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FEATURE ARTICLE 93

ICT, Innovation and


Firm Performance: The
Transition Economies
Context
By
Shqipe Grguri-Rashiti
Veland Ramadani
Hyrije Abazi-Alili
Lo-Paul Dana
Vanessa Ratten

The aim of this article is to investigate the impact of information communication technologies (ICT)
and innovation activities on firm performance using the Business Environment Enterprise Performance
Survey (BEEPS) firm-level data in the three rounds: 2002, 2005, and 2008. The novelty of this research
is based on the idea of studying the usage of ICT and innovation activities on firm performance by
using dynamic approach so that we can estimate the adjustments that arise from the impact of ICT
and innovation activities. The rapid technological development and the growing use of information
technology (IT) in business organizations have become the center of attention in past few years. A
bulk of literature has been published on the use of IT in different industries, different types of business
organizations, and in different areas of business management. On the other hand, the probability of the
firm to undertake innovation activities has shown to enhance firm performance. This study implements
various estimations on BEEPS observations to test whether the change in the usage of ICT and other
innovation determinants have increase the probability of firms to undertake innovation activities. 2015
Wiley Periodicals, Inc.

Correspondence to: Veland Ramadani, Faculty of Business and Economics, South East European University, Ilinden 335, Tetovo, 1200 Macedonia,
+389 44 356 075 (phone), v.ramadani@seeu.edu.mk

Published online in Wiley Online Library (wileyonlinelibrary.com)


2015 Wiley Periodicals, Inc. DOI: 10.1002/tie.21772
94 FEATURE ARTICLE

Introduction organizations. According to Acs and Audretsch (2010),


what distinguishes entrepreneurship from innovation is

T
he impact of innovation activities on economic the organizational context.
growth has been studied extensively for developed This study is interested in identifying the variables
market economies. There is ample evidence in the that influence the level of innovation activities and their
literature that the United States experiences higher labor impact on the firm performance. The rapid technological
productivity growth than the EU and that the increase is development and the growing use of information com-
attributable to greater development of innovation activi- munication technology (ICT) in business organizations
ties (Ark, OMahony, & Timmer, 2008; Groth, Esposito, & have become the center of attention in past few years. A
Tse, 2015; OMahony, Rincn-Aznar, & Robinson, 2010). great deal of literature has been published on the need to
In order to increase the innovation activities undertaken renew and adjust the information technology (IT) func-
by firms in the EU the Lisbon Strategy set a goal for tion in business organizations (Guillemette & Pare, 2012;
Europe to become the worlds most competitive and Okruhlica & Marsin, 2012; Ratten, 2009), the application
dynamic knowledge-based economy in the world, capable of ICT in different industries (Devaraj & Kohli, 2000;
of sustaining growth with more and better jobs and Francalanci & Galal, 1998), different types of business
greater social cohesion by 2010. Although the EU failed organizations (Blili & Raymond, 1993; Heintze & Stuart,
to achieve this goal, the aspiration to achieve this status 2000) and in different areas of business management
became the first priority area of the Europe 2020 Strat- (Devaraj & Kohli, 2000; Ellram & Zsidisin, 2002; Gurau,
egy, which is smart growth through the development Dana, & Lasch, 2012; Tovstiga, Korot, & Dana, 2003). The
of knowledge, innovation, and education (European belief that technology is a source of competitive advantage
Commission, 2010). Accordingly, the EU has set itself an is so widely accepted in the management and economics
ambitious targetthe Barcelona objectiveof increas- literature that it has become axiomatic. Morone (1989)
ing research and development (R&D) expenditures to considered technological innovation as the main force
3% of gross domestic product in particular by improving behind industrial development and productivity growth.
the conditions for R&D investment by the private sector, For Porter (1983), it is a source of change in market
and developing a new indicator to track innovation. In and can be one of the factors behind the demise of domi-
order to accomplish these goals, the Organization for nant firms that were causing lack of competition in the
Economic Cooperation and Development (OECD, 2009) industry. However, it is critically important to have a clear
has prepared an innovation strategy, containing the fol- definition of technology before understanding the rela-
lowing major themes: (1) the openness of innovation; tionship between organizations and technology (Hassan,
(2) the central role of entrepreneurship; (3) creating and 2006). A famous definition of technology was given by Gal-
applying knowledge; (4) applying innovation to address braith (1967), who defined technology as the systematic
global and social challenges; and (5) improving the gov- application of scientific or other organized knowledge to
ernance of policies for innovation. practical tasks (p. 23). The use of technology in the busi-
The literature on innovation activities varies in many ness organization and market has been increased greatly
ways, particularly in ways of defining innovation and its since the last decade. Now, the creation and successful
measurement and the identification of variables that commercialization of technology is among a companys
influence the level of innovation activities. Furthermore, most potentially viable strategies (Shim & Siegel, 2009).
the literature has also struggled to identify the character- Nevertheless, it can succeed with the synergy of skilled
istics of entrepreneurship. In this respect, there is one management that (re)defines the companys goals and
view that considers entrepreneurship and innovation as competencies and through a good strategic planning
virtually synonymous. According to Shane and Venkata- process (Fletcher, 1999). Utilization of IT for gaining stra-
raman (2000), entrepreneurship is defined as investiga- tegic advantage over competitors should be the focus of
tion on how, by whom and with what are discovered, business entrepreneurial activities to survive in the rapidly
evaluated, and exploited the consequences in the process evolving world of e-business (Shim & Siegel, 2009).
of the production of goods and services. Based on the The following section discusses the theoretical back-
reflection of Gartner and Carter (2003), entrepreneurial ground and empirical evidence on innovation and ICT
behavior involves the activities of individuals who are asso- and the model of the knowledge production function.
ciated with creating new organizations rather than the Specifically, issues arising when trying to measure innova-
activities of individuals who are involved with maintain- tive activity and firm performance are further discussed.
ing or changing the operations of ongoing established The third section provides the methodology and the

