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Barriers to technological innovations of SMEs: how to solve them?

Article in International Journal of Innovation Science · November 2020

DOI: 10.1108/IJIS-04-2020-0049

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Barriers to
Barriers to technological technological
innovations of SMEs: how to innovations

solve them?
Henny Indrawati, Caska and Suarman 545
Faculty of Teacher Training and Education, Universitas Riau,
Pekanbaru, Indonesia Received 17 April 2020
Revised 9 June 2020
15 July 2020
20 September 2020
Accepted 26 October 2020
Abstract
Purpose – This study aims to analyze the inhibiting factors of small and medium enterprises (SMEs’)
technology innovation, supporting institutions for SMEs technology innovation development, SMEs’
technology innovation development model and strategies for developing SMEs in technology
innovation.
Design/methodology/approach – This is a mixed-method research project conducted through a survey
of SMEs in Riau Province, Sumatera Indonesia (primarily in the districts of Siak, Kampar and Pelalawan)
from April to July 2019. SMEs that have been operating for at least five years were chosen purposively as
samples. Based on the requirement, there are 277 entities used in this study. A focus group discussion (FGD)
was also conducted to formulate SME models and development strategies in technological innovation. In
addition, in-depth interviews and observations were also carried out on technological innovations undertaken
by respondents.
Findings – It was found that there are five inhibiting factors of SMEs’ technology innovation: government
support, quality of human resources, funding of technological innovation, economic conditions and business
partners. The biggest inhibiting factor remains to be the funding of technological innovation. Therefore SMEs
provide independent technological innovation costs to develop technological innovations for business
sustainability. Supporting institutions for developing SME technology innovation consist of government
institutions, private institutions, financial institutions (banks) and nonbank financial institutions. To survive
and excel amid competition, SMEs need to pay attention to technological innovation. The business strategy
that needs to be done is to improve services to consumers and improve their attitude toward innovation in the
implementation and development of SMEs’ businesses.
Research limitations/implications – This research is limited to research on the inhibiting factors for
SME technology innovation from the aspect of the production sector. This research has not studied various
business fields in the trade, service and digital SME sectors. Future studies can reveal factors inhibiting SME
technological innovation, except production aspects and various SME business fields. In addition, this study
has not analyzed the cost of technological innovation provided by SMEs. Therefore, future studies could also
reveal the large costs of technological innovation provided by SMEs.
Originality/value – This research investigates barriers hindering the SMEs’ technological innovations in
Southeast Asia, including Indonesia as a maritime country. It also formulates strategies to reduce the barriers
to SME’s technological innovation and contributes to the development of knowledge of technological
innovations in SMEs. Moreover, this paper involves investigating government support from a nonfinancial
aspect. To the best of the authors’ knowledge, this aspect has not been much discussed by studies on
innovation at SMEs till now.
Keywords Business model, Innovation strategy, Innovation types, Sustaining innovation
Paper type Research paper

International Journal of Innovation

Science
Vol. 12 No. 5, 2020
pp. 545-564
The authors would like to thank the Ministry of Research, Technology and Higher Education for the © Emerald Publishing Limited
1757-2223
funding provided through the Postgraduate Team Research Grant in 2018 and 2019. DOI 10.1108/IJIS-04-2020-0049
IJIS 1. Introduction
12,5 Twenty-first-century businessmen, including small and medium enterprises (SMEs), face
many serious challenges such as fierce competition, consumers’ constant orientation toward
higher quality but low-cost products and the need to stay responsive to rapid industrial
changes (Lesakova et al., 2017). Constant innovation is critical to dealing with these
challenges and improving business quality (Sharmelly, 2017; Ortiz-Villajos and Sotoca,
546 2018; Yigitcanlar et al., 2019) because improving innovation performance is the most
fundamental thing for a business and policymakers (OECD, 2016; Capozza and Divella,
2019). Innovation increases competitiveness in the market (Pudjiarti and Suharnomo, 2018).
The need for continual innovation is not only vital for the survival of the companies. It can
also trigger social and economic changes. If SMEs are innovatively managed, GDP (gross
domestic product) is very likely to rise, which also helps reduce unemployment in each
country (Ejdys, 2016; Di Cintio et al., 2017; Tekola and Gidey, 2019).
The existence of SMEs in Riau contributes to the development of the region’s economy.
This is evident from the number of laborers the businesses employ, as well as the value of
their investment and production. As an illustration, the aggregate of 25,000 business units in
Riau employed as many as 120,000 people in 2017, and the embedded value of the
investment by these businesses reached Rp. 900bn with a production value of Rp. 2.79tn
(Central Bureau of Statistics, 2018).
The success of SMEs in Riau, however, is limited in quantity. In terms of quality, there is
still a lot more to develop, primarily SMEs in the district of Siak, Kampar and Pelalawan.
Many SMEs today continue to face a number of barriers in attempting to improve business
quality, one of which is the lack of skilled human resources. The problem is allegedly
attributable to the lack of knowledge of the owners and workers regarding SMEs, especially
their limited ability to innovate (Caloghirou et al., 2017), one of which is technological
innovation. Whilst innovation is key to success in the face of competition, many of the
companies are still not being innovative enough in their production, technology and
marketing. As a result, they are unable to satisfy the rapidly-changing consumers’ demands
(Caska et al., 2018). Therefore it can be said that intellectual capital is one of the causes of the
lack of technological innovation in SMEs (Capozza and Divella, 2019).
Technological innovation is increasing in complexity, costs and risks in return for
changes in business processes, high competitive pressures and drastic changes in the
technology itself. Technology is an essential resource in an organization. Therefore,
technology has critical implications for competitiveness and long-term profitability. The
success of a business is partly determined by responsiveness and adaptation to
technological innovation (Muthaher and Assegaf, 2014).
SME products must have a competitive advantage over those of bigger companies for
them to stay relevant in the market (Indrawati, 2019). Hence, quality products must be
guaranteed (Sulhaini and Sulaimiah, 2017). SMEs’ innovation is the key to maintaining
stable performance in terms of profitability and competitive advantage (García-Pérez de
Lema et al., 2016). To maintain a competitive advantage, SMEs need to pay attention and be
able to gain an advantage from technological opportunities to support business strategies
and improve operations and services. In this case, the success of a business is partly
determined by responsiveness and adaptation to technological innovation. Successful
innovation depends on the ability to combine a range of central elements, including being
able to access funding, understanding market needs and economic conditions, recruiting
highly skilled staff, building business networks and the ability to get government support
(Madrid-Guijarro et al., 2009; Mohnen and Röller, 2005; Raffo et al., 2000; Rauch et al., 2017;
Chundakkadan and Sasidharan, 2019).
 Based on the above background, this research aims to analyze the inhibiting factors of SMEs’ Barriers to
technology innovation, supporting institutions for SMEs technology innovation development, technological
SMEs’ technology innovation development model and strategies for developing SMEs in
technology innovation. A further contribution of this paper involves investigating government
innovations
support from the nonfinancial aspect. To the best of our knowledge, this aspect has not been much
discussed by studies on innovation at SMEs till now.

