128 Int. J. Technology, Policy and Management, Vol. 15, No.

2, 2015

A quantitative analysis of the relationship between

drivers of innovativeness and performance of MSMEs

Himanshu Gupta*
School of Mechanical Engineering,
Lovely Professional University,
Jalandhar, India
Email: himanshu.17022@lpu.co.in
*Corresponding author

Tarun Nanda
Mechanical Engineering Department,
Thapar University,
Patiala, India
Email: tarunnanda@thapar.edu

Abstract: This paper investigates the relationship between various drivers

of innovativeness and various performance indicators of Micro, Small and
Medium Enterprises (MSMEs). The empirical evidence is based on
quantitative data gathered through a questionnaire which yielded 65 qualified
responses from the representatives of Punjab’s small and medium cutting tool
and automotive component manufacturers. The analysis of the responses is
based on the descriptive analysis of key issues under each input factors. The
empirical evidence validates some of the theoretical findings and indicates a
strong correlation between entrepreneur role and various research outputs. But
analysis of the results indicates poor correlation between linkage capability and
regulatory corroboration with research outputs thus underlining the need for
government to reach out to MSMEs of the region and extend various
programmes run by them to MSMEs so that they can avail these benefits and
develop, also there is need for manufacturing organisations to form alliances
with other small-scale organisations, large enterprises as well as with institutes
and universities for technology transfer and acquiring technical competencies.

Keywords: innovation; entrepreneur; linkage; MSMEs; government support;

innovative performance; sales performance; product performance.

Reference to this paper should be made as follows: Gupta, H. and Nanda, T.

(2015) ‘A quantitative analysis of the relationship between drivers of
innovativeness and performance of MSMEs’, Int. J. Technology, Policy and
Management, Vol. 15, No. 2, pp.128–157.

Biographical notes: Himanshu Gupta is an Assistant Professor of Industrial

Engineering in School of Mechanical Engineering at Lovely Professional
University, Punjab, India. He has obtained his Master’s and Bachelor’s degree
both in Production and Industrial Engineering. His research interest includes
technology management, innovation management.

Tarun Nanda is currently working as an Assistant Professor in Mechanical

Engineering Department at Thapar University, Patiala, Punjab, India. He holds
a Bachelor’s degree in Mechanical Engineering from Punjab University,

Copyright © 2015 Inderscience Enterprises Ltd.

 A quantitative analysis of the relationship between drivers 129

Chandigarh. He has a Master’s degree in Industrial Engineering and a Doctoral

degree both from Thapar University, Patiala, Punjab, India. His main research
areas are technology and innovation management, especially in small- and
medium-scale enterprises.

1 Introduction

Several studies in the past have confirmed that a nation’s growth and sustenance is
dictated, to a large extent, by the performance of small businesses. However, the reality
is that MSMEs are constantly struggling to survive and maintain their schedule of
activities. This is evident in the track record of majority of the MSMEs in the developing
and transition countries: they have been unable to reap the benefits of globalisation and,
to add to their inadequacy, they frequently face pressure, on the local or domestic
markets, from cheaper imports and foreign competition (OECD, 2004). This unfortunate
predicament may be attributed to the fact that many developing countries face major
challenges in suitably developing, attracting and using modern technologies (UNIDO,
2002). It is, therefore, inevitable that a large majority of micro and small firms in the
countries of Asian and Pacific region have focused on traditional industries, where the
activities are mostly characterised by low technological complexity and extensive use of
unqualified labour (Ramanathan, 2008). Owing to increased competition and rapidly
advancing technologies in many industries, MSMEs are often forced to develop new
products faster and more effectively. This requirement is challenging for MSMEs not
only because of their limited size, but also because they have less internal resources and a
more restricted competence base, which affects their ability to engage in innovative
efforts (Parida et al., 2012). MSMEs must overcome various barriers for their survival,
viz. limited availability of technological, human, financial and management resources on
the one hand, and weaker technological and linkage capability on the other hand.
However, globalisation has also opened up new opportunities for MSMEs, which brings
out the need for MSMEs to develop competitiveness for their survival as well as growth
(Bala Subrahmanya, 2005). Scientific and technological input and innovation have
become the decisive factor of economic growth; they are also key elements in promoting
the core competitiveness of the enterprises and an important sign indicating the level of
development of a country or a region (Zhu and Lei, 2012).
Developing their capacity to innovate is a mission-critical task for all organisations
(Raymond et al., 2013). Mounting economic pressure, environmental changes, diminishing
resources, the exponentially accelerating pace of growth of manufacturing organisations
of neighbouring countries call for a deep assessment of technological competence of
Indian MSMEs. To address the above issues, this study quantitatively investigates the
relationship between various drivers of innovativeness and various performance
indicators identified through the literature. The content of the study is divided into five
sections. Section 2 includes a review of literature and elaboration of various conceptual
models. Section 3 provides the details of data collection and presents the findings of the
empirical analyses. Section 4 discusses the results of the empirical analyses with the aim
of answering the proposed research questions. Section 5 summarises the conclusions of
the study and provides the implications for future research.
130 H. Gupta and T. Nanda

2 Literature review and hypotheses formulation

2.1 Entrepreneur role

In evolutionary economics, firms were the key actors, while the individuals were viewed
as interchangeable and their actions determined by the firms they are in. However, new
firms are innovative largely because they are propelled by singular individuals.
Sociologists describe an agent as an individual with – transformative capacity, such that
– whatever happened would not have happened had that individual not intervened. In this
way, agency does not refer so much to intentions, as to capabilities (Nelson, 2000). To be
an entrepreneur means to be an agent of change. The entrepreneur and his function are
not difficult to conceptualise: the defining characteristic is simply the doing of new
things or the doing of things that are already being done in a new way, i.e. innovation
(Schumpeter, 1934). Engaging in entrepreneurial role demands entrepreneurs to
continually seek out customer needs and find ways to offer their product and services in
such a way that what they are offering is more attractive than others (Tracy, 2005). This
requires ability to use appropriate strategies and tactics in commercialising their products
or services. Entrepreneurs must also be willing to experiment different strategies in the
pursuit of profitable outcomes because it is the entrepreneur’s energy, creativity and
motivation that trigger the production of superior product and services (Baum and Locke,
2004). There is no denial to the fact that the pace and progress of an economic system
largely depends on the emergence of dynamic and innovative entrepreneurs. Instead of
being dependent on the government subsidies and protections, they have to play the role
of change agents. Their ability to innovate and take risk decides the fate and direction of
a country’s economy. The successful entrepreneurs of the USA, Japan, Korea and other
Asian tigers have proved this point. The conception and effective implementation of any
individual project, irrespective of its size, largely depends on the availability and
capability of innovative entrepreneurs. There are various factors like change from present
life style, childhood family environment, education, personal values, age, work history,
role models and support systems, moral support network and professional support
network which goes in building successful entrepreneurs (Cooper, 1985; Kazmi, 1999).
Entrepreneurship and innovation are fundamental drivers of economic growth and wealth
creation in our economy and of a firm’s long-term survival, profitability and growth
(Classen et al., 2012).
Entrepreneurs introduce changes, innovations and a new order to a phenomenon so as
to arrive at an alternative-possible end. If a good/solid entrepreneurial spirit is not
cultivated by people, most of the poverty alleviation/wealth creation programmes of
governments and private bodies would just be an exercise in futility (Ayinde and
Olawale, 2011). Entrepreneurs incorporate changes in the organisation through innovation,
risk-taking abilities and creativity and lead to development of the organisation. There are
certain other demographic factors of entrepreneurs like age, education, training, work
experience which lead to the development of the SMEs (Islam et al., 2011). Managers of
SMEs must pay attention to developing innovation capability and must ensure that they
constantly offer new products, seek for new ways/channels to get the products to the
markets more quickly and serve the customers better (Sok et al., 2013).
The educational background of the managers, business owners and entrepreneurs has
been found to be an important factor explaining innovation in small businesses. Self-
employed people with stronger educational backgrounds can carry out a more
professional and efficient management and organisation of their businesses and, in this
 A quantitative analysis of the relationship between drivers 131

