Innovation as a driver of SMME performance in South Africa: a quantile regression approach

Abstract

PurposeInnovation is regarded as a crucial determinant of growth and development in South Africa, and small, medium and micro enterprises (SMMEs) have been earmarked as instruments for the achievement of the socio-economic goals and innovation as set out in the National Development Plan. The purpose of this study is to investigate the effect of innovation on SMME performance in South Africa.Design/methodology/approachThe empirical analysis was conducted using the quantile regression technique to examine the effect of innovation on the performance of firms at different sales levels. Data from the World Bank's enterprise survey was used for the analysis.FindingsThe results of the empirical analysis showed that R & D expenditures have a positive and significant effect on performance for firms with higher sales (high growth or larger firms). There is evidence that the introduction of new products/services promotes performance for low growth/ smaller firms.Practical implicationsThe empirical results imply that innovation is crucial for SMMEs’ development and growth. However, smaller/low growth firms are not able to spend on R & D due to a lack of funds which could be the reason for their low survival rate. More support needs to be provided to smaller firms with lower sales growth, given the large financial outlay required for R & D expenditures. Despite the lack of funding for R & D expenditure, smaller firms are encouraged to introduce new products and methods of production that do not require major financial outlays.Originality/valueThere is scant empirical evidence on the impact of innovation on firm performance in South Africa. Most studies investigate the challenges faced by SMMEs and the different types of innovation approaches used by firms. Furthermore, the study employs the quantile regression approach which highlights the effect of innovation on firms of different sizes.