A RESEARCH PROPOSAL SUBMITTED TO SCHOOL OF GRADUATE STUDIES

FOR THE PARTIAL FULLFILMENT OF REQUIREMENT MASTERS OF MASTER’S

OF BUSINESS ADMINISTRATION

ASSESSING BARRIERS OF INNOVATION ADAPTATION BY SMALL ENTERPRISE

IN CASE OF WOLAITA SODO CITY SNNPRS, ETHIOPIA

BY: BEZAYE BELETE

ADVISOR: DENEKE DANA (PhD)

COLLEGE: BUSINESS AND ECONOMICS

DEPARTMENT: MANAGEMENT
PROGRAM: SOCIO-MASTERS OF BUSINESS ADMINSTRATION

FEBRUARY, 2023

WOLAITA SODO, ETHIOPIA

 APPROVAL SHEET

WOLAITA SODO UNIVERSITY

SCHOOL OF GRADUATE STUDIES

Assessing barriers of innovation adaptation by small enterprise , In Case of Wolaita Sodo City
in Wolaita Zone, Ethiopia

Submitted by:

____________________ __________________ ________________

Name of Student Signature Date

Approved by:

1. ___________________ __________________ ________________

Name of Major Advisor Signature Date

2. ___________________ __________________ ________________

Name of Dean, SGS Signature Date

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 Table of Contents

Contents page

APPROVAL SHEET……………………………………………………………………………..i

TABLE OF CONTENTS….…………………………………………………………………….ii

ACRONYMS AND ABBREVIATIONS ……………………………………………………iii

CHAPTER ONE …………………………………………………………………………….1

INTRODUCTION …………………………………………………………………………….1

1.1. Background of the Study…………………………………………………………………….1

1.2. Statement of the Problem…………………………………………………………………….7

1.3. Objectives of the Study …………………………………………………………………….8

1.4. Basic Research Questions …………………………………………………………… 8

1.5. Significance of the Study……………………………………………………………………..9

1.6. Scope and Delimitation of the Study ……………………………………………………..9

1.7. Expected Limitations of the Study …………………………………………………….9

1.8 Organization of the Study……………………………………………………………………9

CHAPTER TWO ……………………………………………………………………………10

REVIEW OF RELATED LITRATURES ……………………………………………………10

2.1. Concept of innovation……………………………………………….....................................10

2.1.1 Overview to Innovation……………………………………………………………………10

2.2. Types of Innovation ………………………………………………………………...............12

2.2.1 Innovation adoption theory ………………………………………………………………..13

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2.3. Innovation Measurements……...……………………………………………………………15

2.4.1. Determinants of Innovation……………………………………………………….............17

2.11 Conceptual frame work……………………………………..………………………………20

CHAPTER THREE…………………………………………………………………………….21

RESEARCH METHDOLOGY………………………………………………………………..21

3.1. Description of the Study Area……………………………………………………………….21

3.1.1. Climate ……………………………………………………………………………………22

3.1.2. Temperature ……………………………………………………………………………22

3.1.3. Rainfall ……………………………………………………………………………………22

3.1. 4Elevation…………………………………………………………………………………...23

3.1.6 Population………………………………………………………………………………….24

3.2 Socio economic back grounds of respondents………………………………………………25

3.2. Research Design ……………………………………………………………………………25

3.3. Population of the Study area ……………………………………………………………26

3.4. Sample and Sampling Technique……………………………………………………………26

3.4.2 Sample size determination…………………………………………………………………26

Figure 3.2: Framework of Sampling Size and Sampling Technique ……………………………27

3.5. Data Type and Sources ……………………………………………………………………27

3.5.1. Data Types ……………………………………………………………………………28

3.5.2. Data Sources ……………………………………………………………………………28

3.6. Data Collection Instruments ……………………………………………………………28

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3.8. Data Analysis and Interpretation ……………………………………………………………29

3.8.1 Description of Study Variables ……………………………………………………………31

3.10. Ethical Considerations ……………………………………………………………………31

CHAPTER FOUR …………………………………………………………………………...32

REFERENCES ……………………………………………………………………………32

BUDGET AND TIME SCHDULE …………………………………………………………....40

4.1. Budget Breakdown …………………………………………………………………....40

4.2. Time Schedule ……………………………………………………………………………41

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 CHAPTER ONE

1. INTRODACTION

1.1. Background of the study

It has long been recognized that in developing countries, micro and small enterprises (MSEs)
have a vibrant role and serve as engines through which the growth objectives of developing
countries can be achieved. MSEs by virtue of their size, capital investment and their capacity to
generate greater employment have demonstrated their powerful propellant outcome for rapid
economic growth in developing countries (Chowdhury 2011; OECD 2014; Chatterjee et al.
2015).

At least 90% of the firms in both developed and developing countries are SMEs (Mbuyisa and
Leonard 2017). They account for 40–60% of GDP in developed and developing countries (Igwe
et al. 2018) and generate about 40% of the global industrial production and 35% of the world’s
exports (Sharma and Bhagwat 2006).

