Enhancement of innovation capacity, important solutions to sustainable development of vietnamese businesses

Policies and Sustainable Economic Development | 271 Enhancement of Innovation Capacity: Important Solutions to Sustainable Development of Vietnamese Businesses DOAN THI HONG VAN University of Economics HCMC - hongvan@ueh.edu.vn BUI NHAT LE UYEN HCMC University of Technology - phuonghalamvy@yahoo.com Abstract Vietnam is one of the most vulnerable countries on the earth due to the climate change Moreover, in the previous time, Vietnam developed in width inclination which leads to an overheated economy, mainly based on using of natural resources This damages the environment and increases the impact of climate change To be able to continue its development, Vietnam must have strategic and appropriate solutions to switch to a model that develops in depth inclination for sustainable development Sustainable development must be perceived insightfully and implemented in the whole society, including businesses and institutions However, concerning changing from the traditional development model to sustainable development model, Vietnamese businesses must improve their innovation capacity continuously, which requires mastering the innovation capacity and highlighting factors that affect the innovation capacity of Vietnamese enterprises This article below will clarify this issue, using the survey results of 380 Vietnamese enterprises in addition to such quantitative techniques as Cronbach's Alpha reliability, EFA, CFA and SEM Our findings indicate that Total Quality Management (TQM), Internal human resources (IHC), Absorptive capacity (AC), Collaboration networks (CN) and Government support (GS) positively impact on the Vietnamese businesses innovation capacity (IC) Additionally, by carrying out the qualitative research and typically case study, this research explores another factor that greatly affects Vietnamese enterprises’ innovation capacity in the current period, which is technology acquisition and exploitation—TAE On account of such we propose some solutions and recommendations to help Vietnamese enterprises enhance the innovation capacity to survive and develop Keywords: innovation capacity; total quality management; human resources; absorbtive capacity; collaboratione networks; Vietnamese businesses; sustainable development 272 | Policies and Sustainable Economic Development Introduction At present, the sustainable development is a common trend of the entire humanity Sustainable development is the development to satisfy the current needs of the people but no damage to the satisfaction of future generations need Accordingly, sustainable economic growth is not only increasing GDP or per capita income merely, but also must focus on three factors: economy, society and environment To maintain high growth rate in the long term, we should increase income that associated with increasing the quality of life, social welfare and poverty alleviation During 30 years of innovation, Vietnam has more attention to sustainable development and achieved some successes in this area Typically, Mr Sandeep Mahajan, the World Bank's Economic expert, remarked: from 1990 to present, Vietnam has a high growth rate in the world (behind China), successful poverty reduction (in 1990 Vietnam has over 50% of population get under the poverty index, now only 3%), or almost 100% population have the electricity power, if compared with Indonesia, currently only 66 % of population have access to electricity However, beside these achievements, Vietnam's sustainable development also revealed many weaknesses and shortcomings The Vietnam economic growth rate in the past time is unsustainable and tend to decrease, namely: in 2001-2005 period, the average growth was 7.5%/year; in 2006 -2010 period this index fell to 6.9%/year; in 2011 was 6.24%/year; 5.25% (2012), 5.42% (2013), 5.98 % (2014), reaching 6.68% in 2015 and the first months of 2016 was only 5,52% Thus, the quality, productivity, efficiency and competitiveness of the Vietnamese economy is still low; the economic growth still is based on the elements that develop in width clination, turn to develop in depth slowly Morever, the raising of resources and the use this resources is ineffectively, natural resource extraction is irrational and wasteful use, much loss, consumption of raw materials and energy is still large and low investment efficiency The macroeconomic balance is unsustainable, the public debt and government debt are forecasted in the end of 2016 may exceed the proposed target and annual inflation may exceed 5% of the goal Ecological environment is severely polluted The fields of culture, society are still inadequate, namely, the social problems are increasing; congested traffic and traffic accidents are serious; corruption has not been pushed back or the disparity in wealth and poverty is clear; the educational and medical quality are weak and slow improvement Especially Vietnamese enterprises are still facing many difficulties Most of them have old mindset and be afraid of innovation, therefore production activities dọn’t improved and the profit per product unit decreases In the first months of 2016, Vietnam has 36.626 businesses have bankrupted or dissolved Therefore, to surviving and developing in the context of the fierce competition, Vietnamese