(Luận văn) determinants of product innovation activity, the case of vietnamese sme firms

t to UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES ng HO CHI MINH CITY THE HAGUE hi ep VIETNAM THE NETHERLAND w n lo VIETNAM - NETHERLANDS ad PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ju y th yi pl Determinants of Product Innovation Activity: ua al n The case of Vietnamese SME Firms n va ll fu m oi BY nh at DANG THUY TRANG z z k jm ht vb om l.c gm n a Lu MASTER OF ARTS IN DEVELOPMENT ECONOMICS n va HO CHI MINH CITY, May 2015 y te re th t to UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES ng HO CHI MINH CITY THE HAGUE hi ep VIETNAM THE NETHERLANDS w n lo VIETNAM - NETHERLANDS ad ju y th PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS yi pl Determinants of Product Innovation Activity: The ua al n case of Vietnamese SME Firms n va ll fu oi m at nh A thesis submitted in partial fulfillment of the requirements for the degree of z z By k jm ht vb MASTER OF ARTS IN DEVELOPMENT ECONOMICS om l.c gm DANG THUY TRANG n a Lu Academic Supervisor: n va LE CONG TRU PhD y te re th HO CHI MINH CITY, May 2015 t to ABSTRACT ng hi ep This study examine two manors of product innovation including improving existing product and making new product with the scope of Vietnamese SME's firms The aim of this study is to figure out what determinants have significant impact on each type of product innovation and whether correlation between these two manors exists Determinants are categorized into internal and external factors The first group includes age, experience of entrepreneur, firm size, training cost, and R&D cost The second group includes competition level, outsourcing cost, external consultant, networking, knowledge of market/marketing cost, and export orientation Bivariate-probit model is used for attaining research's purposes above The model is applied on 1418 SME's firms which are separated into five sections: textile & shoes, food manufacturing and processing, mechanics and electricity, wood processing and all other sections Five factors are figured out to have significant influence on product innovation activity of firms including firm size, age of entrepreneur, export, competition level and network Marginal effect calculated from bivariate-probit regression are helpful evidence for firms to adjust significant determinant to improve their innovation performance w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh ABBREVIATION z Research and Development SMEs Small and Medium Enterprises CIEM Central Institute for Economics Management OECD Organization for Economic Co-operation and Development MIT Ministry of Industry and Trade z R&D k jm ht vb om l.c gm n a Lu n va y te re th t to CONTENTS ng I INTRODUCTION hi I.1 Problem statement ep I.2 Research objectives: w I.3 Research questions n I.4 Scope of the study lo ad I.5 Structure of the study y th CHAPTER II: LITERATURE REVIEW 10 ju II.1 Innovation 10 yi II.1.1Definition of innovation 10 pl ua al II.1.2 Popular indicators of innovation activity in SMEs: 10 II.1.3 Classification of innovation: 12 n va II.1.4 Characteristics of innovation activities in developing country 12 n II.1.5 Comparison between large enterprises and SMEs based on indicator of product innovation 13 fu ll II.2 Product innovation 14 m oi II.2.1 Definition of product innovation 14 nh II.2.2 Classification of product innovation 14 at II.3 Reviews of Related Theories 15 z z II.4 Reviews of Empirical Studies 17 vb II.4.1 Determinants of product innovation 17 ht jm II.4.2 Empirical review of methodology 30 k CHAPTER III: RESEARCH METHODOLOGY AND DATA 36 gm III.1 Data and sample 36 III.2 Variables and Measurement 36 l.c om III.2.1 Dependent variable 36 a Lu III.2.2 Independent variables 37 III.3 Analytical approach 41 n CHAPTER IV EMPIRICAL RESULT 45 IV.4 Regression Results 50 th IV Descriptive