Thunderbird International Business Review Vol. 59, No. 1 January/February 2017 DOI: 10.1002/tie
ICT, Innovation and Firm Performance: The Transition Economies Context 95

estimated regressions. Finally, in the fourth section, find- TABLE 1 ICT and Economic Performance of Firms
ings and conclusions are presented.
Performance Indicators Percent of ICT ICT in
Firms with Contribution Combination
Literature Review Reported (percent) with Other
Increase Factors (percent)
There have been considerable debates about the impact
of new ICTs on economic performance and competitive- Labor productivity 50.4 13.1 47.0
ness in general, and on productivity, efficiency, and inno- Operational costs 41.1 5.1 28.1
vation in particular. Over a relatively short time span, ICT Revenue from sales 55.2 7.0 43.4
has become an intrinsic part of everyday life to the extent Profitability 44.0 10.5 48.2
that, like electricity, modern society could not function Capital investment in 51.5 16.1 57.5
in its absence. Recently, it has been discussed that ICTs innovation
impact is transforming economic processes into generat- ICT investment 45.4 30.2 46.0
ing a sustained increase in economic growth through
Competition in price 57.1 5.3 29.1
processes of technological development and innovation;
Competition in quality 63.8 10.0 39.5
however, the expectations at firm level are of greater effi-
ciency, lower costs, and access to larger and new markets. Operational costs 18.6 15.7 51.7
Many research studies have tried to assess the economic
Source: International Bank for Reconstruction and Development/World Bank
impact of ICT on firms and countries. According to (2007).
Jorgenson (2001), emphasis in these studies has been
on the impact of ICT in OECD countries, particularly economic performance, where it is evident that ICT is
the United States. The main findings of these studies a substantial contributor to productivity, profitability,
suggest that ICT has contributed greatly to productivity and growth. More importantly, around 30% of the firms
growth and competitiveness in the OECD countries in have stated that ICT usage itself generates increases in
the past decade. Furthermore, the forthcoming studies ICT investment, which indicates that engagement in ICT
were mainly focused in greater detail on the processes of usage is to a certain extent a self-sustaining process that
application and use of ICT within firms. requires cumulative investment.
In transition economies, the ICT dynamics are at a
stage where one can apply lessons learned from coun- ICT and Firm Performance
tries such as the United States and old European Union The other challenge faced by studies investigating inno-
(EU) member states at both corporate and government vation activities are the determinants of innovation. For
levels (see McCarthy, Puffer, Graham, & Satinsky, 2014; SMEs to be innovative a particular role is played by ICT.
Prudhomme, 2015). On the other hand, considering the Technology, in business environments, is often seen as
characteristics of the transition economies of Central and a vital necessity these days (Aragn-Snchez & Snchez-
Eastern Europe, they might require tailoring of the les- Marn, 2005; Rivard, 2000). The debate has gone further
sons learned from Western Europe and the United States on discussing the impact of size on ICT investments, argu-
and even create new approaches to policies for ICT adop- ing that small businesses have less money and therefore
tion and utilization. In a study conducted in transition less to invest in ICT (Aragn-Snchez & Snchez-Marn,
countries such as Estonia, Latvia, Lithuania, and Poland, 2005; Grguri-Rashiti, Abazi-Alili, & Ramadani, 2013).
from companies surveyed, it was found that companies Hadjimanolis (2000) examined innovativeness from the
use ICT to serve customers and markets (International perspective of resources, suggesting that small firms lack
Bank for Reconstruction and Development/World Bank, resources and bargaining power, which hinders their abil-
2007). A considerable number of the companies in the ity to be innovative. He established that the size of the
survey place a high priority on two interrelated business firm did impact on the availability of resources, resources
areas: purchasing and procurement, and marketing and including ICT, expenditure on training, and R&D.
sales. Firms actively use computer networks for these The above-mentioned relationship is a relatively new
activities, and almost all of them use the Internet to buy area of research, which has even less research focused on
and sell goods and services. According to the same study, small businesses and IT (Ashrafi & Baghdadi, 2008; Hussin,
ICT incorporation has already had an impact on eco- King, & Cragg, 2002). Any business that defies technologi-
nomic performance among firms in transition countries. cal advancements and innovation seems to be awkward,
Table 1 presents the findings on the impact of ICT on not only to its clients but also to business partners and deal-

