INTRODUCTION
Problem statement
International economic integration fosters the establishment of more firms and the entry of foreign companies into domestic markets This heightened competition compels firms to innovate continuously to maintain a comparative advantage Given the limited life cycle of products and the increasing demands of consumers, frequent product innovation is crucial Research by M Banbury and Mitchell (1995) indicates that firms that regularly introduce new products tend to perform better and have a higher likelihood of long-term survival, a trend that applies to both small and large enterprises (Vermeulena, De Jong).
Innovation is crucial for the survival of small firms, as emphasized by Chris Freeman and Soete (1997), who stated that "not to innovate is to die." Consequently, numerous studies have been conducted to explore the factors that influence product innovation in these businesses.
(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
Key factors significantly influencing innovation activity include firm size, production technology (sales-to-fixed-assets ratio), ownership origin, and investment in market insights (Avermaetea et al., 2004) The impact of these factors on innovation varies and is contingent upon the economic sector of the firms Therefore, it is essential to develop a model that simulates the effects of these elements.
Despite numerous international studies on this topic, research focused on Vietnam remains limited As a developing nation, even moderate technological advancements can significantly boost a firm's sales or market share (Hadjimanolis, 2000) Therefore, it is crucial to develop a model tailored to the Vietnamese context This paper aims to fulfill that objective.
Both Vietnamese enterprises and policy makers can utilize results of this paper
Enterprises can utilize this model to enhance product innovation by identifying and controlling specific elements Additionally, it serves as valuable guidance for policymakers, as understanding the influential factors within each industry enables them to make informed decisions that support innovation in those sectors.
Research objectives
The study is expected to figure out determinants with significant impact on product innovation activity of Vietnamese SMEs and influential level of each factors
Understanding the interplay between internal and external factors influencing product innovation allows business leaders to tailor their strategies to align with environmental characteristics, ultimately enhancing performance in product innovation activities.
Research questions
This study explores two key questions: first, it identifies the indicators that significantly affect firms' product innovation behavior; second, it examines the extent to which these factors influence product innovation.
Scope of the study
The study examines Small and Medium enterprises across Vietnam with data extracted from SMEs survey 2011.
Structure of the study
This paper is structured into five chapters The first chapter, titled "Introduction," outlines the issue at hand and provides the necessary background, followed by a discussion of the research objectives Chapter II, "Literature Review," establishes the theoretical and empirical foundations of the topic, aiming to create a conceptual framework for the research It defines key concepts such as innovation and product innovation, and explores the theoretical and empirical theories regarding the determinants of product innovation activities within firms.
9 measure product innovation Chapter III – Research Methodology focuses on the method, data description and the analytical model applied in this paper Chapter IV– Findings and
This article analyzes the regression results and the marginal effects of various factors on the probability of product innovation The concluding chapter offers recommendations for policymakers and top management to enhance the rate of product innovation within firms.
LITERATURE REVIEW
Innovation
Innovation activities, as defined by Hyvarinen (1990), encompass both internal and external efforts of firms aimed at creating new products and improving existing ones, including processes, governance, and marketing These activities primarily stem from research and development (R&D), but can also be sourced through licensing, seminars, consultants, and customer interactions When technology is viewed broadly, beyond just product-related applications, it becomes crucial for the development of small and medium-sized enterprises (SMEs) (OECD, 1982).
II.1.2 Popular indicators of innovation activity in SMEs:
Three key proxies are commonly used to measure innovation: input, output, and impact These indicators can be assessed in both general and specific contexts, utilizing quantitative or qualitative measurements, typically expressed in numbers or rates Input factors such as time, capital, and labor are often favored for evaluating innovation effectiveness due to their ease of collection and accuracy The output indicator focuses on the direct results of innovation, including creation, expertise, proficiency, and technology absorption, with patents serving as a primary proxy since their data is widely available in national statistics However, it's important to note that patents may not represent the most significant form of innovation across all companies and industries, as some innovations go unregistered.
A patent is associated with invention rather than innovation, and the output method often uses the number of licenses as an indicator The most recent method, known as impact indicators, focuses on the broader aspects of innovation and emphasizes qualitative outcomes over quantitative measures This approach assesses the relationship between the causes and effects of innovation, as well as its influence on various factors such as sales, capital, productivity, and overall firm development.
