.5. According to results displayed in Appendice 8.3 , all constructs obtain AVE ranging from 0.558 to 0.711, indicating strong convergent validity among them.

Secondly, discriminant validity indicates the uniqueness or distinctness of a construct when compared to others in the model, thus playing significant role in confirm the validity of the overall measurement model According to Vuong & Sid (2020), the Fornell- Larcker criterion should be used to determine the discriminant validity of latent variables, which states that the square root of AVE for each latent variable must be larger than other absolute correlation values among it and any other constructs As displayed in Appendice

8.4 , all constructs have satisfied the aforementioned conditions, thus they are of sufficient quality to be brought to the next step of the research.

Regarding model fit evaluation, it is emphasized by Hair et al (2017) that PLS-SEM focuses on predictability instead of model confirmation, so the PLS-SEM algorithm is not suitable for assessing the overall fit of the model Although SmartPLS also provides a number of metrics related to Model Fit, the software development team and many other researchers warn against using these metrics Therefore, model fit assessment is not conducted in this research to preserve the optimal validity of the above evaluation methods Consequently, assessment of the structural model to examine the relationships between the constructs would be taken in the following part (Hair, et al., 2017).

4.2.3.2 Assessment of the Structural Model

Summary of findings

This part has presented both qualitative and quantitative findings related to the research topic Accordingly, the author has outlined the situation of promoting innovation capability and performance among Vietnamese SMEs and provided empirical findings regarding the determinants of innovation capability and their impact on firm performance of those firms Results reveal that Intellectual Capital and OrganizationalLearning Capability has positive impact on Innovation Capability while TechnologicalOrientation and Innovation Milieu records no significant influence Nevertheless, all aforementioned variables are confirmed to facilitate performance of Vietnamese SMEs.Overall, these results are deemed to be relevant and reliable and could serve as the basis for results discussions and recommendations in the following part.

RESULT DISCUSSIONS, RECOMMENDATIONS AND RESEARCH LIMITATIONS

Discussions of results

The findings and analysis in the previous chapter have outlined the situation of promoting innovation capability and performance of Vietnamese SMEs and empirically tested nine hypotheses associated with factors affecting innovation capability and firm performance of these businesses Results have shown that though Vietnamese SMEs have substantially leveraged their performance and effectively enhance innovation processes and capabilities, they have addressed a range of weaknesses and challenges to harbor sustainable business growth and maintain competitive advantages through innovative processes, products and services Of which, three major challenges are addressed, including (1) Capital insufficiency and limited investment among SMEs to promote innovation capability; (2) Barriers to maintain and promote quality of human resources; and (3) Rigid partnership among actors to promote innovation capability, thus serving as the basis for managerial implications and recommendations.

Moreover, empirical findings deploying PLS-SEM data analysis technique have revealed that Innovation Capability is the major factor facilitating business growth and performance of Vietnamese SMEs, followed by Intellectual Capital, Innovation Milieu,Technological Orientation and Organizational Learning Capability Whereas, major determinants of Innovation Capability are Intellectual Capital and Organizational LearningCapability Overall, these findings have confirmed the existing literature and theoretical foundation in the field and complied with well-established findings within the context of advanced economies.

Accordingly, the hypothesis testing results are summarized in the Table 5.1 below:

Table 5.1 Summary of hypothesis testing results

Hypothesis Content Hypothesis testing results

H1 Intellectual capital positively influences innovation capability in Vietnamese SMEs Accepted

H2 Intellectual capital positively influences firm performance in Vietnamese SMEs.

H3 Organizational learning capability positively influences innovation capability in Vietnamese SMEs Accepted

H4 Organizational learning capability positively influences

Recommendations to enhance Vietnamese SMEs’ innovation capability and firm performance

H5 Technological orientation positively influences innovation capability in Vietnamese SMEs.

H6 Technological orientation positively influences firm performance in Vietnamese SMEs.

H7 Innovation milieu positively influences innovation capability in Vietnamese SMEs Rejected

H8 Innovation milieu positively influences firm performance in Vietnamese SMEs.

H9 Innovation capability positively influences firm performance in Vietnamese SMEs Accepted

Source: Synthesized by the author, 2021.

5.2 Recommendations to enhance Vietnamese SMEs’ innovation capability and firm performance

5.2.1 Managerial implications for Vietnamese SMEs’ owners and managers

Findings from the research indicate that promoting innovation capability is one of the most essential factors for Vietnamese SMEs to leverage company’s performance Even though all other factors including intellectual capital, organizational learning capability,technological orientation and innovative milieu have positive impact on firm performance, without the presence of innovation capability, firms could not significantly improve performance and attain sustainable growth Moreover, given the generally modest size of SMEs and their greater flexibility in doing business, it is easier for these firms to restructure or remodel their organizational resources and capability to foster innovation As such, based on the research findings that promoting intellectual capital and organizational learning capability are two critical approaches for firm to enhance innovation capability and other relevant measures, the author would propose the following recommendations for Vietnamese SMEs’ owners and managers to proactively develop and foster a holistic environment for enhancing organizational capability to innovate.

5.2.1.1 Fostering customer-centric innovations through design thinking approach

First and foremost, management of Vietnamese SMEs should be well aware that employee’s creativity and problem-solving skills goes hand in hand with organizational innovation That said, by encouraging employees to understand customers’ needs and wants and the reasons behind those, SMEs could foster employee’s creativity and organizational innovation simultaneously, thus delivering to customers and clients meaningful experiences and innovative product offerings Moreover, it is also crucial to train and empower employees to engage with end-users to get more insights into customers’ decision-making processes so as to enhance the effectiveness of the value creation activities.

Following that, despite a range of emerging innovative approaches and frameworks outlining strategies for sustainable businesses, Vietnamese SMEs could greatly benefit from design thinking approach More specifically, a design thinking approach implies that rather than discussing existing problems encountered in the marketplace, all organizational members are recommended to brainstorm and focus on seeking new solutions that could result in new products, processes, or ways of doing business (Cooper, et al., 2009) With the essence lying in empathy with the user experience, design thinking approach highlights the human-centeredness of firm’s innovative processes to create novel solutions and fulfill customers’ needs, which complies with the mechanisms to promote firm’s innovation capability Therefore, if Vietnamese SMEs could successfully engage, empathize, co-create and co-innovate with consumers, these businesses could make greater strides in driving better firm performance.