DOI: 10.1002/tie Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
96 FEATURE ARTICLE

ers associated with it. However, in todays running environ- investigating the determinants of firm performance, such
ment, technology has impacted and integrated with almost as size of firm, innovation activities, ownership, techno-
all the small and large organizations and industries, to logical change, and others. The European Commission
some extent (Devaraj & Kohli, 2000; Francalanci & Galal, (2010) puts forward the definition of small and medium-
1998; Stoneman, 2011). Apart from them, businesses that sized enterprises (SMEs): (1) a small business defined as
intend to solely rely on technological innovations and employing between 10 and 49 people, and (2) a medium-
advancements seek the easiest possible ways to achieve sized enterprise defined as employing between 50 and
their goals. This can be specifically explained in a man- 250 people.
ner that, with the surrounding environment transforming Innovation represents a significant factor in deter-
gradually, they face some basic hurdles in their way of inte- mining a firms success (Pratali, 2003; Ramadani, Grguri,
grating technology as an umbilical organ of their process Rexhepi, & Abduli, 2013; Tse, Esposito, & Soufani, 2015).
and functions. The integration of business with technology The firms that do not innovate face underperformance
is mostly done with an intention to reduce operational or dissolution (Ratten, 2015; Wilkinson & Thomas, 2014).
costs, increase efficiency of results, and increase effective The empirical literature on investigating innovation
communication development, effective promotion, and behavior and its effect on firm performance face the
progression toward development. In this process of inte- methodological challenge of how to measure innovation
gration, different organizations and businesses face vari- or technological change. This challenge is accompanied
ous difficulties and hurdles, which are to be eliminated or by the difficulty of getting appropriate data that cor-
ruled out with the help of effective planning and process respond to the definition of innovation. Consequently,
reengineering (Ashrafi & Baghdadi, 2008). the empirical studies have mainly adjusted their analysis
Nowadays, there is an increasing trend of moving of innovation depending on the measures of innovation
away from the traditional approach of managing com- available to them, using proxies that reflect only some
panies and concentrating more on IT, which is becom- aspects of the innovation process.
ing an essential part of the future of the companies. In defining innovation activities undertaken by com-
Previous studies reported the significant importance of panies, most of the empirical evidence follows Schum-
timely access to reliable information for increasing firms peter (1934), who defined innovation in a broad sense
productivity and highlighted the role played by IT in as carrying out of new combinations that include the
this regard. A study in Thailand showed that firms with introduction of new goods, new methods of produc-
greater ICT use had higher sales per employeethe tion, the opening of new markets, the conquest of
more sophisticated ICT, the higher sales realized. In new sources of supply and the carrying out of a new
addition, the study showed that firms with a combined organization of any industry (p. 66).
use of computers, Internet, and Web had realized, on Following Schumpeters definition of innovation
average, 21% higher sales per employee than firms that activities, most of the empirical literature defines innova-
do not use these ICTs (United Nations Conference on tion as the development of new products and/or new
Trade and Development [UNCTAD], 2008). Based on processes introduced to the market. The OECD (2009)
a study in Uganda, the majority of respondents strongly Oslo manual guiding the collection of data on innovation
agree that ICTs contribute to increased savings (52%), reflects this perspective by defining innovation as ...
increased efficiency (81%), improved service delivery the implementation of a new or significantly improved
(61%), decreased transaction costs (47%), and improved product (good or service), or process, a new marketing
market performance (38%) to the organization that method, or a new organisational method in business
invests in ICT (Ssewanyana & Busler, 2007). The litera- practices, workplace organisation or external relations
ture also pointed out the need to look at the usability of (p. 11). An alternative definition of innovation adopted
ICT application by the decision makers to understand the more recently by policymakers in the United Kingdom
actual use of IT in improving performance (Basant, Com- and also applied in the literature (Rivard, 2000) regards
mander, Harrison, & Menezes-Filho, 2006; Bloom, Sadun, innovation as the successful exploitation of new ideas.
& van Reenen, 2006; Piget & Kossa, 2013; Ratten, 2013). If this is scrutinized further, this definition combines (1)
new ideasinvolve new product/process or service, (2)
Innovation and Firm Performance exploitationpresents the applicability of the idea, and
The importance of the SME as a sector is getting vital (3) successfulimplies that the innovation is adapted
factor for economic growth. As such, it has gained a high by the market (from the firms viewpoint the target is
importance in the research field. There is a vast literature increased profitability).