( Harrison& Hart, 1987;Kamien & Schwartz, 1975; Meyer-Krahmer,1984; Walsh, 1984 and Scholz ,1988)
The table below describe three indicators of innovation when they are examined based on four dimensions including technology, individual, enterprise, market/ environment
Table 1: The innovativeness indicators for SMEs in different dimentions
* Adoption and/or development of ideas
Funds Strategy Information Know-how Competition Cooperation between-departments
Growth Profit Better strategies Innovations Improved know-how Skills
Success Improved value added Equity increases Enlarged-market Better image Rewards Development of enterprise Internationalization
Education Infrastructure Political inputs Branch Market Competition Hostility Location Interest group
Development of branches New enterprises
Know-how Economic growths Diffusion of innovation
Source: Hyvarinen (1990) tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg
Innovation can be classified based on four key criteria: time, influencer, market, and technology Firstly, innovations are ranked by their newness, ranging from basic to applied and incremental innovations In the context of small- and medium-sized enterprises (SMEs), this classification highlights the degree of newness, the delay in SMEs' responses to environmental changes, and the time-dependent nature of the innovation process Additionally, innovations can be categorized by their influencer, distinguishing between those driven by entrepreneurs and those initiated by firms Within organizations, there are five types of innovation: product, process, marketing, organizational, and social Lastly, an innovation is considered market-relevant when it is new to the market.
II.1.4 Characteristics of innovation activities in developing country
Typical features of developing countries related to innovation activities are listed as below:
There is a significant lack of effective policies to promote innovation, along with organizations responsible for managing and supporting technology development While some institutions, such as high-tech industrial zones, investment firms, and suppliers of technological materials, may exist, their effectiveness is often underdeveloped This inadequate national innovation system hampers the technological potential of the entire economy (Fontes and Coombs, 1997).
Consumers often lack trust in the quality of innovative products produced by domestic manufacturers Additionally, the limited size of the local market restricts demand, making the need for innovative products relatively insignificant (Fontes and Coombs, 1997).
The economy is primarily characterized by a significant presence of small firms, whereas medium and large firms are relatively few in number.
13 innovation activity, such an industrial structure doesn’t encourage innovation
There is no complementing relation between small and large firms as found in developed country (Fontes and Coombs, 1997)
The cooperation between firms and research institutions, universities is not very tight There’s not much new techniques transferred from these organizations to manufacturing firms (Jones & D., 1996)
Innovation often stems from the adaptation of techniques originally developed in advanced economies Therefore, fostering an open economy that facilitates connections with international markets is essential for driving innovation.
II.1.5 Comparison between large enterprises and SMEs based on indicator of product innovation
Innovation activity of firms is differed due to scale which is presented in Table 2 below
Table 2: Comparison between large enterprises and SMEs based on indicator of product innovation
Resource: Staff, capital, market awareness, experience
Complex structure, application of innovation require complicated assessment
Simple structure, easy to apply innovation like new invention or improved process
Planning Well –prepared and inflexible Easy to adapt to market fluctuation
Flexibility Require formal project to apply innovation
Flexible and can react rapidly toward market fluctuation
Governance Final decision is not decided by one person
Difference in authorization between levels of staff is not much
Source of information Well aware of government‘s documents
Unofficial information can be crucial in certain situations It is essential to access the latest resources and tools for academic success, including downloading comprehensive thesis materials.
Adaptation Disapprove of new idea, just create basic innovation
Easy to approve to use small, new unique idea
Level of innovation Moderate, not radical innovation
Product innovation
II.2.1 Definition of product innovation
Product innovation can be defined as the process of developing and launching new or significantly improved products in the market This encompasses a range of activities, including the invention of entirely new products, enhancements in quality, upgrades to technical features, and the addition of new components or functionalities to existing products.