way, can be more successful in implementing innovations. Education helps the

entrepreneur to understand new information that could help him to develop higher
technological capabilities. Education and literacy opens up a wide number of channels
through which new technological knowledge can be obtained (Koellinger, 2008; Bala
Subrahmanya et al., 2010; Classen et al., 2012; Romero and Martinez-Roman, 2012).
Industry experience and work experience lead towards development of a successful
entrepreneur. Many of the MSMEs and start-ups which are very successful today are
largely being promoted by entrepreneurs with solid work experience. Previous
experience is another conditioning factor in self-employment, which can significantly
influence innovation in small businesses and start-ups. Innovation, as the result of a
process of knowledge accumulation, benefits from previous experience in a particular
field (Dahlqvist et al., 2000; Romero and Martinez-Roman, 2012).
Entrepreneur training is likely to have a more direct impact than education. Training
is likely to have special effects on production capabilities. Training would presumably
impart knowledge and skills that can be readily applied. The performance of an
entrepreneur is determined by a combination of motivation, entrepreneurial skills and
business skills. This then would indicate that each of these would need to be covered in
entrepreneurial education and training to produce the greatest probability of success
(Winterton, 2002; Jagersma, 2008; Ahmad and Seet, 2009; Tahir et al., 2011). Based on
this broad set of research, we propose the following hypothesis regarding entrepreneur
role.
Hypothesis 1: Entrepreneur role exerts a positive impact on research outputs.

2.2 Regulatory corroboration

Government can create the right economic, fiscal and regulatory framework within which
innovation and entrepreneurship can flourish. It can help raise the awareness of benefits
of innovation, adopting a progressive strategic management practice and provide
sufficient financial resources for efficient business support services (Beaver and Prince,
2002; Hyland and Beckett, 2005). Government assistance offered to SMEs can basically
be divided into two sub-groups: financial and technical. Financial assistance includes
various forms of investment incentives and soft policy loans. It includes contributions in
capital accounts and interests, financing at concession rates, guarantee concessions or tax
incentives (linked to economic policies that directly support SMEs). Technical assistance
consists of human resource training, export promotion initiatives, and quality and
technology programmes (Zeng et al., 2010).
Government can act as a facilitator of technical change and leveraging, working in
collaboration with other stakeholders rather than dictating policies from above (Kim,
2001; Seeman et al., 2007). The policy-making process of government shapes research,
technology, development and innovation programmes of SMEs (Chung, 2013). The
government support to promote firm innovation in the form of subsidies, tax incentives,
and/or loan encourages increased innovation-related activities. Governments can
encourage innovation and economic growth by supporting R&D projects with the
potential to generate high social rates of return (Nauwelaers and Wintjes, 2010; Kang and
Park, 2012). Governments can encourage innovation by, first, providing good data on
scientific and technological trends and networking, both nationally and internationally.
Second, government policies have to reflect realities of the new innovation process.
Third, government has to increase investments in universities and technical education,
and put efforts on industrially relevant research and training. Fourth, the government
132 H. Gupta and T. Nanda

itself has to be innovative; its policies, regulations and laws need continually to be
examined from the perspective of whether they support or constrain innovation
(Kharbanda, 2000). To this end, we formulated the following hypothesis.
Hypothesis 2: Regulatory corroboration exerts positive impact on research outputs.

2.3 Technology infrastructure

Technology infrastructure has become critically important in a world characterised by an
abundance of emerging technologies. All major technology breakthroughs require a
surrounding infrastructure (Best and May, 1997). Organisational structure should be such
that there are adequate funds, materials, production facilities and information support
system to sustain innovation (Amabile, 1996; Ghorbani and Bagheri, 2008). Information
technology is one such technological source to sustain innovation-related activities. ICT
in SMEs can be used as a business tool to reduce costs, create stronger links with
customers, create innovations and facilitate market niche. In recent times, the current use
of ICT in many organisations causes some forms of revolution in their business practices.
ICT offers promising opportunities to organisations in order to meet the challenges of an
ever-changing environment. ICTs have a remarkable potential to contribute to sustained
competitive advantage for businesses, having been identified as key tools in management
processes (Chahal and Kohli, 2006; Adeosun et al., 2009). ICTs’ adoption in SMEs has
assisted to provide a means to access, process and distribute greater amounts of data and
information quickly, in order to make thoughtful decisions. Hence, SMEs are embracing
the state-of-the-art technologies to enable them penetrate into the international markets
and remain competitive (Maldeni and Jayasena, 2009; Ongori and Migiro, 2010; Apulu
and Latham, 2011). IT integration sometimes leads to decrease in productivity but highly
interconnected processes allow the firms to introduce new products into the market at a
faster rate thus increasing the sales of the products (Raymond et al., 2013).
The absence of adequate infrastructure services is one of the main problems that
hinder efforts to develop technology (Ridley et al., 2006). Innovative organisations have
better systems and technology in place than their competitors (Laforet and Tann, 2006).
For better technological advances, new infrastructures (mainly telecommunication),
information technology, modern production systems and new strategic thinking practices
are needed (Man et al., 2002; Sheel, 2002; Vargas and Rangel, 2007). Advanced
equipment and resources are the most important factors to support public and private
projects regarding research and development, innovation and technology modernisation
(Smilor et al., 1988). The results of all these investigations allow us to formulate the
following hypothesis regarding technology infrastructure.
Hypothesis 3: Technology infrastructure exerts a positive outcome on research outputs.

2.4 Linkage capability

Linkage capabilities are the skills needed to transmit information, skills and technology
to, and receive them from, component or raw material suppliers, subcontractors,
consultants, service firms and technology institutions. Such linkages affect not only the
productive efficiency of the enterprise (allowing it to specialise more fully) but also the
diffusion of technology through the economy and the deepening of the industrial
structure, both essential to industrial development (Lall, 1992). External linkages with
other small, medium and large enterprises provide MSMEs better scope of assessing
 A quantitative analysis of the relationship between drivers 133

