Funding Access and Innovation in Small Businesses

Ronen Harel,Dafna Schwartz,Dan Kaufmann

doi:10.3390/jrfm13090209

Abstract

The study examined the extent to which lack of access to external funding constitutes a barrier to innovation for small businesses operating in traditional industries. The findings indicate that, these businesses do not view lack of access to funding as a barrier to innovation for any of the four types of innovation: product, process, marketing, or organizational. However, for most of the innovations they promoted, the levels of innovation were relatively low, and which naturally entails relatively low risk to businesses. The findings also indicate that, there is a relationship between product and marketing levels of innovation and lack of access to external funding. The study’s contribution lies in its focus on small businesses operating in traditional industries—businesses which though, essential to economic growth, have garnered less separate attention in the innovation sphere. The study points to a vicious circle in which these businesses do not promote innovation at high levels that would advance their own competitive advantage and require external funding. Because this funding is not within their reach, they continue promoting low-level innovation, and so on and so forth. The study may practically contribute by assisting policymakers as they draw plans dedicated to supporting innovation in small businesses.

Highlights

The growing interest in small businesses stems from the perception that these companies constitute one of the main engines of economic growth, and as the main source of new jobs (Henrekson and Johansson 2010; OECD 2009)
The first part includes descriptive statistics that present the characteristics of the businesses; the processes and tools for promoting innovation; the distribution of businesses according to the extent to which lack of external funding sources constitutes a barrier to innovation; and the percentage of businesses that displayed at least one innovation at any degree of innovation and for each type of innovation
The second part is the main analysis, and presents the correlations between all of the research variables, and the extent to which lack of external funding sources constitutes a barrier to innovation; and the regression analysis that examines the contribution of the level of each type of innovation to the extent to which lack of external funding sources constitutes a barrier to innovation

Summary

Introduction

The growing interest in small businesses stems from the perception that these companies constitute one of the main engines of economic growth, and as the main source of new jobs (Henrekson and Johansson 2010; OECD 2009). Numerous studies have indicated that small businesses have difficulties with access to funding at various stages of their lifecycle, especially in terms of obtaining funding to promote innovation (Bar-El et al 2017; OECD 2013). The aim of the present study is to determine whether, and to what extent, lack of access to external funding sources constitutes a barrier to innovation promotion in small businesses operating in traditional industries. The current one focuses and separately on small businesses that, despite their unique characteristics, have received relatively less attention in the literature with regard to innovation, while distinguishing between the four types of innovation (product, process, marketing and organization), and between different levels of innovation: incremental and radical innovation, which lie at the two extremes of the level of the innovation spectrum. The study seeks to determine whether lack of access to funding causes these businesses to focus on promoting innovation at a relatively low level—incremental innovation that does not require much funding, and thereby gives these businesses a means of minimizing the risks embodied in innovation

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Methods

Results

Discussion

Conclusion