Thunderbird International Business Review Vol. 59, No. 1 January/February 2017 DOI: 10.1002/tie
ICT, Innovation and Firm Performance: The Transition Economies Context 97

Based on these definitions, the most common mea- that allow us to specify the variables that are used in the
sures used in the literature analyzing the innovation theoretical framework followed here. The pooled data
process are as follows: (1) a measure of the inputs into for 2002, 2005, and 2009 is used in order to utilize the
the innovation process, such as R&D expenditure or the advantage of a larger number of observations, with the
number of scientists and engineers; (2) a measure of final sample consisting of 9,354 firms.1 Table 2 provides
output, such as the number of inventions that have been the description of the variables employed in the model
patented; and (3) a direct measure of innovation output, and their expected signs.
such as new products or new processes. These proxy According to the statistics for the pooled data, the
measures for the innovation process have their limita- average labor productivity increased by 25% from 2002
tions. Not all R&D expenditures result in innovation to 2005, and doubled from 2005 to 2009. The size of the
output, since this measure reflects only the resources companies in the sample varies on average from 90 to
committed to producing innovation output but not the 140 employees. On average, the firms R&D investments
innovation process. The number of patents does not are approximately 4% (R&D expenditure to sales ratio).
indicate whether this output has a positive economic The average exporting experience of firms that have
value or whether it has been successfully introduced in exported directly is 10 years (12% of firms). Firms were
the market, whereas the new product and/or process is established mainly 16 to 20 years prior (in the 1980s and
acknowledged as a proxy that directly quantifies the effect 1990s). For companies surveyed in 2002, on average 33%
of innovation and its success in the market. of the employees had a university degree, and this per-
centage dropped to 14% in 2009. Considering innovation
Methodology activities, 62% of the companies indicated that they have
introduced new products and/or processes in 2002; the
For the empirical analysis of this paper we use firm-level number had increased to 79% by 2009.
data from the World Bank/EBRDs Business Environ- In order to explore the nature of the innovation
ment Enterprise Performance Surveys (BEEPS) con- process in transition countries, we develop a model
ducted in 2002, 2005, and 2009 (World Bank Group, to empirically investigate the relationship between
2010). The BEEPS questionnaire consists of questions firms innovation activities, ownership structure, and