Small enterprises are the backbone in economic development in the world, as they have been the
sources of Job/employment creation, output growth and the central focus of the industrial
development strategy, not only in less developed countries (LDCs) but also in developed
countries. MSEs play a crucial role in developmental goals such as in improving living standard,
distributing income fairly among low level and high level group, reducing unemployment rate,
promoting linkages among various economic sectors, easy to begin and expand, labor intensive,
require small capital, low technology, little know -how and facilitates import and export
transactions among countries (Habtamu et al, 2013).
With globalization, many challenges and opportunities have emerged and developing countries
like wolaita sodo city have to struggle with them. SMEs as an engine for economic growth can
bring economic success to wolaita sodo city by changing our way to conduct business and by
bringing innovative products and relevant techniques to capture the international and domestic
markets. Empirical studies revealed that a fast growing, job creating innovative assessing the
barriers influencing SMEs innovation in wolaita sodo city entrepreneur has much appeal because
this practice corresponds to the Daunfeldt et al, (2015). This study therefore aims to assessing

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barriers of innovation adaptation by small enterprise in wolaita soddo and to recommend suitable
measures to be taken.
1.2 Statement of the Problem

Despite various support programs and measures taken for strengthening the SMEs sector still
face serious challenges, in both in developing and developed economies. In nature some of these
problems are structural; other challenges can be attributed with the changes in the environmental
contexts SMEs operate in. Despite the wide-ranging economic reforms instituted in the sectors,
SMEs face a variety of constraints owing to the difficulty of absorbing large fixed costs, the
absence of economies of scale and scope in key factors of production, and the higher unit costs
of providing services to smaller firms and value added per unit of capital invested Tully, M and
Isaac, 2017).
Innovation adaptation plays a key role in ensuring higher levels of economic output and delivery
of new goods and services that change human lives and their potentials. It is because of
adaptation of innovation that we now have modern medical equipment, improved maternal
health, reduced mortality rates, computers, mobile phones and automobiles among many others.
We currently live in an industrial and technological age with internet having transformed global
market to become like a small village where competition has become knowledge-based
(Aboelmaged, 2014).

Since innovation acts as the catalyst for sustainable growth, it is crucial to overcome the barriers
while at the same time facilitate the SMEs innovation. Innovation should be the rule of thumb as
innovation in whatever form has the potential to convert a firm’s weakness into an opportunity.
The importance of innovation as driver for the long-term success and sustainability of SMEs is
believed and limited with some barriers. barriers to innovation focuses on problems encountered
at different stages of innovation, more often by lack of finance, technological know-how, poor
information, high cost of production, government policies and regulations (Yocco, V. (2015).

Cak. (2018) suggests that managerial barriers, financial barriers, technological barriers are main
faced by Indian SMEs. John Stark Associates (2006) suggest that there are seven types of
barriers to innovation. Some of them are within the organization and some of them are in the
external environment. They are: organization not conducive to innovation, environment not
conducive to innovation, insufficient resources, traditional management behavior, group

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behavior, individual behavior, traditional accounting practices. The survival and sustainability of
SMEs depend largely on their innovative capability. Hence the identification and measuring the
impact differences of barriers to innovation would serves as a way of reducing the barriers and
innovation facilitators (Corderio and Vieira 2012).

This study focused on barriers of innovation adaptation to represent MSEs. Previous studies have
mainly focused on the enterprise performance. The SMEs segment has been ignored because of
various constraints, one being that most are not registered. In this context, this study aims at
identifying the key barriers and drivers of innovation among SMEs with a view to propose
innovation strategies.

1.2 Objectives of the study

1.2.1 The General Objective of the Study
The general objective of this study is assessing barriers of innovation adaptation by SMEs in
wolaita sodo city.

1.2.2 The specific objectives of the Study are:

 To identify the determinants of innovation adaptation in the study area.
 To investigate the impacts of innovation adaptation on SMEs.
 To examine the factors influencing innovation adaptation in the study area.

1.3 Research Questions

 What are the determinants of innovation adaptation in the study area?

 How does the innovation adaptation effect on SMEs?
 How to examine the factors of innovation adaptation in the study area?
1.4 Significance of the Study
While extant literature abounds on research on SMEs innovation in various parts of the world,
there is little or no research that has been conducted in the context of the barriers of innovation
adaptation by SMEs in the study area. The findings of this study will not only fill the research
gap but will also help policy and decision makers like the government which acts as facilitators
of business innovation and also the entrepreneurs from the SME sector who seek to innovate

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their business. Furthermore, it may also serve as basis for researcher who has interest to conduct
further studies on the issue.

1.5. Scope and Delimitation of the Study

This study will be conducted in wolaita sodo city administration. Due to time and financial
resource constraints, this research is delimited to three kebeles of wolaita sodo city
administration (Mehal, Arada and Merkato). It will focus on the barriers of innovation
adaptation by SMEs.

The study will involve SME entrepreneurs. The study will cover three kebeles of Wolaita sodo
city administration and data of only a one-year period (2023) will use.
1.6 Organization of the Study
The study will be comprised of five chapters. The first chapter of the study will provide
information on the background of the study, statement of the problem, objectives,
significance, delimitation or scope of the study and operational definition of terms. The
second chapter will take care of the review of related literature whereas the third chapter will
present description of the study area, design and methodology of the research.

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 CHPTER TWO
REVIEW OF RELATED LITRATURES

In this section review both theoretical and empirical literature related to assessing barriers of
innovation adaptation by SMEs. Under theoretical literature; concept of innovation, Overview to
Innovation and historical development of the Small Enterprises in in the study area”,
Determinants of Innovation, factors of Small Enterprises will be briefly discussed. While under
empirical literature empirical studies on the determinants of innovation adaptation will be
presented.

2.1. Concept of innovation

Definition of Innovation has always been regarded as an essential component in business

sustenance and competitiveness of developed nations who are unable to compete on cost.
Proposes that innovation is an implementation of new process of production, supply and
distribution as well as introduction of changes in management, work organization, conditions and
skills of the workforce in order to improve the firm’s performance. An open innovation is a two-
way process which uses both internal and external knowledge such as resources and ideas in a
creative approach so that the business grows and captures most of the market (Lindegaard,
2010).

Conversely, in a closed innovation model, research and development is performed within the
organization; thus less or no external knowledge is used. For instance, the Apple Company
usually brings in new products, developed in a closed innovation model. Many SMEs adopt this
closed technique and strategically protects their internal ideas and technologies from
competitors. Some SMEs focus less on innovation management due to lack of skilled personnel
and finance Tidd and Bessant (2009).

2.1.1 Overview to Innovation

Though the importance of innovation is increasing these days there is an immense difficulty in
understanding it. Read (2000) suggest that one of the initial difficulties in innovation research is
defining exactly what innovation is. There exists a clear anxiety throughout the academic world
as to the way of defining it.