2. Literature review
547
SME technological innovation refers to any novel discovery that is different from existing
products or the further development of existing technologies. Technological innovation
consists of radical innovation and incremental innovation. Radical innovation consists of
discovering new processes, discovering new products and services, exploiting new
opportunities in new markets and developing new distribution channels. Incremental
innovation consists of improving existing products and services, applying small
adaptations to existing processes and products, increasing economies of scale in the current
market and expanding existing client services (Woschke et al., 2017; Wang, 2019).
Technological innovation can provide competitive advantages for SMEs (Wadhwa et al.,
2017).
Bagheri et al. (2019) refer to technological innovation as innovation in the form of inputs,
activities and outputs. Such innovation by companies or corporations is key to the success of
a business (Urbancova, 2013). However, it is not easy to achieve technological innovation
because of various barriers.
Existing literature indicates that several factors are hindering the development of SME
technology, one of which is government support (Doh and Kim, 2014; Chundakkadan and
Sasidharan, 2019). The government support is analyzed from financial and nonfinancial
aspects. The financial government support was analyzed from financial assistance provided
by the government. However, this research emphasizes nonfinancial government support,
including training in the use of innovative equipment and assistance of innovative
equipment provided by the government. The government, especially the local one, is
expected to pay attention to SMEs. Lack of support from government is one of the inhibiting
factors for the application of innovation in business (Frenkel, 2003; Mohnen and Röller, 2005;
Trianni and Cagno, 2012; Flanagan and Uyarra, 2016). Lack of government support will also
lead to low knowledge, skills and capabilities of SMEs in managing technology (Belitz and
Lejpras, 2016; Ayodeji et al., 2017; Padachi et al., 2018). This is because the government has a
vital role in making related policies (Norman, 2011). Government support is very important
for SMEs in Indonesia because SMEs need policies and programs that support the creation
of a conducive climate for the development of their businesses. This is, for example, can be
seen from the existence of the People’s Business Credit Program (KUR). This program is a
working capital financing specifically intended to increase access to SME financing in
Indonesia.
Another significant inhibiting factor is the lack of sufficient capital (Fleiter et al., 2012;
Trianni and Cagno, 2012; Song et al., 2015; Belitz and Lejpras, 2016; Howell, 2017; Mateut,
2018). The high cost of technological innovation is often not proportional to the small
allocation of capital (Grimpe and Sofka, 2016; Capozza and Divella, 2019). In fact, it has
always been the reason for the difficulty of implementing technological innovation (Motta
et al., 2013). The cost of innovation is one of the parameters used to define the level of
technological innovation found in a business (Yong’an et al., 2016). The cost of innovation
affects the ability of technological innovation, to the extent that it supports the company’s
innovation strategy (Wang, 2019). Some studies also found that access to finance is the most
IJIS pressing obstacle in SMEs (Madrid-Guijarro et al., 2016) because investments in innovation
12,5 are regarded as intangible investments. This happens because of its high uncertainty
regarding the success achieved through investment in innovation. Therefore, financial
entities may be unwilling to lend for such investments because of the absence of a collateral
value (Dinh et al., 2012; Mason, 2013; Mina et al., 2013). This impedes investment in
innovation (Madrid-Guijarro et al., 2016). As a consequence, innovation will be low because
548 of a shortage of financial resources (Chundakkadan and Sasidharan, 2019). The interest
rates are also an obstacle for SMEs to innovate because too high-interest rates are severe
obstacles in undertaking innovation projects (Galia and Legros, 2004; Savignac, 2008).
The enterprises that have financial limitations tend not to invest in innovation. This is
because they are affected by long-term macroeconomic instability and difficulty in getting
innovative and supportive equipment (Scozzi et al., 2005; Belitz and Lejpras, 2016; Madrid-
Guijarro et al., 2016). However, economic uncertainty tends to encourage enterprises to
innovate to remain competitive and survive (Madrid-Guijarro et al., 2009). A study of Strobel
and Kratzer (2017) found that companies also experienced external obstacles from the aspect
of low customer demand, because of their low purchasing power because of economic
instability.
To create technological innovations, it is essential for business owners to have sufficient
levels of knowledge and skills for SME innovation (Kaminski et al., 2008; Caloghirou et al.,
2017) because of a minimum understanding of labor and business owners will hinder ideas
to innovate in business (Hossain and Kauranen, 2016). These can be obtained through
recruiting a high-quality workforce (Capozza and Divella, 2019) and providing education
and training for workers and business owners (McGuirk et al., 2015). Highly educated
workers can adapt more quickly and efficiently to new technology (Balsmeier and
Czarnitzki, 2014; Arvanitis et al., 2016). In addition, they are better able to identify and
exploit new technological opportunities that support the firm’s capacity (Goedhuys et al.,
2013). In line with the results of Agarwal et al. (2017), the SME workforce needs to get
training in improving technological innovation. The higher the ability possessed by the
workforce, the higher the technological innovation found in a business (Zhang and Lv, 2015).
Major challenges that prevent SMEs from achieving innovation include limited
resources, noninventive labor and the lack of understanding of ideas (Olander et al., 2014). In
the context of the industry in Poland, Najda-Janoszka and Kopera (2014) maintained a
similar proposition, arguing that the obstacles to innovation are primarily related to human
resources, namely, inadequate skills, low formal competencies and qualifications and limited
motivation to become involved in the innovation process. Some other studies also suggest
that the barrier to innovation is largely because of the low quality of human resources in
companies (Love and Roper, 2015; Gazem et al., 2017). Shortcomings in technological
information, market information and customer response are obstacles to innovation
(Verbano and Crema, 2016; Andrikopoulos and Khorasgani, 2018).
A well-built communication network with business partners may potentially improve
performance and facilitate human resources to technological innovation (Fassin, 2000;
Bagheri et al., 2019). In addition, business partners should also have a wide-ranging
business network that can lead to technological innovation (Babalola et al., 2015).
Collaborating with business partners can also play a role in increasing market
competitiveness (Wirtz, 2011). Hence, the huge costs of innovation and technology can be
overcome through good business partner relationships (Kumar and Subrahmanya, 2010). It
also implies that minimum opportunities for networking with local companies have an
adverse influence on business technological innovation (Frenkel, 2003; Mohnen and Röller,
2005).
 Different from previous research, this research investigates barriers hindering the SMEs’ Barriers to
technological innovations in Southeast Asia, including Indonesia as a maritime country. It technological
also examines more deeply the strategy to reduce the barriers to SMEs’ technological
innovation.
innovations