TABLE 2 Description of the Variables and Expected Signs

Dependent Variables Description of the Variables


Labor productivity Labor productivity = Sales / Number of employees (log)
Innovation activities Dummy for innovative firms (new product and/or process)
Independent Variables Description of the Variables Expected Signs
Size Number of employees /+
R&D intensity Amount spent on R&D/sales +
dInvestR&D Invested in R&D (dummy variable = 1 if the firm has invested in R&D) +
dInternetCONN dummy = 1 if the firm has a high-speed, broadband Internet connection on its premises +
de_mailCOM dummy = 1 if the firms currently communicate with clients and suppliers by e-mail
Direct_exports % of establishment sales as direct exports +
dFRGNinv Foreign ownership (= 1 if the % share of foreign capital in the company >10%) /+
dDOMprivate Domestic ownership (=1 if the % share of domestic capital in the company >10%) /+
dSTATE State ownership
FRGNcomppress Pressure from foreign competitorseffect on decisions to develop new products / +
Skilled_workers Share of employees with university degree +
Age Firms experienceyear since establishment +
Agesq Firms experienceyear since establishment squared +
EU_members dummy = 1 if EU member country +
Sector The industry in which the firm operates

DOI: 10.1002/tie Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
98 FEATURE ARTICLE

productivity. The econometric technique applied in this second specification reported in Table 3), which is based
investigation is a probit model on innovation activities on larger number of observations.
(Green, 2012). The model presents the probability of
the firms to innovate (probit model), which reveals the Implications for Research and Practice
importance of a group of firm-specific factors on firms
innovation activity. The general model we will refer to can In transition economies, ICT represents the way busi-
be written as follows: nesses communicate and conduct activities in the global
marketplace. It is important for researchers and managers
Innov_activityit = 0 + 1Sizeit + 2R&D_intensityit of ICT organizations to harness the potential of innova-
+ 3 Direct_exportit + 4 dFRGN_invit tion activities for firm performance. This article has dem-
onstrated the role of ICT for researchers and managers
+ 5dDOM_privateit + 6FRGN_comppressit
of firms in their business environment. This is helpful for
+ 7Skilled_workersit + 8T1 + 9T2 + it (1) researchers and managers to utilize the changes occur-
ring over a time period to see the increased emphasis
The regression coefficients and corresponding on innovation in the transition economy context. This is
p-values of two specifications of the probit model (for the especially relevant for managers of firms in Europe as the
probability to innovate) are presented in Table 3. knowledge-based economy is becoming more important.
In the first specification, we employ R&D intensity as As more firms focus on the relationship between their
an indicator of innovation activity. Since there is a large innovative capabilities and ICT strategies, it is crucial that
number of missing data for the R&D investment variable managers encourage an atmosphere that is conducive to
(73%, 40%, and 92% for 2002, 2005, and 2009, respec- innovation.
tively), we replace this variable with a dummy variable Researchers and managers can utilize the discussion
of whether the firms have invested in R&D or not (the in this article about how innovation is undertaken to

TABLE 3 The Determinants of the Probability to Innovate

Dependent Variable: Innovation Activities


(= 1 if new product and/or new process introduced)
Independent Variables Coefficients p-values Coefficients p-values
Size .23*** (.000) .13*** (.000)
R&D2Sales 2.54*** (.004)
dInv_R&D .67*** (.000)
dInternetCONN .02 (.007) .03 (.612)
Direct_export .002** (.049) .00 (.298)
dFRGNinv .21** (.050) .22*** (.002)
dDOMprivate .23*** (.002) .17** (.012)
FRGNcomppress .09*** (.000) .07*** (.000)
Skilled_workers .01*** (.001) .01*** (.000)
Age .01 (.004) .00 (.612)
Agesq .00 (.449) .00 (.267)
EU_members .33*** (.000) .25** (.046)
Sector .01*** (.002) .01*** (.001)
D1: 1 if year = 2002 .72 (.181) .52** (.078)
D2: 1 if year = 2005 1.12 (.172) .49** (.043)
Constant 1.42*** (.000) .65 (.113)
Observations 3,004 5,281
LR 2 438.2 654.2
Pseudo R2 .1138 .1028

Thunderbird International Business Review Vol. 59, No. 1 January/February 2017 DOI: 10.1002/tie
ICT, Innovation and Firm Performance: The Transition Economies Context 99