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North and Smallbone (2000) suggest that Innovation is an elusive concept which is interpreted in
different ways by different authors. Some researchers confine their work to product and process
innovation, whereas other also includes changes in other aspects of the business International
Journal of Arts and Commerce Vol. 10 No. 6 July 2021 3 as well, such as marketing and
management methods. The definition and the theory of innovation thought seem to be so
important in the days of the knowledge economy and high-tech driven economic growth.
Innovation becomes a crucial way of achieving high economic development and growth. There
seem to be a need for introducing as objective as possible innovation definition. There is various
definition of innovation that appears in the literature.

Kacker (2005) points out that the word innovation comes from the Latin word „innovare‟ which
means „to make new‟. Innovations involve new methods of doing things and are associated with
risk, failure, new ways of management thinking and unlearning of old ways. Innovation is the
process of doing new things. It is important to recognize that innovation implies action, not just
conceiving of new ideas. According to Schumpeter (1934) in his classic „The theory of
Economic Development‟, describes the motor of the development as the innovation. The
innovation was not well defined by that time but it was clearly described in his proceeding works
in which he used the innovation term.

Drucker (1985) innovation can be generally defined as: the process of equipping in new,
improved capabilities or increased utility. It is worth saying that innovation is not a science or
technology but a value which can be measured with environmental impact. Business Council of
Australia (1993) suggest that in business, innovation is something that is new or significantly
improved, done by an enterprise to create added value either directly for the enterprise or
indirectly for its customers. Thomas et al (2004) suggest that innovation is the capacity to
introduce some new process, product, or idea in the organization. Innovation is concerned with
the process of commercializing or extracting value from ideas; this is in contrast with
„invention‟ which need not be directly associated with commercialization. McDaniel (2000)
suggests that invention becomes an innovation only when it is put to productive use. That is an
invention becomes an innovation only when the invention is applied to an industrial process and
a new production function results from this application. Likewise, not all managers or owners of
business are entrepreneurs because one can run a business without trying new ways of doing

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business. This trying of new ideas and new production methods separates a group of pioneers
known as entrepreneur and this endeavor is referred to as innovation.

Schumpeter (1934) points out five types of innovation: (i) the introduction of a new good or an
improvement in existing product) (ii) the introduction of a new process(iii) the opening of a new
market (especially exporting) (iv) the identification of a new source of supply of raw materials
(v) the creation of a new type of industrial organization. OECD (1997) defines innovation in two
ways. First, a technological product innovation can involve either a new or improved product
whose characteristics differ significantly International Journal of Arts and Commerce ISSN
1929-7106 www.ijac.org.uk 4 from previous products. Second, a technological process
innovation is the adoption of new or significantly improved production method, including
methods of product delivery.

2.1.2. Types of Innovation

As per the Oslo Guide 2005:52, there are four types of innovation (Tidd et al, 2005; Davis, 2005)
which include:

 Product innovation. This involves the launching of new products and services to market and
major improvements in the usefulness and characteristics of the existing goods and services.

 Process innovation. It includes major changes in stage of production, tools or software

 Marketing innovation. The aim is to improve customer satisfaction and needs by relocating the
product to a new market or by opening new markets.

Organizational innovation. This involves a restructuring of the hierarchical organizational

structure and improvements in the commercial practices and external relations of a firm.
Innovation can also be in the form of the Schumpeterian type which includes five innovations
techniques with almost the same innovative approaches as mentioned above except that
Schumpeter (1934) suggested that innovation also occurs when there is a new source of supply
for raw materials. Assessing the factors influencing SME innovation in Mauritius 17 Conversely,
two major types of innovation adopted by SMEs are the incremental and the radical innovation
(Christensen 1999, Abernathy & Clark 1985).

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Incremental innovation refers to improvement and changes in the technical components of a firm
and is generally preferred by the SMEs as compared to the radical innovation where there is a
complete change in the technological and organizational structure (Gungaphul and Ramnarain,
2011).

2.3 Innovation adoption theory

In this respect, another body of theory that concerns the innovation process lends insight to our
study. This field not only examines the creation of an innovation, but also its dissemination and
adoption (van der Veen, 2010; Soriano and Huarng, 2013). Where neo-institutional theory and
innovation adoption theory overlap is where they show that for new ideas to be taken up within a
field, through initiation and then take-up by early adopters or imitators, innovations have to have
value, whether symbolic or economic (Akrich et al, 2002).

Position in a network and other aspects of embeddedness are also areas where there are
overlapping features between the two fields. In the fields of farm and agricultural innovation and
entrepreneurship, less research appears to have been undertaken on some key areas - for example
the innovation or entrepreneurial strategies of farmers, the role of women in agricultural
innovation, and the effects of network centrality or location in a cluster on propensity to
innovate. What role embeddedness plays in agricultural innovation is an interesting question that
does not yet appear to have been studied in much depth. In Munster, we already know that some
farmers are deeply embedded in local knowledge networks, whereas others are not. And
therefore one of our objectives is to assess whether the depth, and type, of embeddedness
influences innovation adoption.

Heanue and Jacobsen (2008) found that, in some industries in rural Ireland, embeddedness in a
locale could be either advantageous or disadvantageous according to industry context: for firms
in the metal products industry, deep, local embeddedness encouraged innovativeness while for
furniture firms, it did not. Within a tight community, innovation maybe blocked, but may also be
enabled as the pooling of knowledge and resources allows for risk to be minimized and hardship
shared. What types of innovation are encouraged or discouraged by such a community remains
to be discovered. Innovations differ in terms of their novelty, difficulty, capital intensiveness,

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and the need for the involvement of other products and infrastructure in the adoption process
(e.g. Soranio and Huarng, 2013).