enterprises have only one way: enhance innovation capacity to improve the quality of goods and services to meet the customer need in the local and the world There are numerous studies have demonstrated that the success of a business in the era of knowledge-based economy depends on their innovation capacity (Azevedo et al., 2007) Innovation capacity holds the key to resolve many urgent challenges in finding solutions to increase productivity and improve quality of product, is the origin of all invention, creativity and new technologies With Policies and Sustainable Economic Development | 273 the Vietnam businesses, this is no exception However, to seeking solutions to boost the innovation capacity, first, they need to identify the factors affect to innovation capacity, the next section of this article will introduce the research results about the factors that impact the innovation capacity of Vietnam enterprises Factors affecting innovation capacity of Vietnamese businesses The research towards the following objectives: (1) Develop theoretical model of the factors affecting innovation capacity of businesses, (2) Testing of theoretical models and assessing the influence of these factors to Vietnam businesses innovation capacity 2.1 Theoretical basis and research model Innovation capacity (IC) In order to understand the concept of "innovation capacity" we should insight innovation theory From the behavioral economy, competitive advantage analysis, the national economic system and social regime analysis… (Greenacre et al., 2012), innovation theory was initiated by Joseph Schumpeter (1911), then it has been continuously developed for over a century, with many authors and many schools of study Therefore around the concept of "innovation" exist different interpretations According to OECD (2005): "Innovation is the process of introducing the new product/ process to the market, or has significantly improve in existing product/process, in addition to including organization and technical Marketing innovation" (Oslo Manual, 2005, p.15) The project "Strengthening the information systems of Science, Technology and Innovation of the North-South American countries", innovation is a process of efforts to forming economic growth targets and maintaining competition (Lugones, 2012) According to Fagerberg, innovation is concern with combination of “knowledge, abilities, skills and resources” in the seeking for competitive advantage through reducing production costs or developing new products or modify existing products (Fagerberg, 2003) According to the classification system of Schumpeter (1934, 1939), there are types of innovation: new product, new production method, new resource, new market and new way to operate the business About the Lugones’s study (2012), innovation including product innovation, process innovation, organisational innovation and commercial innovation According to OECD (2005), there are four types of innovation should be distinguished: product innovation, process innovation, marketing innovation and Organisational innovation Thus, innovation holds a particularly important position in the modern economy, it improves competitive advantage of businesses, industry and country The successful innovation is considered an effort to create the difference for organization and to maintain a sustainable competitive advantage (Huizenga, 2000) 274 | Policies and Sustainable Economic Development Along with the development of innovation theory, the concept of "innovation capacity" is being completed According to the school of "core competencies", Gary Hamel and Prahalad C.K (1994) said that innovation capacity is expressed in three aspects: value gives for customer; unique idea that competitor is not easy to copy and create barriers to entry While the school of "dynamic capabilities, Teece and Pisano (1994) defines "innovation capability of an organization is the ability to integrate, build and format the internal and external resources of the business to response the environmental changes" Szeto (2000) defines innovation capacity is the continuous improvement of capabilities and resources which owned by enterprises to explore and exploit opportunities for developing new products to meet market demands Thus, there are many different definitions of innovation capacity However, in this study: innovation capacity is the level or ability of a business, an industry or a country use resources to carry out its innovation activities, these resources which can come from internal or external business and towards product innovation, process innovation, organizational innovation or Marketing innovation and has measured specifically About the importance of innovation capacity, the researchers has asserted with Higgins (1995) when he said: "An organization can only survive and prosper in the 21st century if it enhances innovation capacity and has strategic actions to improve it" (Higgins, 1995, pages 34-35) The measurement methods for innovation capacity are always interested in by many researcher (Tidd et al., 1993), The popular scale is R&D expenditures, the number of patents or the quality of human resources…All this scale are considered as basic criteria to measure innovation capacity Beside, the result of the collaboration between the World Intellectual Property Organization (WIPO) and INSEAD Network was formed "Global Innovation Index" (GII) GII includes 60 indicators The GII value is based on the assession of the prestigious organizations such as the World Bank, OECD, the International Organization for Standardization (ISO), International Monetary Fund (IMF), World Trade Organization (WTO), Asian development bank - ADB, Yale university and Columbia university (USA) In brief, enhancing innovation capacity is an important solution to strengthen the competitiveness of businesses, products and country, is the "finality" solution to help Vietnam to capture the opportunities and overcome challenges, in order to sustainable development The theories that relate to the research model The relationship between innovation capacity and factors such as total quality management (TQM), organization learning (OL), Government support (GS), cooperation networks (CN), absorption capacity (AC), internal human resources (IHC), patent management, internationalization, lean manufacturing gradually discovered in many research Specifically, since the 1972, Richardson was the first researcher to recognize the enterprises innovation capacity can be achieved through "network", may use expertise from other partners in the chain Hakansson (1987); Lundvall (1995); Hennart, 1988; Pisano, 1990; Romijn and Albaladejo (2002); Rothaermel and Deeds (2006) also emphasized the role of cooperation in promoting businesses innovation capacity Related to the Policies and Sustainable Economic Development | 275 organizational performance, some researchers argue that TQM is a useful tool in fostering learning and increasing the competitive advantage of a business (Hendricks and Singhal, 2001; MartinezCosta and Jimenez-Jimenez, 2008; Martinez-Lorente, Dewhurst, Gallego-Rodriguez, 2000; Terziovski and Samson, 2000; Walley, 2000) as well as positively effect to organizational performance in which has innovation activities (Martinez-Costa and Jimenez Jimenez, 2008; McAdam and Armstrong, 2001; Prajogo and Sohal, 2003) About absorptive capacity, Schumpeter's theory state that the businesses need to accumulate knowledge and turn it into resources to serve for innovation, while Cohen and Levinthal's theory (1990) suggests that: "absorptive capacity represents the process of creating new knowledge'' Besides, we can not ignore the theory of organization learning, it's a learning process, that process can integrate different kinds of knowledge and become a base for innovation (Argyris and Schon; 1978) The role of government is found in the theoretical background NIS (National innovation system), is an interactive system among of the private enterprises, the state, the universities and government departments…to produce science and technology within national border, in which the government holds an important role in providing institutional incentives and policies for innovation and creativity In addition, human resources are also demonstrate that businesses innovate successfully when they own the best workforce (Bantel and Jackson, 1989; Snell and Dean, 1992; Bontis, 1998; Alpkan et al., 2010) Here we will consider the factors that impact innovation capacity of business 2.1.1 Total quality management (TQM) TQM has been proven useful administrative solution in innovation and improving business’s competitive advantage (Bolwijn and Kumpe, 1990; Hamel and Prahalad, 1994; Martinez Costa and Jimenez Jimenez, 2008; McAdam and Armstrong, 2001; Prajogo and Sohal, 2003) Besides, Mahesh (1993); Dean and Evans (1994); Kanji (1996); Tang (1998) and Roffe, (1999) show that if an organization commits to apply the principles of TQM into its operating systems, the efforts for innovation will bring unexpected results This observation is also approved with Barrow (1993); Conner and Prahalad (1996) Watkins and Marsick's (1993) pointed out that the main function of TQM is to create an organizational culture that appreciate personal goals It also contributes to improve the quality, transfer knowledge and stimulate innovation capacity Customer-oriented principle of TQM (TQMCF) encourages organizations know the partners’s needs and desires, thereby led to develop and introduce new products (Juran, 1998; Prajogo and Sohal, 2003; Hung et al., 2010) Principle of continuous improvement (TQMCI) facilitates to apply innovative thinking and continuously change to adapt to operating environment (Prajogo and Sohal, 2003; Hung et al., 2010) For the employee involvement principle (TQMEI), by increasing autonomy for workforces means that developing innovative behavior (Amabile and Grykiewicz, 1989; Spreitzer, 1995; Prajogo and Sohal, 2003; Hung et al., 2010) Top management support (TQMTM) refers to collaborative relationships between managers and employees in an organization, the mutual 276 | Policies and Sustainable Economic Development connection based on sharing belief and value (Hung et al., 2010) Thus from the point of view, this study agree that TQM contributes to enhance innovation capacity H1: Total Quality Management positively affects the innovation capacity of Vietnam businesses (H1 marked +) 2.1.2 Organization learning (OL) According to the research of Argyris & Schon (1978); Bontis, Crossan and Hulland (2002); Nonaka and Takeuchi (1995); Davenport and Prusak (1998); Rothaermel and Deeds (2004); Hung et al, 2010 learning efforts is the main resources to produce knowledge