3. Research methodology
This research was conducted through a survey of SMEs in the industrial regions of Siak, Kampar
and Pelalawan. A total of 277 SMEs were selected as the samples in this study, with the criterion of
549
the producers who have been running their business for at least five years. The samples are
businesses in the field of food production, craftsmanship and processed products typical of Riau,
and included in the group of three in the Province of Riau. This research requires primary data
collected using a questionnaire instrument, which consists of several statements about various
factors that hinder technological innovation. Measurement of data using a five scale Likert Scale.
Value intervals are represented by the numbers 1 (strongly disagree), 2 (disagree), 3 (neutral), 4
(agree) and 5 (strongly agree). Category of inhibiting factors of technological innovations can be
seen in Table 1. The statement item of innovation inhibiting factors was developed from research
conducted by Madrid-Guijarro et al. (2009).
A focus group discussion (FGD) was also conducted with business owners, the
Cooperative and SME Office, cooperatives, entrepreneurs and banking institutions in the
research area, to formulate a model and strategy for developing SMEs in technological
innovation. In addition, in-depth interviews and observations were also carried out on
technological innovations conducted by respondents.
The validity test of the instrument was conducted by using the Pearson correlation technique
(Sugiyono, 2019). It is declared as valid if the correlation value is greater than 0.3. Other than that,
the reliability test of the instrument was conducted by using Cronbach’s alpha technique. It is
declared as reliable if the alpha value is greater than 0.6 (Sugiyono, 2019).
This research used mixed methods (qualitative and quantitative). In mixed methods, the
role of the qualitative method is to interpret, clarify, illuminate and describe quantitative
findings. The qualitative method served to elucidate and provide more depth to the
questionnaire responses. The quantitative method is a method based on numerical
information associated with statistical analysis (Harrigan et al., 2012). Data were analyzed
by descriptive analysis (to calculate the mean and standard deviation of all variables) and
confirmatory factor analysis. Confirmatory factor analysis was used to confirm existing
theories or concepts (Rahmidani, 2014). Data analysis was done using SPSS 20 for Windows
software.