Innovators can be frontrunners / early adopters or laggards, normally with a corresponding

lessening of risk as time goes on. Risks in new technologies are the result of imperfect
information of the operating conditions and performance characteristics of the new technology
(Diederen, et al., 2003). Diederen and colleagues also identify a number of other factors that are
indicative of a propensity to be early adopters of innovations: the youth of the farmer; farms that
are bigger or produce for heterogeneous markets; and farmers who develop innovations
themselves or in co-operation with others. However, they also found that farmers in the dairy
sector seemed to be less interested in the early adoption of innovations than other agricultural
sectors. This, they suggest, is the result of the quota system and environmental regulations
considerably limit what dairy farmers can do.

One of the factors known to be associated with innovativeness is organizational slack (Chen,
Yang and Lin, 2013). This may be defined as the spare resources or capacity that organizations
have available to experiment, to share and exploit new knowledge, or to deal with the emotional
stresses of new product development (Akgün, Keskin, and Byrne, 2012; Richtner, and
Sodergren, 2008; Chen, Yang, and Lin, 2013; Richtnér, Åhlström, and Goffin, , 2013; Argote,
and Greve, 2007).

Slack includes surplus employees, unused time or productive capacity, overlapping jurisdictions,
or idle information (Bourgeois, 1981; Staber and Sydow, 2002; Hargadon, 1998). These help
firms to leverage their existing capabilities and integrate their existing knowledge into new
products. In addition to slack, assimilation capacity refers to the firm's routines and processes
that allow it to analyses, process, interpret and understand the information obtained from external
sources (Tepic et al. 2012). The size of an organization tends to be related to the presence or
otherwise of slack and assimilation capacity; the smaller the firm, the less slack that is available,
suggesting that locations where farms are small may be unable to be as innovative as those
locations where farms have consolidated into larger concerns.

Chen, Y. M., Yang, D. H., and Lin, F. J. (2013) found that there were a number of important
aspects associated with enhanced innovativeness in farming. Besides R&D intensity and the

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number of employees that have an academic degree in a scientific or engineering field,
organizational openness towards knowledge acquisition and sharing were important. These
factors included searching patent databases, reading scientific or business journals and joining in
networks where knowledge could be acquired. In line with the work on weak ties (Granovetter,
etc) farmers with higher assimilation capacity appear to have a wider network of regular
contacts. These help them to recognize changes in technical possibilities, regulations,
competition and consumer demands (Tepic et al. 2012).

Research in other contexts has similarly shown that the proportion of professionals in an
organization is a strong predictor of innovation adoption (Damanpour, 1991; Pierce and Delbecq,
1977), and in turn professions exert considerable normative and mimetic pressures on
organizations to adopt new practices (DiMaggio and Powell, 1983, 1991; Adler and Kwon, 2013;
Tolbert and Zucker, 1983).

3. Innovation Measurements

Ng, W. and Rieple, A (2014) suggest that measurement of innovation is still clouded with
statistical and conceptual problems. The literature suggests that most of the research carried out
in the area of innovation performance measurement is technically biased.

According to Rieple. A 2013). Business Network Dynamics and Diffusion of Innovation.

International Journal of E-Business Development.) it is very difficult to measure innovative
activity. R&D and patent are the most widely used proxy indicators of innovative activity, but
we know it has many difficulties. CEI/DTI (1993) point out that innovation is widely
acknowledged to be difficult to measure. Avermaette (2003) argues that although innovation has
been studied extensively, there is no generally accepted way of measuring innovation.

Rogers (2004) suggest that a major issue in any analysis concerning innovation is how to
measure innovation itself. Previous literature has often focused on Rand D (an input to the
innovation process) patents (considered as both input and output) as well as qualitative or
subjective measures of innovation. All these measures have various drawbacks. According to
Unger and Zagler ( 2000) innovation can be measured the input side( R and D expenditure, Total
innovation expenditure) and from the output side ( patent applications or patents granted,

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literature based output indicator identified from scientific and trade journals, export and sales of
innovative products).

However, Tidd, Bessant and Pavitt (1997) suggest number of possible measures and indicators.

 Measures of specific outputs of various kinds: Patents and scientific papers as indicators
of knowledge produced, or number of new products as indicators of product innovation
success.
 Operational or process measures: Customer satisfaction survey to measure and track
improvements in quality of flexibility.
 Measures of strategic success: Overall business performance is improved in some way
and where at least some of the benefit can be attributed directly or indirectly to
innovation.

It is also possible to consider number of more specific measures of the innovation process
particular elements of it. For Example: number of new products introduced over past three years
and percentage of sales and/or profit derived from those new products due to them, number of
new ideas generated at start of product innovation system, failure rates- in the development
process, in the marketplace, customer satisfaction measures-was it what the customer wanted?,
time to market (average, compared with industry norms), cost of product versus sector trends,
quality versus sector trends, manufacturability versus sector trends, testability, disposability, man
hour per new product, process innovation average lead time for introduction, number of new
processes installed and type over last International Journal of Arts and Commerce Vol. 10 No. 6
July 2021 5 three years, measure of continuous improvement- suggestions/ employee, number of
problem-solving teams, savings accruing per worker, cumulative savings.

Neely and Hii (1998) put forward R&D expenditure, patent counts and counts of major or minor
innovations (innovation counts) as the common measures of innovation. Roger (1998) points out
two measures of innovation such as output measures and input measures. Key output measure of
innovative activity is the success of the firm where as input measure of innovative activity is the
level of research and development expenditure. According to Hughes (2002) innovative activity
measures fall into two categories of input and output measures. Input usually includes

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expenditure on R&D, and measures of the staff employed in R&D. Output measures include
patents and measures of the incidence of product, process and logistic innovation.

Romijn and Albaladejo (2002) suggest three measures of innovative capability of an

organization such as at least one major product innovation during the 3 years preceding the
survey, number of patents held and product innovation index. Peeters (2003) suggest three types
of innovation measures. They are: share of sales allocated to R&D, firms’ patent applications,
share of sales due to innovative precuts and processes.