resources such as technology, marketing, finance and human resources thus enhancing
their ability to compete in global market (Kumar and Bala Subrahmanya, 2010). These
partnerships are developed to create value by externally accessing and leveraging
strategically critical resources to support the firm’s innovation process. A considerable
share of innovating firms establishes strategic R&D links with suppliers, customers,
competitors and universities simultaneously. Companies collaborating with customers
primarily search for new ideas or ways to reduce uncertainty associated with market
introduction of innovations. In contrast, partnerships with suppliers generally aim at input
quality improvements or cost reductions from process innovations (Classen et al., 2012).
External ties provide resource constrained SMEs with access to a wider set of
technological opportunities through information sharing and resource pooling thus
enhancing firm’s innovative performance (Tomlinson and Fai, 2013).
With the pace of technology development, access to knowledge and resources from
outside the firm is becoming increasingly important (Edwards and Delbridge, 2001).
Empirical evidence shows that large firms tend to rely more on internal factors like
formal R&D and accumulated technology (Yin and Zuscovitch, 1998), while small firms
rely more on external linkages with customers and suppliers for their innovations (Lee,
1995). External linkage of SMEs with LEs is an important source for transfer of
technologies, leading to innovative performance of SMEs (Rothwell, 1991).
Technology acquisition in developing countries can be related to three major sources,
viz. adaptive, basic or innovative research through in-house R&D efforts; arm-length
purchase of designs and drawings through payments of royalty or fees; and imports of
capital goods with embodied technology (Narayanan and Bhat, 2009). But small firms
with limited in-house resources tend to be less R&D intensive and the ability of these
SMEs to innovate depends on their access to external sources of resources needed for
innovations. Most innovative small firms are involved in extensive and diverse links with
a variety of external sources of knowledge and expertise (Freel, 2000). Acquiring
knowledge and skills through external collaboration has become an effective and
efficient way towards the success of innovations for SMEs (Kaminski et al., 2008).
Another important source of innovation-related activities is industry–university
alliance. Industry–University (I-U) alliances represent an evolving trend for the
advancement of knowledge and new technologies. Collaboration between industries and
universities has emerged as one of the priorities in the OECD countries and has become a
trend in European innovation policy. Relationships of this type have long been
considered crucial to the development of the innovation system in any country
(Mansfield, 2000; Angel, 2002; Betts and Santoro, 2011; Feng et al., 2011). Nurturing
closer ties across a range of activities such as joint product design to marketing and
distribution, particularly between SMEs facilitates knowledge transfer and organisational
learning and aids innovation performance (Tomlinson and Fai, 2013). Thus, we can
propose the following hypothesis.
Hypothesis 4: Linkage capability exerts a positive impact on research outputs.

3 Empirical research

3.1 Data collection and tools used

The study has been carried out in small-scale manufacturing units dealing with cutting
tool, machine tool and auto-component in Punjab region. The data for cutting tool,
134 H. Gupta and T. Nanda

machine tool and auto-component manufacturing units in Punjab region were acquired
from District Industrial Center (DIC) Punjab and a total of 300 units were identified.
These industries were selected for survey because they contribute to two-thirds of the
GDP of the region. In the research work, the questionnaire-based survey research
technique has been employed in which questionnaires have been prepared on 5-point
Likert scale. The validity of questionnaires was ensured by conducting a pilot test on
eight industries, and heads of these units were asked to fill questionnaires, changes as
suggested by these experts were made and final questionnaires were sent to 120 small-
scale units in Patiala region and out of these a total of 65 fully filled and usable
questionnaires (21.6%) were received at the 95% confidence interval and is within the
acceptable limits for survey (Oerlemans et al., 2006) and have been taken for analysis.
First, in the analysis of questionnaire, the status of all the issues under each
component (input and output parameters) of tactical upgradation of the manufacturing
sector has been assessed. The Percent Points Score (PPS) for each set of questions,
which reflect different issues under each component, has been calculated. These
measures reflect as to how well the area (issue) represented by that question is being
looked after in the industry.
Second, the status of manufacturing units in different key factors has been evaluated
and the manufacturing units have been classified into different categories. The score of
each unit (in terms of PPS) in individual components has been calculated from the raw
score of issues under each component. The criterion reported in earlier research studies
has been used to classify the industries into different categories (Nanda and Singh, 2009).
Convergent validity of the constructs has been assessed using Cronbach’s alpha.
Next, Principal Component Analysis (PCA) has been used to reduce the number of key
issues under each input factor into few principal components thus reducing the number of
dimensions of each factor without much loss of information. For validating the research
hypothesis, Pearson’s correlation coefficient has been calculated between each input
factor and various research outputs. The correlation values obtained after this have been
further validated using t-test. Further, stepwise linear regression analysis has been
performed to identify how all independent variables taken conjointly affect each
dependent variable individually.

3.2 Descriptive analysis

3.2.1 Status of entrepreneur role

The status of each issue under entrepreneur role is presented in Table 1.
The educational background of the managers, business owners and entrepreneurs has
been found to be an important factor explaining innovation in small businesses. Self-
employed people with stronger educational backgrounds can carry out a more
professional and efficient management and organisation of their businesses and, in this
way, can be more successful in implementing innovations (Bala Subrahmanya et al.,
2010; Classen et al., 2012; Romero and Martinez-Roman, 2012).
The analysis of key issues under entrepreneur role aims at collecting information on
the educational level of the entrepreneurs, technical skills and competencies of the
entrepreneur, proficiency of the entrepreneur to make decisions regarding the routine
activities and technology upgradation initiatives of the organisation and also about tacit
and technological knowledge and skills achieved through prior working experience and
utilisation of this knowledge in formal business planning. The response to the individual
issue is presented in Table 1.
 No. of Units Scoring Percent Point Score
Total Point
Table 1
No. of Responses (PPS) Central Tendency (CT)
S. No. Topics in the Component 1 2 3 4 5 Score
(N) TPS TPS/N
(W1) (W2) (W3) (W4) (W5) (TPS)^ 100
5* N
1 Educational level of the entrepreneur 65 0 2 28 30 5 233 71.69 3.58
2 Effective decisions pertaining to business 65 0 0 38 27 0 222 68.31 3.42
activities and taking decisions related to cost, raw
material etc.
3 Awareness regarding government benefits to 65 5 16 15 20 9 207 63.69 3.18
SMEs
4 Technical competencies of entrepreneur like 65 3 0 42 18 2 211 64.92 3.25
competency in operating all machines, quality
control tools etc.
Status of entrepreneur role

5 Entrepreneur training 65 0 0 3 50 12 269 82.77 4.14

6 Strategic decision making in identifying the right 65 0 0 32 28 5 233 71.69 3.58
kind of business and market
7 Tacit knowledge obtained through prior work 65 0 3 14 44 4 244 75.08 3.75
experience
8 Alertness and formal business planning of 65 0 3 24 25 13 243 74.77 3.74
different management areas like finance, HR,
logistics etc.
9 Easy access to finance and loans (knowledge 65 3 0 15 30 17 253 77.85 3.89
about various financial schemes and procedures
to be followed)
10 Ease of collaboration with other firms especially 65 6 17 33 7 2 177 54.46 2.72
large enterprises due to entrepreneur contacts
A quantitative analysis of the relationship between drivers

11 Ability to seize opportunities from market and 65 0 12 38 13 2 200 61.54 3.08

using appropriate strategies in commercialising
product
12 Awareness about new production technologies, 65 0 9 14 40 2 230 70.77 3.54
machines, equipments etc.
Overall Average (Out of 5.00) 3.48
^ Total Point Score (TPS) =
1 × W1 + 2 × W2 + 3 × W3 + 4 × W4 + 5 × W5
135
136 H. Gupta and T. Nanda

The average score of this aspect is 3.48 (out of 5.00). The analysis of this component
reveals that effective decision making pertaining to business activities, awareness
regarding government benefits, technical competencies, working in collaboration with
others and ability to seize opportunities from the market are some areas which need
improvement.

