Determinants of Innovation Capability: Knowledge Sharing Perspective in the context of Small and Medium Enterprises

Abstract

The basic aim of this study is to determine the key determinants of innovation capability. In addition to determination of key determinants of innovation capability, it also provided deeper understanding about the mediating effect of knowledge sharing on key determinants of innovation capability. It further unfolds the direct impact of knowledge sharing on innovation capabilities in context of small and medium enterprises. The paper used structural equation modeling to test hypotheses by using data collected from 91 manufacturing Small and Medium Enterprises (SMEs) registered at Hattar Industrialist Association (HIA), Industrial Estate, Khyber Pakhtunkhwa, Pakistan. The key findings indicate that technological capabilities, transactional capabilities and knowledge sharing are statistically significant determinants of innovation capabilities of SMEs of Pakistan. Furthermore, knowledge sharing has significant mediating effect on technological capabilities and innovation capabilities in context of SMEs of Pakistan and knowledge sharing has significant positive impact on innovation capabilities. The paper provides key insights to Small and Medium Enterprises Development Authority (SMEDA), Government of Pakistan to focus on development of SME sector by initiating key interventions that enables them to develop the innovation capabilities by focusing on development of technological and intellectual infrastructure for SMEs in Pakistan. Policy makers may use the findings of this study for the purpose of development innovation friendly policies for SMEs of Pakistan. Financial institutions like commercial banks may consider these findings for designing financing products for SMEs of Pakistan. Future studies can be conducted while enhancing the sample size and including the SMEs from services-oriented industry to have better look on determinants of innovation capability as service industry is getting significant place in knowledge economies.

       Keywords: innovation capabilities, technological capabilities, operational capabilities, managerial capabilities, transactional capabilities, knowledge sharing