4. Results and discussion

4.1 Technological innovation employed in the business
There are five types of technological innovations that have been applied by respondents,
namely, the invention of new processes, the invention of new products, the development of

No. Category Interval

Table 1.
1 Very high 4.30–5.00
2 High 3.50–4.20 Category of
3 Medium 2.70–3.40 inhibiting factors of
4 Low 1.90–2.60 technological
5 Very low 1.00–1.80 innovations
IJIS new distribution channels, the implementation of minor adaptation to current products and
12,5 the implementation of minor adaptation to current processes. However, not many
respondents applied technological innovation, as shown in Figure 1.
Figure 1 shows that most respondents developed new distribution channels (45.85%).
The respondents are trying to develop distribution channels through social media, such as
Facebook, Instagram, WhatsApp and collaborate with Gojek to expand their product
550 marketing. One of the advantages of social media is that it has a lot of potentials to support
business progress. Social media can be used to communicate in business, help marketing
products and services, communicate with customers and suppliers, complete brands, reduce
costs and for online sales (Priambada, 2017). Social media also has seven potential functions
in business, namely, identifying its customers, conducting reciprocal communication,
sharing information to find out what products customers such as customer presence,
customer relationships based on location and interaction patterns, the company’s reputation
in the eyes of customers and forming inter-group customers (Smits and Mogos, 2013).
However, 54.15% of respondents have not done it because of internet network difficulties.
Not to mention that they are not skilled at using it yet.
Meanwhile, only 20.94% of respondents did for the invention of new products. The
respondents produced a variety of new products in terms of shapes, sizes, flavors and
models of interest to consumers. The invention of new processes was also carried out by
16.97% of respondents to support the production of new products. The implementation of
minor adaptation to current processes was made by 36.10% of respondents. Although
finding a process that is still simple, they are able to improve the quality of the products.
This improvement, for example, can be seen in the process of filtering oil by using oil
absorbent paper on fried foods to produce low oil content. Although it is still done
traditionally, this innovation results in a product of better quality, which is low in oil
content, so as to extend the product’s shelf life. The implementation of minor adaptation to
current products was also carried out by 34.30% of respondents. This can be seen, for
example, from product packaging. At the beginning of the establishment of the business, the
packaging is very simple. But now, the packaging has begun to attract by including the
brand, although the process is still done in the traditional way. The packaging press has
been provided by the local government. However, it cannot be utilized because of
insufficient electrical power to use the tool.

Figure 1.
Technological
innovation employed
in the business
4.2 Descriptive analysis result Barriers to
The data used for data analysis are the data collected using questionnaires. Before the technological
analysis, the validity and reliability of the instrument were first tested. Table 2 shows all
valid and reliable items resulting from the validity and reliability test. As suggested by
innovations
Sugiyono (2019), the validity test of the instrument was conducted by using the Pearson
correlation technique. It is declared as valid if the correlation value is greater than 0.3. Other
than that, the reliability test of the instrument was conducted by using Cronbach’s alpha
technique. It is declared as reliable if the alpha value is greater than 0.6. 551
The descriptive analysis used mean measures to find out the weighted average of the
answers of respondents towards each statement and standard deviation. The results of the
descriptive analysis are presented in Table 3 which shows that there are three obstacles
included in the medium category: difficulty in getting innovative equipment, unstable
economy and low purchasing power. Meanwhile, there are ten obstacles included in the high
category and three obstacles are included in the very high category, namely, high cost of
technological innovation, difficulties in obtaining loans from financial institutions and high-
interest rates. The high cost of technological innovation is the highest obstacle faced by
respondents. This finding supports the findings of previous studies that the high cost of
technological innovation has always been the reason for the difficulty of implementing
technological innovation (Motta et al., 2013). The cost of innovation is one of the parameters
used to determine the level of technological innovation found in business (Yong’an et al.,
2016), and the cost of innovation influences the ability of technological innovation (Wang,
2019). Meanwhile, for the standard deviation values, all values are below the average value.
This shows that the spread of homogeneous data (Sugiyono, 2019).

4.3 Analysis of barrier factors for technological innovation

The correlation between inhibiting factors of technological innovations presented in Table 4
shows a significant and positive relationship among many variables. The KMO (Kaiser–Meyer–
Olkin) test and Bartlett’s test are presented in Table 5. The number of KMO and Bartlett’s test
results is 0.743 > 0.5 (Wibisono, 2003) with a significance of 0.000, which shows the correlation
between variables. These tests support the use of the factor analysis in the study.

