Luận văn thạc sĩ UEH determinants of product innovation activity, the case of vietnamese SME firms

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLAND

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

Determinants of Product Innovation Activity:

The case of Vietnamese SME Firms

BY

DANG THUY TRANG

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, May 2015

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

Determinants of Product Innovation Activity: The

case of Vietnamese SME Firms

A thesis submitted in partial fulfillment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

DANG THUY TRANG

Academic Supervisor:

LE CONG TRU PhD.

HO CHI MINH CITY, May 2015

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ABSTRACT

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.

ABBREVIATION

R&D 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

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CONTENTS

I. INTRODUCTION....................................................................................................................................................7

I.1 Problem statement ...............................................................................................................................7

I.2 Research objectives: ............................................................................................................................8

I.3 Research questions ..............................................................................................................................8

I.4 Scope of the study................................................................................................................................8

I.5 Structure of the study...........................................................................................................................8

CHAPTER II: LITERATURE REVIEW ...............................................................................................................10

II.1 Innovation........................................................................................................................................10

II.1.1Definition of innovation .............................................................................................................10

II.1.2 Popular indicators of innovation activity in SMEs: ..................................................................10

II.1.3 Classification of innovation: .....................................................................................................12

II.1.4 Characteristics of innovation activities in developing country .................................................12

II.1.5 Comparison between large enterprises and SMEs based on indicator of product innovation...13

II.2 Product innovation ...........................................................................................................................14

II.2.1 Definition of product innovation...............................................................................................14

II.2.2 Classification of product innovation .........................................................................................14

II.3 Reviews of Related Theories............................................................................................................15

II.4 Reviews of Empirical Studies .........................................................................................................17

II.4.1 Determinants of product innovation..........................................................................................17

II.4.2 Empirical review of methodology.............................................................................................30

CHAPTER III: RESEARCH METHODOLOGY AND DATA............................................................................36

III.1. Data and sample.............................................................................................................................36

III.2 Variables and Measurement............................................................................................................36

III.2.1 Dependent variable ..................................................................................................................36

III.2.2 Independent variables ..............................................................................................................37

III.3 Analytical approach ........................................................................................................................41

III.3.1 Empirical model, estimation method .......................................................................................41

CHAPTER IV. EMPIRICAL RESULT..................................................................................................................45

IV.1 Innovation activity of SMEs in Vietnam........................................................................................45

IV.2 Data description..............................................................................................................................46

IV. 3 Descriptive statistics......................................................................................................................47

IV.4 Regression Results..........................................................................................................................50

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IV.5 Marginal effects:.............................................................................................................................55

CHAPTER V: CONCLUSION AND RECOMMENDATION .............................................................................58

V.3 Recommendation .............................................................................................................................59

V.4. Limitation and Future Research......................................................................................................60

REFERENCE ............................................................................................................................................................61

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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 5 : 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 8 : Descriptive statistics........................................................................................... 47

Table 9 : Correlation between some independent variables.............................................. 49

Table 10 : Summary of results from bivariate - probit regression .................................... 50

Table 11: Marginal effect .................................................................................................. 55

LIST OF FIGURES

Figure 1: Conceptual Framework...................................................................................... 35

Figure 2: Methodology model ........................................................................................... 44

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I. INTRODUCTION

I.1 Problem statement

International economic integration allows more firms to be established and more

foreign firms to enter domestics market. Under such intensive competition pressure,

firms need to continuously innovate their products to attain comparative advantage from

other opponents. This is due to limited life cycle of individual product and more arising

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

in long term is. This is applicable for both small and large firms (Vermeulena, De Jong,

& O'shaughnessyc, 2005). Chris Freeman and Soete (1997) - even asserted that ‘not to

innovate is to die’. Due to such important role of innovation, a large amount of studies

have been done to identify factors having influence on product innovation of small firms

(Martinez-Ros,1999; Jong, 2006; Fritz,1989; Vega-Jurado, Gutierrez-Gracia, Fernandez￾de-Lucio & es-Henriquez, 2008; Hadjimanolis,2000; Freel, 2000).

It requires more than expenditure on R&D for attaining improved or new products.

Factors with considerable influence on innovation activity that should be taken into

account include firm size, production technology ( ratio of sales over fix assets), origin of

ownership, spending on market insight... (Avermaetea, et al., 2004). How much these

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

established .

While there are a range of international researches addressing this topic, number

of papers on such matter at Vietnamese scale is quite limited. As Vietnam is a developing

country, a moderate technical progress may result in huge increase of firm' sale or market

share... (Hadjimanolis, 2000). Thus, a model applying this matter for Vietnamese

scenario is essential to be devised. This paper is expected to achieve that target.

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