for innovation activities because innovation originates from the absorption of knowledge in research and development process (R&D) as well as learning from other businesses (Mansfield, 1983) Besides, the ability to learn of employees represented by the acquisition and assimilation internal information (Cohen and Levinthal, 1990), it contributes to improve the organization's innovation However, to develop a learning culture requires establishing a strategy with clear objectives (Learning strategy - OLLS) and that strategy must be driven by a culture that encourages learning and interchange (Learning culture -OLLC) Because a good learning strategy will create new ideas (Davenport and Prusak, 1998) and a dynamic and studious environment always looking for creativity Therefore, this study expects that organization learning will positively impact to innovation capacity in high-tech industries H2: The organization learning positvely affects the innovation capacity of Vietnam businesses (H2 marked +) 2.1.3 Government support (GS) The Government policy facilitates to promote innovation capacity through regulating supported mechanism such as subsidy, tax incentive, loan or R&D human resources (Beugelsdijk and Cornet, 2002; Romijn and Albaladejo, 2002; Souitaris, 2002) According to Kang and Park (2011), the Government policy in supporting R&D projects related to investment and human capital becomes indispensable for innovation activities The statement of Feldman and Kelley (2006) also demonstrated the important role of Government in stimulating innovation and economic growth by supporting potential R&D projects to get high profit From these arguments about the Government’s role, the study proposes: H3: The Government support positvely affects the innovation capacity of Vietnam businesses (H3 marked +) 2.1.4 Collaboration network (CN) Tether (2002) emphasized the collaboration in the value chain is a prerequisite for transferring of knowledge and technical know-how Cooperation also contributes to setting up standard in the industry as well as improving the application of new techniques Actually there’re many empirical Policies and Sustainable Economic Development | 277 research demonstrated close relationship between business innovation capacity and the value chain interaction (Baum et al, 2000; Belussi et al, 2010; George et al, 2002; Hagedoorn, 1993; Romijn and Albaladejo, 2002; Rothaermel and Deeds, 2006; Shan et al, 1994; Kang and Park, 2011 ) According to Stuart et al (2007), Kang and Park, (2011): a collaboration network should distinguish into upstream and downstream Upstream collaboration is the linkage between enterprises and universities or institutional research Downstream collaboration refers to the connection of businesses in the same field Therefore, the study absolutely confident in positive relationship between collaboration network and innovation capacity H4: The collaboration network positvely affects to the innovation capacity of Vietnam businesses (H4 marked +) 2.1.5 Absorptive capacity (AC) Cohen and Levinthal, 1990; Dosi, 1988, Nelson and Winter, 1982; Giuliani and Bell, 2005 stated that absorptive capacity is an essential factor affecting the technological innovation ability In other words, absorptive capacity is ability of business to develop or improve its new product through the adaptation and application of external sources of knowledge (Cohen and Levinthal, 1990) Therefore the higher absorptive capacity is, the more it promotes R&D capability and then increasing innovation performance However absorptive capacity is a predictor index, so every business will have a capacity to absorb, assimilate and use the knowledge for innovation activities totally different, Thus, only business achieves a certain absorptive capacity, it has opportunities to take advantage of external technology sources According Lichtenthaler (2009): "Absorptive capacity is the ability of an enterprise to use external sources of knowledge through a sequential process of exploration, transformation and exploitation" (Lichtenthaler, 2009, page 822), so that, in this study, the theoretical model has components of absorptive capacity: knowledge acquisition (ACKA), knowledge dissemination (ACKD) and knowledge utilization (ACKU) Since then, this study proposes: H5: The absorptive capacity positvely affects the innovation capacity of Vietnam businesses (H5 marked +) 2.1.6 Internal human resources (IHC) Empirical evidences have consistently demonstrated the relationship between human capital and innovation capacity Typically, Bantel and Jackson (1989) revealed that behind the success of an organization, operated process is managed by knowledgeable and expert personnel Or Anker (2006) pointed out the importance of cultivating the skills and knowledge of employees will increase innovation capabilities On the other hand, human resources is very precious, by accumulating knowledge and capacity, it can promote the role of coordinating in efforts to adapt market, enhance innovation and improve organization performance (Hayton and Kelley, 2006) Also, Alpkan et al., (2010) suggested that the origin of all ideas or creativity comes from human thinking and experience, 278 | Policies and Sustainable Economic Development so professional human resources is the start for any innovation process, it symbolizes learning and