Interlinkages, Innovation, Internationalization and Economic Performance of Manufacturing SMEs in Bangalore

Abstract

Small and Medium Enterprises (SMEs) occupy a place of strategic significance in the global economy (including India) due to their significant contributions in terms of employment generation, exports, income creation, and innovations, among others. SMEs, by nature, tend to seek external linkages and carry out innovations, and in this process some even internationalize themselves. While literature is plenty to throw light on the benefits of interlinkages, innovation and internationalization individually, literature is scarce to throw light on whether interlinkages, innovation and internationalization are inter-related and whether they cumulatively influence the economic performance of SMEs. The present study has been conducted to address this important research gap with reference to internationalized manufacturing SMEs in Bangalore. The study uses ex post facto design to conduct exploratory research collecting primary data from a sample of 117 exporting SMEs by means of a semi structured questionnaire. Firstly, the study probes factors (internal/external) determining the nature and extent of interlinkages (network cooperation) formed by SMEs using Stepwise Backward Elimination Regression technique. It was found that the factors driving SMEs to form cooperative networks differ among various types of interlinkages. Further, the study ascertains the simultaneous impact of interlinkages, innovation and internationalization on the economic performance of SMEs using Hierarchical Multiple Regression technique. It was observed that the assistance received from government agencies, industry associations, R&D organisations and customers positively impacts the economic performance of SMEs. Moreover, innovation performance (product innovation) and internationalization performance were found to be the significant predictors of economic performance of SMEs. Further, the study analyses the cumulative impact of interlinkages on the economic performance of SMEs, via mediating effects of innovation and internationalization using Partial Least Squares (PLS), a variance –based structural equation modelling. It was found that interlinkages of SMEs with customers, government agencies, R&D organisations and industry associations have a strong positive influence on internationalization performance, which further leads to enhanced innovation performance and cumulatively enhances the economic performance of SMEs. Based on the comprehensive research findings, appropriate managerial and policy implications are derived at the end