statistics 47 y IV.2 Data description 46 te re IV.1 Innovation activity of SMEs in Vietnam 45 n va III.3.1 Empirical model, estimation method 41 t to IV.5 Marginal effects: 55 ng CHAPTER V: CONCLUSION AND RECOMMENDATION 58 hi V.3 Recommendation 59 ep V.4 Limitation and Future Research 60 REFERENCE 61 w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re th t to ng hi ep LIST OF TABLES Table 1: The innovativeness indicators for SMEs in different dimentions 11 Table 2: Comparison between large enterprises and SMEs based on indicator of product innovation 13 Table 3: Dependent variables 37 Table 4: Determinants of Product Innovation 40 Table : Innovation Rates in Manufacturing SMEs 45 Table 6: Number of observations with improved and new product 46 Table 7: Four cases of combination between improving existing product and creating new product 46 Table : Descriptive statistics 47 Table : Correlation between some independent variables 49 Table 10 : Summary of results from bivariate - probit regression 50 Table 11: Marginal effect 55 w n lo ad ju y th yi pl n ua al n va ll fu LIST OF FIGURES m oi Figure 1: Conceptual Framework 35 Figure 2: Methodology model 44 at nh z z k jm ht vb om l.c gm n a Lu n va y te re th t to I INTRODUCTION ng I.1 Problem statement hi ep International economic integration allows more firms to be established and more foreign firms to enter domestics market Under such intensive competition pressure, w n firms need to continuously innovate their products to attain comparative advantage from lo ad other opponents This is due to limited life cycle of individual product and more arising ju y th demand of customers M Banbury and Mitchell (1995) proved that the more often firms create new products, the better they perform and the higher their probability of surviving yi pl in long term is This is applicable for both small and large firms (Vermeulena, De Jong, al ua & O'shaughnessyc, 2005) Chris Freeman and Soete (1997) - even asserted that ‘not to n innovate is to die’ Due to such important role of innovation, a large amount of studies va n have been done to identify factors having influence on product innovation of small firms fu ll (Martinez-Ros,1999; Jong, 2006; Fritz,1989; Vega-Jurado, Gutierrez-Gracia, Fernandez- m oi de-Lucio & es-Henriquez, 2008; Hadjimanolis,2000; Freel, 2000) nh at It requires more than expenditure on R&D for attaining improved or new products z z Factors with considerable influence on innovation activity that should be taken into vb account include firm size, production technology ( ratio of sales over fix assets), origin of ht k jm ownership, spending on market insight (Avermaetea, et al., 2004) How much these gm factors may affect innovation activity is not equal and depends on economic section of firms Thus, a model simulating impacts of aforementioned elements is necessary to be om l.c established a Lu While there are a range of international researches addressing this topic, number n of papers on such matter at Vietnamese scale is quite limited As Vietnam is a developing y te re share (Hadjimanolis, 2000) Thus, a model applying this matter for Vietnamese n va country, a moderate technical progress may result in huge increase of firm' sale or market th scenario is essential to be devised This paper is expected to achieve that target t to Both Vietnamese enterprises and policy makers can utilize results of this paper ng First of all, enterprises can refer to this model when they are in need of promoting hi ep innovation for their product As the model points out specific elements and the level such elements need controlled This is also a useful guidance for policy makers In detail, w n being aware of influential elements of each industry allow policy makers to make proper lo ad decision to assist innovation of that specific section y th I.2 Research objectives: ju yi The