absorbing knowledge selectively In contrast, uneven and restricted level human resources will lead to decrease managed ability and knowledge transference, while the knowledge is basic for innovation activities From the point of view, the study hope that if an organization possesses high quality workforce, have a good educational background, skills, flexibility and resolving job thoroughly, will bring the strength for innovation capacity H6: Internal human resources positvely affects to the innovation capacity of Vietnam businesses (H6 marked +) Proposed research model Figure Model of factors affecting to the innovation capacity of Vietnam businesses 2.2 Research methodology and data 2.2.1 Methods The study used mixed methods, including qualitative research and quantitative research to adjust, supplement, modify and testing scale, testing research model and hypotheses: Qualitative research is conducted with 02 techniques: In-depth interview and focus group discussion in order to adjust the content of observed variables to suit the characteristics of Vietnam businesses and to explore new observed variables for the concept has incomplete scale In-depth interview is carried out with experts who are extensive experienced researchers to explore the factors that influence innovation capacity Promoting the advantages of semi-structured interviews, the study explores and collect information maximally on research topics, especially the concepts need to rebuild the scale Based on that work, study will adjust or supplement observed variables and then gradually perfecting the scale for these factors that appropriate for the nature of Policies and Sustainable Economic Development | 279 Vietnam businesses Thus, in line with the basis theory and empirical background, in-depth interview results help develop the first draft scale that will be used in focus group discussion The specialists take part in the focus group including managers who understand businesses development process and determinate innovation capability as an indispensable objective In this stage, the main objective focus to assess the first draft scale’s content and form to build the second draft scales for quantitative research in the next stage The study chooses the focus group method because it’s suitable with exploitation information and exchange of views between the members in the group The author show that the opposition and similarity in discussion to realize latent aspects of research Quantitative research is conducted with main steps: the preliminary research has 89 samples to assess concept scale and the official research of 380 samples to test research model and hypothesis The data is cleaned and processed in software SPSS20 and Amos20 with Cronbach's alpha technique, Exploratory Factor Analysis (EFA), Confirmatory factor analysis (CFA) and Structural Equation Modelling (SEM) 2.2.2 Data Based on the preliminary result has total of 38 observed variables, so the minimum sample size that should determine based on Hair et al (2006) research is n = 380 (10x38) However, to eliminate invalid samples (not reply or not enough information), the author conducted a survey of 400 samples This survey’s subject is the senior managers of Vietnam southern businesses (Ho Chi Minh city, Dong Nai province, Binh Duong province, Vung Tau city) Sampling process is conducted as follows: from the crowd (N = 800), caculate the hops k = N/n = 800/400 = Select the first sample unit between and by a random method (drawn) Then selecting the next sample unit by adding k with the first sample until make sure the number of samples need to be surveyed In the case of the sample in the selected location will not interview, next object is choosen Accessed form of research is done by interviewed techniques through surveys (the official scale) after has been guided 2.3 Results and dicusssions 2.3.1 Testing the concept scale The concept scales ensure reliability coefficient in Cronbach’s alpha analysis (Table 1) - a condition for conducting EFA 280 | Policies and Sustainable Economic Development Table Cronbach’s Alpha results Observed variables Cronbach’s Alpha TQMTM (Top management support) 0.885 TQMCI (Continuous improvement) 0.898 TQMCF (Customer focus) 0.768 OLLS (Learning strategy) 0.686 OLLC (Learning culture) 0.642 GS (Government support) 0.689 CN (Collaboration network) 0.653 ACKA (Knowledge acquisition) 0.764 ACKD (Knowledge dissemination) 0.735 IHC (Internal human resources) 0.809 IC (Innovation capacity) 0.845 Scale Source: Study’s official research results EFA results in Eigenvalue = 1.143, the total variance extracted is 53.684% > 50%, KMO coefficient = 0.789> 0.5 and Barlett’s test has sig = 0.000 50%, KMO coefficient = 0.842> 0.5 and Barlett’s test has sig = 0.000 < 0.005, fit to EFA conditions and one component is extracted Confirmatory factor analysis (CFA) is very important in official research, the CFA results demonstrate that model fits market data, in other words the scale achives unidimesionality (Chisquare = 976.582, df= 547, P= 0.000, Chi-square/df= 1.765 (≤ 2, in any case maybe ≤ (Carmines McIver, 1981)), GFI= 0.901, TLI= 0.905, CFI= 0.918 > 0.9 RMSEA= 0.045 (RMSEA ≤ 0.08, but if ≤ 0.05 is very good (Steiger, 1990)) The standardized regression weights (λ) are greater than 0.5, the regression weights are statistical significance (p= 0.000