5.2.1.2 Grasping opportunities given by Governmental Incentives and External Institutions

Due to constraints in getting access to resources, materials, capital and knowledge, managers and owners of Vietnamese SMEs could take advantage of a range of Entrepreneurship Associations, Funds and Governmental Incentives to foster firm’s innovation capability and leverage performance For example, Vietnamese SMEs could acquire financial support from the Small and Medium Enterprises Development Fund (established on May 10, 2019, under the Vietnamese Government issued Decree No. 39/2019/ND-CP) to compensate the “thirst for capital” (VMPI, 2021) Likewise, The National Technology Innovation Fund (NATIF), which was established by the Government and put into operation in 2015 and aimed to give preferential loans, support loan interest rates, guarantee loans, sponsor organizations, individuals and businesses to conduct research, technology transfer, innovation and improvement, could also be regarded as a source for Vietnamese SMEs to approach capital resources In addition, Vietnam Association of Small and Medium Enterprises (VINASME) is also regarded as a forum for Vietnamese SMEs to discuss and obtain experiences and knowledge through workshops, training opportunities and access to relevant resources In terms of legal incentives, Vietnamese SMEs should be well-aware of governmental support specified in according legal documents, such as Decree 80/2020/ND-CP, etc., to capture opportunities to conduct business smoothly and expand in the future prospects.

Another practical implication for management of Vietnamese SMEs is to collaborate with educational centers, organizations and universities Evidently, FTU Innovation and Incubation Space (FIIS) could be regarded as a trusted organizations to accompany firms to address business problems, to help firms train human resources and to participate in the co- innovative and co-creative processes through a range of practical training programmes and courses.

5.2.1.3 Leveraging innovation capability and performance through constant learning processes

Continuous learning processes and practices to accumulate and implement knowledge into business activities is another vital measure for Vietnamese SMEs to promote sources of innovation From managerial perspectives, it is essential to foster a friendly and open organizational environment, where employees could easily raise voice and exchange ideas.

As organizational members are regarded a valuable source of new knowledge generation and agents leading learning and change, mangers should also increase the level of trust and engagement so as to facilitate smooth communication throughout different levels of firms.

Moreover, as the generation of new knowledge requires risk-taking and experimentation and given that innovation is not always successful, firm owners should prepare to encounter risks and even loss Beyond that, encouraging employees to take risks in their daily interactions and engagement with both internal and external actors is a critical practice and responsibility of Vietnamese SMEs’ management board to promote continuous organizational learning processes That said, when being exposed to the broader business environment and empowered to take risks, employees could foster their own creativity and ideas to initiate breakthrough solutions and innovations.

However, continuous learning capability should not only be encouraged among employees but managers themselves have to accumulate knowledge constantly as well. For example, before new adoptation of design thinking, Vietnamese SMEs’ owners and managers should participate in some relevant training programmes to prepare their mindsets and knowledge before leading organizational change In this case, once again, the author suggests FIIS and other entrepreneurship incubating organizations, which aim to nurture innovative entrepreneurs and grant training for firms’ representatives, that could help Vietnamese SMEs’ owners and managers get ready to successfully manage their firms in today’s competitive marketplace.

5.2.1.4 Wisely implementing Digital Transformation and Technological Orientation in business activities

Digital Transformation and Technological Orientation has become the prominent approach that help firms to leverage innovation capability and performance.According to Demirkan, et al (2016), Digital Transformation is the profound and accelerating process of transformation of business activities, processes, competencies and models to fully leverage the changes and opportunities brought by digital technologies.Therefore, undoubtedly, Digital

Transformation and Technological Orientation could provide firms with novel ways to interact and engage with customers along with new opportunities to capture values due to data-driven insights and the launch of new digital business models (Haffke, et al.,

2016) Moreover, according to Hess, et al 2016 and Clohessy, et al (2017), Digital Transformation could also facilitate a firm’s product, process innovation and even strategic changes in organizational structure of businesses (Hess et al., 2016; Clohessy et al., 2017).

For the current context of Vietnamese SMEs with capital insufficiency and lack of experiences in implementing high-technical software and advanced technology, Digital Transformation and Technological Orientation should be wisely incorporated into business activities That said, some basic features of digital transformation such as the firm’s social media coverage and websites should be implemented by Vietnamese SMEs to promote brand awareness and reach more potential customers Whereas, the development of mobile application or new advanced technology, which requires huge financial investment and efforts, should not be taken priority but be carefully taken into consideration in accordance with the organization’s available resources.

As implied earlier, innovation capability is only one of a range of factors affecting firm performance of Vietnamese SMEs Therefore, maintaining good human resources and accelerating employee’s competences are critical approaches for firms to foster growth Moreover, rewards and recognition also serves as effective tools for encourage employees to work, to innovate and seek for novel and creative ideas Obviously, to enhance firm performance, Vietnamese SMEs’ managers and owners should ensure every aspect of doing business to create values for customers as well as fulfill customers’ needs and satisfaction.

5.2.2 Managerial implications for Policy-makers

Firstly, based on the research findings, the author recommends that Policy- makers should concentrate on fostering the effective flow of capital, knowledge transfers and other resources to Vietnamese SMEs Accordingly, funds, subsidies and other incentives should not be inconsiderably established in certain areas at certain periods of time Instead, government should implement research programmes to justify the appropriate locations and time to provide and grant those supports for SMEs for the best results This is deemed as the most significant recommendation for policy-makers to directly address the biggest challenges that Vietnamese SMEs are facing today – capital insufficiency and limited investment in promoting technological advances and research and development practices.

Research limitations and direct for further research

Despite providing valuable findings and implications from both theoretical and practical perspectives, the current research also encounters limitations Firstly, the framework is developed in an emerging economy context – in Vietnam Consequently, the results of this research are applicable only within the Vietnamese settings. Accordingly, generalizing and applying the outcomes of research results to other contexts without considering how other countries and environments may operate could provide unreliable outcomes and fluctuating results.

Secondly, this current thesis adopts convenient sampling technique for data collection,which subsequently could produce social biases.

Thirdly, the measurement scales adopted in this research is considered unfamiliar with the context of Vietnamese SMEs, despite being solidly verified in prior studies across various contexts Moreover, since the measurement items of the construct innovation milieu were empirically developed based on prior conceptual works, their ability to represent the construct requires further fine-tuning to enhance its explanatory power and generalizability.

Fourthly, the data collection method used a cross-sectional design, which means that perceptions regarding intellectual capital, learning capability, technology orientation and innovation milieu in explaining firm innovation capability and performance were collected at a single point in time Therefore, findings of further research could be fluctuating from time to time and might generate conflicting results.

Last but not least, the research ignored the procedures of data sorting and data cleaning, which implies that minor and underlying issues might be identified when taking further analysis into the current database.

Based on the current research’s findings and limitations mentioned above, the author would propose some following directions for future studies into the discipline of innovation capability within an emerging economy context Firstly, potential researchers should test whether the conceptual framework developed in this thesis and its results can be generalized to other settings That said, in determining a measurement scale for these constructs, researchers should refer to experts’ viewpoints and conduct more comprehensive and comparative studies across various countries, settings or firm size, etc. to justify these measurements items.

Secondly, as this current thesis only looks at the extent to which a milieu impacts on innovation capability and business performance, a study that engages factors concerning the institutional environment (e.g., regulatory, normative and cognitive aspects) surrounding the Vietnamese SMEs’ clusters may compliment the theoretical perspective deployed in this study to better understand the role of a milieu in fostering innovation capability and firm performance.Thirdly, further research should also employ other method for data collection and data analysis to provide thorough results such as the application of a longitudinal study.

Innovation capability has been shown to bear critical influence on firm performance Therefore, assessing and understanding antecedents that influence innovation capability and business performance are crucial not only for large enterprises but as this study has highlighted for Vietnamese SMEs Accordingly, the findings of the current research implies that investment in the development of intellectual capital, learning capability and technology orientation can enable better leveraging of firm innovation capability, while improving both the firm-based and region-based management of firms in a milieu may also result in enhanced firm performance.

Given the fact that Vietnam is at an important crossroads – one that is shared by many developing countries that aspire to become service-driven, knowledge economies.

As such, results from this research provide clear directions pertaining to one potential road that must be considered in efforts to build valuable innovation capability that can drive better firm performance from the engine room of most nations’ economies, whether advanced or developing, its SMEs.

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The World Bank, 2021 Small and Medium Enterprises (SMEs) Finance [Online] Available at: https://www.worldbank.org/en/topic/smefinance [Accessed 31 October 2021].

Tsai, W., 2000 Social Capital, Strategic Relatedness and the Formation Inter-Organisational Linkages.

VMPI, 2020 2020 Vietnamese Enterprises White Book, s.l.: VMPI.

CRITERIA FOR IDENTIFICATION OF SMES IN VIETNAM

(As of Decree 80/2020/ND-CP: “Elaboration of some Articles of the Law on provision of Assistance for Small and Medium Enterprises”, issued by Vietnamese Government on

August 26, 2021 and officially coming into power on October 15, 2021).

Table 1.1 Criteria for identification of SMEs in Vietnam

Enterprises operating in the field of agriculture, forestry, aquaculture; industry and construction

Enterprises operating in the field of commerce and services.

- An average annual number of employees who participate in social insurance not exceeding

- Total revenue in the year not exceeding 3 billion VND or total capital of the year not exceeding 3 billion VND.

- An average annual number of employees who participate in social insurance not exceeding 10 people

- Total revenue in the year not exceeding 10 billion VND or total capital of the year not exceeding 3 billion VND.

- An average annual number of employees who participate in social insurance not exceeding

- Total revenue in the year not exceeding 50 billion VND or total capital of the year not exceeding

20 billion VND, except micro- enterprises mentioned above.

- An average annual number of employees who participate in social insurance not exceeding 50 people

- Total revenue in the year not exceeding 100 billion VND or total capital of the year not exceeding 30 billion VND, except micro- enterprises mentioned above.

- An average annual number of employees who participate in social insurance not exceeding

- Total revenue in the year not exceeding 200 billion VND or total capital of the year not exceeding 100 billion VND, except micro-enterprises and small enterprises mentioned above.

- An average annual number of employees who participate in social insurance not exceeding 100 people.

- Total revenue in the year not exceeding 300 billion VND or total capital of the year not exceeding 100 billion VND, except micro- enterprises and small enterprises mentioned above.

Source: Synthesized by the author, 2021.

QUESTIONNAIRE

“The impact of innovation capability on company’s performance: An empirical analysis of SMEs in Vietnam”

I am a student at Foreign Trade University and currently doing a research on the impact of innovation capability and firm performance of Vietnamese SMEs, which is directly matched with your current status Therefore, I really appreciate if you could contribute to this research by answering the questions below I assure that the data collected in the questionnaires will only be used for research purposes.

If you are interested in the results of the survey or have any comments, please kindly send an email to me via my address: manhhungk57@ftu.edu.vn.

I hope to receive your attention and help Sincerely thank.

Please choose one of the answers below:

☐High school Degree (1) ☐ Bachelor Degree (2) ☐ Postgraduates Degree (3)

PART 2: GENERAL INFORMATION ABOUT YOUR COMPANY Note:

- Please answer the following questions related to information about your company.

- For some questions, you could choose multiple answers.

- For question 2 about your Company’s size, please refer to the attached appendix of criteria for classification of Business size.

1 The Industry/ Sector of the Company:

☐Micro-enterprise (0) ☐ Small enterprise (1) ☐ Medium enterprise (2)

☐Big cities in Vietnam (0) ☐ Other cities and provinces (1) ☐ Rural areas (2)

4 Governmental and external support and incentives your firm has received (You could choose multiple answers):

☐Taxation (land taxes, income taxes, etc.) (0)

5 Your organizational goals (You could choose multiple answers):

☐To make profits (0) ☐ To create social impacts (1)

☐To increase firm value (2) ☐ To become leading player in the field (3)

☐To fulfill customers’ needs (4) ☐ To pass it on the next generations (5)

PART 3: THE IMPACT OF INNOVATION CAPABILITY ON FIRM’S PERFORMANCE

Note: For the following statements, please specify your opinions based on the following scale:

1 – Totally disagree; 2 – Disagree; 3 – Neutral; 4 – Agree; 5 – Totally agree

Client-focused Innovation Capability (CFIC)

CFIC1 Our firm provides products and services with high quality and superior features compared to competitors 1 2 3 4 5

CFIC2 Our firm always attempts to approach client’s problems in innovative ways 1 2 3 4 5

CFIC3 Our firm always provides innovative ideas and solutions to clients 1 2 3 4 5

CFIC4 Our firm always seeks out novel ways to tackle both internal and client’s problems 1 2 3 4 5

Marketing-Focused Innovation Capability (MFIC)

MFIC1 Our firm has developed revolutionary marketing programs for our services/ products 1 2 3 4 5

MFIC2 Our firm has successfully implemented marketing strategies in a way that has never been applied in the market 1 2 3 4 5

MFIC3 Our firm has successfully increase brand awareness by innovative and creative ways 1 2 3 4 5

Technology-Focused Innovation Capability (TFIC)

TFIC1 Our firm has successfully adopted the latest software, technology, etc in the industry into our business operations 1 2 3 4 5

TFIC2 Our firm has effectively introduced new integrated systems and technology into our business operations 1 2 3 4 5

TFIC3 Our firm has effectively promoted digital transformation to support business activities 1 2 3 4 5

TFIC4 Our firm have adopted latest technology and software for innovative activities 1 2 3 4 5

HMC1 Our employees are highly skilled in relevant fields 1 2 3 4 5

HMC2 Our employees are considered experts in relevant fields with proper and in-depth knowledge related to their jobs and functions 1 2 3 4 5

HMC3 Our employees could come up and develop new ideas and knowledge 1 2 3 4 5

SOC1 Our employees are skilled at collaborating with each other to diagnose and solve problems 1 2 3 4 5

SOC2 Our employees are always willing to share information, learn from one another and exchange ideas, even with people from different areas of the company.

SOC3 Our employees are constantly collaborating and getting in close touch with relevant parties (customers, suppliers, alliance partners, etc.) to develop solutions.

ORC1 Our firm has obtained several patents and licenses 1 2 3 4 5

ORC2 The firm’s knowledge and ways of doing business innovatively is contained in manuals, databases, etc 1 2 3 4 5

ORC3 Our corporate culture contains valuable ideas and philosophy to encourage innovation 1 2 3 4 5

Experimentation and Risk-Taking (ERT)

ERT1 Employees always receive support and encouragement when presenting new ideas 1 2 3 4 5

ERT2 New ideas and initiatives are welcome and receive favorable responses 1 2 3 4 5

ERT3 Employees are encouraged to take risks and overcome them in decision-making 1 2 3 4 5

Interaction with External Environment (IEE)

IEE1 People are encouraged to collect, bring back and report information about what is going on outside of the company 1 2 3 4 5

IEE2 There are systems and procedures facilitating the practices of receiving, collating, and sharing information from outside of the company 1 2 3 4 5

IEE3 People are encouraged to directly interact with different parties in the external business environment (e.g., competitors, customers, etc.) 1 2 3 4 5

Employee Engagement, Communication and Participation in Decision-Making (ECDP)

ECPD1 Managers facilitate communication and foster an open environment for discussion of ideas and decision-making 1 2 3 4 5

ECPD2 Cross-functional teamwork is critical and common practices to engage employees and enhance mutual communication 1 2 3 4 5

ECPD3 People feel involved and empowered to develop themselves and to reach individual and organizational goals 1 2 3 4 5

TO1 The firm’s product offerings contain high technological components and items 1 2 3 4 5

TO2 Future products released to market would definitely contain high technological components and items 1 2 3 4 5

TO3 Advanced technologies and methods are incorporated and utilized to produce new products 1 2 3 4 5

TO4 New product development process quickly adapts with technological changes 1 2 3 4 5

TO5 New technologies are integrated in business activities quickly 1 2 3 4 5

TO6 Technological advances are implemented and directed by technical personnel and experts 1 2 3 4 5

TO7 The firm is an initiator of new technologies and products development in the market 1 2 3 4 5

TO8 New technological advances have successfully fulfilled the ever- changing and complicated needs of customers 1 2 3 4 5

TO9 The firm has specific, strategic and ambitious plans to develop new technologies 1 2 3 4 5

Complete this statement: Thanks to favorable location and partial proximity,

IM1 The firm could lower the costs of gaining access to skilled labors and inputs for production 1 2 3 4 5

IM2 The firm could lower the costs of producing outputs 1 2 3 4 5IM3 The firm could lower the costs of providing products and services 1 2 3 4 5IM4 The firm could save time for business procedures 1 2 3 4 5IM5 The firm could grasp more business opportunities 1 2 3 4 5

IM6 The firm could get access to useful and valuable knowledge from various actors in the business environment (customers, competitors, other firms, etc.)

IM7 The firm could take advantages of well-established network of distribution 1 2 3 4 5

IM8 The firm could take advantages of modern infrastructures, road systems, etc 1 2 3 4 5

IM9 The firm could collaborate and learn from other regional organizations and institutions in promoting innovative solutions and ideas.

IM10 The firm could encourage employees to develop themselves and facilitate smooth communication and engagement 1 2 3 4 5

IM11 The firm could be more creative, innovative and oriented to technological creation 1 2 3 4 5

IM12 The firm could develop networks, partnerships with various actors within the business environment 1 2 3 4 5

FP1 The firm has positive financial performance in recent years 1 2 3 4 5

FP2 The firm has substantially expanded human resources capability in recent years 1 2 3 4 5

FP3 The marginal profits have substantially increased over the past few years 1 2 3 4 5

FP4 The firm has introduced various innovative and breakthrough products and services into the market 1 2 3 4 5

FP5 The firm has developed novel and creative ways in doing business 1 2 3 4 5

FP6 The firm has provided customers with high-quality products compared with other competitors 1 2 3 4 5

FP7 The firm has provided a variety selection of products/ services to customers 1 2 3 4 5

FP8 The firm has successfully adopted new technology to support and foster sustainable business growth 1 2 3 4 5

FP9 The firm’s performance has lived up to customers’ expectation and satisfaction 1 2 3 4 5

“Tác động của năng lực đổi mới sáng tạo đến hiệu quả hoạt động của công ty: Phân tích thực nghiệm về các doanh nghiệp vừa và nhỏ ở Việt Nam”

Thưa Ông/ Bà và Quý Doanh nghiệp,

Tôi là sinh viên trường Đại học Ngoại thương và hiện đang nghiên cứu về tác động của năng lực đổi mới tới hiệu quả hoạt động của các doanh nghiệp vừa và nhỏ Việt Nam Do đó, tôi rất mong Ông/ Bà có thể đóng góp cho nghiên cứu này bằng cách trả lời các câu hỏi dưới đây Tôi đảm bảo rằng dữ liệu thu thập được trong bảng câu hỏi sẽ chỉ được sử dụng cho mục đích nghiên cứu.

