Self-employment and innovation. Exploring the determinants of innovative behavior in small businesses

Abstract

This paper explores the determinants of innovation in small businesses from a survey of more than 700 self-employed workers in Andalusia (Spain). Self-employed people running businesses with and without employees were included in the study and two types of innovation – product and process innovation – were differentiated. The theoretical framework adopted distinguishes between three levels of factors affecting the innovative activities of the self-employed: (1) the personal characteristics of the self-employed – such as their motivations and their educational and professional background. (2) The organization characteristics – such as the sector, the number of employees, the dependence on suppliers or clients and the management styles. (3) The characteristics of the external environment. Education appears as a key factor whose impact on innovation comes through two main sources: its effect on self-employed motivations and its influence on the management style of small businesses. Also previous experience as an employee and the comparative level of income in the area where the business is located are shown to be influential factors explaining innovation. Though firm size favors innovation, it does not play a determining role. Furthermore, results show significant differences between the factors explaining product and process innovation. The determinants for innovation in small businesses also vary substantially across sectors.