1988) From another point of view, as long as the product is new to market, it will be considered as an innovation, even when alike products are already exist
II.2.2 Classification of product innovation
Product innovation can be categorized into two main types: radical innovation and incremental innovation Radical innovation focuses on creating entirely new products and involves two key stages: developing the idea and designing the product, followed by market analysis In contrast, incremental innovation aims to enhance existing products by improving their functions, technical value, and user-friendliness, often employed during the declining phase of a product's lifecycle to extend its market presence (White, Braczyk, Ghobadian, & Niebuhr, 1988).
While many individuals define innovation in its most basic sense, only a limited number of companies achieve a high level of innovation According to Wong (2014), more than 80 percent of new products fail, highlighting that not all successful innovations reach their intended goals.
Regular and steady innovation on existing products is more crucial for maintaining growth than sudden, substantial changes Many industries worldwide have favored product improvement over creating entirely new products since the 1970s.
Reviews of Related Theories
Neoclassical Economics serves as the foundational approach for economists and business managers in assessing innovation activity, where innovation is simply defined and measured through production functions This theory initially overlooked the relationship between a firm's characteristics and innovation, treating all firms as having identical technological features Schumpeter (1934) was the first to conduct an in-depth analysis of the significant role of technology in economic growth and to explore the connection between a firm's attributes and innovation His work sparked considerable public interest and led to further studies on technological advancements Schumpeter identified two key factors—firm size and market competition—that he posited directly influence innovation.
This study highlights the importance of examining the impact of external factors across various industries and public sectors, paving the way for future research However, it does not delve deeply into the characteristics of different firms or the processes involved in innovation creation Therefore, additional references are necessary for a more thorough understanding of these aspects.
Various opinions have been suggested to make clear this idea Some typical theory are namely transaction cost economics (Williamson, 1989), the positive theory of agency
(Jensen & Meckling, 1976) the evolutionary theory (Nelson & Winter, 1982) and theory resource-based view the firm (Wernerfelt, 1984)
Transaction cost economics examines the expenses associated with transferring products from sellers to buyers These costs can emerge in three phases: contact, contract, and control (Noote Boom, 1999) Contact costs encompass the expenses related to searching for suitable products by buyers and the costs incurred by sellers in promoting their products to potential customers.
Negotiating specific terms for a transaction incurs a cost of 16 Additionally, the final phrase control represents the expense associated with ensuring that both parties adhere to the terms and conditions outlined in the contract.
Transaction costs arise from three main factors: uncertainty, specific investment, and information asymmetries Uncertainty encompasses fluctuations in the behavior of both parties and environmental unpredictability Specific investment refers to the capital needed to utilize or operate a product post-transfer Information asymmetries hinder the flow of technology between firms and researchers To mitigate these transaction costs, it is advisable to internalize innovation rather than rely on third-party organizations.
Agency theory highlights the impact of a firm's relationships on innovation by examining conflicts between principals (shareholders) and agents (managers), attributing these conflicts to information asymmetry that can lead to inefficiencies (Jensen & Meckling, 1979) To mitigate this asymmetry, the theory recommends limiting open corporations and knowledge or technology transfers, as these can create divergent interests between managers and shareholders, ultimately reducing a firm's effectiveness However, establishing networks is essential for firms to adapt to new technologies.
According to Tidd and Bessant (2009), overcoming information asymmetry while integrating external knowledge is challenging Additionally, based on agency theory, companies may limit their technology investments to mitigate potential information-related issues.
The evolutionary method is used to study the innovation process within firms, positing that technology undergoes regular and constant changes This approach highlights that technological adjustments are cumulative, with development building on past advancements (Pavitt, 1987) A key contribution of this theory is its focus on the varying technical capabilities among firms, which is essential for classifying the innovation process (Dosi).
Freeman, Nelson, Silverberg, & Soete, 1988) tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg
The resource-based view theory focuses on identifying a firm's key resources to establish a competitive advantage, highlighting innovation as a crucial asset Innovation, rooted in information that can be continuously accumulated and expanded, serves as a significant source of advantage, enabling firms to surpass competitors and address weaknesses Furthermore, innovation is both valuable and scarce, maintaining its worth without depreciating through use The transfer of innovation requires considerable effort, making it challenging to imitate or substitute due to time constraints and economies of scale.