Validity Reliability
Item (r > 0.3) (alpha > 0.6)

1 0.550 0.725
2 0.556 0.722
3 0.607 0.714
4 0.530 0.727
5 0.410 0.746
6 0.494 0.749
7 0.447 0.755
8 0.418 0.757
9 0.547 0.752
10 0.671 0.777
11 0,688 0.782
12 0.612 0.714
13 0.646 0.764 Table 2.
14 0.665 0.755 Results of validity
15 0.604 0.761 and reliability test of
16 0.630 0.712 the instrument
IJIS No. Inhibiting factors Mean SD
12,5
1 Minimum government financial assistance 4.007 0.872
2 Lack of training for technological innovation from government 3.982 0.899
3 Untargeted government assistance of innovative equipment 3.921 1.025
4 Difficulty in recruiting high-quality workforce 3.755 1.112
5 Incompetent workforce 3.697 1.057
552 6 Workforce relatively resisting to change of technological innovation 3.653 1.101
7 Business owners relatively resisting to change of technological innovation 3.599 1.064
8 Business owners lacking knowledge of technological innovation 3.534 0.998
9 High cost of technological innovation 4.408 0.919
Table 3. 10 Difficulties in obtaining loans from financial institutions 4.354 0.959
11 High interest rates 4.350 0.919
Descriptive analysis
12 Difficulty in getting innovative equipment 3.336 0.951
result of inhibiting 13 Unstable economy 2.798 1.019
factors of 14 Low purchasing power 2.736 1.154
technological 15 Lack of suppliers as business partners 3.812 1.152
innovations 16 Lack of marketing agencies as business partners 3.776 1.057

Furthermore, the results of the rotated component matrix are presented in Table 6. Five
factors have been found hindering technological innovation. These five factors are named so
that they can represent the variables included in them as far as possible. The number of
factor loadings presented shows the relationship of variables with the five factors formed.
The explanation is as follows:
(1) Factor 1 consists of variables: minimum government financial assistance, lack of
training for technological innovation from government and untargeted
government assistance of innovative equipment. These three variables are named
government support.
(2) Factor 2 consists of variables: difficulty in recruiting high-quality workforce,
incompetent workforce, workforce relatively resisting to change of technological
innovation, business owners relatively resisting to change of technological
innovation, business owners lacking knowledge of technological innovation. The
five variables are named the quality of human resources.
(3) Factor 3 consists of variables: difficulties in obtaining loans from financial
institutions, high-interest rates and high cost of technological innovation. These
three variables are named the funding of business technological innovation.
(4) Factor 4 consists of variables: difficulty in getting innovative equipment, an
unstable economy and low purchasing power. These three variables are named
economic conditions.
(5) Factor 5 consists of variables: lack of suppliers as business partners, and lack of
marketing agencies as business partners. Both variables are named business
partners.

There are five factors inhibiting technological innovation, namely, government support,
quality of human resources, funding of business technological innovation, economic
conditions and business partners. If ranked from the average value (presented in Table 7),
the financing factor for technological innovation is the highest factor (first) in inhibiting
SME technological innovation with an average value of 4.371. This finding supports the
No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1 Minimum government financial 1

assistance
2 Lack of training for technological
innovation from government
3 Untargeted government assistance of
innovative equipment
4 Difficulty in recruiting high-quality
workforce
5 Incompetent workforce
6 Workforce relatively resisting to
change of technological innovation
7 Business owners relatively resisting to
change of technological innovation
8 Business owners lacking knowledge of
technological innovation
9 Difficulty in getting innovative
equipment
10 Unstable economy
11 Low purchasing power
12 Difficulties in obtaining loans from
financial institutions
13 High interest rates
14 Lack of suppliers as business partners
15 Lack of marketing agencies as business
partners
16 High cost of technological innovation
0.848 1
0.819 0.836 1
0.611 0.601 0.513 1
0.143 0.216 0.186 0.130 1
0.148 0.123 0.195 0.146 0.849 1
0.155 0.142 0.133 0.182 0.775 0.354 1
0.246 0.348 0.119 0.117 0.127 0.201 0.714 1
0.167 0.194 0.202 0.195 0.135 0.235 0.231 0.128 1
0.157 0.154 0.195 0.137 0.148 0.128 0.119 0.196 0.649 1
0.116 0.105 0.112 0.148 0.128 0.205 0.176 0.104 0.313 0.459 1
0.500 0.496 0.593 0.415 0.126 0.134 0.113 0.100 0.271 0.105 0.155 1
0.375 0.176 0.124 0.114 0.195 0.177 0.381 0.164 0.247 0.165 0.256 0.416 1
0.142 0.130 0.138 0.173 0.189 0.191 0.106 0.104 0.187 0.123 0.114 0.464 0.230 1
0.179 0.165 0.113 0.172 0.711 0.264 0.155 0.141 0.180 0.189 0.160 0.175 0.192 0.568 1
0.385 0.287 0.277 0.393 0.114 0.121 0.188 0.184 0.261 0.197 0.178 0.851 0.705 0.294 0.151 1