3.2.2 Status of regulatory corroboration

Small-scale industrial sector needs active support from government with regard to
sponsoring funds for development activities, loans at low interest rates, assistance in
import of technologies, favourable excise duties etc. Policy restrictions and complex
procedures greatly hinder the growth of small firms (Nauwelaers and Wintjes, 2010;
Kang and Park, 2012). However, majority of the organisations consider lack for
government support to be the most significant factor in lowering the performance.
This section discusses the role of government in supporting the small-scale industry
in its tactical technology development efforts. The keys and statements on government
support aim at collecting information on the following:
1 Availability and cost of electric power, condition of transportation infrastructure,
government policies regarding subsidies etc.
2 Status of government funding for research initiatives, programmes for technology
awareness, availability of government laboratories for research projects, assistance in
acquiring latest technologies, sponsoring employee development programmes, credit
linked scheme by government, assistance in acquiring quality certifications,
assistance on marketing and exposure to international market, providing subsidised
information and consultancy for research work.
3 Awareness of industry regarding government subsidiaries for small-scale sector,
assistance from these government organisations. The response to various issues on
this component is presented in Table 2.
The average score of this aspect is 2.10 (out of 5.00). Lack of initiatives by government
for development work, no or very less allocation of funds by government for R&D, very
few employee training centres and lack of subsidised information/consultancy services
by the government for research initiatives are critical factors which need immediate
attention for technology developments in the small-scale manufacturing sector.

3.2.3 Status of technology infrastructure

The analysis of key issues on technology infrastructure aims at collecting information on
the following:
1 Availability of financial support for developmental work, specific earmarking of
funds for research activities, sources of funds, investments in research function as a
proportion of annual turnover.
2 Availability of infrastructural facilities to carry out technology development work
and the role of modernisation and renovation programmes.
3 Use of information and communication technology for the development initiatives,
use of computers, internet and intranet for routine work and marketing, modern
software for designing work. The response to various issues of this component is
presented in Table 3.
 Table 2

Percent Point Score

No. of No. of Units Scoring Total Point Central Tendency
(PPS)
S. No. Topics in the Component Responses Score (CT)
(N) 1 2 3 4 5 (TPS)^ TPS
100 TPS/N
(W1) (W2) (W3) (W4) (W5) 5* N
1 Government initiatives and assistance 65 23 39 3 0 0 110 33.85 1.69
in acquiring latest technology, quality
certification and marketing assistance
2 Availability of electricity to the 65 0 3 59 3 0 195 60.00 3.00
industrial units
3 Availability of rail-road infrastructure 65 0 8 57 0 0 187 57.54 2.88
in the region
4 Government policies and measures to 65 6 54 5 0 0 129 39.69 1.98
support innovation initiatives in small
Evaluation of linkage capability issues

units
5 Allocating funds for R&D related 65 47 18 0 0 0 83 25.54 1.28
activities in small units
6 Employee training at government 65 17 29 19 0 0 132 40.62 2.03
institutes like mini tool rooms
7 Subsidised information regarding 65 24 35 6 0 0 112 34.46 1.72
latest trends and technologies and
consultancy for research work
A quantitative analysis of the relationship between drivers

Overall Average (Out of 5.00) 2.10

^ Total Point Score (TPS) =
1 × W1 + 2 × W2 + 3 × W3 + 4 × W4 + 5 × W5
137
 138
No. of Units Scoring Percent Point Table 3
Total Point Score Central Tendency
No. of Responses (PPS) (CT)
S. No. Topics in the Component 1 2 3 4 5 Score
(N)
(W1) (W2) (W3) (W4) (W5) (TPS)^ TPS TPS/N
100
5* N
1 Bar coding and RFID techniques 65 65 0 0 0 0 65 20.00 1.00
for automatic collection of
information
2 Use of computers for routine work 65 3 6 19 31 6 226 69.54 3.48
3 Use of internet for marketing and 65 6 3 41 15 0 195 60.00 3.00
promoting products
H. Gupta and T. Nanda

4 Designing and production-related 65 6 16 36 7 0 174 53.54 2.68

software for product improvement
5 Investment on information and 65 6 0 0 59 0 242 74.46 3.72
communication technology
infrastructure
6 Appropriate resources like expert 65 0 6 54 5 0 194 59.69 2.98
employees, state-of-art equipments
etc. for technology upgradation
Evaluation of technology infrastructure issues

7 Proportion of annual turnover for 65 33 26 3 3 0 106 32.62 1.63

technology upgradation
8 Role of organisation like skill 65 3 57 5 0 0 132 40.62 2.03
agencies, technology centres,
financial institutions for enhancing
SME resources
9 Modernisation and renovation 65 0 42 23 0 0 153 47.08 2.35
programs for technology
upgradation
10 Allocation of funds for R&D 65 31 34 0 0 0 99 30.46 1.52
infrastructure
Overall Average (Out of 5.00) 2.46
^ Total Point Score (TPS) =
1 × W1 + 2 × W2 + 3 × W3 + 4 × W4 + 5 × W5
 A quantitative analysis of the relationship between drivers 139

The average score of this aspect is 2.46 (out of 5.00). The survival of industry is not
feasible in the absence of research and development initiatives and for that infrastructure
and financial support is needed. The critical analysis of various issues related to
‘technology infrastructure’ component reveals that most of the issues and concerns of
this component have shown a very low rating. Substantial improvements need to be
affected in the following issues: increasing the proportion of annual turnover for
technology upgradation, modernisation and renovation programmes and earmarking
separate budget for R&D activities.

3.2.4 Status of linkage capability

This section presents the status of linkage capability aspect of manufacturing
organisations with other small units, large enterprises and the academia etc.
The analysis of key issues on linkage capability aim at collecting information on the
following:
1 Product- and production-related assistance through collaboration with small units
and large enterprises, benefits obtained through subcontracting.
2 Industry–institute collaborations on research and development for solving
technology-related problems.
3 Cooperative and contract-based research with universities, university labs and
infrastructure for testing and inspection etc.
The overall score of this aspect is 1.65 (out of 5.00). This factor needs immediate
attention from the industries and mainly by government. The government should
encourage the collaboration between industry–industry through promoting cluster
development programmes to build strong linkages between industries for exchange of
technological knowhow and resources. Also emphasis must be given to promote linkage
of industries with universities for technology transfer-related results and combined
research-based activities.