Innovation is essential for firms to gain a competitive edge, but the extent of innovation varies based on specific characteristics such as capital, human resources, and governance structures Therefore, a thorough analysis of these firm-specific features is crucial for understanding their innovation activities.
The industrial organization model posits a linear relationship between technology and information, viewing technology as the bridge between science and innovation This perspective highlights that innovation is significantly influenced by external factors, with firms being shaped by their historical actions.
Reviews of Empirical Studies
II.4.1 Determinants of product innovation
Product innovation can be analyzed through various methods, with all influencing factors categorized into two primary types: internal and external factors, as noted by Schumpeter (1942), Martinez-Ros (1999), Avermaetea et al (2004), and Fritz (1989).
The first group of factors influencing an enterprise's character includes its size, technical and professional staff, investment in research and development, and marketing expenditures, along with the entrepreneurs' characteristics such as age and prior experience with the product The second group encompasses external factors affecting firms, such as the intensity of competition, extensive relationships, and the use of outsourced consultants.
In another study of Damapour (1991), different factors having influence on innovation activities are divided into three groups as follows:
Enterprises’ human resource which include owner, manager, technical staff…
External factors having interaction or impact on enterprise, such as competition level, network…
In 1990, King expanded the theory of innovation by introducing two key antecedents: national innovation policies and inter-firm linkages Similarly, Yoshihara's 1976 study highlighted the role of the national economy, emphasizing that environmental changes create both threats and opportunities for innovation within firms He categorized the enterprise environment into two types: the direct environment, which encompasses market demand, supply, customer preferences, and anti-business sentiments, and macro factors, including national and international economic conditions, political climate, education, technology, and population dynamics.
In sum up, determinants of innovation activities consisting the argument and measurement in relevant references are summarized as below:
II.4.1.1 Internal factor a Characteristics of owner/ manager
Numerous studies have confirmed that the characteristics of owner/managers significantly influence the innovation rates of firms Schumpeter (1934, 1942) was among the first to highlight the impact of entrepreneurs on innovation, a view that has gained consensus among researchers in recent years (Mascitelli, 2000) Owner/managers are tasked with analyzing market conditions and identifying the optimal timing for investments in new technologies (Fontes & Coombs, 1996).
In small businesses, the manager or owner plays a crucial role in strategic decision-making, significantly influencing the adoption of innovative ideas from key relationships, as highlighted by Lipparini (1994) In contrast, large firms rely on multiple levels of assessment for decision-making, as noted by Drucker (1985) and Urban & Hauser (1980) While the innovative behavior of small firms is often shaped by individual characteristics, large firms' innovation is primarily driven by firm-specific factors such as product attributes, capital, and investment.
The innovation activities of individuals form an important part of the innovation resources and organizational behavior
Research suggests that younger entrepreneurs are more likely to drive innovation due to their longer potential engagement with their firms (Diederen, van Meijl, & Wolters, 2000) However, Avermaetea et al (2014) present a contrasting viewpoint, arguing that possessing a degree in science or technology, along with extensive experience within a company, serves as key indicators of innovative capabilities.
The accumulation of knowledge and experience is approved by many studies
However, whether an experienced manager/owner is more innovative than a younger one or not hasn’t been empirically certified clearly (Romijn and Albaladejo, 2002)
The background and skills of an entrepreneur play a crucial role in their ability to innovate Research suggests that managers or owners with postgraduate degrees tend to be more inclined towards innovation compared to those with only undergraduate degrees This inclination is attributed to the diverse skills acquired during their studies, including enhanced communication abilities, social connections, and technical fluency.
Recent studies have shown limited support for the suggestion made by Levinthal (1999) regarding innovation (Romijn & Albaladejo, 2002) It is essential to consider the attitudes of entrepreneurs as a key determinant of innovation, as firms are more likely to seize innovative opportunities when entrepreneurs are interested in advanced techniques.
There are two completely opposite arguments about influential sign of firm size on innovation Schumpeter (1942) and Frits (1989) agreed with the positive relationship
Large firms with substantial budgets are better positioned to sponsor innovative activities, as these often require significant investment Research by Fritz (1989) and Martinez-Ros (1999) supports the notion that larger firms, with their ability to hire or purchase new technologies, tend to produce more innovative products In contrast, small firms, characterized by less hierarchy, can respond more swiftly to market changes While large firms may pursue options like mergers and acquisitions to enhance their competitive advantage, small firms typically rely on product innovation due to their limited choices Additionally, large firms often enjoy high market shares, but their significant control can lead to a devaluation of innovation efforts.
