The influence of the specifics of small businesses on innovation: A multiple case study of the Brazilian metal-mechanical industry.
| Autor | de Lara, Felipe Ferreira |
| Cargo | Case study |
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Introduction
Several authors (Raymond and St-Pierre, 2010; Gibson and Naquin, 2011; Sener and Saridogan, 2011; Soriano and Peris-Ortiz, 2011; Ganther and Hecker, 2012; Casanueva et al., 2013) have pointed to innovation as a strategic key factor in organizations maintaining their competitiveness.
Under the current economic conditions, science, technology and innovation geared toward a strategy of competitiveness have become the most important factors for companies and countries, not only to strengthen their global competitiveness, but also as a way to sustain growth (Gibson and Naquin, 2011; Sener and Saridogan, 2011).
Some authors (Banerjee, 2000; Casanueva et al., 2013) also argue that among the most important strategic factors in the current stage of global competitiveness is an organization's ability to absorb new knowledge, both for its products and for their respective processes through technological innovations.
However, even if the importance of innovation is recognized, some authors (Jong and Marsili, 2006; Laforet, 2008; Forsman, 2011) claim that few works focus on innovation in small businesses.
With regard to the importance of innovation to ensuring competitive conditions and, thus, the survival of small businesses in the market, Brazilian entrepreneurs who own such businesses generally adopt a technology strategy of imitation or copy, with no real transfer of technology. This avoids high-cost investments with high risk and uncertainty.
However, Jong and Marsili (2006) and Raymond and St-Pierre (2010) argue that the ability to develop new products and innovate is at the core of value creation: small businesses must continuously improve their manufacturing processes in order to ensure their long-term survival.
According to SEBRAE (2017) (Brazilian Micro and Small Business Support Service), in 2015, micro and small businesses represented, on average, 99 percent of establishments and 53.9 percent of the formal jobs generated by non-agricultural private establishments. Innovation is a key factor related to the maintenance and survival of these small businesses (SEBRAE, 2017).
Freel (2005) argues that in spite of there being some studies addressing the adequacy of small firms to innovation, many points are still obscure. According to Lima and Muller (2017), the way in which small companies interact in their productive processes are decisive elements in their innovation activities. This means analyzing specific aspects of small businesses that go beyond data on R&D expenses and patents or investments in new equipment.
Therefore, we aim to contribute to the understanding of innovation in the context of Brazilian small businesses by examining the following research question:
RQ1. Which specific characteristics of Brazilian small businesses in the metal-mechanical industry are facilitating factors or limiting factors to innovation?
It is important to highlight a geographical issue when analyzing a developing country, which has a productive park in this type of industry that is relevant from an economic point of view, but which has little innovation. For Jones and Basso (2017), in general, Brazil is one of the countries in which investments in R&D are smaller than in other emerging countries. Both the R&D investment rate and the high technology export rate are lower in relation to GDP. According to the authors, the study, which compares Brazil and France, reveals a vast field for Brazilian researchers with regard to innovation.
Thus, it is believed that understanding the specificities of Brazilian small businesses that lead to innovation can contribute to the literature on stimulating innovation in this size of company in countries such as Brazil.
The choice of the metal-mechanical industry was because of its relevance to the region of Sorocaba (State of Sao Paulo, Brazil). According to Neto (2009), industrial activity in the Sorocaba region focuses on the metal-mechanic industry, and is especially geared to key sectors of the economy, such as machinery and equipment, and the automotive and electrical sectors. Small and medium enterprises are considered a strong point in the region, as they meet the demand for support services, contributing to operational efficiency.
The paper is divided into four sections. The first section discusses the theoretical framework of innovation in small businesses and the particularities of Brazilian small businesses. The second section presents the research method. The third section presents the results. Finally, the fourth section presents the conclusion.
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Theoretical references
2.1 Innovation in small businesses
Fagerberg et al. (2006) claim that innovation is particularly important for small businesses because there is a great need to compensate for their shortage of internal resources. For the authors, small businesses need to have an optimal interaction with all actors in the chain, because the increasing complexity of the knowledge bases required for innovation mean knowledge is developed in an incremental way.