Nếu Ông/ Bà quan tâm đến kết quả của cuộc khảo sát và các kết quả nghiên cứu hoặc có bất kỳ ý kiến đóng góp nào, xin vui lòng gửi email cho tôi qua địa chỉ sau: manhhungk57@ftu.edu.vn.

Rất mong nhận được sự quan tâm và giúp đỡ của Quý Doanh nghiệp và Ông/

Bà Xin chân thành cảm ơn!

PHẦN 1: THÔNG TIN CHUNG VỀ NGƯỜI TRẢ LỜI PHIẾU KHẢO SÁT Ông/Bà vui lòng trả lời những câu hỏi sau:

1 Giới tính của ông/bà là: ☐ Nam (0) ☐ Nữ (1)

2 Trình độ học vấn cao nhất của ông/bà là:

☐Tốt nghiệp THPT (1) ☐ Tốt nghiệp Đại học (2) ☐ Bằng Thạc sĩ/ Tiến sĩ (3)

3 Vị trí, chức vụ của ông/bà trong công ty là:

☐Người sáng lập/ Chủ công ty (1)

☐Quản lý cấp cao trong công ty (2)

☐Quản lý các phòng ban, nhóm kinh doanh (3)

PHẦN 2: THÔNG TIN CHUNG VỀ DOANH NGHIỆP Lưu ý:

- Ông/Bà vui lòng trả lời những câu hỏi có liên quan tới doanh nghiệp sau đây.

- Đối với một số câu hỏi, ông/bà có thể chọn nhiều phương án trả lời khác nhau.

- Đối với câu hỏi 2 về quy mô doanh nghiệp, ông/bà vui lòng tham khảo phụ lục đính kèm về tiêu chí phân loại Quy mô Doanh nghiệp.

6 Lĩnh vực kính doanh công ty của ông/bà là:

☐Nông nghiệp (1) ☐ Lâm nghiệp (2) ☐ Công nghiệp (3)

☐Xây dựng (4) ☐ Thương mại (5) ☐ Dịch vụ (6)

7 Quy mô doanh nghiệp của ông/bà là:

☐DN siêu nhỏ (0) ☐ DN nhỏ (1) ☐ DN vừa (2)

8 Công ty ông/bà nằm ở:

☐Thành phố lớn của Việt Nam (0) ☐ Thành phố và tỉnh thành khác (1)

9 Doanh nghiệp của ông bà đã nhận được sự hỗ trợ nào sau đây từ Chính phủ (Ông/bà có thể chọn nhiều câu trả lời):

☐Hỗ trợ thuế (thuế nhà đất, thuế thu nhập, ) (0)

☐Hỗ trợ về đào tạo (2)

☐Chưa nhận được hỗ trợ nào (3)

10 Mục tiêu kinh doanh của công ty (Ông/bà có thể chọn nhiều câu trả lời):

☐Tạo ra của cải lợi nhuận (0) ☐ Tạo ra tác động xã hội (1)

☐Tăng giá trị thị trường cho công ty (2)

☐Trở thành công ty dẫn đầu ngành, lĩnh vực (3)

☐Thỏa mãn nhu cầu người tiêu dùng (4) ☐ Truyền lại công ty cho con cái (5)

PHẦN 3: ẢNH HƯỞNG ĐỔI MỚI SÁNG TẠO ĐẾN TÌNH HÌNH PHÁT TRIỂN CÔNG TY

Lưu ý: Vui lòng đánh giá quan điểm của ông/bà với những nhận định dưới đây theo mức độ đồng ý tăng dần từ 1 đến 5:

1 – Hoàn toàn không đồng ý; 2 – Không đồng ý một phần; 3 – Không có ý kiến;

4 – Đồng ý một phần; 5 – Hoàn toàn đồng ý

VII KHẢ NĂNG SÁNG TẠO CỦA CÔNG TY (IC)

Khả năng đổi mới tập trung vào khách hàng

CFIC1 Công ty chúng tôi cung cấp các sản phẩm dịch vụ với chất lượng cao và tính năng ưu việt so với các đối thủ cạnh tranh

CFIC2 Công ty chúng tôi lưu cố gắng giải quyết các vấn đề của khách hàng theo hướng đổi mới sáng tạo

CFIC3 Công ty chúng tôi luôn cung cấp cho khách hàng giải pháp đổi mới sáng tạo

CFIC4 Công ty chúng tôi luôn tìm ra giải pháp sáng tạo để giải quyết các vấn đề của cả khách hàng và nội bộ

Khả năng sáng tạo tập trung vào thị trường

MFIC1 Công ty chúng tôi áp dụng hình thức tiếp thị, quảng bá theo hướng đổi mới sáng tạo.

MFIC2 Công ty chúng tôi áp dụng hình thức tiếp thị theo cách chưa từng được áp dụng trên thị trường và mang lại hiệu quả

MFIC3 Công ty chúng tôi tăng nhận diện thương hiệu bằng các đổi mới sáng tạo

Khả năng sáng tạo tập trung vào công nghệ (TFIC)

TFIC1 Công ty chúng tôi thành công áp dụng các phần mềm công nghệ mới trong vận hành sản xuất

TFIC2 Công ty chúng tôi có hệ thống, quy trình vận hành tích hợp mới lạ và hiệu quả

TFIC3 Công ty chúng tôi thành công áp dụng nhiều quy trình chuyển đổi số trong hoạt động kinh doanh 1 2 3 4 5

TFIC4 Công ty chúng tôi áp dụng các công nghệ và phần mềm trong đổi mới sáng tạo

VIII LIÊN QUAN ĐẾN TÌNH HÌNH PHÁT TRIỂN NGUỒN LỰC TRÍ TUỆ

Nguồn lực trí tuệ (HMC)

HMC1 Nhân viên công ty chúng tôi rất thành thạo tay nghề, kỹ năng 1 2 3 4 5

HMC2 Nhân viên công ty chúng tôi có kiến thức chuyên môn trong lĩnh vực đang làm việc.

HMC3 Nhân viên công ty chúng tôi đưa ra nhiều ý tưởng sáng tạo, thực tiễn 1 2 3 4 5

Nguồn lực xã hội (SOC)

SOC1 Nhân viên công ty chúng tôi có kỹ năng làm việc nhóm để phân tích và giải quyết vấn đề

SOC2 Nhân viên công ty chúng tôi sẵn sàng chia sẻ kiến thức, học hỏi lẫn nhau, kể cả đối với những nhân viên phòng ban khác

SOC3 Nhân viên công ty chúng tôi thường xuyên kết nối với các bên liên quan (khách hàng, nhà cung cấp, ) để dưa ra hướng giải quyết

Nguồn lực tổ chức (ORC)

ORC1 Công ty chúng tôi có các bằng sáng chế, sáng kiến được công nhận 1 2 3 4 5

ORC2 Các kiến thức và cách làm đổi mới sáng tạo được lưu ý rõ trong quy trình làm việc hoặc cơ sở dữ liệu của công ty

ORC3 Văn hóa công ty hàm chứa những ý tưởng, triết lý kinh doanh sáng tạo, đổi mới

IX LIÊN QUAN ĐẾN TÌNH HÌNH KHUYẾN KHÍCH TỰ PHÁT TRIỂN VẢ

THÚC ĐẨY ĐỔI MỚI SÁNG TẠO CỦA CÔNG TY (LC)

Khuyến khích thử nghiệm và chấp nhận rủi ro (ERT)

ERT1 Mọi người đều nhận được sự hỗ trợ và giúp đỡ khi trình baqyf và phát triển ý tưởng mới.

ERT2 Các ý tưởng mới đều nhận được phản hồi tích cực 1 2 3 4 5

ERT3 Mọi người được khuyến khích để phát triển khả năng chấp nhận và vượt qua rủi ro

Tương tác với môi trường bên ngoài (IEE)

IEE1 Mọi người được khuyến khích thu thập, phân tích và trao đổi các thông tin ngoài phạm vi công việc.

IEE2 Công ty đã phát triển hệ thống, quy trình giúp việc trao đổi và tương tác bên ngoài công việc dễ dàng

IEE3 Mọi người được khuyến khích trao đổi trực tiếp với các bên liên quan khi ở ngoài môi trường làm việc (đối thủ cạnh tranh, khách hàng,…).

Nhân viên được tham gia giao tiếp và quá trình ra quyết định

ECPD1 Quản lý tạo môi trường giao tiếp thân thiện, cởi mở 1 2 3 4 5

ECPD2 Công ty tập trung phân chia và phát triển các nhóm nhân viên đa dạng về kỹ năng và nền tảng kinh nghiệm, kiến thức

ECPD3 Nhân viên cảm thấy được tham gia và thúc đẩy để đạt được mục tiêu cá nhân và mục tiêu chung của doanh nghiệp 1 2 3 4 5

X LIÊN QUAN ĐẾN ĐỊNH HƯỚNG CÔNG NGHỆ CỦA CÔNG TY (TO)

TO1 Các sản phẩm dịch vụ hiện tại của công ty bao gồm nhiều tính năng công nghệ cao.

TO2 Các sản phẩm dịch vụ trong tương lai của công ty đều xây dựng theo hướng tích hợp công nghệ tiên tiến.

TO3 Quy trình sản xuất cung cấp sản phẩm dịch vụ được tích hợp công nghệ hiện đại

TO4 Các quy trình sản xuất sản phẩm mới được áp dụng nhanh chóng 1 2 3 4 5

TO5 Công nghệ mới được áp dụng vào hoạt động của doanh nghiệp nhanh chóng

TO6 Các quy trình công nghệ mới được vận hành bởi đội ngũ có tay nghề chuyên môn cao

TO7 Công ty luôn đi đầu về phát triển các công nghệ mới trong ngành 1 2 3 4 5

TO8 Các đổi mới công nghệ làm hài lòng nhu cầu ngày càng phát triển đa dạng của khách hàng

TO9 Chúng tôi có kế hoạch đầu tư và tầm nhìn tham vọng cho phát triển và áp dụng công nghệ mới

XI LIÊN QUAN ĐẾN MÔI TRƯỜNG ĐỔI MỚI CỦA DOANH NGHIỆP (IM) Ông/Bà hãy điền vào ý kiến sau phù hợp với công ty : Nhờ vào vị trí địa lý thuận lợi và các vùng lân cận,

IM1 Công ty có thể giảm chi phí khi tiếp cận đến nguồn lực lao động có tay nghề và các nguyên liệu đầu vào khác

IM2 Công ty có thể giảm chi phí đầu ra sản phẩm dịch vụ 1 2 3 4 5 IM3 Công ty có thể giảm chi phí cung cấp sản phẩm, dịch vụ 1 2 3 4 5

IM4 Công ty có thể giảm thời gian trong công việc vận hành hoạt động sản xuất

IM5 Công ty có thể nắm bắt được nhiều cơ hội phát triển 1 2 3 4 5

IM6 Công ty có thể tiếp cận các nguồn thông tin hữu ích từ nhiều chủ thể

(khách hàng, đối thủ cạnh tranh,…)

IM7 Công ty có thể tận dụng các kênh cung cấp, phân phối đã sẵn có và phát triển

IM8 Công ty có thể tận dụng các cơ sở hạ tầng, hệ thống đường xá hiện đại sẵn có,…

IM9 Công ty có thể kết hợp và học hỏi từ các tổ chức địa phương trong việc quảng bá các sản phẩm và ý tưởng đổi mới sáng tạo

IM10 Công ty có thể khuyến khích nhân viên phát triển bản thân và tạo điều kiện giao tiếp và tham gia các công việc trong các phòng ban

IM11 Công ty có thể đổi mới và sáng tạo, tập trung vào phát triển những công nghệ mới

IM12 Công ty có thể phát triển mạng lưới kinh doanh, quan hệ đối tác với các tác nhân khác trong môi trường kinh doanh

XII LIÊN QUAN ĐẾN HIỆU QUẢ KINH DOANH CỦA CÔNG TY

FP1 Công ty có doanh thu khả quan trong những năm gần đây 1 2 3 4 5

FP2 Công ty có quy mô và nhân viên tăng khả quan trong những năm gần đây

FP3 Công ty có lợi nhuận biên ổn định tăng trưởng trong những năm gần đây

FP4 Công ty có nhiều sản phẩm/dịch vụ sáng tạo đột phá trên thị trường 1 2 3 4 5 FP5 Công ty đã phát triển nhiều cách làm mới trong kinh doanh 1 2 3 4 5

FP6 Công ty cung cấp những sản phẩm có chất lượng cao và ổn định hơn đối thủ cạnh tranh

FP7 Công ty cung cấp đa dạng các sản phẩm dịch vụ đến khách hàng 1 2 3 4 5

FP8 Công ty thành công áp dụng nhũng công nghệ mới giúp tăng trưởng ổn định

FP9 Các sản phẩm dịch vụ đáp ứng được kỳ vọng và đạt được sự hài lòng của khách hàng

Appendice 2.3 Link to online questionnaire (Google Forms)

Online questionnaire could be assessed via the link: https://forms.gle/PvNRA8LevDfp1vCfA

SCALE MEASUREMENTS

Appendice 3.1 Scale measurements of Innovation Capability (IC)

Client-focused Innovation Capability (CFIC)

CFIC1 Our firm provides products and services with high quality and superior features compared to competitors 1 2 3 4 5

CFIC2 Our firm always attempts to approach client’s problems in innovative ways 1 2 3 4 5

CFIC3 Our firm always provides innovative ideas and solutions to clients 1 2 3 4 5

CFIC4 Our firm always seeks out novel ways to tackle both internal and client’s problems 1 2 3 4 5

Marketing-Focused Innovation Capability (MFIC)

MFIC1 Our firm has developed revolutionary marketing programs for our services/ products.

MFIC2 Our firm has successfully implemented marketing strategies in a way that has never been applied in the market 1 2 3 4 5

MFIC3 Our firm has successfully increase brand awareness by innovative and creative ways

Technology-Focused Innovation Capability (TFIC)

TFIC1 Our firm has successfully adopted the latest software, technology, etc in the industry into our business operations.

TFIC2 Our firm has effectively introduced new integrated systems and technology into our business operations 1 2 3 4 5

TFIC3 Our firm has effectively promoted digital transformation to support business activities.

1 2 3 4 5 TFIC4 Our firm have adopted latest technology and software for innovative activities 1 2 3 4 5

Appendice 3.2 Scale measurements of Intellectual Capital (ITC)

HMC1 Our employees are highly skilled in relevant fields 1 2 3 4 5 HMC2 Our employees are considered experts in relevant fields with proper and in-depth knowledge related to their jobs and functions 1 2 3 4 5 HMC3 Our employees could come up and develop new ideas and knowledge 1 2 3 4 5

SOC1 Our employees are skilled at collaborating with each other to diagnose and solve problems 1 2 3 4 5

SOC2 Our employees are always willing to share information, learn from one another and exchange ideas, even with people from different areas of the company.

SOC3 Our employees are constantly collaborating and getting in close touch with relevant parties (customers, suppliers, alliance partners, etc.) to develop solutions.

ORC1 Our firm has obtained several patents and licenses 1 2 3 4 5 ORC2 The firm’s knowledge and ways of doing business innovatively is contained in manuals, databases, etc 1 2 3 4 5

ORC3 Our corporate culture contains valuable ideas and philosophy to encourage innovation 1 2 3 4 5

Appendice 3.3 Scale measurements of Learning Capability (LC)

Experimentation and Risk-Taking (ERT)

ERT1 Employees always receive support and encouragement when presenting new ideas 1 2 3 4 5

ERT2 New ideas and initiatives are welcome and receive favorable responses 1 2 3 4 5

ERT3 Employees are encouraged to take risks and overcome them in decision-making 1 2 3 4 5

Interaction with External Environment (IEE)

IEE1 People are encouraged to collect, bring back and report information about what is going on outside of the company 1 2 3 4 5

IEE2 There are systems and procedures facilitating the practices of receiving, collating, and sharing information from outside of the company 1 2 3 4 5

IEE3 People are encouraged to directly interact with different parties in the external business environment (e.g., competitors, customers, etc.).

Employee Engagement, Communication and Participation in Decision-Making (ECDP)

ECPD1 Managers facilitate communication and foster an open environment for discussion of ideas and decision-making 1 2 3 4 5 ECPD2 Cross-functional teamwork is critical and common practices to engage employees and enhance mutual communication 1 2 3 4 5 ECPD3 People feel involved and empowered to develop themselves and to reach individual and organizational goals.

Appendice 3.4 Scale measurements of Technological Orientation (TO)

TO1 The firm’s product offerings contain high technological components and items 1 2 3 4 5

TO2 Future products released to market would definitely contain high technological components and items 1 2 3 4 5

TO3 Advanced technologies and methods are incorporated and utilized to produce new products 1 2 3 4 5

TO4 New product development process quickly adapts with technological changes

TO5 New technologies are integrated in business activities quickly 1 2 3 4 5

TO6 Technological advances are implemented and directed by technical personnel and experts

TO7 The firm is an initiator of new technologies and products development in the market.

TO8 New technological advances have successfully fulfilled the ever- changing and complicated needs of customers 1 2 3 4 5

TO9 The firm has specific, strategic and ambitious plans to develop new technologies 1 2 3 4 5

Appendice 3.5 Scale measurements of Innovation Milieu (IM)

Thanks to favorable location and partial proximity,

IM1 The firm could lower the costs of gaining access to skilled labors and inputs for production

IM2 The firm could lower the costs of producing outputs 1 2 3 4 5 IM3 The firm could lower the costs of providing products and services 1 2 3 4 5 IM4 The firm could save time for business procedures 1 2 3 4 5 IM5 The firm could grasp more business opportunities 1 2 3 4 5 IM6 The firm could get access to useful and valuable knowledge from various actors in the business environment (customers, competitors, other firms, etc.)

IM7 The firm could take advantages of well-established network of distribution 1 2 3 4 5

IM8 The firm could take advantages of modern infrastructures, road systems, etc 1 2 3 4 5

IM9 The firm could collaborate and learn from other regional organizations and institutions in promoting innovative solutions and ideas.

IM10 The firm could encourage employees to develop themselves and facilitate smooth communication and engagement 1 2 3 4 5

IM11 The firm could be more creative, innovative and oriented to technological creation 1 2 3 4 5

IM12 The firm could develop networks, partnerships with various actors within the business environment 1 2 3 4 5

Appendice 3.6 Scale measurements of Firm Performance (FP)

FP1 The firm has positive financial performance in recent years 1 2 3 4 5 FP2 The firm has substantially expanded human resources capability in recent years 1 2 3 4 5

FP3 The marginal profits have substantially increased over the past few years 1 2 3 4 5

FP4 The firm has introduced various innovative and breakthrough products and services into the market.

FP5 The firm has developed novel and creative ways in doing business 1 2 3 4 5

FP6 The firm has provided customers with high-quality products compared with other competitors

FP7 The firm has provided a variety selection of products/ services to customers 1 2 3 4 5

FP8 The firm has successfully adopted new technology to support and foster sustainable business growth 1 2 3 4 5

FP9 The firm’s performance has lived up to customers’ expectation and satisfaction 1 2 3 4 5

PROFILE OF PARTICIPANTS

Source: Synthesized by the author, 2021.

Appendice 4.2 Profile of the research sample of Vietnamese SMEs

(Indicators designed based on Decree 80/2020/ND-CP issued by Vietnamese government)

(Indicators designed based on Decree 80/2020/ND-CP issued by Vietnamese government)

External support (Respondents could choose multiple answers)

Taxation (land taxes, income taxes, etc.) 245 70.40%

Business goals (Respondents could choose multiple answers)

To become leading player in the field 45 12.93%

To pass it on the next generation 58 16.67%

Source: Synthesized by the author, 2021.

DESCRIPTIVE STATISTICS AND DEMONSTRATION OF THE DATABASE

Appendice 5.1 Descriptive Statistics of observed variables

Observed variables N Minimum Maximum Mean Standard

Source: Synthesized by the author, 2021.

Online database of this thesis could be found via the link: https://drive.google.com/file/d/1aPQ0wAeK0YJnxFHe9XQCY0X2PEd3jB7z/view?usp=shar ing

RESULTS OF RELIABILITY ANALYSIS USING CRONBACH’S ALPHA

Appendice 6.1 Cronbach’s Alpha Coefficients (first-time test)

No Observed Variables Cronbach’s Alpha Results

Source: Synthesized by the author, 2021.

Appendice 6.2 Results of the Reliability Test (first-time test)

Scale Mean if item deleted

Scale Variance if item deleted

Cronbach’s Alpha if item deleted

Source: Synthesized by the author, 2021.

From the results at the first time, TO3, TO4, TO6, IM2, IM3, IM4, IM6, IM9, IM10, FP4, FP5, FP7 have been eliminated from further analysis as their Corrected Item-Total Correlation coefficients do not meet the criteria of being greater than 0.3 (highlighted in red) Therefore, these variables would be eliminated from further analysis and the following is the results of Reliability Test at the second time with the scale measurement of disqualified variables (TO, IM and FP).

Appendice 6.3 Cronbach’s Alpha Coefficients (second-time test)

No Observed Variables Cronbach’s Alpha Results

Source: Synthesized by the author, 2021.

Appendice 6.4 Results of the Reliability Test (second-time test)

Scale Mean if item deleted

Scale Variance if item deleted

Cronbach’s Alpha if item deleted

Source: Synthesized by the author, 2021.

Overall, all variables are qualified and will be taken to EFA analysis.

RESULTS OF EFA

Overall, all requirements for EFA is satisfied and there are 12 first-order constructs have been identified from the dataset All of which are qualified and could be taken to the next step of PLS-SEM analysis The following are requirements for EFA and detailed results of EFA using Principal Axis Factoring as Extraction Method and Promax as Rotation Method.

KMO (Kaiser-Meyer- Olkin) Coefficients

This is a measurement of the appropriateness of EFA model Between 0.5 and 1

Sig in the Bartlett’s Test of Sphericity

This indicator reflects the significant correlation of various observed variables with the same factors This is deemed to be an important indicator as observed variables within a certain factor must be correlated to construct a valid factor.

Eigenvalue The factors for the model is qualified when their Eigenvalue is higher than 1.

TVE shows how many percent the EFA model could reflect the whole dataset ≥ 50%

Communalities Communalities must be greater than

Factor loading of variables onto the component(s)

This indicator reveals the relationship between the observed variables and the extracted factor(s).

Source: Synthesized by the author, 2021.

Appendice 7.2 KMO and Bartlett’s Test of Sphericity of the dataset Kaiser-Meyer-Olkin Measure of Sampling Adequacy 809

Source: Synthesized by the author, 2021.

Appendice 7.3 Communalities of observed variables

Communalities Variables Initial Extraction Variables Initial Extraction

Source: Synthesized by the author, 2021.

Appendice 7.4 Total Variance Explained of the dataset

Initial Eigenvalues Extraction Sums of Squared Loadings

Rotation Sums of Squared Loadings

Total % of V C % Total % of V C % Total

Source: Synthesized by the author, 2021.

ORC3SOC2CFIC3ORC1CFIC1SOC1TFIC4

TFIC2 CFIC4 MFIC1 CFIC2 SOC3

TO2 HMC1 HMC2 IEE3 HMC3 TFIC3 IEE2 IEE1 ERT2 ERT1 ERT3

Extraction Method: Principal Axis Factoring

Source: Synthesized by the author, 2021.

Extraction Method: Principal Axis Factoring Rotation Method: Promax with Kaiser Normalization Rotation converged in 10 iterations

Source: Synthesized by the author, 2021.

Extraction Method: Principal Axis Factoring Rotation Method: Promax with Kaiser Normalization

Source: Synthesized by the author, 2021.

RESULTS OF THE ASSESSMENT OF MEASUREMENT MODEL

Construct Indicators Outer Loadings R-square Assessment

Source: Synthesized by the author,

2021 Appendice 8.2 Assessment of Indicator Reliability (final qualified model using PLS Algorithm)

Construct Indicators Outer Loadings R-square Assessment