Symeonidis (1996) argues that the size of a firm significantly influences its capacity for innovation Larger firms can afford the substantial initial investments required for research and development, as they typically have higher sales to offset these costs Additionally, economies of scale in the production of innovative products benefit larger corporations These firms, often operating in diverse business areas, are better positioned to capitalize on sudden innovations They can also mitigate risks associated with innovative investments by leveraging projects across different industries Furthermore, large firms find it easier to attract external capital, and their market power enables them to effectively utilize innovations, making them more inclined to pursue new developments.
Acs and Audretsch (1988) demonstrated that the size of a firm significantly impacts its innovation activities, influencing both inputs and outputs Their research indicates that the relationship between size and innovation is not linear; as a firm's size increases, the opportunities for innovation also rise However, after reaching a certain threshold, further increases in size can lead to a decline in the rate of innovation (Kamien & Schwartz, 1982).
The relationship between firm size and innovation varies significantly across industries, as demonstrated by an empirical study conducted by Kamien and Schwartz in 1982 Their research revealed that only the chemical sector exhibited a significant correlation between these two factors.
Mansfield in 1981, fundamental studies are mainly carried out by large firms, but small firms invest more for innovating product
Most empirical studies examine the relationship between firm size and innovation activity across various industries, often treating firm size as an exogenous factor Research indicates that innovation directly impacts firm growth, subsequently influencing firm size Therefore, the size of a firm in year \( t \) is typically linked to its innovation activities in the previous year, \( t-1 \) (Scherer, 1992).
In case innovation activity has relation with undetermined elements which are serially correlated, firm size is expected to be correlated with those elements in year t
When analyzing the relationship between innovation and firm size, it is important to note that regression results may be biased Some researchers suggest that innovation impacts firms over a period of several years, indicating that the effect of innovation on firm size is not immediate but rather lagged Consequently, endogeneity becomes less of a concern in this context.
When analyzing innovation, it is crucial to consider the relationship between firm size and industry-level factors, such as technological opportunities, which can positively influence innovation This correlation may introduce bias in regression results when samples include firms from various industries To mitigate this issue, it is recommended to incorporate control variables that account for industry effects (Cohen and Levin, 1989).
RESEARCH METHODOLOGY AND DATA
Data and sample
This study utilizes data collected via SME survey in Vietnam in 2011 for 2552 firms The survey is carried out by Vietnamese Institute for Labour and Social Affairs
(ILSSA), Ministry of Labor, Invalids and Social Affair (MOLISA) in corporation with
The University of Copenhagen in Denmark conducted a survey involving 2,552 managers and owners of small and medium-sized enterprises (SMEs) across ten provinces The data was sourced from the official website of the University of Copenhagen.
Vietnam which includes Ha Noi, Hai Phong, Ha Tay, Phu Tho, Quang Nam, Nghe An,
The survey conducted across Khanh Hoa, Lan Dong, Ho Chi Minh City, and Long An comprised a total of 2,552 observations Out of these, only 1,418 observations were complete with no missing values, which were subsequently utilized as the sample for the regression analysis.
This study focus on four major industries: food processing and producing, Textile
The shoes manufacturing, mechanic, textile, and wood industries are key sectors in Vietnam, collectively representing 70% of the total export value of Vietnamese firms The analysis includes 1,418 observations, with 302 from the food sector, 102 from textiles, 240 from mechanics, 133 from wood, and 641 from other industries.
Variables and Measurement
The regression analysis will incorporate various variables, including both independent and dependent factors The independent variables are divided into two categories: internal factors that pertain to the characteristics of the firm, and external factors that relate to market features and outside sources of information.
Product innovation can be approached in two ways: enhancing existing products or developing new ones These two strategies are represented by dependent variables, measured using dummy variables that take on values of 0 or 1.
