The determinants behind innovative capability : a study of indigenous manufacturing SME’s in a small island economy

Abstract

This research paper analyses the determinants associated with the innovative capability of indigenous manufacturing SMEs in Malta, where research regarding innovation output has not offered sufficient information. For this study, we propose a conceptual model based on innovation capability which includes explanatory variables, proposed by other academic models, which seeks to explain the contextual factors as well as the environmental factors associated with innovation. Using a quantitative survey we analyse the innovative activity of indigenous manufacturing firms between the period of 2013 - 2016. The analysis of the date uses multiple regression to study the effects of absorptive capacity, collaboration, openness to change and availability of funding on innovation capability. Our results are consistent with the current literature in that all of the independent variables have a significant association with innovative capability. Since innovative capability was measured using proxies for number of products and process introduced, varying results are noted between the strength of the relationship between each variable on either product or process innovations. Theoretical and practical explanations and applications for these findings are presented in the study.