4. Determinants of Innovation

Lee (2004) suggests that survey based and firm level empirical literature on the determinants of
firms’ innovation is fairly recent. Neely and Hii (1998) points out three sets of factors which
influence innovativeness of an organization (see figure 01). They are: organizational
characteristics, managerial characteristics and environmental characteristics. Kraft (1989)
suggests that technology used in the organization, skill level of the workforce and role of the
dynamic entrepreneur are the main determinant of innovation in an organization.

Mohr (1969) points out that innovativeness seems to be affected most by individual creativity
and by the degree of hierarchical informality in organizational structure. Innovation on the other
hand has been linked to size, wealth, environment, ideology, motivation, competence,
professionalism, non-professionalism, decentralization, opinion leadership and still other
variables. Read (2000) found management support for an innovative culture, customer/market
focus, communication/networking, HR strategies that emphasis innovation, teams and teamwork,
knowledge management, development and outsourcing, leadership, creative development,
strategic posture, flexible structures, continuous improvement, technology adoption are the
determinants of innovation and management support for an innovative culture is the top out of
them .

Kimberly and Evanisko (1981) suggest that characteristic of the organizational leaders,
characteristics organizations themselves, and characteristics of their contexts are the main
determinants of innovation in organizations. Subramanian and Nilakanta ( 1996) point out that
organizational characteristics such as size of the organizations, degree of centralization, degree

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of formalization, resources slack, International Journal of Arts and Commerce ISSN 1929-7106
www.ijac.org.uk 6 degree of specialization affect organizational innovativeness.

Romano (1990) argues that both management variables and environmental variables determine
an organizational innovativeness. Management variables consists of education of the owner,
training of the owner, management style, planning, technology/production, product/market mix,
research and development, product quality, risk. Environmental variables consist of market
change, competitive turbulence, customer base, product life cycle, technological innovativeness,
labor force and finance. Dijk et al (1997) suggest that although many determinants of innovation
have been proposed as candidates in previous empirical studies of R&D, the following six are
usually considered: Firm size, market concentration, capital intensity, profitability, market
growth and skilled labor.

Firtz (2001) considers both characteristics of the enterprise and characteristics of the
environment as determinants of innovation. Characteristics of the enterprise includes size of the
firm and execution of the top management function whereas characteristics of the environment
includes industry of the firm and competitive pressure. Bhattacharya and Block (2004) suggest
that firm size, market structure, profitability and growth are the main determinants of innovation
in organizations. Mohnen and Dagenais (2002) found that the propensity to innovate in Denmark
is significantly determined by industry type, firm size and group subsidiary.

Bladwin et al (2002) suggest that R&D and firm size are significant determinants of innovation
in organizations. Martinez-Ros and Jose (2002) which looked at Spanish experience found that
firm size is not a significant determinant of innovation. Their study also indicates that factors
such as managerial ability, corporate culture, know-how, and other time invariant variables may
be important determinants of innovation. Avermaete (2003) suggest that innovation of an
organization depends upon age of the company, company size and regional economic
performance. Read (2000) found a number of common innovation determinants such as
management support for innovative culture, a customer/market focus, and a high level of internal
and external communication/networking.

Romijn and Albaladejo (2002) point out two determinants of innovation in an organization such
as internal sources and external sources. Internal sources include professional back ground of

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founder/manager(s), skills of workforce and internal efforts to improve technology whereas
external sources include intensity of networking, proximity advantages related to networking and
receipt of institutional support. Love and Roper (1999) points out three possible routes by which
firms may obtain the main ingredients for innovation. They are: R&D, technology transfer and
networking. According to Peeters (2003) firms must master four competencies to be innovative.
They are: development of a culture of innovation, generation of innovative idea, implementation
of idea and management of intellectual property.

Harrison and Samson (2002: 49) suggest that many attempts have been made to identify those
organizational characteristics that differentiate an innovative firm. Several factors including
continuous and intensive organizational collaboration and interaction, management of
uncertainty, a recognition of the cumulative nature of technological capabilities, and the
differential nature of technological skills have been identified as characterizing superior
innovative performance.

According to Hyvarinen (1990) personal participation, inventions, different technologies,

information, outside know how, life cycles, internal know how, ideas, financial input,
motivation, attitudes, working hours, education, strategy, competition, corporation between
departments, economical support, infrastructure, political input, brach, market, hostility, location,
interest groups are the main determinants of innovation in small and medium scale organizations.
Hoffman et al (1998) suggests that qualified scientist and engineers, owner-manger leadership
( and education), nature of commercialization and marketing efforts, degree of marketing
involvement, macro-economic conditions, finance, external linkages are the main determinants
of innovation in SMEs.

Brouwer and Kleinknecht (1996) points out that R&D intensity, sales growth, SME presence,
employees, R&D function, dependence on mother company, R&D focus, consultation of
innovation center, sector, location, external knowledge and collaboration are the main
determinants of innovation in Small and medium scale businesses. Hadjimanlois (2000)
examines three types of characteristics as determinants of innovation in SMEs. They are: Owner
characteristics: age, education, prior experience, cosmopolitanism SME characteristics: size, age,
sales turnover, existence of written strategy, degree of internationalization, R&D expenditure,
employment of scientist and engineers, environmental scanning, corporation with technology

18
providers International Journal of Arts and Commerce ISSN 1929-7106 www.ijac.org.uk 8
Environmental factors: intensity of competition, environmental change, importance of external
barriers, level of networking.

2.10 The Conceptual Framework

In varies research finding innovation adaptation is challenged by many problems Figure 1 is
an illustration of the whole conceptual framework within which the present research has been
conducted and analyzes. Informal land settlement is usually referred to residential areas where
a group of housing units have been constructed on land to which the occupants have no legal
claim, or which they occupy illegally. The Informal land settlement is affected by factors such
as economic, political, social, demographic and technological growing problem.