study is expected to figure out determinants with significant impact on pl product innovation activity of Vietnamese SMEs and influential level of each factors al n ua By understanding the interaction between the internal and externals factors having impact n va on product innovation, enterprise’s leaders may adjust firm’s strategy to adapt to oi m at nh I.3 Research questions ll activity fu characteristics of environment to gain the highest performance in product innovation There are two main questions addressed in this study The first one is what z z indicators have considerable impact on product innovation behavior of firms The second vb k I.4 Scope of the study jm ht one is to which extent product innovation is influenced by these factors gm The study examines Small and Medium enterprises across Vietnam with data om a Lu I.5 Structure of the study l.c extracted from SMEs survey 2011 n This paper includes five chapters The first chapter - Introduction presents the va issue and background of the issue addressed in this paper, then discussing research n about determinants of product innovation activity of firms, the methods applied to th explains the definition of innovation, product innovation, theoretical and empirical theory y of the topic which aims at creating a conceptual framework for the research This part te re objective Chapter II–Literature review presents the theoretical and empirical foundation t to measure product innovation Chapter III – Research Methodology focuses on the method, ng data description and the analytical model applied in this paper Chapter IV– Findings and hi ep Discussions discuss the regression results and marginal effect of each factor on product innovation probability The final part Chapter V–Conclusion and Recommendations w n suggest policies for policy makers and for top management of firms when they want to lo ad increase the rate of innovating product ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re th t to CHAPTER II: LITERATURE REVIEW ng II.1 Innovation hi ep II.1.1Definition of innovation w According to Hyvarinen (1990), innovation activities involve both internal and n lo external activities of firms with the target of creating new products, enhancing existing ad products, process, governance or marketing Most of innovation activities originate y th from research and development (R&D) Some may be acquired by firms via other sources ju yi such as licensing, seminars, consultants, customers, providers Technologies can be pl applied in various ways in each firms When technology is aware at a broader sense al n ua rather than relating to products only, innovation activities will play a key role in n va development of SMEs (OECD, 1982) ll fu II.1.2 Popular indicators of innovation activity in SMEs: oi m There are three popular proxies usually used to indicate levels of innovation: at nh input, output and impact These indicators could be analyzed in general or particular meaning and measured by quantity or quality The measurement units used most z z frequently are number and rate Among various inputs of producing, time, capital and vb jm ht labor are the common factors used to measure effectiveness of innovation Because these factors can be collected more easily and exactly than others belong to output or impact, k gm the input method is preferred than the other two methods The second indicator- output involves in analyzing straight outcome of innovation, creation, expertise, proficiency and l.c om absorption of technique The typical proxy of output is patent as its data can be found in a Lu most country’s statistic system However, patent is not the most significant in all n companies and all industries Some innovations may not be registered for patents of innovation and the variation of sales, capital, productivity, development, etc of firm 10 th qualitative outcomes