A firm can pursue various innovation strategies, including the simultaneous introduction of a radical product alongside a moderately revised product, opting for no product innovation, or focusing on just one type of innovativeness The occurrence of these innovation options is independent, with each option valued at 1.
The measurement of dependent variable is summarized in Table 3
Description Measurement Acronym in stata
Firms have at least one product improved
Dummy:1, having improved product, 0 otherwise
Firms have at least one new product created
Dummy:1, having new product, 0 otherwise
III.2.2.1 Internal factor a Size: is expected to positively affect product innovation as large firms will have sufficient financial resource to invest on expensive R&D activity as well as on advanced technique and equipments There are several ways to measure this variable In the study of Avermaetea, et al.( 2004), size was measured by natural log of total workforce
Galende & Fuente (2003) quantified firm size using the mean sales percentage of a sample, while Fritz (1989) measured size based on total sales from the last period In this study, firm size will be represented by the number of employees Romijn & Albaladejo (2002) noted that owners or managers with product experience are more likely to innovate Although the SMEs survey included a question about prior experience in similar companies, only 30 respondents answered, leading to the exclusion of this variable from the model Additionally, the age of the entrepreneur is anticipated to have a negative correlation with innovation, with age defined as the actual age of the manager or owner in years.
Human resources are represented by three key variables: qualified technical staff, managerial and professional staff, and managerial staff This factor is measured by the number of scientists and engineers employed, as highlighted in Hadjimanolis (2000), as well as the technical personnel involved in research studies by Meeus, Oerlemans & Hage (1999) and Avermaetea et al (2004).
The skills of staff and the investment made by enterprises in these skills are fundamental to fostering innovation, leading to a positive correlation with product innovation Training costs, as highlighted by Meeus et al (1999) and Avermaetea et al (2004), are expected to enhance the rate of innovation, with this factor measured by actual training expenditures (Freel, 2000) Additionally, research indicates that a firm's innovative capability tends to increase when the owner is foreign, as supported by studies from Caves (1982) and Baldwin and Sabourin.
Data on certain factors, such as intensity of capital and R&D activity, is not available in SME surveys, leading to their exclusion from the empirical model Intensity of capital, typically indicated by investment in technology, is expected to positively correlate with innovation R&D activity is represented by a dummy variable indicating the presence of an R&D department, with expenditure on R&D being a common measurement in various studies This choice is influenced by data availability and the distinction between continuous and dummy variables.
In the research conducted by Matinez (1999), export orientation is measured using a binary variable that indicates whether a firm engages in export activities This variable is assigned a value of 1 if the firm exports and 0 if it does not, effectively capturing the firm's export revenue dynamics.
III.2.2 External factors a) Competition level: in the paper of Baldwin and Sabourin (2000), competition level is measured by categorical variable representing number of firms in the industry with three value : 0 when there are under 5 firms, 1 when there are 6-20 firms and 2 when there are over 21 firms In another study of Matinez-Ros (1999),level of market concentration is measure by firm's profit over gross profit of the industry According to availability of data, in this study, competition is measured by scale variable In SME survey, competition results from 5 rivals, each has four levels (from 1-4) To simplify, competition here is the average of five rivals in the survey Thus, competition take numerical value from 1-4 b)Outsourcing: Although the finding of Martinez-Ros (1999) and Rothwell & Dodson
In 1991, two contrasting approaches to measuring outsourcing by expenditure on outsourcing were established, and my study adopts this measurement method Additionally, Freel (2000) identifies external assistance and networking as crucial factors, emphasizing the relationships firms maintain with suppliers, subcontractors, customers, competitors, universities, and government agencies These relationships are quantified by the average number of contacts a firm has each month.
This study examines the relationship between external assistance, represented by the number of technical consulting firms utilized, and network connections, indicated by the total number of supplier, partner, and competitor firms typically engaged with, both of which are anticipated to positively influence innovation Additionally, market knowledge is defined as a firm's understanding of customer demand, with market awareness measured by the expenditure on marketing activities as a percentage of the firm's turnover, as highlighted in the research by Avermaetea et al (2004) This study emphasizes that a more accurate assessment should focus on spending related to market analysis rather than total marketing costs.