In order to avoid it becoming just a fad, efforts in innovation, not only for small businesses, but especially for them, should consolidate a genuine innovation culture in the country, encouraging R&D. This will require the mobilization of various sectors of society: public and/or private, and domestic or international investment in small businesses that have expertise in developing and delivering innovative and competitive products and services using their own knowledge and internal experience.
Rosenbusch et al. (2011) corroborate this view, showing that innovation has a positive effect on the performance of small businesses. While innovation may initially involve high and continuous investments, risks, and uncertainty, benefits such as the differentiation from competitors, customer loyalty, awards for innovative products, and entry barriers for potential imitators seem to outweigh the costs. These factors can be potentially beneficial for small businesses.
However, it is important to note that, unlike larger organizations, smaller enterprises do not possess substantial resources to devote to innovation, normally do not have a structured R&D sector, are weakened by uncertainty and changes in economic policy and by competition from large competitors (Laforet, 2008; Van de Vrande et al, 2009), have low levels of staff training, and their owners show a high level of reluctance to delegate tasks (Massa and Testa, 2008).
Moreover, large companies command a larger set of knowledge, skills, and other resources for success (Ganther and Hecker, 2012). Freel (2005) argues that small businesses commonly neglect financial planning and evaluation, and show inadequate delegation of tasks, lack of functional expertise and personnel management, and insufficient marketing efforts.
Despite these limitations, small businesses have advantages, especially related to their flexibility, adaptability, possibility of developing diversified structures that favor rapid response to market changes (Rosenbusch et al., 2011; Ganther and Hecker, 2012), ability to use external contact networks, little paperwork, and technical expertise on the part of the managers (Massa and Testa, 2008).
For Laforet (2008), in general, innovation in small companies is driven by a number of factors, among which the following stand out: the prolonging of the life cycle of a product; increasing short-term gains; continuously improving product quality, process, and supply of skilled manpower; ensuring satisfaction and personal pride in success; improving working conditions; and, especially, seeking a higher profit margin.
However, as stated by Zeng et al. (2010), not all government policies are conducive to innovation. Some policy initiatives are effective when they focus on the need to promote cooperation between innovative SMEs and their partners.
Thus, those who create policy to stimulate innovation should emphasize creating effective institutional mechanisms to facilitate the creation of local cooperation networks for these SMEs, and establish a platform for cooperation to achieve mutual learning between partners, research institutions, and universities (Zeng et al., 2010). This implies that cultivating the ability to absorb external knowledge becomes a must for small businesses that demand innovation (Fagerberg et al., 2006; Forsman, 2011).
Finally, it is a common approach of innovation policies to consider small businesses as a homogeneous group. However, evidence in the literature suggests that there are significant differences between small businesses and, thus, diversity in the sectors should be taken into account (Freel, 2005; Forsman, 2011).
Some small businesses, for example, survive by competing in a niche market, while others seek more radical innovations. This diversity cannot be reduced easily to a general model (Jong and Marsili, 2006). Furthermore, according to Casanueva et al. (2013), the way a company presents itself before its network of suppliers and customers in certain geographic clusters may affect innovation.
Romero and Martinez-Roman (2012) also claim that prior research links specifics of businesses to innovation. These characteristics are usually related to the personal characteristics of the owner, the organizational structure of the company (which includes the company's size), and environmental variables (Laforet, 2008; Romero and Martinez-Roman, 2012).
Figure 1 illustrates these characteristics.
On the other hand, each country has unique social, economic, and cultural conditions. Upon analyzing the theme in the Spanish context, for example, Romero and Martinez-Roman (2012) considered small businesses to be those with fewer than 100 employees.
In the Chinese context, Zhu et al. considered small businesses to be those with fewer than 1,000 employees. Moreover, innovation policies commonly consider small businesses to be a homogeneous group. Evidence in the literature...
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