innovation
barriers to
Table 4.
innovations
Barriers to

technological
553
technological

Correlation among
IJIS conclusions from previous studies on the same theme that financing factors inhibit
12,5 technological innovation (Ribau et al., 2017; Das et al., 2018). The high cost of technological
innovation is often not proportional to the small allocation of capital (Grimpe and Sofka,
2016; Capozza and Divella, 2019). In fact, it has always been the reason for the difficulty of
implementing technological innovation (Motta et al., 2013). The cost of innovation is one of
the parameters used to define the level of technological innovation found in a business
554 (Yong’an et al., 2016).
Government support is the second factor that impedes technological innovation (mean =
3.970). The government is expected to pay attention to SMEs as the lack of support from the
government is one of the inhibiting factors for the application of innovation in business
(Frenkel, 2003; Mohnen and Röller, 2005; Trianni and Cagno, 2012; Flanagan and Uyarra,
2016). Lack of government support will also lead to low knowledge, skills and capabilities of
SMEs in managing technology (Belitz and Lejpras, 2016; Ayodeji et al., 2017; Padachi et al.,
2018). The findings of this study are consistent with some findings of previous studies
indicating that factors hindering the development of SME technology, one of which is
government support (Doh and Kim, 2014; Chundakkadan and Sasidharan, 2019).
Business partners are the third factor that impedes technological innovation (mean =
3.794). The factors of business partners include a lack of suppliers and marketing agencies
as business partners. This finding agrees with the studies of Aparicio et al. (2013) and
Pacheco et al. (2017) that business partners can motivate to innovate, thus having few or no
business partners will hinder technological innovation. Alliances with business partners

KMO and Bartlett’s test

Table 5. KMO measure of sampling adequacy 0.743
KMO and Bartlett’s Bartlett’s test of sphericity 3178.49
test result Sig. 0.000

Component
1 2 3 4 5

Minimum government financial assistance 0.937 0.109 0.196 0.143 0.232

Lack of training for technological innovation from government 0.942 0.185 0.194 0.142 0.107
Untargeted government assistance of innovative equipment 0.874 0.142 0.206 0.169 0.161
Difficulty in recruiting high-quality workforce 0.123 0.726 0.139 0.138 0.158
Incompetent workforce 0.141 0.950 0.199 0.158 0.118
Workforce relatively resisting to change of technological innovation 0.148 0.969 0.220 0.125 0.120
Business owners relatively resisting to change of technological innovation 0.315 0.878 0.144 0.121 0.290
Business owners lacking knowledge of technological innovation 0.105 0.892 0.138 0.154 0.267
Difficulty in getting innovative equipment 0.179 0.167 0.282 0.619 0.132
Unstable economy 0.212 0.120 0.221 0.654 0.197
Low purchasing power 0.183 0.116 0.249 0.540 0.158
Difficulties in obtaining loans from financial institutions 0.485 0.216 0.788 0.125 0.235
High interest rates 0.249 0.171 0.649 0.280 0.260
Table 6. Lack of suppliers as business partners 0.106 0.185 0.120 0.113 0.783
Rotated component Lack of marketing agencies as business partners 0.188 0.245 0.101 0.217 0.871
matrix High cost of technological innovation 0.463 0.232 0.812 0.097 0.122
No. Inhibiting factors Mean
Barriers to
technological
Funding of business technological innovation 4.371 innovations
1. High cost of technological innovation 4.408
2. Difficulties in obtaining loans from financial institutions 4.354
3. High interest rates 4.350
Government support 3.970
4. Minimum government financial assistance 4.007
555
5. Lack of training for technological innovation from government 3.982
6. Untargeted government assistance of innovative equipment 3.921
Business partners 3.794
7. Lack of suppliers as business partners 3.812
8. Lack of marketing agencies as business partners 3.776
Quality of human resources 3.647
9. Difficulty in recruiting a high-quality workforce 3.755
10. Incompetent workforce 3.697
11. Workforce relatively resisting to change of technological innovation 3.653
12. Business owners relatively resisting to change of technological innovation 3.599
13. Business owners lacking knowledge of technological innovation 3.534 Table 7.
Economic conditions 2.957 Mean rankings of
14. Difficulty in getting innovative equipment 3.336 barriers to
15. Unstable economy 2.798 technological
16. Low purchasing power 2.736 innovation