show the linkage with sustained economic performance Incorrect figures in the data set. In some cases (for Alba-
and social cohesion in a transition economy perspec- nia and Slovenia), the figures for sales were extraor-
tive. As the European Commission further increases the dinarily highin thousand billions. We contacted
role of innovation, it is important for managers to know the World Bank, and they confirmed the mistake
how to do this so they stay internationally competitive. and suggested a way of dealing with the error. Their
One way to do this might be for managers to prepare suggestion worked for Albania but was not possible
an innovation strategy to track the role of innovation, for Slovenia. Slovenia is therefore excluded from the
entrepreneurship, and creativity in their organizations. analysis because of the errors found in the data set for
This article emphasized how innovation and entrepre- this country.
neurship are different concepts, and this is important for Change in the measurement of variables. The problem
all organizations, but especially those in the knowledge related to the innovation activities variable comes
economy. from the questionnaire. While for 2002 and 2005 the
This article emphasized transition economies, which question on innovation activities referred to product
will be helpful to manage institutional constraints with and process innovation in separate questions, in 2009
international market regulations (Agarwal & Wu, 2014; the innovation question referred only to product
Dana & Ramadani, 2015a, 2015b). Local entrepreneurs innovation. However, since we have considered the
can use this study, as it offers practical relevance to the innovation activities variable as product and/or pro-
pursuit of innovation strategies by considering how cess innovation, we have overcome the problem.
entrepreneurship enhances global competitiveness. This
articles findings clarifies which innovation and perfor-
mance approaches are valuable for firms in the transition Conclusions
economy context. A focus on these settings enables firms
to understand how innovation shapes and facilitates tran- The probit model results show a significant effect of some
sition economies. of the innovation activities determinants, which are in
accordance with the theoretical literature. The consider-
Limitations of the Study ation of size as a determinant explaining innovation goes
back to Schumpeter (1942), who stated that large firms
In transition economies, the main limitations are related in concentrated markets are more advantageous in inno-
to the data availability for empirical investigation. This vation. The positive and significant sign of the firm size
study relied on BEEPS data sets, which were subject to supports this hypothesis, indicating that larger firms in
major limitations, such as: transition economies tend to undertake more innovation
The availability of relevant variables. Having in mind activities than smaller ones.
the effect of innovation activities undertaken by firms According to new growth theory, R&D activities
on their performance, we were primarily interested are expected to lead to product and process innova-
in investigating the determinants of the innovation tion. Becheikh, Landry, and Amara (2006), in a review
process among firms in transition economies in dif- of empirical studies published between 1993 and 2003,
ferent stages of the innovation process, starting from bring together a set of variables related to the innovation
the decision of firms to innovate, through the ICT as process and find that R&D expenditures do not necessar-
determinant of innovation, to the impact of innova- ily lead to new products and/or processes. Regarding the
tions on the performance (using a three-equation transition economies, we mentioned in the previous sec-
system). Because of lack of data we had to limit our- tion that not all firms that undertake innovation activities
selves to examining the relationship between ICT, have indicated they would invest in R&D. However, both
innovation activities, and firm performance using a specifications of the R&D variables in the regression, the
single-equation model. R&D intensity and dummy invested in R&D, appear to
Treatment of missing observations. There are large num- have a positive and significant relationship with innova-
bers of missing observations for some questions in tion activities. Because of the insignificant coefficient of
BEEPS, in particular for an important variable of the ICT implementation on firms, we cannot interpret
interest to this studyR&D intensity. Although the the coefficient.
process of cleaning the data established that a large Ownership structure is shown to influence produc-
number of the missing observations were indeed zero, tivity both directly and indirectly, through innovation
the problem was not fully resolved. activities (Hill & Snell, 1989). Carlin, Fries, Schaffer, and

DOI: 10.1002/tie Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
100 FEATURE ARTICLE