rather than quantity Impact is comparison between cause and effect y impact indicators This method relates to innovation in larger aspect and refer to te re utilized number of license as indicator The last and the latest among three methods is n va Besides, patent refers to invention rather than innovation Output method sometimes t to V.3 Recommendation ng Besides providing evidence for firms to improve their innovation performance, hi ep this study result also suggests some policies that government or competent authority can apply to enhance general innovation performance of SME firms Some policies are as w n follows: lo ad Firstly, Ministry of Industry and Trade (MIT) may facilitate firms to increase its y th network by supporting establishment and operation of Associations in specific industry ju yi These association will connect producers, suppliers of the same industry with one pl another Such organizations also allow firms to share information of new technique or al n ua experience and know how to improve their products Once connected, firms may have n va chance to cooperate with each other in co-investing in capital intensive technique to fu produce advanced product Besides, MIT can support organizing more convention, fair, ll workshop, etc….Those event will provide firms more opportunity to meet, discuss and m oi share with each other method to innovate their products at nh International trade has been proved to create more chance for firms to innovate z z their product Vietnam Trade Promotion Agency has actively proceeded many activities vb jm ht to bring more export opportunity to Vietnamese firms They has organized a range of trade fairs at various provinces to promote local producer to export their own products k gm Agency of this organization abroad also timely update demand of foreign market for l.c domestic producer as well as connect international buyers to Vietnamese sellers Such n a Lu approach foreign consumers om activities should be continued and even extended so that more local products can manufacture advanced product Most SME firms find obstacle in mobilizing capital Thus y te re firms Large firms have better condition in applying modern producing method to n va Firm size has been certified to positively affect product innovation activity of 59 th Center Bank should issue policies to enable SME firms even at distinct areas to have t to chance to borrow capital More efficient law on micro finance should be applied so that ng SME firms can approach capital from these sources easily and effectively hi ep Maintaining a competitive market is another method competent authority can w apply to ensure enhance innovation activities of firms A monopoly market where firms n lo are not freely to enter will discourage existing firms from innovating their product Once ad a purely competitive market are maintained monopoly or government support are y th removed, firms will be stimulated to create better product to gain more market share ju yi pl In sum up, this study proposes some policies that should be applied or continued ua al to promote innovation among SME firms Such policies will not only enhance firm's n performance but their consequences will increase government budget, increase wealth n va fare of the whole society ll fu V.4 Limitation and Future Research m oi Due to limitation of data, 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Zeitschrift für Wahrscheinlichkeitstheorie und Verwandte Gebiete , 237-252 68 t to APPENDIX ng hi REGRESSION RESULT OF BIVARIATE PROBIT MODEL ep Seemingly unrelated bivariate probit w Number of obs Wald chi2(28) Prob > chi2 n Log likelihood = -1188.2523 = = = 1418 101.56 0.0000 lo ad pl n ua al n va ll fu 2.53 -1.60 2.69 -1.99 0.81 -0.84 1.15 1.64 0.33 3.35 -2.06 3.29 3.93 3.70 -1.65 P>|z| [95% Conf Interval] oi m 0005854 -.0226067 0993136 -.0132348 -8.15e-06 -.0020383 -.3023254 -.0102261 -5.54e-07 0016549 -.374382 1824961 1920652 21335 -.6872238 nh 0.011 0.111 0.007 0.047 0.415 0.403 0.250 0.100 0.739 0.001 0.040 0.001 0.000 0.000 0.099 z 0010238 0063588 1357312 0033541 7.12e-06 0007287 3732695 0322503 3.40e-07 001194 0932415 1370317 0974162 1227238 1903068 z at 0025921 -.0101437 3653418 -.0066609 5.80e-06 -.0006101 4292693 0529834 1.13e-07 0039952 -.191632 4510734 3829974 4538843 -.3142293 yi Size Outsource Export Age Training Marketingc~t Techconsul~t Competitio~l RDcost Network Food Texttile Machenic Wood _cons Std Err ju y th Improve Coef .0045988 0023193 63137 -.000087 0000197 0008182 1.160864 1161929 7.80e-07 0063355 -.0088819 7196507 5739296 6944186 0587653 z 0076296 2877575 y 0719239 te re 1507176 2961196 n rho 0076297 va 0.039 n 2.06 a Lu 0735957 om 1518747 004951 0143582 5157329 0132322 8.44e-06 0024259 1.248859 0894509 2.41e-06 0020023 1641437 1641165 3175801 0739567 -1.032292 l.c /athrho -.000734 -.033087 -.3055193 -.0084022 -.0000111 -.0059481 -.8230454 -.1217777 -3.63e-06 -.0017032 -.4317693 -.8704476 -.2889348 -.9359753 -2.246577 gm 0.146 0.439 0.616 0.662 0.791 0.410 0.687 0.764 0.692 0.874 0.379 0.181 0.926 0.094 0.000 k 1.45 -0.77 0.50 0.44 -0.26 -0.82 0.40 -0.30 -0.40 0.16 -0.88 -1.34 0.09 -1.67 -5.29 jm 0014503 0121036 2095069 0055191 4.98e-06 0021363 5285567 0538858 1.54e-06 0009453 1520214 2639243 154726 2576404 3097723 ht 0021085 -.0093644 1051068 002415 -1.32e-06 -.0017611 2129067 -.0161634 -6.11e-07 0001495 -.1338128 -.3531656 0143226 -.4310093 -1.639435 vb Newproduct Size Outsource Export Age Training Marketingc~t Techconsul~t Competitio~l RDcost Network Food Texttile Machenic Wood _cons chi2(1) = 4.30469 th Likelihood-ratio test of rho=0: Prob > chi2 = 0.0380 69 t to MARGINAL EFFECTS IN CASE: FIRM HAS IMPROVED PRODUCT AND NO ng NEW PRODUCT hi ep Marginal effects after biprobit y = Pr(Improve=1,Newproduct=0) (predict, p10) = 39900699 w variable n dy/dx lo ju y th yi pl n ua al 2.23 -1.36 2.52 -2.06 0.84 -0.47 1.03 1.69 0.50 3.31 -1.89 3.59 3.85 4.07 n 00039 00243 0521 00127 00000 00029 14123 0122 00000 00045 03422 0526 03736 0473 z va 0008585 -.0033023 1311145 -.0026094 2.23e-06 -.0001369 1453818 0205997 7.37e-08 0014829 -.064518 1886171 1437164 1925768 ad Size Outsou~e Export* Age Training Market~t Techco~t* Compet~l RDcost Network Food* Texttile* Machenic* Wood* Std Err P>|z| [ 0.026 0.173 0.012 0.040 0.403 0.637 0.303 0.091 0.619 0.001 0.059 0.000 0.000 0.000 000104 001613 -.008056 001451 028995 233234 -.005095 -.000124 -3.0e-06 7.5e-06 -.000706 000432 -.131421 422185 -.003315 044515 -2.2e-07 3.6e-07 000605 002361 -.131579 002543 085517 291717 070486 216947 099878 285276 95% C.I ] X 21.8484 5.17509 083921 43.5987 1168.05 8.67489 008463 2.60273 6508.46 34.4154 212976 071932 169252 093794 ll fu oi m nh at MARGINAL EFFECTS IN CASE: FIRM HAS NEW PRODUCT AND NO z z IMPROVED PRODUCT k jm ht vb Marginal effects after biprobit y = Pr(Improve=0,Newproduct=1) (predict, p01) = 02109573 95% C.I ] 21.8484 5.17509 083921 43.5987 1168.05 8.67489 008463 2.60273 6508.46 34.4154 212976 071932 169252 093794 y te re -.000086 000185 -.001364 000873 -.019941 01465 -.000275 00075 -6.9e-07 3.5e-07 -.000265 000124 -.047861 048406 -.006748 003257 -1.7e-07 1.1e-07 -.000165 000029 -.016067 0106 -.027276 -.006135 -.018201 005326 -.028431 -.008683 n 0.475 0.667 0.764 0.364 0.522 0.478 0.991 0.494 0.669 0.171 0.688 0.002 0.283 0.000 X va [ n 0.71 -0.43 -0.30 0.91 -0.64 -0.71 0.01 -0.68 -0.43 -1.37 -0.40 -3.10 -1.07 -3.68 P>|z| a Lu 00007 00057 00882 00026 00000 0001 02456 00255 00000 00005 0068 00539 006 00504 z om 0000495 -.0002454 -.0026452 0002372 -1.70e-07 -.0000705 0002724 -.0017455 -3.05e-08 -.000068 -.0027338 -.0167055 -.0064373 -.0185567 Std Err l.c Size Outsou~e Export* Age Training Market~t Techco~t* Compet~l RDcost Network Food* Texttile* Machenic* Wood* dy/dx gm