Based on the literature discussed above and observation on the study area, the following
conceptual frame works were developed for this study. The designed conceptual framework
shows the determinants of informal land settlement.

Administrative factors

 Lack of management
 Lack of qualified persons
 Willing to innovate
 Infrastructure

Demographic factors
 Age of respondents Economic factors
 Sex of respondents Innovation
adaptation  Lack of finance
 Educational level
 Market factors
 Marital status

Policy gap factors

 Government policy
Figure 1 conceptual frame works.
Source: The researcher 2023.

19
 CHAPTER THREE
RESEARCH METHDOLOGY
3.1. Location of the Study Area

Wolaita Sodo is one of the oldest cities in the center of Southern Ethiopia which located in
SNNPRS. Wolaita Sodo is a capital city of Wolaita Zone administration and the second referral
city following Hawassa in SNNPR state. Astronomically, it is located between 6 054'N latitude
and 37045'E longitude with an average elevation of 2,150m above sea level. Wolaita Sodo is an
economic center and strategic business city having rooms for peoples from different parts of the
neighbored zones and Woreda’s via six rings of accessible transport ways. According to CSA
(2012) projection, the total population of the city estimated is 254,165 and the total area of the
city is about 16381 hectare. Wolaita Sodo city is 390 km (via Shashemene) and 328 km (via
Hosaina) away from the national capital Addis Ababa, and 170 km from the regional capital
Hawasa (WZFED, 2019).

20
 Location Map of study area

ETHIOPIA SNNPR

MAP OF WOLAYITA SODO CITY

WOLAYITA ZONE

Figure 2 Map of study area

Source: Ethio-GIS/RS, 2021

21
3.1.1 Topography

The topography of Wolaita Sodo city is mainly characterized by mountains steep, gorges and
plain land. The relief of the city is mainly characterized by mountains, gorges and plain lands
and especially the city has an extensive expansion area to the south, west and east whereas the
northern part of the city is mainly constrained by mount Damota, The city is established at the
foot of mount ‘Damota’, the highest mountain in the area. The lowest and highest altitude of the
city ranges from 1,800 to 2,100 m above sea level (OFED, 2019).

The average elevation of the surrounding area, together with the precipitation and temperature
records, places the city on the border between the temperate and tropical climate zones. The city
is established at the foot of mount Damota and from this mountain; its altitude descends to all
directions having an elevation of 2760 meter highest point. The relief of the city is mainly
characterized by mountains, gorges and plain lands especially towards south expansion direction
having the lowest elevation about 1600 meter. The average altitude of the city is 2100 meters
above sea level. The northern, north central and north eastern parts of the town have higher and
undulating topography affecting the flow directions of surface and ground water. As a result of
its topography, the city is severely affected by storm water during rainy season. The sloppy
nature of the city also aggravates erosion of surface soil. Whereas the southern expansion areas
having plain areas. Another adverse effect of the relief is that underground water is not easily
available (too deep) and even if it is available, the water is vulnerable to underground water
pollution (WZFEDD, 2018).

22
3.1.1Climate

The climate of Wolayta Soddo city was described based on the type of rain fall and temperature.
The mean annual rain fall is greater than 1550mm per year. Most part of the city Soddo
experiences Woinadega (warm to cool) type of climate (SNNPR, Bureau of Regional
Meteorology Annual Report 2012) except the mt.Damot environment of the city, which
experiences colder climate. The south and southwest peripheries of the city experience
transitional types of climate (warm to hot) (woinadega to kolla) mainly due to the effect of south
east rift valley that crosses the surrounding woreda (DellboWogen and HumboTaballa) and run
into the lowlands of lake Abaya and Chamo, the rift valley lakes.(WZFEDD, 2018).

3.1.2 Temperature

The maximum and minimum temperature records are reported to be 27.2 0c and 7.50c
respectively. The mean monthly temperature is 20ºc (WZFED, 2018).

3.1.3 Rainfall

The mean annual rainfall of Wolaita Sodo city is 1350 mm. The city receives its maximum
rainfall during summer season. The rainfall distribution of the city was Summer /kiremt/(June.
July and August) is the main rainy season of the city and accounts 39% of the total rainfall;
which receives from moisture carrying westerly winds as most parts of Ethiopia. Spring/Belg/
(March, April and May) is the second rainy season for the city next to summer. During this
season, the town receives 31.7% of the total rainfall. Autumn/Meher/ (September, October and
November). During this season, the city receives moderate precipitation 22.8% of the total rain).
Finally the lest rain season is winter/Beg (December, January and February) accounts about
6.5%. .(WZFEDD, 2018).

3.1.6. Population
The current administrative division of Wolaita Sodo city comprises of 7 Kebele Administrations
(KA) with a total population of 254,294 in the expansion of 2018 G.C structural plan of the city.
Its entire area is 16,200 hectares of land. Relevant to this study, out of seven administrative KA
three will be select purposively by considering the following reasons. Among the seven KA those
that occupy entirely or more than half of the area from rural dwellers due to expansion of the city
are selected. Thus, three KA which have entirely or more SMEs on the existing areas of

23
previously urbanized part was sampled (OFED, 2019).

3.2. Socio-Economic Background of the Study Area

Wolaita Soddo has become one of key commercial centers in South Ethiopia. Its spirally
patterned road network, which has seven in and outlets to Zones, regions and Weredas is an
impotent location factor to make the city one of the best accessible and a viable business centers
in South Region. The prevalence of number of federal, regional and local organization engaged
in versatile types of socio economic development activities more signifies relevance of the city
to run a profitable and lucrative business activities like hotel service and business premise
rentals.

According to CIP document (2019) at present, the main economic activities in the City are
trading, transportation and distribution service delivery along with few manufacturing and
construction industries which indicates that there is a potential to be harness in manufacturing
sector. Trade and Industry office, there are 2581 registered business activities and about 5000
operators engaged in informal sector. From the enterprises 811 services providing, 1016 retailer,
210 light industries of manufacturing, 196 whole sales, 187 transport operators and 162 urban
agriculture business are operating in the City.

3.3 The research design

According to Kothari (2004) a research design is the arrangement of condition for the collection
and analysis of data in manner that aims to combine relevance to the research purpose with
economy in procedure. It is needed because it facilitates that sailing of the various research
operations, thereby making research efficient as possible yielding maximum information with
minimum expenditure of effort, time and money.

To address the objective of the study, the descriptive type of research design was applied
primarily to identify the determinants of informal settlements. This descriptive method is
selected because it allows the researcher to get through the sample and take abroad view about
the population and helps to assess the existing situation. It was used to obtain information
concerning the current status of the phenomena to describe what with respect variable identified
by the researcher or condition in situation.

24
 3.3 Research approach
The research will use both quantitative and qualitative approaches. These approaches are
selected mainly because of the fact that this research will contain both primary and secondary
source of data which was incorporate quantitative data as well as qualitatively described events
or phenomena. So the researcher will use a mixed approach both qualitative and quantitative data
collection instrument to gather intended data and information from respondent.

3.4. Target Population of the Study

According to office of finance and economic development report (OFED2021) the target
population in this study area will be 300 SMEs. Hence, MSEs at Wolaita Sodo town will
constitute the population for the study. These SMEs are distributed across three kebeles in
wolaita sodo city administration: (Mehal, Arada and Merkato) indicated in Table 3.4
Table 3.1: Number of enterprises in the study area
No Kebeles Groups

1 Mehal 119

2 Arada 85

3 Merkato 96

Total 300
Source: Own computation, 2023

3.4.1Sampling Techniques and Sample size determination

3.4.1.1 Sampling Techniques

Simple random sampling technique was used in this study. At the first stage, wolaita sodo will be
selected purposively because accessibility of the researcher and catchment area of Wolaita Sodo
city administration. In the second stage three kebeles will be selects using simple random
sampling will employs to determine the sample size from each kebeles and finally 171SMEs
were selects by using systematic random sampling.

3.4.1.2 Sample Size Determination

The sample households would be selected by using simple random sampling. (Yamaneh; 1967)
formula was employed to fix the sample size from the total population. House hold heads were

25
taken for selection of the respondents and the unit of analysis is therefore, household. Based on
simplified formula 300 sample groups will be determined.

N 300
n= 2 n= 2 = 171
1+(N )(e ) 1+(300)(0.05 )

Where n is the sample size, N is total settlement in the study area and e is the error or

confidence level. Confidence level of 95 % is used to ensure a more accurate result from the

sample. The size of the sample depends upon the purpose of the study, the nature of the

population under scrutiny, the precision the researcher desires in estimating the population

parameter, and the available budget.

This will be done by using probability proportional to the size of population in each Kebeles and
taking under consideration about gender proportion. The sampling frame for this study will be
Kebele diary, which consist lists of groups in the selected Kebeles will be used as guidance.

Table1. Sample size determination status by the Kebeles

Sample Kebeles Number of Sample enterprises

enterprises
Mehal 119 68

Arada 85 48

Merkato 96 55

Total 300 171

Source Own survey (2023)

3.5. Data Type and Sources

3.5.1. Data Types

Primary data’s will be collected through survey, focus group discussion, key informant
interview and document review. Secondary data will be quantitative and qualitative in their
form and will be collected from governmental organizations both at city administration and
kebele level such as office of enterprise officials and documents.

26
 3.5.2. Data Sources

Sources of data for this study will be both primary and secondary sources. Primary sources
includes settlers, kebele steering committee, Key Informants such as government officials of the
city administration and enterprise officials .In addition focus group discussion has been taken
place to verify data collected by questionnaire. Therefore; four groups of FGD participants from
each kebele will be participates. Secondary data will be obtained from gathering from City
administration and enterprise office manuals, annual reports and published and unpublished
documents.

3.6. Data Collection Instruments

For collection of data for the study both primary and secondary data survey questionnaire, key
informant interviews, focus group discussions and document review will be used.

3.6.1. Questionnaire: Enumerators selected and trainings will be arranged on how to

collect data in order to address the research objective. Both structured and unstructured
questionnaire will be used to capture all the important data that is related with
determinants for SMEs innovation adaptation in the study.

Before dispatching the instruments to sample respondents, pre- test will be conducted to
check validity and reliability of the instruments. In order to check the reliability and
validities (mainly content and face validity); the tools will be submitted to and
commented by advisors of the researcher. Any ambiguous words and sentences will be
rephrased or reworded.
3.6.2. Semi Structured Interview Schedule: Key informants for data collection will be
selected from each SMES, chairman of the association selected, and enterprise
office/department. The selection of the key informants will be done by collecting
information about key informants. Thus, 5 from each kebeles), a total of 15 key
informants will be selected using purposive method since they have better knowledge
and experience on the subject under study
3.6.3. Focus Group Discussion: Focus group discussion will be conducted to collect
basic information from participants on determinants of innovation adaptation in the
study. Since FGD helps to assure the validity of information that is collected from

27
 different sources by different tools and also the component which is appropriate
informant for the actual situations what they had been actual achieved on their
participation. A checklist will be prepared to conduct the focus group discussion with
the participants in the study area.

Five focus group discussions ,(FGDs) (one in each kebeles and one at city
administration level) that comprises 8-12 participants in each FGD sessions. FGD
participants will be those entrepreneurs, kebele administrators...etc will be selected
through voluntary basis. The participants of group discussion will be selected through
purposive sampling technique.

3.6.4. Checklist: It is also planned to review those checklists that include annual plans,
reports, minutes, publications and other kind of records that are obtained from kebeles
and city administration on barriers of innovation adaptation in the study area.