Seabright (2001) find significant effect of privatization included in the model is the percentage of direct exports
on new product restructuring. Moreover, new products to sales to indicate the effect on innovation activities. The
directly increase sales and productivity growth, implying regression results show a positive significant impact of
an indirect effect of ownership on enterprise growth. We export intensity on innovation activities when using R&D
employ variables of private foreign- and domestic-owned intensity as independent variable. However, the results
firms (state companies as base category) in innovation show an insignificant coefficient when applying the other
and productivity models. We expect that foreign owner- alternative variable of R&D, the dummy invested in R&D.
ship plays an important role in explaining innovation, The age of the firm together with age squared
considering it an external source of information for appears to be insignificant in both probit model speci-
innovation. In accordance with this, the results show that fications. We control for time and sector in the model.
foreign-owned firms with more than 10% of ownership The interpreted coefficients are statistically significant
are significantly positively related to firms innovation at 1% level of significance, offering evidence that the
activities, indicating that they are more innovative than Ho hypothesis (it = 0) can be rejected for these cases.
state-owned firms. The same applies for the domestic On the other hand, age and age squared are statistically
owned firms. insignificant at the 1%, 5%, and 10% level of significance.
The literature on innovation suggests that a moder- Therefore, their calculated p-values lie in the region of
ate degree of competition is better than either monopoly acceptance, so we fail to reject the Ho hypothesis. Accord-
or intense competition (Fiti & Ramadani, 2013). The ing to 2 statistics the explanatory variables are jointly
data provide a qualitative perception variable of foreign significant (since Prob > 2 = .000) at 1% level of signifi-
competition pressure on the decision to develop new cance, therefore the null hypothesis that all regressors are
products. We employ this variable for having the impact jointly insignificant may be rejected.
of competition, and the results show a positive significant
coefficient of the variable. The firms innovation activities Note
are higher if the firm has competitive pressure from for-
1. Empirical results are provided on nine CEE (EU members): Bulgaria,
eign firms. The role of human capital on the decision of Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania,
the firms to innovate has gained importance in the most and Slovakia; and five Southeast Europe countries: Albania, Bosnia and
Herzegovina, Croatia, Macedonia, and Serbia and Montenegro. The
recent literature. We employ the level of education of 2009 sample consisted of three groups of firms: (1) the group selected
the employees as the share of employees with a university randomly; (2) the group that had been previously interviewed in 2005
degree. The coefficient of this variable is significant and and reinterviewed in 2009; and (3) the group that had been interviewed
in all three rounds, which constitute the panel component. For the
positively related to the decision to innovate. The firms key sample (pooled data), we have cleaned the data set by keeping only
export activity may affect the innovation behavior of the the randomly selected group in years and dropped the reinterviewed
observations (i.e., the panel components). There is an indication of
firm. We suppose that firms learn from trade in terms of publication of a forthcoming survey by the end of 2015 (the new round
innovation (learning-by-exporting hypothesis), and thus of BEEPS). Taking into consideration the effort taken for cleaning
and correcting the BEEPS data set employed in this study, which will
exporting firms will improve their innovation activities to probably need to be undertaken for the new data set, it is impossible to
remain competitive in international markets. The variable consider them at this point.

Shqipe Grguri-Rashiti is an assistant professor at the College of Business Administration, American University
of Middle-East, Kuwait. Her research interests include management, strategic management and management infor-
mation systems. She has authored approximately 20 research articles. She has been also involved in managing
United Nations Development Programme projects within the South-East European University, Macedonia.

Veland Ramadani is an associate professor at South-East European University, Republic of Macedonia, where
he teaches both undergraduate and postgraduate courses in entrepreneurship and small business management.
His research interests include entrepreneurship, small business management, and venture capital investments. He

Thunderbird International Business Review Vol. 59, No. 1 January/February 2017 DOI: 10.1002/tie
ICT, Innovation and Firm Performance: The Transition Economies Context 101

has authored or co-authored more than 60 research articles and 12 textbooks. He also serves as a member of
editorial and reviewer board of several international journals. Veland is an associate editor of International Journal
of Entrepreneurship and Small business (IJESB).

Hyrije Abazi-Alili is an assistant professor at South-East European University, Republic of Macedonia, where
she teaches both undergraduate and postgraduate courses in economics and econometrics. Her research inter-
ests include innovation, business performance, and social entrepreneurship. Currently, she is an affiliate fellow at
CERGE-EI Prague.

Lo-Paul Dana is a professor at Montpellier Business School and Marie Curie Fellow at Princeton University. He
obtained his BA and MBA at McGill University and his PhD from the Ecole des Hautes Etudes Commerciales HEC
Montral. He served as the deputy director of the International Business MBA Programme at NTU in Singapore, and
on the faculties of McGill University, INSEAD, and the University of Canterbury. He holds the title of adjunct profes-
sor at the University of Regina and the same at the University of the South Pacific. He has published extensively
in a variety of journals, including the British Food Journal, Cornell Quarterly, Entrepreneurship Theory and Practice,
Journal of Small Business Management, Journal of World Business, and Small Business Economics.

Vanessa Ratten is an associate professor of entrepreneurship and innovation at the La Trobe University, Australia.
She has extensive experience in teaching and researching international business, management, marketing, entre-
preneurship, and innovation in both Australia and the United States. Her main research areas are sports entrepre-
neurship, international entrepreneurship, and technology innovation.

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Thunderbird International Business Review Vol. 59, No. 1 January/February 2017 DOI: 10.1002/tie