variable th 70 t to MARGINAL EFFECTS IN CASE: FIRM HAS NEITHER NEW PRODUCT NOR ng IMPROVED PRODUCT hi ep Marginal effects after biprobit y = Pr(Improve=0,Newproduct=0) (predict, p00) = 55407808 w n variable lo dy/dx ad ju yi pl n ua al -2.72 1.71 -2.74 1.84 -0.79 1.06 -1.23 -1.53 -0.09 -3.33 2.20 -3.08 -3.87 -3.41 n P>|z| [ 0.007 0.087 0.006 0.066 0.431 0.290 0.220 0.126 0.925 0.001 0.028 0.002 0.000 0.001 -.001833 -.000607 -.243978 -.000158 -7.3e-06 -.000263 -.442303 -.043362 -3.0e-07 -.002379 008272 -.26478 -.218542 -.253584 95% C.I ] X -.000297 009048 -.040417 004904 3.1e-06 000882 10194 005331 2.7e-07 -.000616 145378 -.058683 -.071721 -.06836 21.8484 5.17509 083921 43.5987 1168.05 8.67489 008463 2.60273 6508.46 34.4154 212976 071932 169252 093794 ll fu 00039 00246 05193 00129 00000 00029 13884 01242 00000 00045 03498 05258 03745 04725 z va -.0010652 0042201 -.1421976 0023727 -2.10e-06 0003095 -.1701818 -.0190155 -1.38e-08 -.0014975 0768248 -.1617316 -.1451314 -.1609722 y th Size Outsou~e Export* Age Training Market~t Techco~t* Compet~l RDcost Network Food* Texttile* Machenic* Wood* Std Err oi m nh MARGINAL EFFECTS IN CASE: FIRM HAS BOTH NEW PRODUCT AND at IMPROVED PRODUCT z z [ 95% C.I 0.047 0.293 0.380 0.999 0.888 0.360 0.625 0.955 0.712 0.132 0.153 0.327 0.429 0.159 2.1e-06 -.001926 -.016908 -.000579 -5.3e-07 -.000321 -.073811 -.005473 -1.9e-07 -.000025 -.022712 -.030552 -.011587 -.031204 ] X k P>|z| jm Std Err ht dy/dx vb variable z Marginal effects after biprobit y = Pr(Improve=1,Newproduct=1) (predict, p11) = 02581919 21.8484 5.17509 083921 43.5987 1168.05 8.67489 008463 2.60273 6508.46 34.4154 212976 071932 169252 093794 n n va y te re 000312 000581 044365 000578 6.1e-07 000116 122867 005796 1.3e-07 00019 003566 010192 027291 005108 a Lu 1.99 -1.05 0.88 -0.00 0.14 -0.92 0.49 0.06 -0.37 1.50 -1.43 -0.98 0.79 -1.41 om 00008 00064 01563 0003 00000 00011 05017 00287 00000 00005 0067 01039 00992 00926 l.c 0001572 -.0006725 0137282 -5.45e-07 4.09e-08 -.0001021 0245276 0001612 -2.93e-08 0000826 -.009573 -.0101799 0078523 -.0130479 gm Size Outsou~e Export* Age Training Market~t Techco~t* Compet~l RDcost Network Food* Texttile* Machenic* Wood* th (*) dy/dx is for discrete change of dummy variable from to 71 t to CORRELATION ng hi ep w n lo ad ju y th 1.0000 0.1212 -0.0514 0.1105 -0.0806 0.1132 0.1210 1.0000 0.0030 0.4052 -0.0586 0.6009 0.6455 pl 0.6969 0.0971 0.3656 0.0030 -0.0598 n va 0.0172 0.1017 -0.3121 ll Techstaff Export Age 1.0000 -0.0310 0.2875 1.0000 -0.0699 0.3494 -0.0884 0.0343 0.0390 0.1532 -0.0039 -0.0255 0.3551 0.1261 0.1969 -0.0002 -0.0882 0.0141 0.0199 0.0065 -0.0025 -0.0105 -0.0248 -0.0008 0.2658 -0.0045 0.0328 0.0935 0.0039 -0.0356 -0.3552 1.0000 0.0286 0.0068 0.0247 0.0370 oi m 0.0107 0.0939 0.1348 fu -0.0112 0.0091 0.1348 n -0.0093 0.1309 0.0436 0.0259 0.0297 0.0357 ua 0.0427 -0.0046 -0.0077 0.0141 Outsource Size yi 0.0563 Improve al Newproduct Improve Size Outsource Export Age Techstaff Managerial staff MP staff Training Marketing cost Techconsultant Competition level RDcost Network Owner New product 1.0000 0.0579 0.0423 -0.0200 0.0238 0.0064 0.0216 1.0000 0.5931 0.9030 0.1129 0.2041 0.0196 -0.0559 0.0202 0.0802 -0.0692 at nh z z Marketing cost Competition level Techconsultant jm ht Training vb Managerial MP staff staff 1.0000 MP staff 0.8814 1.0000 Training 0.1960 0.1708 1.0000 Marketing cost 0.2125 0.2331 0.0783 1.0000 Techconsultant 0.0105 0.0171 -0.0042 0.0035 1.0000 Competition level -0.0317 -0.0497 0.0199 0.0062 0.0042 1.0000 RDcost 0.0251 0.0252 0.0101 0.0086 -0.0061 -0.0199 k Managerial staff om l.c gm n a Lu n va y te re th 72 t to ng 0.1040 0.1025 0.0134 0.0570 -0.0096 -0.0336 Owner -0.2226 -0.1345 0.1133 0.1348 0.5604 RDcost Network Owner hi Network ep w n lo RDcost 0.0075 1.0000 -0.4485 ju y th Owner ad Network 1.0000 1.0000 yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re th 73