3.2.5 Status of research outputs

The keys and statements pertaining to research output issues aim at collecting
information on the following:
1 Response of manufacturing sector to increased competition situation through
increase in product mix, improvement in product features, proportion of new
products introduced.
2 Increase in market share, penetration into new markets, improvement in sales of
products.
3 Status regarding improvement in technical characteristics of the product through
improved technology development initiatives, improvement in quality levels of the
products and lowering of product cost through effective use of technology. The
response to various issues on this aspect is presented in Table 5.
 140

Table 4

No. of Units Scoring Percent Point Score

(PPS) Central Tendency
No. of Responses Total Point Score (CT)
S. No. Topics in the Component 1 2 3 4 5
(N) (TPS)^ TPS
(W1) (W2) (W3) (W4) (W5) 100 TPS/N
5* N
1 Industry–industry alliance in recent 65 12 39 14 0 0 132 40.62 2.03
past
2 Benefits obtained through 65 34 28 0 3 0 102 31.38 1.57
collaborations with small units
H. Gupta and T. Nanda

3 Subcontracting benefits with large 65 27 33 5 0 0 108 33.23 1.66

enterprises
4 Cooperative research with institutes 65 38 27 0 0 0 92 28.31 1.42
for joint R&D projects
5 Contract-based research with 65 28 37 0 0 0 102 31.38 1.57
institutes
Evaluation of linkage capability issues

6 Industry–academia alliance in 65 32 33 0 0 0 98 30.15 1.51

recent past
7 Technology transfer from academia 65 65 0 0 0 0 65 20.00 1.00
to industry with positive results
8 University labs for testing and 65 11 24 27 0 3 155 47.69 2.38
inspection
9 Expert lectures and training 65 22 35 8 0 0 116 35.69 1.78
programmes by academicians
10 Combined supervision of thesis 65 52 13 0 0 0 78 24.00 1.20
Overall Average (Out of 5.00) 1.65
^ Total Point Score (TPS) =
1 × W1 + 2 × W2 + 3 × W3 + 4 × W4 + 5 × W5
 No. of Units Scoring Percent Point Score Table 5
Total Point (PPS) Central Tendency
No. of Responses (CT)
S. No. Topics in the Component 1 2 3 4 5 Score
(N) TPS
(W1) (W2) (W3) (W4) (W5) (TPS)^ 100 TPS/N
5* N
1 Increase in product mix and product variants 65 0 29 27 9 0 175 53.85 2.69
over past few years
2 Improvement in existing product features due 65 0 11 34 20 0 204 62.77 3.14
to technology upgradation initiatives
3 Proportion of new products as a percentage of 65 45 17 3 0 0 88 27.08 1.35
all products
4 Changes made in products features in 65 3 0 16 41 5 240 73.85 3.69
response to market demands
5 Proportion of sales improvement as a 65 3 19 38 5 0 175 53.85 2.69
percentage of total sales due to new products
6 Increase in market share because of new 65 0 23 40 2 0 174 53.54 2.68
Evaluation of research output issues

products
7 Penetration into new markets 65 2 28 29 6 0 169 52.00 2.60
8 Increase in profit margins of the firms 65 6 15 29 15 0 183 56.31 2.82
9 Retention of existing customers/market 65 0 3 23 32 7 238 73.23 3.66
10 Improvement in sales over past three years 65 0 3 26 34 2 230 70.77 3.54
11 Improvement in quality level of the products 65 0 0 38 27 0 222 68.31 3.42
12 High cost/benefit ratio of company’s products 65 0 0 34 29 2 228 70.15 3.51
as compared to competitors
A quantitative analysis of the relationship between drivers

13 Improvement in product life cycle of the 65 0 8 29 28 0 215 66.15 3.31

products
14 Improvement in technical characteristics 65 0 14 43 8 0 189 58.15 2.91
(performance) of products
15 Lowering of cost of product due to technology 65 0 24 36 5 0 176 54.15 2.71
upgradation changes
Overall Average (Out of 5.00) 2.99
141
142 H. Gupta and T. Nanda

The overall score of this aspect is 2.99 (out of 5.00). The analysis reveals that some
issues need critical attention such as proportion of new product introduced as a
percentage of total products, improvement in technical characteristics of the products,
lowering in the cost of production and penetration into new markets.

4 Statistical analysis

The internal reliability of items under each input parameter (inter-item analysis) has been
assessed by using Cronbach’s alpha coefficient, as recommended for empirical research
in operations management (Flynn et al., 1990). Cronbach’s alpha coefficient measures
the extent to which a set of variables are consistent in what they are intended to measure
(internal cohesiveness of items of a construct). Cronbach’s alpha values calculated for
various categories are greater than 0.7, which is considered adequate for exploratory
work (Hair et al., 1998).

4.1 Principal component analysis

PCA has been performed with all the input and output research constraints considered in
the present research problem. The aim is to identify the attributes which emerge as most
relevant in defining the variable. The components are extracted based on eigenvalue
greater than 1 to reduce the dimensionality of the variables.
In ‘entrepreneur role’ input factor, four components have been extracted based on
eigenvalue greater than 1. The first component explains most of the total variance
(34.24%), and related items have high loads on the component itself, highlighting their
relative importance. The first component consists of six issues which include effective
decision making pertaining to business activity, tacit knowledge through work
experience, alertness and formal business planning, ease of collaboration, ability to seize
opportunities from market and awareness about new production technologies.
The second component explains 16.14% of the total variance. It consists of three key
issues, i.e. technical competencies of entrepreneur, entrepreneur training and tacit
knowledge obtained through prior work experience.
Table 6 Cronbach’s alpha score for key factors

Key Parameters Cronbach’s Alpha Value

Entrepreneur Role I1 0.853
Regulatory Corroboration I2 0.720
Technology Infrastructure I3 0.873
Linkage Capability I4 0.934
Innovation Performance Z1 0.708
Sales Performance Z2 0.812
Product Performance Z3 0.814
 A quantitative analysis of the relationship between drivers 143

Table 7 Principal component analysis of issues under entrepreneur role

Components Eigenvalue Percentage of Variance Cumulative Percentage

1 4.109 34.245 34.245
2 1.936 16.135 50.380
3 1.342 11.179 61.559
4 1.033 8.606 70.165
5 0.813 6.778 76.943
6 0.684 5.703 82.646
7 0.622 5.183 87.829
8 0.588 4.899 92.728
9 0.415 3.458 96.185
10 0.321 2.676 98.861
11 0.088 0.734 99.595
12 0.049 0.405 100.00

The third component has a percentage variance of 11.18. It emphasises on two key issues
including strategic decision making in identifying the right kind of business and market
and easy access of finance and loans.
The last component explains 8.61% of the total variance and consists of only one key
issue, i.e. educational level of the entrepreneur.
Issues under ‘regulatory corroboration’ input factor are also extracted into three
components based on the eigenvalue calculated. The first component explains most of the
variance (30.53%) and can be interpreted to consist of four main issues, viz. government
initiatives and assistance, availability of electricity, subsidised information regarding
latest technologies and employee training at government institutes. The second
component explaining 20.66% of variance is explained through allocating funds for R&D
and employee training at government institutes. The third component (percentage of
variance = 17.31) is the outcome of one issue only, i.e. government policies and
measures to support innovation initiatives.
The results reveal that dimensions of ‘technology infrastructure’ can be compressed
to four components which collectively explain 68.15% of the variance. The items that
should be combined in first component are use of computers for routine work, use of
internet and designing- and production-related software.
Table 8 Principal component analysis of issues under regulatory corroboration

Components Eigenvalue Percentage of Variance Cumulative Percentage

1 2.137 30.529 30.529
2 1.446 20.656 51.185
3 1.212 17.308 68.493
4 0.886 12.655 81.147
5 0.593 8.474 89.622
6 0.545 7.791 97.412
7 0.181 2.588 100
144 H. Gupta and T. Nanda

Appropriate resources for technology upgradation, bar codes and RFID techniques and
allocation of funds for R&D are the issues related to the second component. The third
and fourth components comprises of role of organisations like skill agencies, technology
centres, financial institutes for enhancing SME resources and modernisation and
renovation programmes as the only key issues, respectively.
Table 9 Principal component analysis of issues under technology infrastructure

Components Eigenvalue Percentage of Variance Cumulative Percentage

1 3.169 31.691 31.691
2 1.406 14.055 45.746
3 1.168 11.680 57.426
4 1.073 10.726 68.152
5 0.954 9.542 77.695
6 0.762 7.616 85.310
7 0.613 6.135 91.445
8 0.527 5.271 96.716
9 0.230 2.301 99.016
10 0.098 0.984 100

‘Linkage capability’ factor can also be compressed into three components which explain
67.82% of the total variance. The first component (with variance of 36.60%) consists of
industry–institute alliance in recent past, subcontracting benefits with large enterprises,
cooperative research with institutes, contract-based research with institutes, expert
lectures and training programmes and industry academia alliance in recent past. Benefits
through collaboration, cooperative research and university labs for testing are the issues
under the second component. The third component (variance = 12.26%) consists of
contract-based research with institutes and combined supervision of thesis.
Table 10 Principal component analysis of issues under linkage capability

Components Eigenvalue Percentage of Variance Cumulative Percentage

1 3.66 36.60 36.60
2 1.89 18.96 55.56
3 1.22 12.26 67.82
4 0.94 9.37 77.20
5 0.71 7.14 84.33
6 0.68 6.84 91.17
7 0.43 4.29 95.47
8 0.25 2.54 98.00
9 0.14 1.38 99.39
10 0.06 0.60 100
 A quantitative analysis of the relationship between drivers 145

4.2 Correlation analysis

4.2.1 Entrepreneur role

The E1, E2, E3 and E4 are the components extracted on the basis of PCA performed on
entrepreneur role factor as shown in Appendix A.
The components E1 and E4 under input parameter ‘entrepreneur role’ have shown
significant correlation with all the research output parameters; components E2 and E3
have not shown any significant correlation with any of the research output parameter. As
a result, overall ‘entrepreneur role’ input factor has shown a significant correlation with
‘sales performance’ (Z2) (r = 0.500; p = 0.000); (Z3) ‘product performance’ (r = 0.591;
p = 0.000); and also contributes effectively towards overall research output (Z)
(r = 0.470; p = 0.000), thus validating hypothesis H1, i.e. ‘entrepreneur role’ exerts
positive impact on overall innovation outcomes.
Table 11 Correlation results for entrepreneur role issues

DEPENDENT VARIABLES Innovation Sales Product Overall

Performance Performance Performance Research Output

INDEPENDENT VARIABLES Z1 Z2 Z3 Z
r 0.362** 0.587** 0.553** 0.582**
E1 t 3.08** 5.75** 5.26** 5.68**
p 0.003 0.000 0.000 0.000
r –0.038 .091 0.225 0.096
E2 t –0.30 0.72 1.83 0.76
p 0.761 0.473 0.072 0.446
r –0.207 0.243 0.131 0.054
E3 t –1.68 1.99 1.04 0.43
p 0.098 0.051 0.299 0.670
r 0.265* 0.290* 0.522** 0.409**
E4 t 2.18* 2.40* 4.86** 3.56**
p 0.033 0.019 0.000 0.001
r 0.157 0.500** 0.591** 0.471**
E t 1.26 4.58** 5.81** 4.23**
p 0.212 0.000 0.000 0.000
Notes: * Correlation significant at 0.05 level (2-tailed); ** Correlation significant at
0.01 level (2-tailed).

4.2.2 Regulatory corroboration

The R1, R2 and R3 are the principal components extracted after performing PCA on
regulatory corroboration input factor.
Components under ‘regulatory corroboration’ input factor have not shown significant
correlation with all the research outputs. Component R1 has shown significant
correlation with only one output parameter, i.e. (Z3) ‘product performance’ (r = 0.542;
p = 0.000); R2 has shown significant correlation with (Z2) ‘sales performance’
146 H. Gupta and T. Nanda

(r = 0.355; p = 0.004); and also with ‘product performance’ (Z3) (r = 0.267; p = 0.031).
R3 has not shown any significant relationship with any of the research outputs. None of
the three components as well as overall input factor (R) exerts positive outcome on
‘innovation performance’ (Z1). On overall basis ‘regulatory corroboration’ significantly
affects (Z3) ‘product performance’ and overall research output (Z) (r = 0.517; p = 0.000
and r = 0.298; p = 0.016, respectively). Thus, hypothesis H2 is accepted.
Table 12 Correlation results for regulatory corroboration issues

DEPENDENT VARIABLES Innovation Sales Product Overall

Performance Performance Performance Research Output

INDEPENDENT VARIABLES Z1 Z2 Z3 Z
r 0.238 0.233 0.542** 0.380**
R1 t 1.94 1.90 5.11** 3.26**
p 0.056 0.062 0.000 0.002
r –0.054 .355** 0.267* 0.212
R2 t –0.42 3.01** 2.19* 1.72
p 0.672 0.004 0.031 0.091
r 0.233 –0.148 0.000 0.040
R3 t 1.90 –1.18 0.00 0.31
p 0.0062 0.241 0.997 0.750
r 0.121 0.175 0.517** 0.298*
R t 0.96 1.41 4.79** 2.48*
p 0.337 0.163 0.000 0.016
Notes: * Correlation significant at 0.05 level (2-tailed); ** Correlation significant at
0.01 level (2-tailed).

4.2.3 Technology infrastructure

The terms T1, T2, T3 and T4 are used to represent the principal components extracted
from PCA performed on technology infrastructure input factor.
Component T1 under ‘technology infrastructure’ input factor shows significant
correlation with (Z1) ‘innovation performance’ (r = 0.362; p = 0.003), (Z2) ‘sales
performance’ (r = 0.515; p = 0.000) and overall research output (Z) (r = 0.448;
p = 0.000). Components T2, T3 and T4 do not have any significant correlation with any
of the research outputs. Overall input factor (T) ‘technology infrastructure’ shows
significant correlation with (Z2) ‘sales performance’ (r = 0.433; p = 0.000) and overall
research output (Z) (r = 0.266; p = 0.032). Thus, hypothesis H3 is validated.

4.2.4 Linkage capability

None of the component under linkage capability issue shows a significant correlation
with (Z1) ‘innovation performance’, but input factor ‘linkage capability’ (L) as a whole
shows significant correlation with all the output parameters and also with overall
research output parameter (Z) (r = 0.386; p = 0.001). Thus, we accept hypothesis H4 that
‘linkage capability’ exerts positive outcome on research output parameters.
 A quantitative analysis of the relationship between drivers 147

Table 13 Correlation results for technology infrastructure issues

DEPENDENT VARIABLES Innovation Sales Product Overall Research

Performance Performance Performance Output

INDEPENDENT VARIABLES Z1 Z2 Z3 Z
r 0.362** 0.515** 0.244 0.448**
T1 t 3.08** 4.76** 1.99 3.98**
p 0.003 0.000 0.050 0.000
r –0.209 .159 0.230 0.052
T2 t –1.69 1.28 1.88 0.41
p 0.096 0.205 0.065 0.678
r 0.005 0.170 0.058 0.091
T3 t 0.03 1.36 0.46 0.72
p 0.966 0.177 0.643 0.472
r –0.177 0.038 –0.188 –0.125
T4 t –1.4 0.30 –1.52 –1.00
p 0.158 0.766 0.134 0.323
r 0.101 0.433** 0.140 0.266*
T t 0.80 3.81** 1.12 2.19*
p 0.425 0.000 0.266 0.032
Notes: * Correlation significant at 0.05 level (2-tailed); ** Correlation significant at
0.01 level (2-tailed).
The terms L1, L2 and L3 are used to represent the principal components extracted after
conducting PCA on linkage capability input factor.
Table 14 Correlation results for linkage capability issues

DEPENDENT VARIABLES Innovation Sales Product Overall Research

Performance Performance Performance Output
INDEPENDENT VARIABLES Z1 Z2 Z3 Z
r 0.170 0.176 0.279* 0.239
L1 t 1.37 1.42 2.31* 1.95
p 0.177 0.161 0.024 0.055
r 0.219 0.265* 0.277* 0.296*
L2 t 1.78 2.18* 2.29* 2.46*
p 0.080 0.033 0.026 0.017
r 0.156 0.247* 0.303* 0.270*
L3 t 1.25 2.02* 2.52* 2.23*
p 0.215 0.047 0.014 0.030
r 0.271* 0.325** 0.408** 0.386**
L t 2.23* 2.73** 3.55** 3.32**
p 0.029 0.008 0.001 0.001
Notes: * Correlation significant at 0.05 level (2-tailed); ** Correlation significant at
0.01 level (2-tailed).
148 H. Gupta and T. Nanda

4.3 Stepwise regression

Stepwise regression has been used to find out the relationship between a dependent
(predicted) variable and several independent (predictor) variables. The focus of stepwise
regression is what the best combination of independent (predictor) variables would
predict the dependent (predicted) variable.

4.3.1 Innovation performance

A stepwise regression was conducted to evaluate whether all the independent variables
are necessary to predict innovation performance. Linkage capability was significantly
related (p = 0.030) to innovation performance. The multiple correlation was 0.269
indicating that 7.2% of the variance in innovation performance could be accounted to by
linkage capability.
Table 15 Regression results for innovation performance

Change Statistics
Adjusted R Standard
R R Square R Square Sig. F
Square Error F Change df1 df2
Change Change
0.269 0.072 0.058 0.49570 0.072 4.917 1 63 0.036
Collinearity
Correlations
Unstandardised Standardised Statistics
Model t Sig.
Coefficients Coefficient Zero-
Partial Part Tolerance VIF
Order
Std.
B Beta
Error
Const. 2.053 0.307 6.695 0.000
Linkage 0.406 0.183 0.269 2.218 0.030 0.269 0.269 0.269 1.000 1.000
Capability

4.3.2 Sales performance

Again a stepwise regression was conducted to evaluate whether all the independent
variables are necessary to predict sales performance. Entrepreneur role was significantly
related (p = 0.000) to sales performance. The multiple correlation was 0.500 indicating
that 25% of the variance in sales performance could be accounted to by entrepreneur
role.

4.3.3 Product performance

Lastly, stepwise regression was conducted to evaluate whether all the independent
variables are necessary to predict product performance. The model obtained through
regression consists of entrepreneur role and regulatory corroboration that significantly
affects product performance. The proportion of the variance of product performance
explained by this model is 42.10% (R-squared score for model 2).
 A quantitative analysis of the relationship between drivers 149

Table 16 Regression results for sales performance

Change Statistics
Adjusted R Standard
R R Square R Square Sig. F
Square Error F Change df1 df2
Change Change
0.500 0.250 0.238 0.419 0.250 21.039 1 63 0.000
Collinearity
Correlations
Unstandardised Standardised Statistics
Model t Sig.
Coefficients Coefficient Zero-
Partial Part Tolerance VIF
Order
B Std. Beta
Error
Const. 0.601 0.525 1.146 0.256
Entrepreneur 0.666 0.145 0.500 4.587 0.000 0.500 0.500 0.500 1.000 1.000
Role

Table 17 Regression results for product performance

Adjusted Standar Change Statistics

R R Square
R Square d Error R Square Change F Change df1 df2 Sig. F Change
0.591 0.350 0.339 0.325 0.356 33.854 1 63 0.000
0.649 0.421 0.403 0.309 0.072 7.683 1 62 0.007
Collinearity
Correlations
Unstandardised Standardised Statistics
Model t Sig.
Coefficients Coefficient Zero-
Partial Part Tolerance VIF
Order
Std.
B Beta
Error
Const. 0.881 0.407 2.164 0.034
Entrepreneur 0.655 0.113 0.591 5.818 0.000 0.591 0.591 0.591 1.000 1.000
Role
Const. 0.272 0.445 0.612 0.543
Entrepreneur 0.543 0.114 0.490 4.741 0.000 0.591 0.516 0.458 0.875 1.143
Role
Regulatory 0.488 0.170 0.286 2.772 0.007 0.460 0.332 0.268 0.875 1.143
Corroboration

5 Results and conclusions

The aim of the study is to find out the relationship between the drivers of innovativeness
and performance of MSMEs in the region and also to find the status of each input factor,
i.e. driver of innovativeness in the MSMEs of the region. The quantitative and
descriptive analyses of the various key issues led to many findings, it has been found that
the lack of information about government policies and procedures regarding small-scale
manufacturing organisations has been a major concern for the SMEs. Either
150 H. Gupta and T. Nanda

entrepreneurs of SMEs are not enthusiastic enough to learn about the various policies or
in most of the cases government has not been able to promote and make entrepreneurs of
SMEs aware about the various policies floated by government. This has lead to
degradation of SMEs further. Also, lack of R&D-related infrastructure is a major barrier
hindering the growth of SMEs. Seventy percent of the organisations surveyed do not
allocate funds for R&D. R&D infrastructure like labs, R&D personnel has also been
found lacking in most of the units. Innovation-related efforts of SMEs are greatly
hampered due to lack of these facilities. Inadequate transportation facilities, unreliable
power supply that too at higher cost, and poor rail-road infrastructure are the main factors
deteriorating performance of SMEs. Lack of large-scale organisations and use of obsolete
machinery and manufacturing processes are the other factors affecting the performance
of small-scale organisations in the region.
The educational level of the entrepreneur (employer) is fairly good (PPS = 71.69),
indicating that the most of the organisations are being run by entrepreneur having either
postgraduate or engineering degree. The entrepreneurs with higher education background
have enabled them to take decisions regarding routine activities, implementation of new
ideas (PPS = 68.31), i.e. product and process innovation effectively due to their higher
education background. Also, prior working experience of the entrepreneur has been
found to be helpful in collaboration with other firms and better access to finance and
loans. PCA has reduced the issues into four major components. The entrepreneur role
factor has shown a highly significant correlation with all the research outputs expect
innovation performance thus validating the hypothesis that entrepreneur role exerts a
positive impact on research output parameters.
Government has failed to provide assistance to small-scale organisations. Most of the
units (96%) have found government initiatives and assistance inadequate and have not
benefited from government support. There are only about 4% units which have been
moderately benefited through government initiatives. Most of the organisations do not
consider condition of rail-road infrastructure and power supply supportive for growth of
MSMEs in the region. The overall score (PPS = 2.10) of regulatory corroboration
indicates poor conditions of MSMEs in this factor. However, contrary to the PPS score
correlation coefficient results indicate a significant correlation with research output; thus,
confirming the research hypothesis H2. This significant correlation might be due to PCA
that has excluded few key components that has led to low PPS score and also no
component has shown any significant correlation with innovation performance.
Most of the units (92%) have increased their investment in ICT-related infrastructure
over the past few years. The manufacturing organisations are fairing badly (PPS = 32.62)
in terms of allocation of funds for technology upgradation activities. Most of the units
(48%) either do not allocate funds for technology upgradation or allocate less than 0.5%
of annual turnover for technology upgradation. Many of the units surveyed (44%) do not
earmark any budget for R&D-related activities and also most of the organisations (64%)
lack in the undertaking of modernisation and renovation programmes at their units which
need immediate attention. The PCA has reduced the key issues into four major
components, expect first component, which consists of key issues like use of computers
for routine work, use of internet for marketing and use of designing software, no other
component has shown significant correlation with innovation performance. But
technology infrastructure as a whole has shown a significant correlation with sales
performance and overall research output thus validating the research hypothesis H3.
 A quantitative analysis of the relationship between drivers 151