also help exploit resources to improve SME innovation capacity (Castellani and Zanfei, 2007;
Halilem et al., 2014).
Quality of human resources is the fourth factor that impedes technological innovation
(mean = 3.647). Poor quality human resources are the most significant inhibiting factor of
technological innovation for SMEs (Saunila, 2016; Strobel and Kratzer, 2017). The higher the
ability possessed by the workforce, the higher the technological innovation found in a
business (Zhang and Lv, 2015). Some other studies also show that the obstacles to
innovation are also caused by the low quality of human resources in the company (Love and
Roper, 2015; Gazem et al., 2017).
Economic conditions are the lowest factors that inhibit technological innovation (mean =
2,957). The findings for these factors are also in line with previous studies that an unstable
economy is an additional impediment to SMEs’ technological innovation (Hueske and
Guenther, 2015). The ease of getting time-saving innovative equipment will affect
technological innovation (Walton et al., 2016). Innovative equipment is also equipment that
is suitable for business needs (Khin and Ho, 2019).
This study discusses the obstacles experienced by SMEs to develop technological
innovation in their business. It was conducted on the SMEs working in the field of food
production, craftsmanship and processed products typical of Riau. The success of SMEs and
the sustainability of their businesses depend largely on the extent of technological
innovation, especially in facing today’s global competition. In other words, it is crucial for
SMEs to cultivate innovation to improve the quality of their business (Arshad et al., 2016;
Agustina et al., 2017) to stay relevant amid fierce competition. Product innovation is
important to maintain market competition (Aziz and Samad, 2016), and process innovation
is required to maintain competitive prices. SMEs must be able to evaluate any obstacles to
technological innovation (Agustina et al., 2017).
IJIS This finding shows several policy implications to reduce barriers to SME technological
12,5 innovation. The financing factor for technological innovation is the highest factor (first) in
inhibiting SME technological innovation. This is because of the fact that SMEs have
not included the cost of innovation in doing business. Respondents did not include the cost
of innovation in calculating production costs because of the high research costs. They carry
out technological innovations based on business experience only. This problem can be
556 through the cooperation of SMEs, universities and the government in developing SMEs.
This collaboration can be initiated by the government and universities. Cooperation in
solving the problem of SME financing is to collaborate with various parties as suggested in
Figure 2. Apart from helping the problem of SME financingô the various parties can also
help finance SMEs’ technology innovation. Policy implications that need to be done so that
SMEs in calculating the financing structure include the cost elements of technological
innovation in doing business. This is important so that SMEs can provide the cost of
technological innovation to develop technological innovation independently. By doing so,
the sustainability of SME businesses occurs (Grimpe and Sofka, 2016; Capozza and Divella,
2019).
Government support and business partners are the second and third factors that impede
technological innovation. These findings suggest several policy implications to reduce
barriers to technological innovation for micro-, small- and medium-sized enterprises. From
an internal point of view, it is vital to:

upgrade the competence of business owners through continuous education and
training in facing a rapidly-changing business environment; and

expand business networks through partnerships.

Some solutions to insufficient innovation financing include:

Accompanying, facilitating
learning processes, reflection
Government Agencies and mediators to strengthen
(Department of Cooperatives and SMEs)
partnerships between micro,
small and medium businesses
and large businesses
Private Institutions
SMEs

Financial Institutions (Banks)

Capital raising institutions and

product marketing partners
Non-Financial Institutions
(Pawn Shops, Cooperatives
and Leasing)
The media fosters new
entrepreneurial interests, means of
Figure 2. capital investment, and supporting
Supporting media for business developers
institutions for SMEs
technology
innovation
development
Source: FGD Results (2019)

enhancing partnerships with higher education to accelerate technological Barriers to
innovation; and technological

supporting government policies that encourage technological innovation for micro, innovations
small and medium enterprises.

Another alternative that can be done for this problem is to make effective cooperation with
supporting institutions for the development of SME technology innovations, as shown in Figure 2.
The quality of human resources is the fourth factor that impedes technological
557
innovation. The policy implications that can be done are applying the SME technology
innovation development model, as shown in Figure 3. This model is constructed through
the input–process–output approach. There are two stages in the development of
technological innovation models in the input aspects, namely:
(1) the stages of motivation, socialization and identification of the needs of
technological innovation development; and
(2) stages of UKM technology innovation formulation.

Participants in the input process are obtained through two community groups, namely:
(1) SME entrepreneurs; and
(2) jobless youth.

If the input phase of the participants in the development of technological innovation has
been completed, then it can proceed to the stage of the development process of SME
technology innovation.
The stages of the process of developing SME technological innovation are carried out
through five stages, namely:
(1) the entrepreneurship workshop process;
(2) the process of entrepreneurship internship;
(3) business practices process;

Entrepreneurship
Workshop
YOUTH
UNEMPLOYMENT
IMPROVEMENT OF
Entrepreneurship NEW
Internship ENTREPRENEURS

FORMULATION SMEs
MOTIVATION,
OF SMEs INNOVATION
SOCIALIZATION, INNOVATION Business TECHNOLOGY
IDENTIFICATION TECHNOLOGY Practices
NEEDS

INCREASING
Business TECHNOLOGY
Consultation INNOVATION
ENTREPRENEURS
OF SMEs COMPETENCY

Figure 3.
Entrepreneurial
Incubator SMEs technology
innovation
development model
Source: FGD results (2019)
IJIS (4) business consultation process; and
12,5 (5) the entrepreneurial incubator process.