3.7. Validity and Reliability of the Instrument

According to Cortina (1993), validity refers to the degree to which an instrument measures what
it is supposed to measure. Reliability has to do with the consistency or repeatability of measure
or an instrument and high reliability is obtained when the measure or instrument gives the same
result if the measurement is repeated on the same sample.

To check content validity and internal consistency (reliability) of the instruments, pilot test was
conducted. The pilot study was help to assess the practicality and appropriateness of the
questionnaire and provide an indication whether the items need further refinement, obtain
respondents suggestions and views on the items and determine the level of difficulties of items
and make necessary modifications so as to correct and avoid confusing and ambiguous questions.

3.8 Method of Data Analysis

Two types of data analysis methods namely descriptive statistics and econometrics models will
be used to analyze the data collects from the sample in the study area.

3.8.1 Descriptive statistics

Descriptive statistics methods of the data analysis used refer to mean, percentage, and standard
deviation. Inferential statistics Chi square and t-test were used in the process of comparing socio-

28
economic, demographic, economical, policy gap and administration factors of the innovation
adaptation in the study area.

3.8.2 Econometric Analysis

Methodological framework and selection of econometric model depend on objectives to be
achieved and hypothesis to be verified. Based on the fact, multiple regression models were used
to analyze hypothesized variables.

3.6.6. Model Specification

The study employed multiple regression models in the form of ordinary least square (OLS) and
used a primary data and secondary data from auditors in office. The researcher undertook the
diagnostic tests for the assumption of classical linear regression model (CLRM) before directly
going to the multiple linear regression models. And the result of all tests shows that the model is
viable. In this study, multiple regression analysis was carried out to get the predictive value of
the variables considered. This was basically made to determine the linear combination of the
constructs. The dependent variable of the study is innovation adaptation (IA) and independent
variables are educational status, Lack of management, Lack of qualified persons, willing to
innovate, Infrastructure, Lack of finance, Market factors and Government policy, and the random
disturbance- by U, the model was given by the following expression as:

IAQ=βo +β1EDU+β2 LOM + β3 LOQP + β4 WI + β5 INF, + β6 LOF + β7 GVTP + U

Where,

IA= innovation adaptation

β0=Constant term

β1, β2, β3, β4…………β7 refers to coefficients of independent variables

Educational status-government policy=independent variables

U=is error term clearly about the aim, purpose and procedures of the study and was not deceived
in any way. Finally Privacy of participants the privacy of the participant’s was respected.

29
Table-3; Independent variables and expected signs
Variable Code Variable Unit of Definition of Variable
Type measurement

EDUC Categorical 1. Diploma Educational level of (+)

2. Degree respondents
3. Master’s
degree
4. doctorate

LOM Categorical 5 point Likert Lack of management (+)

scale

LOQP Categorical 5 point Likert Lack of qualified (-)

scale persons

WINOV Categorical 5 point Likert willing to innovate (+)

scale

INF Dummy 5 point Likert Infrastructure (+)

scale

LOF Categorical 5 point Likert Infrastructure (+)

scale

GVTP
Categorical
5 point Likert Government policy (-)
scale
Source: Own computation from survey data, 2023

3.10. Ethical Considerations

During data collection the SMEs selected study area will be respected and respondents will be
informed carefully. In a letter which will be given from department will include the purposes and
data collection methods, respondents voluntary to participate in this study, and respondents
freedom to participate or withdraw from the study at any time will be indicated. The letter which
will be given to the researcher and concerned bodies should include the name of researcher and
title of the research.

30
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5. PROPOSAL ANNEXES
6.1 Time Schedule
Time Schedule (2015/2016)
No Activity Jan Feb Ma Apr May Jun
1 Preparation of thesis proposal 
2 Submission of draft proposal 
3 Submission of final thesis proposal 
4 Approval of proposal and clearance 
5 Primary Data collection 
6 Secondary Data collection 
7 Data analysis and report writing 
8 Submission of draft thesis 
9 Submission of final draft thesis 
10 Presentation of the research result 

38
Budget Breakdown/ Cost breakdown\

Table 1.2: Budget Schedule

S. Items

Total cost

Remarks
Quantity

Unit cost
No

in Birr

in Birr
.

1 Per Diem for the Research work

a) To distribute questionnaire 10days 50 500 To

papers from wolaita sodo city to collect
selected kebeles
all
b) To distribute questionnaire 10 days 50 500 relevant
papers to selected potentials
secondar
respondents.
y
c) To collect primary data from 50x10dAY 200 2000
data also
two selected kebeles respondents = 500
by the

Questionnaires methods.

d) To collect primary and 10 days 100 1000

secondary data from revolving
fund beneficiaries .

e) To collect primary and

secondary data from selected
kebeles. 15 100 1500

f) Questionnaire language and 10days 300 3000

wording evaluator

g) To collect data secondary From 10 500 5000

selected kebeles to sodo city.

Total 13500

2 Secretarial Services

a)Typing Questionnaires Papers 10copies 3 30

39
 b) Typing and print outs. Questioner 3660copie 2 7320
prepare for 366respondants 366x10 = 3660 s

c) Typing and printing first draft research 80 4 320

paper.

d) Editing and correcting first draft by 3 400 1200

one experienced person

e )Printing final Research Report for hours 80 2 160

and

f) Copies final Research Report 80x3=240 240 2 480

Total 9510

3 Stationery requirement

a) Rewritable CDs 3 50 150

b) Flash Disc 2 400 800

c) For binding research paper. 4 300 1200

Total 2150

4 Transportation expenses 10 100 1000

a) From kebeles to city administration.

b) For Tax to take primary and secondary

data within the town of selected kebeles.
10 200 2000

c) From kebeles to city administration for 10 50 500

transportation.

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 5 Other expenses 10000

Total 14500

Grand Total 39660

Source: Prepared by the researcher, 2023.

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