Most of the industrial units (88%) collaborate only to a small extent with other
industrial units. The manufacturing organisations show a poor rating (PPS = 34.40) in
terms of collaborating with large organisations and forming subcontracting relationships.
Thirty-six percent of the industrial units surveyed do not form any kind of subcontracting
relationship with large organisations. Forty percent of the organisations are not involved
in any contract-based research with the academic institutes. Manufacturing organisations
show poor rating (PPS = 31.20) in terms of collaborating with academic institutes and
universities. A large number of units (44%) either do not collaborate with academic
institutes or do not obtain positive results through collaboration, and most of the units
(56%) obtain positive results to a small extent only through collaboration. The status of
technology transfer from academia to industry is extremely poor (PPS = 20.00) indicating
that there is no technology transfer from academia to industry. MSMEs in the region
need to collaborate with other small enterprises as well as local educational institutes for
technology transfer and exchange of expertise and resources. PCA has reduced the key
issues under linkage capability into three major components, and none of these key issue
has shown a significant correlation with innovation performance but contrary to the PPS
score linkage capability as a whole has shown a significant correlation with overall
research output thus confirming the research hypothesis H4, i.e. linkage capability exerts
a positive impact on research output.

5.1 Future scope and limitations

This study presents the findings with regard to technology development of cutting tool
industry in the region. However, during the course of this study a number of areas have
come up which necessitates further research. The study has been limited only to small
units of the region. However, the study of medium and large enterprises could also
conduce some more beneficial results. This research ends with a number of
interrelationships found out between input and output factors reflecting the technology
upgradation process in a small number of companies. The study is therefore exploratory
in its nature and the phenomena and interrelations that have been found out through
empirical analysis of the sample companies need a complementary validation from
studies in a larger number of companies. Manufacturing organisations in the current
study have been treated alike, irrespective of the specific requirements of different
sectors. Minor changes might have to be incorporated for effectively managing
technology upgradation initiatives in varying requirements of different sectors. The
present study has been limited to the analysis of certain input characteristics of the
manufacturing units with regard to research parameters, but the study can be further
broadened by taking into consideration other factors like age of the firms, type of firms
like service and processing. The present study has been limited to quantitative analysis
only, whereas a qualitative modelling of the research parameters will yield better result
and understanding of the issues under consideration. The present study focuses on factors
impacting technology upgradation of the small units in the region, whereas the study of
barriers impairing technology development and upgradation initiatives needs to be taken
into due consideration.
152 H. Gupta and T. Nanda

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Appendix A

Table A1 Rotated component matrix of issues under entrepreneur role

Components
Issues under entrepreneur role
1 2 3 4
Educational level of the entrepreneur 0.357 –0.156 0.067 0.764
Effective decisions pertaining to business activities and
0.675 0.078 0.395 0.047
taking decisions related to cost, raw material etc.
Awareness regarding government benefits to SMEs 0.381 –0.116 –0.071 –0.846
Technical competencies of entrepreneur like competency
0.135 0.675 0.103 –0.276
in operating all machines, quality control tools etc.
Entrepreneur training 0.192 0.804 –0.026 0.204
Strategic decision making in identifying the right kind of
0.395 –0.136 0.674 0.146
business and market
Tacit knowledge obtained through prior work experience 0.551 0.527 –0.399 –0.024
Alertness and formal business planning of different
0.552 0.205 0.468 0.234
management areas like finance, HR, logistics etc.
Easy access to finance and loans (knowledge about
various financial schemes and procedures to be –0.111 0.063 0.810 –0.030
followed)
Ease of collaboration with other firms especially large
0.581 0.442 0.027 0.007
enterprises
Ability to seize opportunities from market and using
0.887 0.173 0.007 0.054
appropriate strategies in commercialising product
Awareness about new production technologies,
0.883 0.214 –0.007 –0.180
machines, equipments etc.

Table A2 Rotated component matrix of issues under regulatory corroboration

Components
Issues under regulatory corroboration
1 2 3
Government initiatives and assistance in acquiring latest
0.782 0.022 –0.470
technology, quality certification and marketing assistance
Availability of electricity to the industrial units 0.621 –0.246 0.197
Availability of rail-road infrastructure in the region –0.018 –0.794 0.121
Government policies and measures to support innovation
0.117 –0.038 0.800
initiatives in small units
Allocating funds for R&D-related activities in small units –0.068 0.684 0.488
Employee training at government institutes like tool rooms 0.562 0.571 –0.409
Subsidised information regarding latest trends and technologies
0.751 0.282 0.254
and consultancy for research work
 A quantitative analysis of the relationship between drivers 157

Table A3 Rotated component matrix of issues under technology infrastructure

Components
Issues under technology infrastructure
1 2 3 4
Bar coding and RFID techniques for automatic –0.116 0.646 –0.314 0.065
collection of information
Use of computers for routine work 0.894 –0.112 –0.077 0.081
Use of internet for marketing and promoting 0.875 0.143 0.206 –0.003
products
Designing and production-related software for 0.743 0.092 0.322 –0.107
product improvement
Investment on information and communication 0.438 –0.133 0.112 –0.618
technology infrastructure
Appropriate resources like expert employees, 0.296 0.497 0.164 0.272
state of art equipments etc. for technology
upgradation
Proportion of annual turnover for technology –0.788 –0.035 0.300 –0.117
upgradation
Role of organisation like skill agencies, 0.009 0.025 0.843 0.094
technology centres, financial institutions for
enhancing SME resources
Modernisation and renovation programmes 0.272 –0.107 0.172 0.779
Allocation of funds for R&D infrastructure 0.036 0.820 0.182 –0.203

Table A4 Rotated component matrix of issues under linkage capability

Components
Issues under linkage capability
1 2 3
Industry–industry alliance in recent past 0.749 0.324 –0.004
Benefits through collaborations with small units –0.285 0.896 0.045
Subcontracting benefits with large enterprises 0.781 –0.049 –0.263
Cooperative research with institutes for joint R&D projects 0.576 0.598 –0.075
Contract-based research with institutes 0.568 –0.023 0.501
Industry–academia alliance in recent past 0.771 0.491 –0.062
Technology transfer from academia to industry with positive 0.223 0.060 –0.783
results
University labs for testing and inspection 0.205 0.792 0.067
Expert lectures and training programmes by academicians 0.757 –0.163 0.175
Combined supervision of thesis 0.168 0.411 0.523