The five stages of the SME technology innovation development process are carried out with
action material (as seen in Table 8). The process stages of this model are carried out using
strategies to survive and excel in competition. In implementing this strategy, SMEs need to
558 pay attention to technological innovation. The business strategy that needs to be done is to
improve services to consumers and improve skills in attitude and behavior in innovation in
the implementation and development of SME businesses. This strategy is carried out
through five policies, namely:
(1) improving the quality of human resources;
(2) increasing SME capital;
(3) accessing a wider market;
(4) expanding partnerships; and
(5) increasing the support of government institutions.

These five policies can increase SME human resources to reduce barriers to technological
innovation (Table 9). The outputs of this SME technology innovation development model are:

Aspect Purpose Content

Basic concepts of Participants Understanding entrepreneurship

entrepreneurship understand the basic Entrepreneurial mindset
concepts of Entrepreneurial goals and benefits
entrepreneurship Entrepreneurial attitudes and behavior
Entrepreneurial ethics
Entrepreneurship Participants gain Business establishment
internships experience in Organizing businesses
entrepreneurship Analysis of business needs
Analysis of business capital
Analysis of business payment transactions
Business practices Participants practice Analysis of business capital utilization
entrepreneurial Determination of location and layout techniques
business work Human resources management
practices Market and marketing analysis
Marketing strategy
Business consultation Participants conduct Financial statement analysis
entrepreneurial Business feasibility assessment
business Competitor analysis
consultations Customer service
Business protection
Entrepreneurial Participants perform Incubator for business establishment
incubator entrepreneurial Business organizing incubator
incubators Operations management incubator
Human resource management incubator
Table 8. Capital management incubator
Marketing management incubator
Actions that can Financial management incubator
enhance SMEs Risk management incubator
technological
innovation Source: FGD results (2019)

improvement of new entrepreneurs; and Barriers to

increasing technology innovation competency. technological
innovations
Through these two outputs, it is expected that SME technology innovation will develop.
Economic conditions are the lowest factor that inhibits technological innovation. Even though it
is the lowest, it is also important for relevant parties to consider a couple of possible policies to
implement with regard to the problems. First, the government needs to give more support in the
form of financial aid, business training and innovative equipment. They also need to pay attention
559
to economic stability as it is a significant inhibiting factor in technological innovation. When
properly maintained, it can boost people’s purchasing power and reduce interest rates. Lastly, the
businesses themselves should expand their partnerships because this may open the possibility of
getting aid in the form of innovative equipment from the government and having suppliers and
marketing agencies as business partners.

5. Conclusion
The inhibiting factors of technological innovation for SMEs are grouped into five categories:
government support, quality of human resources, innovation funding, economic conditions
and business partners. The biggest inhibiting factor remains to be the funding of
technological innovation. Therefore, SMEs provide independent technological innovation
costs to develop technological innovations for business sustainability. Supporting
institutions for developing SME technology innovation consist of government institutions,
private institutions, financial institutions (banks) and nonbank financial institutions. To
survive and excel amid competition, SMEs need to pay attention to technological innovation.
The business strategy that needs to be done is to improve services to consumers and
improve their attitude toward innovation in the implementation and development of SMEs’

Strategy Policy

To survive and excel amid competition,
SMEs need to pay attention to
technological innovation. The business
strategy that needs to be done is to
improve services to consumers and
improve their attitude toward
innovation in the implementation and
development of SMEs’ businesses
Source: FGD results (2019)
Improving the quality of human resources through
education and training, seminars and workshops, on-the-
job training, apprenticeships and business cooperation.
In addition, it also needs to be given the opportunity to
practice theory through the development of a pioneering
partnership
Adding to SMEs’ capital. To increase the capital,
entrepreneurs can cooperate with banks and nonbanks
that offer loans at low-interest rates
Accessing to a wider market. SME entrepreneurs must
find information and ways to control the current market
share. Entrepreneurs can develop partnerships to expand
marketing networks. This partnership network can be
done with larger businesses/entrepreneurs in marketing
their products
Conducting partnerships with suppliers of raw materials
in the ordering area Table 9.
Making sure the government agency support. Strategies and
Government agencies already have programs to open
small and medium businesses, but this program has not
policies for
been maximized developing SMEs in
technology
innovation
IJIS businesses. This study is expected to encourage technological innovation among SMEs in
12,5 Riau and is useful for the government and SMEs as a basis for establishing policies to
develop SME innovation. Appropriate government policies will help SMEs in Indonesia
compete with the global market and for SMEs to survive amidst rapidly changing and
growing markets with more competitors. This research can also provide insight for other
researchers regarding the barriers to technological innovation in businesses experienced by
560 SMEs in the Southeast Asian region, including Indonesia as a maritime country.
This research is limited to research on the inhibiting factors for SME technology
innovation from the aspect of the production sector. This research has not studied various
business fields in the trade, service and digital SME sectors. Future studies can reveal
factors inhibiting SME technological innovation, except production aspects and various
SME business fields. In addition, this study has not analyzed the cost of technological
innovation provided by SMEs. Therefore, future studies could also reveal the large costs of
technological innovation provided by SMEs.

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Corresponding author
Henny Indrawati can be contacted at: henny.indrawati@lecturer.unri.ac.id

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