Due to the unavailability of data, the total marketing costs are ultimately utilized.
40 e) Country environment: Whitley (2000) analyzing innovation across various country, thus economic type is included in the model However, this study scale is within
In this study, we do not assess the environmental conditions of Vietnam To account for variations in innovation across different sectors, we include four binary variables representing the Food, Textile, Mechanics, and Wood industries When these four variables are all set to zero, the analysis pertains to other industries.
Table 4: Determinants of Product Innovation
Description Measurement Unit Expected sign
1 Age Age of the owner/ manager of the firms who answer the survey
Exact year of age Year - Age
2 Size Number of fulltime employee
Fulltime employee firms hired each year
The number of technical staff
Qualified technical staff as absolute number
The percentage of managerial and professional staff over total staff
Management and professional staff as absolute number
Managerial staff Management staff as absolute number
6 Training cost Expenditure of firms on training
Expenditures on training activities as absolute number
7 Export Whether firms' products are exported or not
Dummy 1: having export activity 0: otherwise
8 R&D Cost of research and development of firms
Absolute number of research and development cost
(supplier, buyer, owner, debtor) firms currently have regular contact with (at least once every 3 months)
Absolute number of people firms currently have regular contact with (at least once every 3 months)
The probability to render technical consultant
Dummy: 1, relied on technical consultants; 0, otherwise
11 Competition Level of industry competition according to firm owner/ manager
In the survey, competition results from 5 rivals, each has four levels ( from 1-4)
To simplify, competition here is the avarage of five
+ Competition tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg
41 rivals in the survey Thus, competition take numerical value from 1-4
12 Marketing cost Expenditure of firms on marketing over total sale
Expenditures on marketing activities as absolute number
Expenditure of firms on outsource
Expenditures on services outsourced as absolute number
15 Textile Dummy:1, Textile industry, 0 otherwise
16 Mechanics Dummy:1, Mechanic industry, 0 otherwise
Analytical approach
III.3.1 Empirical model, estimation method
This study examines the dependent variable "innovation activity," which can either be "improving existing products" or "creating new products." Firms may simultaneously enhance existing products and develop new ones, or they may not engage in any product innovation at all, resulting in two levels for the dependent variable: yes or no To analyze these nominal variables, a bivariate probit model is utilized.
In this study, the bivariate probit regression model is preferred for measuring product innovation due to its ability to account for the relationship between two dependent variables While different types of innovation may exhibit distinct behaviors influenced by various determinants, the improvement of existing products and the development of new products are expected to be interconnected Therefore, the bivariate probit model is utilized to analyze how both innovative options respond to explanatory variables, considering their interactions.
We start with the definition of an underlying latent propensity variable Y*h for the product innovation activity (h= Improving existing product and create new product)
The inherent tendencies of a firm are closely linked to its observable traits and other relevant factors.
42 market related variables Xh, with unknown weights βh, and other unobserved characteristics εh Assuming a linear relationship, the population regression function is:
The h index represents two types of product innovation In its most basic form, it can be expressed as a binary probit equation for each type of innovation, utilizing a mapping from the latent variable to its observable outcome.
The error terms εh (where h=I,N) are assumed to follow a bivariate normal distribution with a mean of zero and a covariance matrix Σ, denoted as (εI, εN)' ˷ BVN(0, Σ) Since the exact value of the error term cannot be measured, we assume that Var(εN) is equal to 1 This model is referred to as the bivariate-probit model.
Previous authors primarily utilized single-equation techniques that assume the error term follows a univariate normal distribution with $\rho_{hk} = 0$ (for $h, k = I, N$ and $h \neq k$) However, since product improvement and invention can occur simultaneously or not at all, it is probable that the error terms in these equations are correlated The general specification presented in the equation above accommodates the correlation of disturbances within the same firm across different innovation decisions.
There are four possible outcomes:
Firm having both new and improved product:
I X ' 2 ( N X', I X',)d( N X')d( I X') Firm having new product and no improve product:
Firm having improved product, no new product:
1 if Yh* >0 tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg
Firm having no new or improved product:
N tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg
* Experience of entrepreneur with products
* Country environment tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg