BIBLIOGRAPHY WAYET, MARY ANN D., April 2012. “An...
BIBLIOGRAPHY
WAYET, MARY ANN D., April 2012. “An Assessment of the Innovation of the
MSMEs in La Trinidad.”Benguet State University, La Trinidad, Benguet.
Adviser: Darlyn D. Tagarino,PhD
ABSTRACT
The study determined the type of the innovation adopted by MSMEs in the last three
years and the person/s responsible for the introduction of the innovation; activities associated
with the innovation and the information sources, it also determined the effects of innovation and
the factors affecting the decision of MSMEs not to innovate.
Thirty (30) MSMEs in La Trinidad were chosen as respondents, 15 were in the
manufacturing and 15 in the service sectors.
The result showed that for the past three years, MSMEs in La Trinidad engaged in
various innovation activities. The innovations were in the areas of product, process, organization
and marketing. The major developer of product and process innovation was the owner and
manager of the enterprise. Majority of the innovation activities were searching for new ideas and
developing it into a product or service in the market. The strongest source of information was the
enterprise group. The strongest impact from the innovations made was the improved quality of
products or services. Lack of capital was the greatest factor that affected the MSME’s decision to
innovate.
It is recommended that the MSMEs should continue to innovate and the government
should help the MSMEs in their innovation activities. Avenues where the different enterprises
can meet and share ideas should be encourage. Other institutions such as universities and civic
societies should involve the MSMEs in activities that promote development of innovations.
An Assessment of the Innovation of the MSMEs in La Trinidad /Mary Ann D.Wayet. 20120
TABLE OF CONTENT
Page
Bibliography.................................................................................................... i
Abstract ..........................................................................................................
i
Table of Contents ...........................................................................................
ii
INTRODUCTION
Rationale
........................................................................................... 1
Importance of the Study ...................................................................
2
Statement of the Problem .................................................................
3
Objectives of the Study ....................................................................
3
Scope and Delimitation of the Study ................................................
4
REVIEW OF LITERATURE
MSMEs…………………….............................................................. 5
Classification of MSMEs..................................................................
5
Innovation……………………………….......................................... 6
Sources of Innovation........................................................................
8
Sources of Developed Innovation.....................................................
8
Effects of Innovation on Firm Performance ...................................
8
Innovation
Activities……………………......................................... 11
METHODOLOGY
Locale and Time of the Study ..........................................................
13
Respondents of the Study .................................................................
13
Data
Gathered....................................................................................
13
Data Gathering Procedure.................................................................
14
Data Analysis ...................................................................................
14
RESULTS AND DISCUSSIONS
Classification of Respondents...........................................................
15
Business
Profile…….........................................................................
15
Product Innovation by Enterprise Scale............................................
16
Process innovation by enterprise Scale.............................................
16
Organization and Marketing by Enterprise scale..............................
17
Product Innovation by Industry Sector..............................................
18
Process innovation by Industry sector...............................................
18
Organization and Marketing Innovation by Industry Sector…….....
19
Developer of Process Innovation….................................................
20
Developer of Product Innovation......................................................
24
Innovation
Activities……………………......................................... 24
Information
Sources……….............................................................. 26
Effects of Process and Product innovation........................................
28
Effects of Organization and Marketing innovation...........................
28
Factors Affecting the Decision not to Innovate...............................
29
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Summary
.......................................................................................... 34
Conclusions
...................................................................................... 36
Recommendations
............................................................................ 37
LITERATURE CITED ..................................................................................
39
APPENDIX
A. Letter to the Respondents............................................................
41
B. Survey Questionnaire...................................................................
42
1
INTRODUCTION
Rationale
The globalization of product and service markets is accelerating. European
companies- in particular SMEs- face increasing competition not only for sale, but also for
technical know-how and skills. In this environment, competitiveness at the company
level depends crucially on the speed with which new products can be brought to the
market place and new cost-saving improvements made. Similarly, the creation of wealth
and employment depends to a very large extent on the speed with which scientific and
technological breakthroughs are converted into practical and attractive solution
(European Commission, 2011).
The plethora of new materials, new product, new financial networks, coupled with
joint venture possibilities, affect the way MSMEs do business globally. The number of
articles, books, symposia, written on the role of the MSMEs in developing change and
innovation is overwhelming (Solomon, Winslow, Tarabishy, 2004).
Innovation requires much more than ability to turn a new idea into a working
product. Efficient flows of technology are not enough- ready supplies of finance and of
business skills are also needed. There must be accessible protection for intellectual
property, and adequate incentives for entrepreneurial drive (European Commission,
2011).
Critical to such culture of innovation are the micro, small and medium-sized
enterprises (MSMEs) which have in recent years proved themselves to be the engines of
economic growth (European Commission, 2011).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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MSMEs are considered the engine of economic growth in most ASIAN
economies by virtue of their sheer number and significant economic and social
contributions. The role of MSMEs in industrial development in Asia is more pronounced
than in the west. In such countries like Japan, Taiwan, South Korea and China, MSMEs
are the backbone of the industrial and manufacturing sectors. Their number and
contribution to total employment in these economies are well over 95% and
70%,respectively. Likewise in the ASEAN economies, MSMEs generally account for
over 90% of establishments, between 20-40% of the total domestic output, and employs
between 75-90% of the domestic workforce (ASEAN Policy Blueprint, 2003).
In the Philippines, MSMEs, account for 99 percent of all business establishments
and 60 percent of the exporting firms in the Philippines. MSMEs currently employ about
55 percent of the Philippine labor force and contribute 30 percent to total domestic
volume sales. The Philippines is a highly entrepreneurial country. Micro, small and
medium size enterprises account for the largest share of the Philippines entrepreneurs
(International Entrepreneurship, 2011).
Thus, MSMEs and innovation is important to economic growth for it is one of the
key factors that help MSME survival in the business arena. Innovation and the factors
affecting innovation of the MSMEs is the key for their ability to maintain their position
and stay in the market.
Importance of the Study
MSMEs and their innovation bring a lot of benefit to a nation. MSMEs are
important to economic development as well. Their innovativeness also brings to
consumers useful goods and services for day to day living. With their innovation the
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
3
needs and wants of consumers are satisfied. The result of the study will help MSMEs in
understanding the role of innovation in the firm. The findings of the study will also give
entrepreneurs/ business people an idea on what are the important factors to consider for
the success of innovation. Also, the result would give information to the policymakers to
know where they could play an important role in the improvement and success of MSME
innovation.
The result will also serve as a reference for future researchers.
Statement of the Problem
1.What type of innovation did the MSMEs introduce for the past three years
(2009-2011)?
2. Who developed the innovations in the MSMEs?
3. What innovation activities did the MSMEs involve in?
4. What are information sources for the innovation activities?
5. What are the effects of innovation to the MSMEs?
6. What are the factors affecting the decision of MSMEs not to innovate?
Objective of the Study
1. To identify the type of innovation adopted by MSMEs in the last three years
(2009-2011);
2. To identify the person/s responsible for the introduced innovation;
3. To identify the activities associated with the innovation;
4. To identify the information sources of innovation in MSMEs;
5. To identify the effects of innovation to the MSMEs, and
6. To identify the factors that affects the decision of MSMEs not to innovate.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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Scope and Delimitation
The study focused on the MSMEs in the La Trinidad area. This study focused
only on the type of innovation the MSMEs perform specifically process, product
innovation, organizational and marketing innovation. The study was limited in the
innovation of MSMEs on the past three years only (2009-2011).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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REVIEW OF LITERATURE
MSMEs
MSMEs is an abbreviation of Micro, Small, Medium enterprises.
Classification of MSMEs
MSMEs may be classified by number of employees and/or by the total assets.
Specifically, the DTI classifies MSMEs as follows:
Size of the firm
Total assets
Number of employees
Micro
3,000,000 and below
1-9
Small
3,000,001-15,000,000
10-99
Medium
15,000,001-100,000,000
100-199
As of 2009, there are 780,437 business enterprises operating in the Philippines. Of
these, 99.6% (777,357) are micro, small and medium enterprises (MSMEs) and the
remaining 0.4% (3,080) are larger enterprises. Of the total number of MSMEs, 91.4%
(710,822) are micro enterprises, 8.2% (63,529) are small enterprises, and 0.4% (3,006)
are medium enterprises (Department of Trade and Industry, 2008).
Majority of the MSMEs in operation in 2009 can be found in the National Capital
Region (NCR) with 210,648 business establishments; Region 4-A (CALABARZON)
with 114,676; Region 3 (Central Luzon) with 79,445; Region 7 (Central Visayas) with
45,427; and Region 6 (Western Visayas) with 45,382. These top five (5) locations
accounted for about 63.7% of the total number of MSME establishments in the country
(Department of Trade and Industry, 2008).
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MSMEs generated a total of 3,595,641 jobs in 2009 versus 2,094,298 for the large
enterprises. This indicates that MSMEs contributed almost 63.2% of the total jobs
generated by all types of business establishments that year. Of these, 30.4% or 1,731,082
jobs were generated by micro enterprises; 25.5% or 1,449,033 by small enterprises; and
7.3% or 415,526 by medium enterprises. By industry sector, MSMEs in the wholesale
and retail trade generated the most number of jobs with 1,250,453 in 2009 followed by
MSMEs in manufacturing, 637,524; hotels and restaurants, 482,357; real estate, renting
and business activities, 284,406; and education 225,016 (Department of Trade and
Industry, 2008).
Innovation
In business and economics, innovation is the catalyst to growth. With rapid
advancement in transportation and communication over the past few decades, the world
concepts of factor endowments and comparative advantages which focused on an area's
unique inputs are outmoded for today's global economy. Now as Harvard economist
Michael Porter points out competitive advantage, or the productive use of any inputs,
which requires continual innovation, is paramount for any specialized firm to succeed.
The entrepreneurs should continuously look for new ways or new changes, so that their
enterprises run steadily (Tuominen and Toivonen, 2007).
The term innovation is first used by Schumpeter (1939). He applied it as a tried or
managed innovation. Innovation is a process to change opportunity and convert it to
marketable ideas. The foundation of innovation is based upon ideas and its people who
develop, carry, react and modify ideas (Van De Ven, 1989). Innovation ideas are likely to
originate from the creativity of external and internal people.
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Tidd, Bessant and Pavitt (2005) presented the following types of innovation (4's
of innovation) namely: Product Innovation- changes in the things (products/ services)
which an organization offers; Process Innovation- changes in the ways in which they are
created and delivered; Position Innovation- changes in the context in which the product/
service are introduced and Paradigm Innovation- where major shifts in thinking cause
change.
Machfoedz (2002) also divided product innovation into four kinds namely (cited
by the International Journal of Business and Social Science, 2011); Discovery of product
creation that is new services or process that have been made before; Product
Development- new services or process that have been available; Product Duplication-
copying new services or process that have been available; Synthesis is a concept
combination and the existing factors to be a new formula. The International Journal of
Business and Social Science (2011) stated that innovation is often considered a
competitive advantage in terms of both products (e.g. new designs) and people (e.g.
employee recruitment). Thus innovation in the entrepreneurial firm is viewed as a multi-
stage process, with different individual behaviour at each stage. Since innovation is
actually characterized by discontinuous activities rather than discrete, sequential stages
(Schroederet al, 1994). The expectation is for the innovative activities to improve their
competitiveness through improved quality, lower production costs, and enhanced
marketing performance. Government standards and regulation and environment concerns
are not important drivers of innovation activities, standards, lack of skilled personnel, and
lack of opportunities for cooperation with other companies (Cororaton, 2005).
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Sources of Innovation
According to Drucker (1985) the general sources of innovations are different
changes in industry structure, in market structure, in local and global demographics, in
human perception, mood and meaning, in the amount of already available scientific
knowledge, etc. In the simplest linear model of innovation the traditionally recognized
source is manufacturer innovation. This is where an agent (person or business) innovates
in order to sell innovation. Another source of innovation, only now becoming widely
recognized, is end-user innovation. This is where an agent (person or company) develops
an innovation for their own (personal or in-house) use because existing products do not
meet their needs.
Source of Developed Innovation
According to De Ridder (2007), the IBM's on top sources of new ideas and
innovation are as follows: 1) Employees; 2) Business partners; 3) Customers directly; 4)
Consultants; 5) Competitors; 6) Associations; 7) Internal Sales and Services Unites; 8)
Internal R&D; 9) Academia; 10) Think-tanks; and 11) Labs and/or institution.
Effects of Innovation on Firm performance
The ultimate goal of innovative effort is to improve firm performance, i.e.
increase profitability and growth. Scope and size of performance enhancing effects of
innovation at the level of the innovating firm depend on the type of innovative activity
and the degree to which innovation outputs (new products, new processes) are
successfully implemented and succeed at the market (Peters, 2008). In general, one
would expect a positive effect of any successful innovation activity on firm
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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performance.However, distinguishing between product and process innovation is critical.
Product innovation alter a firm's product portfolio and will typically lead an upward shift
of a firm's demand curve as a result of some new quality features of the innovative
product that distinguishes it from the firm's old products. The effects of this shift on
profitability and growth will depend on the degree of novelty compared to the products
supplied to the market by other firms, the willingness to pay by potential customers (i.e.
price elasticity of demand), and the reaction of a firm's competitors (Jaumandreu, 2003).
In case product innovations are not new to the market and imitate new products of
competitors,profitability effects are likely to be low while growth effects may be
substantial if the imitation can successfully compete against the original innovation and
gain market shares. Process innovations typically allow for a more efficient production
and reduce a firm's unit costs. Effects on profitability and growth will basically depend
on two factors: First, a firm may either be the first in its market to achieve efficiency
gains from this type of innovation or it may have adopted a new production technology
which has been implemented by competitors before. Secondly, a firm may use
productivity advantages to either lower the price and gain market shares (which will most
likely spur growth) or increase its profit margin by accepting the current market price.
Whether improved competitiveness of innovations translates into higher profitability
and/or higher growth (in terms of output and labor demand) largely depends on the
market structure effects of innovations. In case innovators can successfully alter market
structure towards a lower level of competition (i.e. push competitors out of market) and
gain lower price elasticity for their innovative product, they may raise prices and decrease
output, resulting in low or negative growth despite having gained market shares (Peters,
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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2008). Innovation activities associated with in-house R&D activities imply higher
potentials for positive growth and profitability effects than innovation activities that focus
on the adoption of ideas and technologies developed by others (Brouwer et al., 1993).
Research and Development by definition aims at generating new knowledge and new
applications of technologies, which is likely to generate a certain degree of novelty. A
particular driver for high performance effects are granted patents on innovations since
these give innovators exclusive rights to commercialize a new technology for a certain
period of time (Griliches, 1995). Firms with international innovation activities may
experience different performance effects of innovation compared to firms with only
domestic innovation. On the one hand, sourcing knowledge on a global scale, making use
of comparative advantages of different locations and opening up world markets are likely
to result in more effective innovation activities, a more efficient production and higher
sales of new products. On the other hand, international innovation activities are likely to
be associated with higher cost, higher uncertainty and higher failure rate since firms will
have to deal with, and carry higher transaction costs. What is more, obtaining market
power through innovation will be much more difficult when acting in a larger number of
markets, especially when we look at MSMEs. One may thus assume lower effects from
international innovation activities on profitability but higher ones on growth since
MSMEs may be less able to transfer innovations in a situation of lower price elasticity
and while pushing out competitors. This may transfer higher competitiveness over to
other firms allowing them to gain market shares and increasing the level of their
economic activities.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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Innovation Activities
A common feature of an innovation is that it must have been implemented. A new
or improved product is implemented when it is introduced on the market. New process,
marketing methods or organizational methods are implemented when they are brought
into actual use in the firm's operation (European Commission, 2011).
Innovation activities vary greatly in their nature from firm to firm. Some firms
engage in well-defined innovation projects, such as development and introduction of a
new product, whereas others primarily make continuous improvements to their products,
processes and operations. Both types of firms can be innovative: an innovation can
consist of the implementation of a single significant change, or of series of smaller
incremental changes that together constitute a significant change (European Commission,
2011).
Innovation comprises a number of activities that are not included in R&D, such as
later phase of development for preproduction, production and distribution, development
activities with a lesser degree of novelty, support activities such as trainings and market
preparation, and development and implementation activities for innovations such as
marketing methods which are not products or process innovations. Innovation activities
may also include acquisition of external knowledge or capital goods that is not part of
R&D (European Commission, 2011).
Innovations activities are all scientific, technological, organizational, financial
and commercial steps which actually, or are intended to lead to the implementation of
innovations. Some innovation activities are themselves innovative; others are not novel;
activities but necessary for the implementation of innovations. Innovation activities also
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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include R&D that is not directly related to the development of a specific innovation
(Glossary of Statistical Terms, 2005).
During the given period, a firm's innovation activities may be of three kinds: 1).
Successful of having resulted in the implementation of a new innovation (though not
necessarily commercially successful); 2) Ongoing work in progress, which has not yet
resulted in the implementation of aninnovation; and 3). Abandoned before the
implementation of an innovation (Glossary of Statistical Terms, 2005).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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METHODOLOGY
Locale and Time of the Study
The study location was in La Trinidad, Benguet. The time of the study was
December, 2011 to January, 2012.
Respondents
The respondents were MSMEs as represented by their owner-entrepreneurs or
managers.
Based on the data obtained from the Municipal Hall of La Trinidad the following
numbers of business establishments exist as of 2011:
Type of Business Establishment
Total Number
Manufacturing
61
Services
773
Total Number
834
A total of 30 MSMEs was obtained by random sampling representing 4% of total
number of business establishments in La Trinidad. An equal proportion was obtained as a
sample from each subsector, namely manufacturing and service.
Data Gathered
The data gathered was type of innovation MSMEs perform, person responsible for
the innovation and sources of information about the innovation, innovation activities and
effects of innovation to the MSMEs.
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14
Data Gathering Procedure
Data was gathered using a questionnaire that was developed using the model of
the Fourth Community Innovation Survey, 2004.
Data Analysis
The data gathered was analyzed using frequency and percentage.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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RESULTS AND DISCUSSION
Classification of Respondents
The enterprises can be classified as micro, small and medium enterprises based on
their total assets and/or number of employee's. As standards set by the Department of
Trade and Industry an enterprise can be classifies as micro if it has a total asset of
Php3,000,000 and below and employing 1-9 individuals. Small enterprises have
Php3,000,001 to 15,000,000 total assets and 10-99 employees. Medium enterprises
havePhp15,000,001 to 100,000,000 total asset and 100-199 employees.
As shown in Table 1, majority (63.33%) of the respondents are micro enterprises,
26.67 % are small enterprises. The lowest classification of respondents is medium
enterprises (10%).
Business Profile
Table 2 shows that majority (23.33%) of the micro and small enterprises are in their 2-10
years in business. The results also show that the smaller sized enterprises are in their
early years of operation while the medium enterprises have been longer inoperation.
Table1. Distribution of Respondents According to Scale Classification
PARTICULARS FREQUENCY
PERCENTAGE
(%)
Micro 19
63.33
Small 8
26.67
Medium 3
10
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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Table 2. Distribution of Respondents based on their Number of Years in Business.
PARTICULARS
MICRO
SMALL
MEDIUM
(N=19)
(N=8)
(N=3)
F
%
F
%
F
%
1 and below
4
21.05
1
33.33
2-10
7
23.33
3
15.79
11-20
4
21.05
2
25
21-30
1
5.26
31-40
1
5.26
41 and above
1
12.5
2
66.67
Product Innovation by Enterprise Scale
Product Innovation is the market introduction of new goods or services or a
significantly improved goods or services. The innovation (new or improved) must be new
to the enterprise, but it does not need to be new to the sector or market.
Generally enterprises were product innovative for the past three years (2009-
2011). As shown in Table 3, all of the respondents had introduced product innovations
which were already available in the market. There were 46. 35% product innovation
introduced that were new to the market. Majority of the new products were introduced by
the medium enterprises (66.67%) followed by the micro enterprises (46.67%) and small
enterprises (25%).
Process Innovation by Enterprise Scale
A process innovation is the implementation of a new or significant improved
production process, distribution method of support activity for your goods or services.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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Table 4 shows that a total of 80% of the respondents had done new or improved
way of manufacturing or producing goods or services. Around 70% had done new or
significantly improved supporting activities for the process. Finally, 63.33% had new or
improved way of acquiring raw materials delivery, distribution of the products.
Percentage-wise the medium enterprises were more process innovative compared to the
small enterprises.
Product Innovation by Industry Sector
Table 6 shows the distribution of product innovation by industry sector. More
enterprises in the manufacturing sector compared to the service sector introduced new or
improved products or services which was new to the market. Irrespective of the sector, all
the enterprises came up with product or service innovation that were new or improved but
were already available in the market.
According to enterprise scale, in both manufacturing and service sectors, there
were more micro enterprises that introduced new products in the market compared to the
small and medium enterprises.
Table 3. Distribution by Enterprise Scale as to whether Product Innovation was
introduced during 2009-2011
PARTICULARS
MICRO
SMALL MEDIUM TOTAL
F
%
F
%
F
%
F %
New or improved products are new to
9
47.37 2
25
2
66.67 13 46.35
the market.
New or improved products is already
19
100
8
100 3
100
30
100
available in the market
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Table 4. Distribution by Enterprise Scale as to whether Process Innovation was
introduced during 2009-2011
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
(N=19)
(N=8)
(N=3)
(N=30)
F % F % F % F %
New or improved way of
manufacturing or producing
15 78.95 6 75 3 100 24 84.65
goods or services
New or improved way or
acquiring raw materials, delivery, 12 63.16 4 50 3 100 19 71.05
distribution of products
New or significantly improved
13
68.42
5
62.5 3
100
21
76.97
supporting activities for processes
Process innovation by Industry Sector
Table 7 shows that in terms of process innovation, there is a greater majority
(86.7% versus 60%) of the enterprises in the service sector who innovated by introducing
new or significantly improved support activities for their processes. There is a slightly
greater percentage, however, of enterprises in manufacturing compared to the service
sector which introduced new or improved ways of acquiring raw materials, delivery and
distribution of products.
By enterprise scale, there were more micro enterprises in manufacturing
relative to the service sector that introduced a new or improved way of manufacturing or
providing goods or services, and in introducing new or improved way of acquiring raw
materials, delivery, distribution of products. On the other hand, the micro and small
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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enterprises under the service sector outnumbered the micro and small enterprises in the
manufacturing sector in terms of introducing new or significantly improved supporting
activities for the processes.
Table 5. Distribution as to whether an Organization and marketing innovation was
introduced during 2009-2011
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
(N=19)
(N=8)
(N=3)
(N=30)
F
%
F
%
F %
F %
New or improved
knowledge management
systems to better use or
exchange information,
15
78.95
7
87.5
3 100
25 83.33
knowledge and skills within
the enterprise
Changes in the management
structure or integrating
different departments or
12
63.16
6
75
3 100
21 70
activities
New or significant changes
in relations with other firms 16
84.21
6
75
3 100
25 83.33
or public institutions
Changes to the design or
packaging of a good
10
52.63
7
87.5
3 100
20 66.67
New or significantly
changed sales or distribution 10 52.63
6
75
3 100
19 63.33
methods
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Organization and Marketing Innovation by Industry Sector
As to organization and marketing innovation by industry sector (Table 8), there is
just a slightly greater percentage of service enterprises compared to the manufacturing
who introduced changes in the management structure or integrated different departments
or activities, and introduced new or significantly changed sales or distribution methods.
By enterprise scale, the small enterprises in the service sector outnumbered the
small enterprises in the manufacturing sector as to introducing organization and
marketing innovation in all areas identified. On the other hand, the micro enterprises in
manufacturing compared to the micro enterprises in the service sector were clearly
greater in percentage as to introducing new or improved knowledge management systems
to better use or exchange information, knowledge and skills within the enterprise, new or
significant changes in relations with other firms or public institutions, and changes to the
design or packaging of a good.
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Developer of Product Innovation
There are various developers of new ideas by the MSMEs. This is shown in Table
9. A developer of an innovation maybe defined as one who originates the idea and further
elaborates it with some suggested specifications. The owner or manager (76.67%) is the
major developer of the product innovation followed by the customers (23.33%). Since the
owner or manager is the one who started the enterprise, the owner or manager is carries
the burden for any product improvements. The customers were a developer of innovation
through their suggestion about product improvement. Customers nowadays are more
vocal in their ideas, specification and criteria on what the product or service should look
like. The employees (20%), research and development (16.67%) and business partners
(10%) were also important developers of ideas for innovation.
For medium enterprises the owner and employees were the only developers of
product innovation. It is interesting that the small and micro enterprises generated
product innovation through some kind of research and development activity done. This is
probably done at the level of small experimentations. It can be seen from the Table 9 that
the micro enterprises have more developers of innovation than the small and medium
enterprises.
Developer of Process Innovation
Table 10 shows that just like in Product innovation, the owner or manager
(73.33%) was the major developer of the process innovation. The employees (20%)
through their own initiatives of finding new or better ways of doing things are the second
biggest developer for process innovations. Indications of research and development
activity are mentioned which may refer to trial and error activities in doing things. In
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
22
terms of process innovations, the micro enterprises have also a wide range of developers
compared to the small and medium enterprises.
Table 9. Distribution as to who developed the introduced product innovation
PARTICULARS
MICRO
SMALL
MEDIUM TOTAL
F
%
F
%
F
%
F %
The owner manager
13
68.42
7
87.5
3
100 23 76.67
Employee
4
21.05
1
12.5
1
33.33 6 20
Business partner
3
15.79
0
0
0
0
3 10
Customers directly
4
21.05
3
37.5
0
0
4 13.33
Consultant
0
0
0
0
0
0
0 0
Competitors
1
5.26
0
0
0
0
1 3.33
Associations
0
0
0
0
0
0
0 0
Internal sales & service
1
5.26
0
0
0
0
1 3.33
Research and Development
4
21.05
1
12.5
0
0
4 13.33
Schools
0
0
0
0
0
0
0 0
Labs and/ or other 1
5.26
0
0
0
0
1 3.33
institutions
Suppliers
2
10.53
0
0
0
0
2 6.67
Friend of owner
1
5.26
0
0
0
0
1 3.33
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
23
Table 10. Distribution as to who developed the introduced process innovation
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
F
%
F
%
F
%
F %
The owner manager
13
68.42
6
75
3
100
22 73.33
Employees
2
10.53
2
25
2
66.67
6 20
Business Partner
2
10.53
0
0
0
0
2 6.67
Customers directly
2
10.53
1
12.5
0
0
3 10
Consultant
0
0
0
0
0
0
0 0
Competitors
1
5.26
0
0
0
0
1 3.33
Associations
0
0
0
0
0
0 0
Internal sales
1
5.26
0
0
0
0
1 3.33
Research and
Development
4
21.05
1
12.5
1
33.33
6 20
Labs and/ or other
1
5.26
0
0
0
0
1 3.33
institutions
Suppliers
2
10.53
0
0
0
0
2
6.67
Friends of owner
1
5.26
0
0
0
0
1
3.33
Innovation Activities
Table 11 shows that the MSMEs have engaged in various innovation activities
from 2009-2011.Majority (83.33%) were involved in searching for new ideas and
developing it into a product or service, and for other preparation to finish the introduced
the new or improved product or service in the market. Around 73.33 % had introduced to
the market a new or improved product. 70% had undergone training and 70% got ideas
and knowledge from other businesses.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
24
Table 11. Distribution as innovation activities the MSME’s involved during 2009-2011
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
(N=19)
(N=8)
(N=3)
(N=30)
F
%
F
%
F
%
F %
Searching for new ideas and 15
78.95
7
87.5 3
100
25 83.33
develop it into a product or
service
Other do the searching of ideas 10
52.63
4
50
2
66.7
16 53.33
and developing of the product
or services for the business
Acquisition of machinery, 14
73.68
4
50
2
66.7
20 66.67
equipment and software
Getting ideas, knowledge from 12
63.16
8
100
1
33.3
21 70.00
other business
Training
13
68.42
5
62.5 3
100
21 70.00
Introducing to the market the 14
73.68
5
62.5 3
100
22 73.33
new or improved products or
services
Other preparation to finish the 14
73.68
8
100
3
100
25 83.33
introduction of the new or
improved products or service in
the market
Information Sources
Table 12 shows the different sources of information on the innovation activities
undertaken by the MSMEs, and the degree of importance of this different source to the
enterprises.
Overall, the most important source of information for innovation was within the
enterprise group with 70%, followed by clients or customers with 60%, and suppliers of
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
25
equipment, materials, components or software (43.33%), and competitors or other
enterprises in the sector (43.33%).
Universities and schools (43.33%), government (36.67%) and the industry
association were considered as the top three less important sources of information.
Unlike the micro and medium enterprises, specifically all the small enterprises
found as of high importance the sourcing of information from competitors and other
enterprises in the sector.
Effects of Process and Product Innovation
Table 13 shows the effects of the process and product innovation and the degree
of these observed effects to the MSMEs.
The strongest impact from product and process innovation was improved quality
of products or services with 66.67%. Next ranked highest was improved flexibility in
providing the product or service, and meeting the regulatory requirement at 63.33%
respectively; and increased classification of product or service with 60%.
MSMEs considered reduced labor cost per unit output (23.33%), reduced
materials and energy per unit output (20%) and entered new markets or increased sales
(10%) as the three lowest effects under the category a high degree of importance.
All medium enterprises considered of high importance the following effects of
innovation: Entered new markets or increased sales; Improved quality of goods or
services; Improved flexibility of providing products or services; and Increased volume of
production.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
26
Effects of Organization and. Marketing Innovation
Table 14 shows the effects of organization and marketing innovation and its
observed effects. MSMEs had observed that the greatest effects of organization and
marketing innovation were on the improved quality of goods or services with 63.33%,
reduced time to respond to customers and suppliers needs (50%), and improved employee
satisfaction and reduced employees turnover rate (46.67%).
The effects on reducing cost per unit output was felt as with a high effect by a
fewer percentage of the micro enterprises compared to the small and medium enterprises.
Factors Affecting the Decision not to Innovate
Table 15 shows the different factors affecting the decision of the entrepreneurs
whether to innovate or not, and the degree of importance of these factors.
On the whole, the most important factors affecting the decision to innovate
were lack of capital with 56.67%, market dominated by larger enterprises with 46.67%,
innovation cost too high with 40%, lack of qualified personnel lack on information
technology, and lack of information on market, all at 36.67%.
The less important factors that affect the entrepreneur’s decision not to innovate
were absence of demand (43.33%), existence of prior innovations (33.33%) and
uncertainty in demand for the innovative goods and services (30%). Most of these factors
were rated as high by less than 50% of the enterprises.
By enterprise scale, about 42.11% of the micro enterprises found lack of capital as
of high importance in whether to pursue innovation or not. Of medium importance by
more than 40% of the enterprises was the lack of information on technology (43.37%),
costs too high (42.11%), and the uncertainty of demand for the innovative products or
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
27
services. For the small enterprises, there is a clear majority (50% or higher) who
indicated of high importance the following factors: lack of capital (75%), market
dominated by larger enterprises (75%), and the lack of information on the technology
(50%), For the medium enterprises, the lack of capital was of high importance by all the
enterprises, and the lack of finance by 66.67%.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 6. Distribution of the Product Innovation Done by Industry Sector
PARTICULARS
MANUFACTURING
SERVICE
MICRO SMALL MEDIUM
TOTAL
MICRO SMALL
MEDIUM
TOTAL
(N=8)
(N=5)
(N=2)
(N=15)
(N=10)
(N=4)
(N=1)
(N=15)
F
%
F
%
F
%
F
%
F
%
F
%
F
%
F
%
New or improved products
5
62.5 1
20
2
100
8
53.3
4
40
1
25
0
0
5
33.3
are new to the market.
New or improved products is
8
100
5 100
2
100 15
100
10 100
4
100
1
100
15
100
already available in the
market
*Multiple Response
Table 7. Distribution of Process Innovation per Industry Sector
PARTICULARS
MANUFACTURING
SERVICE
MIC
SMALL
MEDIUM
TOTAL
MICR
SMALL MEDIU
TOTAL
RO
(N=5)
(N=2)
(N=15)
O
(N=4)
M
(N=15)
(N=8)
(N=10)
(N=1)
F
%
F
%
F
%
F
%
F
%
F
%
F
%
F
%
New or improved way of manufacturing
or producing goods or services
8 100
4
80
2
100
12
80
7
70 3
75
1
100 12
80
New or improved way or acquiring raw
materials, delivery, distribution of
7 87.5
2
40
2
100
10
66.7
5
50 3
75
1
100 9
60
products
New or significantly improved
5 62.5 2 40 2 100 9 60 7 70 4 100 1 100 13 86.7
supporting activities for processes
Table 8. Distribution of Organization and Marketing Innovation per Industry Sector
PARTICULARS
MANUFACTURING
SERVICE
MICRO SMALL
MEDIU
TOTAL
MICRO SMALL
MEDIUM TOTAL
(N=8)
(N=5)
M (N=2) (N=15)
(N=10)
(N=4)
(N=1)
(N=15)
F %
F
%
F %
F
%
F
%
F
%
F
%
F
%
New or improved knowledge
management systems to better
use or exchange information,
8 100 3 60 2 100 13 86.7 8 80 4 100 1 100 13 86.7
knowledge and skills within the
enterprise
Changes in the management
structure or integrating different 5 62.5 3 60 2 100 10 66.7 8 80 3 75 1 100 11 73.3
departments or activities
New or significant changes in
relations with other firms or
8 100 2 40 2 100 13 68.7 8 80 4 100 1 100 13 68.7
public institutions
Changes to the design or
packaging of a good
6 75 3 60 2 100 10 66.7 6 60 4 100 1 100 10 66.7
New or significantly changed
5
62.5
2
40
2
100
9 60 6 60
4
100 1
100
10 66.7
sales or distribution methods
*Multiple
Response
Table 12. Percent Distribution of the Different Sources of Information on the Innovation Activities
PARTICULARS
MICRO (N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H
M
L
NR
H
M
L
NR
H
M
L
NR
H
M
L
NR
Within the enterprise or
enterprise group
57.89
15.79
21.05
10.53
100
0
0
0
66.67
33.33
0
0
70
13
13.33
6.67
Suppliers of equipment,
materials, components, or
software
47.37
21.05
26.32
5.26
38
38
12.5
13
33.33
66.67
0
0
43
30
20
6.67
Clients or customers
52.63
36.84
5.26
5.26
75
25
0
0
66.67
33.33
0
0
60
33
3.33
3.33
Competitors or other
enterprises in the sector
31.58
36.84
5.26
5.26
75
25
0
0
33.33
33.33
33.33
0
43
33
6.67
3.33
Consultants, commercial
labs, or private Research
and Development institute
21.05
31.58
36.84
10.53
13
25
37.5
25
33.33
66.67
0
0
20
33
33.33
13.33
Government
10.53
26.32
36.84
26.32
25
38
37.5
0
33.33
0
33.33
33.33
17
27
36.67
20
Universities or other
schools
10.53
21.05
47.37
21.05
13
38
37.5
13
33.33
0
33.33
33.33
13
23
43.33
20
Conferences, trade fairs,
exhibitions
26.32
26.32
31.58
15.79
38
25
37.5
0
66.67
33.33
0
0
33
27
30
10
Magazines or books
21.05
21.05
31.58
26.32
0
13 37.5 50 0 66.67 33.33 0 13 23 33.33 30
**Legend:
H-
High L-
Low
M-Medium
NR-
Not
Relevant
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 13.Percent Distribution of the Effects of Process and Product Innovation
PARTICULARS MICRO
(N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H
M
L
NR
H
M
L
NR
H
M
L
NR
H
M
L
NR
Increased classification of
products or services
52.63
42.11
5.26
0
75
25
0
0 66.67 0
33.33
0
60
33
7
0
Entered new markets or
increased sales
26.32
57.89
15.79
0
50
50
0
0 100 0
0
0
40
50
10
0
Improved quality of goods or
services
52.63
42.11
5.26
0
88
13
0
0 100 0
0
0
66.67
30
3
0
Improved flexibility of
providing products or services
52.63
42.11
5.26
0
75
25
0
0 100 0
0
0
63.33
33
3
0
Increased volume of production
21.05
68.42
5.26
5.26
63
38
0
0 100 0
0
0
40
53
3
3
Reduced labor costs per unit
output
26.32
31.58
36.84
5.26
25
75
0
0 66.67
33.33
0
0
30
43
23
3
Reduced materials and energy
per unit output
31.58
36.84
31.58
0
25
75
0
0 66.67
33.33
0
0
33.33
47
20
0
Reduced environmental impacts
or improved health and safety
52.63
31.58
10.53
0
50
50
0
0 100 0
0
0 56.67
33
7
0
Met regulatory requirements
52.63
31.58
10.53
0
75
25
0
0
100
0
0
0
63.33
27
7
0
**Legend: H- High
M-Medium
L- Low
NR- Not Relevan
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 14. Percentage distribution of effects of Organization and Marketing Innovation
PARTICULARS
MICRO (N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H M
L NR H M L NR H M L NR H M L NR
Reduced time to
respond to customer or
supplier needs
47.37
42.11
5.26
0
50
25
25
0
67
33
0
0
50
36.67
10
0
Improved quality of
goods or services
63.16
31.58
5.26
0
63
38
0
0
67
33
0
0
63.33
33.33
3.33
0
Reduced cost per unit
output
5.26
42.11
21.05
5.26
38
50
13
0
67
33
0
0
20
43.33
16.67
3.33
Improved employee
satisfaction and/or
reduced rates of
42.11
42.11
10.53
5.26
50
50
0
0
67
33
0
0
46.67
43.33
6.67
3.33
employee turnover
**Legend:
H- High
M-Medium
L-
Low
NR- Not Relevant
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 15. Percent Distribution of the Factors Affecting the Decision to Innovate
PARTICULARS
MICRO(N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H
M
L
NR
H
M
L
NR
H
M
L
NR
H
M
L
NR
Lack of capital
42.11
21.05
31.58
5.26
75
13
0
13
100
0
0
0
56.67
16.67
20
6.67
Lack of finance
31.58
36.84
26.32
5.26
38
25
12.5
13
66.67
33.33
0
0
36.67
33.33
20
0
Innovation costs too
high
31.58
42.11
26.32
0
63
25
0
13
33.33
33.33
0
0
40
36.67
16.67
0
Lack of qualified
personnel
36.84
31.58
31.58
0
38
25
12.5
13
33.33
66.67
0
0
36.67
33.33
23.33
0
Lack of information on
technology
31.58
47.37
21.05
0
50
13
25
13
33.33
33.33
33.33
0
36.67
36.67
23.33
0
Lack of information on
markets
36.84
31.58
26.32
0
38
38
0
13
0
66.67
33.33
0
33.33
36.67
20
0
Market dominated by
established enterprises
36.84
31.58
26.32
0
75
13
0
13
33.33
33.33
33.33
0
46.67
26.67
20
0
Uncertain demand for
innovative goods or
services
15.79
42.11
36.84
5.26
25
50
12.5
13
0
66.67
33.33
0
16.67
46.67
30
0
No need due to prior
innovations
21.05
31.58
42.11
52.63
13
63
12.5
13
0
66.67
33.33
0
16.67
43.33
33.33
0
No need because of no
demand for innovations
21.05
26.32
0
0
13
63
12.5 13 0 33.33 66.67 0 16.67 36.67 43.33 0
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
31
SUMMARY, CONCLUSIONS AND RECOMMENDATION
Summary
The study was conducted for the following: 1) to determine the type of innovation
adopted by MSMEs in the last three years (2009-2011); 2) to identify the person/s
responsible for the introduced innovation; 3) to identify the activities associated with the
innovation; 4) to identify the information sources of innovation in MSMEs; 5) to identify
the effects of innovation to the MSMEs; and 6) the factors affecting the decision of
MSMEs not to innovate. The data were gathered using a survey questionnaire. A total of
30 MSMEs in La Trinidad served as respondents, 15 were in the manufacturing sector
and 15 in the service sector.
The majority of the respondents were in business for 2-10 years. The majority
(63.33%) of the respondents are micro enterprises.
For the year 2009-2011, MSMEs in La Trinidad engaged in various innovation
activities. All the enterprises had done product innovation mostly in the form of
introducing new products that were already available in the market. There were also
46.35% of the product innovations that were introduced that were really new to the
market; Most of these products were introduced by the medium enterprises (66.67%).
The MSMEs also were involved in process innovation where majority (84.65%) of the
respondents had done new or an improved way of manufacturing or producing goods or
services. All of the activity under process innovation had been done by all the medium
enterprises. The MSMEs were more creative in introducing organization and marketing
innovations. Specifically, majority (88.82%) of the respondents had introduced new or
improved knowledge management system to better use of information. Moreover, the
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
32
medium enterprise were more active in this innovation compared to the small and micro
enterprises.
More enterprises in the manufacturing sector than the service sector had
introduced product innovations that were new to the market. In terms of the process
innovation, there is a slightly higher percentage of manufacturing enterprises that
introduced new or improved ways of acquiring raw materials, delivery and distribution of
products. For the organization and marketing innovation, there is just a slightly greater
percentage of service enterprises compared to the manufacturing whointroduced changes
in the management structure or integrated different departments or activities, and
introduced new or significantly changed sales or distribution methods.
The major developers of product innovation in the MSME’s were the owner
manager of the enterprise, the employees and customers. But for the medium enterprises
the customers were not included as a developer of innovation. Process innovations were
developed by the owner or manager of the enterprise, employees and through research
and development.
Majority (83.33%) of the innovation activities for the year 2009-2011 were
searching for new ideas and developing it into a product or service and for other
preparations to finish the introduction of the new or improved product or service in the
market.
There are many sources of information about the innovation activities of the
MSMEs and the strongest source of information was the enterprise group (70%),
followed by clients or customers (60%), and suppliers and competitors (43.33%).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
33
Innovation has different effects for the MSMEs. The strongest impact from
product and process innovation was improved quality of product or services (66.67%).
Next highest in rank was improved flexibility in providing the product or service with
63.33% and increased classification of product or service (60%). For organization and
marketing innovation, MSMEs had observed that the effects were improved quality of
goods or services (63.33%), reduced time to respond to customer and supplier
needs,improved employees satisfaction, and reduced employees turnover rate.
The factors rated with high effects, on innovation decision were lack of capital
(56.67%), market dominated by larger enterprises (46.67%), innovation cost too high
(40%), lack of qualified personnel, lack on information technology and lack of
information on market (36.67 %,).
Conclusion
Based from the results, the following conclusions were derived:
1. MSMEs in La Trinidad introduced product, process, organization and
marketing innovations for the past three years (2009-2011).
2. The owner or manager of the enterprises is the main developer of innovation in
the MSMEs.
3. There are a lot of activities that the MSMEs involved in for the past three years
(2009-2011) which included searching for new ideas and developing it into a product or
service, and engaging in other preparations to finish the introduced the new or improved
product or service in the market; as the critical ones
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
34
4. There are different sources of information for the innovation activities of
MSMEs. The major sources of information were within the enterprise group; the clients
or customers; and the suppliers and competitors.
5. Product and Process Innovation have a lot of effects for the enterprises namely:
improved quality of products or services; improved flexibility in providing the product or
service; and increased classification of product or service. For organization and
marketing innovations, the greatest effects are improved quality of goods or services;
reduced time to response to customers and suppliers needs, and improved employees
satisfaction and reduced employees turnover.
6. There are factors affecting decision of the entrepreneurs whether to innovate.
The strongest factor that affects the decision of the entrepreneur to innovation were lack
of capital; market dominated by larger enterprises; and the high cost of innovation.
Recommendation
Based on the findings and conclusion the following recommendations are made:
1. The MSMEs should continue to innovate so that their enterprises will
continuously enjoy the positive effect of the innovations.
2. The government should also help the MSMEs in their innovation activities.
Trainings, bench marking opportunities and financial support should be given to MSMEs
to enhance their innovation activities especially the micro enterprises.
3. Enterprises should help each other in coming up with innovations since most
find the source of innovation from within the enterprise group. Avenueswhere the
different enterprises can meet and share ideas should be encouraged by the government
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
35
or by the industry association. MSMEs especially large scale enterprises, should help one
another in acquiring fund for the innovation.
4. Other institutions such as universities and civic societies should involve the
MSMEs in activities that promote development of innovations.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
39
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BROUWER, E., KLEINKNECHT, A., REIJNEN, J. 1993. Employment Growth and
Innovation at the Firm Level. An Empirical Study, Date retrieved August 25,
2011, at www.google.com
CORORATON, C., 2005, Research and Development and Technology in the Philippines,
Philippine Institute for Development Science, pages 3,44.
DE RIDDER,P. 2007. Sources of Innovation: Where do Business Leaders Think Ideas
and New Innovation came From. Date Retrieved October, 25, 2011.
atwww.google.com
DEPARTMENT OF TRADE AND INDUSTRY. 2008. Micro, Small and Medium
enterprises, Date Retrieved July 27, 2011, at www.googole.com
DRUCKER, P. 1985. Entrepreneurship, Date Retrieved July 27, 2011.atwww.google.com
EUROPEAN COMMISSION. 2011. Innovation Activities, OSLO Manual, Date
Retrieved October 25, 2011. at www.google.com
FOURTH COMMUNITY INNOVATION SURVEY.2004. Date Retrieved October 25,
2011. atwww.google,com
GLOSSARY OF STATISTICAL TERMS, 2005, Innovation Activities, Date Retrieved
October 32, 2011. atwww.google.com
GRILICHES, Z., 1995, R&D and Productivity: Econometric Results and Measurement
Issues, in Paul Stoneman (ed.), Handbook of the Economics of Innovation
Technological Change, Blackwell, 52-89.
INTERNATIONAL JOURNAL OF BUSINESS AND SOCIAL SCIENCES, 2011,
Effects of Learning, Networking and Innovation Adoption on Successful
Entrepreneurs in Central Java, Indonesia, Date Retrieved July 23, 2011.
atwww.google.com
INTERNATIONAL ENTREPRENUERSHIP, 2011, Entreprenuership in the Philippines,
Date Retreived July 23, 2011, at www.google.com
JAUMANDREU, J. 2003. Does Innovation Spur Employment? A Firm level analysis
using Spanish IS data. Date Retrieved July 23, 2011.atwww.google.com
MACHFOEDZ, M. 2002. Kewirausahaan, UPP AMP YKPN Yogyakarta
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40
PETERS, B., 2008, Innovation and Firm’s Performance. An Empirical Investigation for
German Firms, Date Retrieved July 23, 2011. atwww.google.com
SCHUMPETER, J. 1939. Business Cycles: A Theoretical, Historical and Statistical
Analysis of the Capitalist process. Date Retrieved July 23, 2011.
atwww.google.com
SCHRODDER, R., VAN DE VEN, A. SCUDDER, G., and POLLEY, D. 1989. The
Development of Innovation Ideas. Date Retrieved August 19, 2011.
atwww.google.com
SOLOMON, G., WINSLOW, E., TARABISHY, A. 2004.The Role of Climate in
Fostering Innovative Behaviour in Entrepreneurial SMEs. Date Retrieved July
23,2011. atww.google.com
VAN DE VEN, A. 1989. Central Problems in the management of Innovation Sciences,
Date Retrieved July 29, 2011.atwww.google.com
TIDD, J., BESSANT, J., PAVITT, 2005, Managing Innovation, 2rd ed., Jophnwiley and
Sons LTD, 53-55
TUOMINEN, T., and TOIVONEN, M. 2007.Studying Innovation Activities of KIBS
through the Lens of Innovative Behaviour.Date Retrieved July 23,
2011.atwww.google.com
APPENDIX A
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
41
Letter to the Respondents
________________
Sir/ Madam,
Greetings!
I am Mary Ann D. Wayet, a student of Benguet State University currently taking
up Bachelor of Science in agribusiness major in Enterprise Management. I am now
currently conducting a research entitled, “An Assessment of the Innovation of MSMEs in
La Trinidad, Benguet.” In connection may I ask a portion of your precious time in
answering my questionnaires. Rest assured that the information will be kept
confidentially.
Thank you very much.
Respectfully yours,
MARY ANN D. WAYET
Student
Noted by:
DR. DARLYN D. TAGARINO
Adviser
APPENDIX B
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
42
Questionnaire
Respondent #_______
Personal Information
Name:__________________________________________
Position in the Company:________________________________________
Business Profile
Name of the Enterprise:______________________________________
Location of the Enterprise:_____________________________________
__________________________________________________________
Number of years in Business:___________________________________
Number of employees:______________________________________
Total Asset in the present:______________3,000,000 and below
____________ 3,000,001-15,000,000
____________ 15,000,001-100,000,000
1. Product (good or service) innovation/ new or improved product
1.1 During 2009 to 2011, did your enterprise introduce:
Yes
No
New or improved goods.
1.2 Who developed/introduced these product innovations?
Select the most appropriate option only
The owner manager
employees
business partner
customers directly
consultant
competitors
associations
internal sales & service unit
through Research and Development
schools
Labs and/ or other institutions
Others pls specify:_____________________________________________________
1.3 During 2009-2011; were any of your product and service innovation /new or
improved products or service:
Yes
No
new or improved products or services
introduced by your business is new to the
market.
new or improved productsor services
introduced by your business is already
available in the market
2. Process innovation/ new or improved process
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
43
2.1 During 2009 to 2011, did your enterprise introduce:
yes
no
New or improved way of manufacturing or producing goods
or services
New or improved way of acquiring raw materials, delivery,
distribution of products
New or significantly improved supporting activities for your
processes, such as maintenance systems, computization
2.2 Who developed/ introduced these process innovations/ new or improved process
The owner manager
employees
business partner
customers directly
consultant
competitors
associations
internal sales & service unit
through Research and Development
schools
Labs and/ or other institutions
Others pls specify:_____________________________________________________
3. Innovation activities
3.1 During 2009 to 2011, did your enterprise engage in the following innovation
activities:
yes
no
your business is searching for new ideas and develop it into a
product or service
other do the searching of ideas and developing of the product or
services for your business
Acquisition of machinery, equipment and software
getting ideas, knowledge from other business
Training
introducing to the market the new or improved products or
services
other preparation to finish the introduction of the new or
improved products or service in the market
3.2 During the three years 2009 to 2011, did your enterprise receive any public financial
support for innovation activities from the government.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
44
yes
no
Local or regional authorities
national goverment
4. Sources of information
4.1 During 2009 to 2011, how important to your enterprise’s innovation activities were
each of the following information sources?
Degree of importance
High
Medium Low
Not used
Within your enterprise or enterprise
group
Suppliers of equipment, materials,
components, or software
Clients or customers
Competitors or other enterprises in your
sector
Consultants, commercial labs, or private
Research and Development institute
Universities or other schools
Government or public research institutes
Conferences, trade fairs, exhibitions
magazines or books
Professional and industry associations
5. Effects of innovation during 2009-2011
5.1 How important were each of the following effects of your product (good or service)
andprocess innovations introduced during 2009 to 2011?
Degree of observed effect
High
Medium
Low
Not
relevant
Increased classification of products or
services
Entered new markets or increased sales
Improved quality of goods or services
improved flexibility of providing products or
services
increased volume of production
Reduced labour costs per unit output
Reduced materials and energy per unit output
Reduced environmental impacts or improved
health and safety
Met regulatory requirements
6. . Factors affecting innovation activities
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
45
6.1 During 2009 to 2011, how important were the following factors for affecting
your innovation activities or projects influencing a decision not to innovate?
Degree of importance
High
Medium Low
Factor not
experienced
Lack of capital
Lack of finance from outside sources
Innovation costs too high
Lack of qualified personnel
Lack of information on technology
Lack of information on markets
Market dominated by larger business
Not sure demand for the new or
improved product or service
No need due to past improvements of
products or service
No need because of no demand for new
product or service
7 . Organisational and marketing innovations
7.1 During the three years 2009 to 2011, did your enterprise introduce:
yes
no
New or improved use of information, knowledge and skills
within the business
Change in management structure and re arrangement of
works.
New or change in relationship with other business and people
associated with the business
Change in the packaging of the product
New or change in the distribution method
7.2 If your enterprise introduced an organisational innovation during 2009 to 2011, please
rate the effects as applicable:
Degree of observed effect
High
Medium Low
Not
relevant
Reduced time to respond to customer or supplier
needs
Improved quality of your goods or services
Reduced costs per unit output
Improved employee satisfaction and/or reduced
the frequency in replacing employee’s
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
WAYET, MARY ANN D., April 2012. “An Assessment of the Innovation of the
MSMEs in La Trinidad.”Benguet State University, La Trinidad, Benguet.
Adviser: Darlyn D. Tagarino,PhD
ABSTRACT
The study determined the type of the innovation adopted by MSMEs in the last three
years and the person/s responsible for the introduction of the innovation; activities associated
with the innovation and the information sources, it also determined the effects of innovation and
the factors affecting the decision of MSMEs not to innovate.
Thirty (30) MSMEs in La Trinidad were chosen as respondents, 15 were in the
manufacturing and 15 in the service sectors.
The result showed that for the past three years, MSMEs in La Trinidad engaged in
various innovation activities. The innovations were in the areas of product, process, organization
and marketing. The major developer of product and process innovation was the owner and
manager of the enterprise. Majority of the innovation activities were searching for new ideas and
developing it into a product or service in the market. The strongest source of information was the
enterprise group. The strongest impact from the innovations made was the improved quality of
products or services. Lack of capital was the greatest factor that affected the MSME’s decision to
innovate.
It is recommended that the MSMEs should continue to innovate and the government
should help the MSMEs in their innovation activities. Avenues where the different enterprises
can meet and share ideas should be encourage. Other institutions such as universities and civic
societies should involve the MSMEs in activities that promote development of innovations.
An Assessment of the Innovation of the MSMEs in La Trinidad /Mary Ann D.Wayet. 20120
TABLE OF CONTENT
Page
Bibliography.................................................................................................... i
Abstract ..........................................................................................................
i
Table of Contents ...........................................................................................
ii
INTRODUCTION
Rationale
........................................................................................... 1
Importance of the Study ...................................................................
2
Statement of the Problem .................................................................
3
Objectives of the Study ....................................................................
3
Scope and Delimitation of the Study ................................................
4
REVIEW OF LITERATURE
MSMEs…………………….............................................................. 5
Classification of MSMEs..................................................................
5
Innovation……………………………….......................................... 6
Sources of Innovation........................................................................
8
Sources of Developed Innovation.....................................................
8
Effects of Innovation on Firm Performance ...................................
8
Innovation
Activities……………………......................................... 11
METHODOLOGY
Locale and Time of the Study ..........................................................
13
Respondents of the Study .................................................................
13
Data
Gathered....................................................................................
13
Data Gathering Procedure.................................................................
14
Data Analysis ...................................................................................
14
RESULTS AND DISCUSSIONS
Classification of Respondents...........................................................
15
Business
Profile…….........................................................................
15
Product Innovation by Enterprise Scale............................................
16
Process innovation by enterprise Scale.............................................
16
Organization and Marketing by Enterprise scale..............................
17
Product Innovation by Industry Sector..............................................
18
Process innovation by Industry sector...............................................
18
Organization and Marketing Innovation by Industry Sector…….....
19
Developer of Process Innovation….................................................
20
Developer of Product Innovation......................................................
24
Innovation
Activities……………………......................................... 24
Information
Sources……….............................................................. 26
Effects of Process and Product innovation........................................
28
Effects of Organization and Marketing innovation...........................
28
Factors Affecting the Decision not to Innovate...............................
29
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Summary
.......................................................................................... 34
Conclusions
...................................................................................... 36
Recommendations
............................................................................ 37
LITERATURE CITED ..................................................................................
39
APPENDIX
A. Letter to the Respondents............................................................
41
B. Survey Questionnaire...................................................................
42
1
INTRODUCTION
Rationale
The globalization of product and service markets is accelerating. European
companies- in particular SMEs- face increasing competition not only for sale, but also for
technical know-how and skills. In this environment, competitiveness at the company
level depends crucially on the speed with which new products can be brought to the
market place and new cost-saving improvements made. Similarly, the creation of wealth
and employment depends to a very large extent on the speed with which scientific and
technological breakthroughs are converted into practical and attractive solution
(European Commission, 2011).
The plethora of new materials, new product, new financial networks, coupled with
joint venture possibilities, affect the way MSMEs do business globally. The number of
articles, books, symposia, written on the role of the MSMEs in developing change and
innovation is overwhelming (Solomon, Winslow, Tarabishy, 2004).
Innovation requires much more than ability to turn a new idea into a working
product. Efficient flows of technology are not enough- ready supplies of finance and of
business skills are also needed. There must be accessible protection for intellectual
property, and adequate incentives for entrepreneurial drive (European Commission,
2011).
Critical to such culture of innovation are the micro, small and medium-sized
enterprises (MSMEs) which have in recent years proved themselves to be the engines of
economic growth (European Commission, 2011).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
2
MSMEs are considered the engine of economic growth in most ASIAN
economies by virtue of their sheer number and significant economic and social
contributions. The role of MSMEs in industrial development in Asia is more pronounced
than in the west. In such countries like Japan, Taiwan, South Korea and China, MSMEs
are the backbone of the industrial and manufacturing sectors. Their number and
contribution to total employment in these economies are well over 95% and
70%,respectively. Likewise in the ASEAN economies, MSMEs generally account for
over 90% of establishments, between 20-40% of the total domestic output, and employs
between 75-90% of the domestic workforce (ASEAN Policy Blueprint, 2003).
In the Philippines, MSMEs, account for 99 percent of all business establishments
and 60 percent of the exporting firms in the Philippines. MSMEs currently employ about
55 percent of the Philippine labor force and contribute 30 percent to total domestic
volume sales. The Philippines is a highly entrepreneurial country. Micro, small and
medium size enterprises account for the largest share of the Philippines entrepreneurs
(International Entrepreneurship, 2011).
Thus, MSMEs and innovation is important to economic growth for it is one of the
key factors that help MSME survival in the business arena. Innovation and the factors
affecting innovation of the MSMEs is the key for their ability to maintain their position
and stay in the market.
Importance of the Study
MSMEs and their innovation bring a lot of benefit to a nation. MSMEs are
important to economic development as well. Their innovativeness also brings to
consumers useful goods and services for day to day living. With their innovation the
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
3
needs and wants of consumers are satisfied. The result of the study will help MSMEs in
understanding the role of innovation in the firm. The findings of the study will also give
entrepreneurs/ business people an idea on what are the important factors to consider for
the success of innovation. Also, the result would give information to the policymakers to
know where they could play an important role in the improvement and success of MSME
innovation.
The result will also serve as a reference for future researchers.
Statement of the Problem
1.What type of innovation did the MSMEs introduce for the past three years
(2009-2011)?
2. Who developed the innovations in the MSMEs?
3. What innovation activities did the MSMEs involve in?
4. What are information sources for the innovation activities?
5. What are the effects of innovation to the MSMEs?
6. What are the factors affecting the decision of MSMEs not to innovate?
Objective of the Study
1. To identify the type of innovation adopted by MSMEs in the last three years
(2009-2011);
2. To identify the person/s responsible for the introduced innovation;
3. To identify the activities associated with the innovation;
4. To identify the information sources of innovation in MSMEs;
5. To identify the effects of innovation to the MSMEs, and
6. To identify the factors that affects the decision of MSMEs not to innovate.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
4
Scope and Delimitation
The study focused on the MSMEs in the La Trinidad area. This study focused
only on the type of innovation the MSMEs perform specifically process, product
innovation, organizational and marketing innovation. The study was limited in the
innovation of MSMEs on the past three years only (2009-2011).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
5
REVIEW OF LITERATURE
MSMEs
MSMEs is an abbreviation of Micro, Small, Medium enterprises.
Classification of MSMEs
MSMEs may be classified by number of employees and/or by the total assets.
Specifically, the DTI classifies MSMEs as follows:
Size of the firm
Total assets
Number of employees
Micro
3,000,000 and below
1-9
Small
3,000,001-15,000,000
10-99
Medium
15,000,001-100,000,000
100-199
As of 2009, there are 780,437 business enterprises operating in the Philippines. Of
these, 99.6% (777,357) are micro, small and medium enterprises (MSMEs) and the
remaining 0.4% (3,080) are larger enterprises. Of the total number of MSMEs, 91.4%
(710,822) are micro enterprises, 8.2% (63,529) are small enterprises, and 0.4% (3,006)
are medium enterprises (Department of Trade and Industry, 2008).
Majority of the MSMEs in operation in 2009 can be found in the National Capital
Region (NCR) with 210,648 business establishments; Region 4-A (CALABARZON)
with 114,676; Region 3 (Central Luzon) with 79,445; Region 7 (Central Visayas) with
45,427; and Region 6 (Western Visayas) with 45,382. These top five (5) locations
accounted for about 63.7% of the total number of MSME establishments in the country
(Department of Trade and Industry, 2008).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
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MSMEs generated a total of 3,595,641 jobs in 2009 versus 2,094,298 for the large
enterprises. This indicates that MSMEs contributed almost 63.2% of the total jobs
generated by all types of business establishments that year. Of these, 30.4% or 1,731,082
jobs were generated by micro enterprises; 25.5% or 1,449,033 by small enterprises; and
7.3% or 415,526 by medium enterprises. By industry sector, MSMEs in the wholesale
and retail trade generated the most number of jobs with 1,250,453 in 2009 followed by
MSMEs in manufacturing, 637,524; hotels and restaurants, 482,357; real estate, renting
and business activities, 284,406; and education 225,016 (Department of Trade and
Industry, 2008).
Innovation
In business and economics, innovation is the catalyst to growth. With rapid
advancement in transportation and communication over the past few decades, the world
concepts of factor endowments and comparative advantages which focused on an area's
unique inputs are outmoded for today's global economy. Now as Harvard economist
Michael Porter points out competitive advantage, or the productive use of any inputs,
which requires continual innovation, is paramount for any specialized firm to succeed.
The entrepreneurs should continuously look for new ways or new changes, so that their
enterprises run steadily (Tuominen and Toivonen, 2007).
The term innovation is first used by Schumpeter (1939). He applied it as a tried or
managed innovation. Innovation is a process to change opportunity and convert it to
marketable ideas. The foundation of innovation is based upon ideas and its people who
develop, carry, react and modify ideas (Van De Ven, 1989). Innovation ideas are likely to
originate from the creativity of external and internal people.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
7
Tidd, Bessant and Pavitt (2005) presented the following types of innovation (4's
of innovation) namely: Product Innovation- changes in the things (products/ services)
which an organization offers; Process Innovation- changes in the ways in which they are
created and delivered; Position Innovation- changes in the context in which the product/
service are introduced and Paradigm Innovation- where major shifts in thinking cause
change.
Machfoedz (2002) also divided product innovation into four kinds namely (cited
by the International Journal of Business and Social Science, 2011); Discovery of product
creation that is new services or process that have been made before; Product
Development- new services or process that have been available; Product Duplication-
copying new services or process that have been available; Synthesis is a concept
combination and the existing factors to be a new formula. The International Journal of
Business and Social Science (2011) stated that innovation is often considered a
competitive advantage in terms of both products (e.g. new designs) and people (e.g.
employee recruitment). Thus innovation in the entrepreneurial firm is viewed as a multi-
stage process, with different individual behaviour at each stage. Since innovation is
actually characterized by discontinuous activities rather than discrete, sequential stages
(Schroederet al, 1994). The expectation is for the innovative activities to improve their
competitiveness through improved quality, lower production costs, and enhanced
marketing performance. Government standards and regulation and environment concerns
are not important drivers of innovation activities, standards, lack of skilled personnel, and
lack of opportunities for cooperation with other companies (Cororaton, 2005).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
8
Sources of Innovation
According to Drucker (1985) the general sources of innovations are different
changes in industry structure, in market structure, in local and global demographics, in
human perception, mood and meaning, in the amount of already available scientific
knowledge, etc. In the simplest linear model of innovation the traditionally recognized
source is manufacturer innovation. This is where an agent (person or business) innovates
in order to sell innovation. Another source of innovation, only now becoming widely
recognized, is end-user innovation. This is where an agent (person or company) develops
an innovation for their own (personal or in-house) use because existing products do not
meet their needs.
Source of Developed Innovation
According to De Ridder (2007), the IBM's on top sources of new ideas and
innovation are as follows: 1) Employees; 2) Business partners; 3) Customers directly; 4)
Consultants; 5) Competitors; 6) Associations; 7) Internal Sales and Services Unites; 8)
Internal R&D; 9) Academia; 10) Think-tanks; and 11) Labs and/or institution.
Effects of Innovation on Firm performance
The ultimate goal of innovative effort is to improve firm performance, i.e.
increase profitability and growth. Scope and size of performance enhancing effects of
innovation at the level of the innovating firm depend on the type of innovative activity
and the degree to which innovation outputs (new products, new processes) are
successfully implemented and succeed at the market (Peters, 2008). In general, one
would expect a positive effect of any successful innovation activity on firm
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
9
performance.However, distinguishing between product and process innovation is critical.
Product innovation alter a firm's product portfolio and will typically lead an upward shift
of a firm's demand curve as a result of some new quality features of the innovative
product that distinguishes it from the firm's old products. The effects of this shift on
profitability and growth will depend on the degree of novelty compared to the products
supplied to the market by other firms, the willingness to pay by potential customers (i.e.
price elasticity of demand), and the reaction of a firm's competitors (Jaumandreu, 2003).
In case product innovations are not new to the market and imitate new products of
competitors,profitability effects are likely to be low while growth effects may be
substantial if the imitation can successfully compete against the original innovation and
gain market shares. Process innovations typically allow for a more efficient production
and reduce a firm's unit costs. Effects on profitability and growth will basically depend
on two factors: First, a firm may either be the first in its market to achieve efficiency
gains from this type of innovation or it may have adopted a new production technology
which has been implemented by competitors before. Secondly, a firm may use
productivity advantages to either lower the price and gain market shares (which will most
likely spur growth) or increase its profit margin by accepting the current market price.
Whether improved competitiveness of innovations translates into higher profitability
and/or higher growth (in terms of output and labor demand) largely depends on the
market structure effects of innovations. In case innovators can successfully alter market
structure towards a lower level of competition (i.e. push competitors out of market) and
gain lower price elasticity for their innovative product, they may raise prices and decrease
output, resulting in low or negative growth despite having gained market shares (Peters,
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
10
2008). Innovation activities associated with in-house R&D activities imply higher
potentials for positive growth and profitability effects than innovation activities that focus
on the adoption of ideas and technologies developed by others (Brouwer et al., 1993).
Research and Development by definition aims at generating new knowledge and new
applications of technologies, which is likely to generate a certain degree of novelty. A
particular driver for high performance effects are granted patents on innovations since
these give innovators exclusive rights to commercialize a new technology for a certain
period of time (Griliches, 1995). Firms with international innovation activities may
experience different performance effects of innovation compared to firms with only
domestic innovation. On the one hand, sourcing knowledge on a global scale, making use
of comparative advantages of different locations and opening up world markets are likely
to result in more effective innovation activities, a more efficient production and higher
sales of new products. On the other hand, international innovation activities are likely to
be associated with higher cost, higher uncertainty and higher failure rate since firms will
have to deal with, and carry higher transaction costs. What is more, obtaining market
power through innovation will be much more difficult when acting in a larger number of
markets, especially when we look at MSMEs. One may thus assume lower effects from
international innovation activities on profitability but higher ones on growth since
MSMEs may be less able to transfer innovations in a situation of lower price elasticity
and while pushing out competitors. This may transfer higher competitiveness over to
other firms allowing them to gain market shares and increasing the level of their
economic activities.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
11
Innovation Activities
A common feature of an innovation is that it must have been implemented. A new
or improved product is implemented when it is introduced on the market. New process,
marketing methods or organizational methods are implemented when they are brought
into actual use in the firm's operation (European Commission, 2011).
Innovation activities vary greatly in their nature from firm to firm. Some firms
engage in well-defined innovation projects, such as development and introduction of a
new product, whereas others primarily make continuous improvements to their products,
processes and operations. Both types of firms can be innovative: an innovation can
consist of the implementation of a single significant change, or of series of smaller
incremental changes that together constitute a significant change (European Commission,
2011).
Innovation comprises a number of activities that are not included in R&D, such as
later phase of development for preproduction, production and distribution, development
activities with a lesser degree of novelty, support activities such as trainings and market
preparation, and development and implementation activities for innovations such as
marketing methods which are not products or process innovations. Innovation activities
may also include acquisition of external knowledge or capital goods that is not part of
R&D (European Commission, 2011).
Innovations activities are all scientific, technological, organizational, financial
and commercial steps which actually, or are intended to lead to the implementation of
innovations. Some innovation activities are themselves innovative; others are not novel;
activities but necessary for the implementation of innovations. Innovation activities also
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
12
include R&D that is not directly related to the development of a specific innovation
(Glossary of Statistical Terms, 2005).
During the given period, a firm's innovation activities may be of three kinds: 1).
Successful of having resulted in the implementation of a new innovation (though not
necessarily commercially successful); 2) Ongoing work in progress, which has not yet
resulted in the implementation of aninnovation; and 3). Abandoned before the
implementation of an innovation (Glossary of Statistical Terms, 2005).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
13
METHODOLOGY
Locale and Time of the Study
The study location was in La Trinidad, Benguet. The time of the study was
December, 2011 to January, 2012.
Respondents
The respondents were MSMEs as represented by their owner-entrepreneurs or
managers.
Based on the data obtained from the Municipal Hall of La Trinidad the following
numbers of business establishments exist as of 2011:
Type of Business Establishment
Total Number
Manufacturing
61
Services
773
Total Number
834
A total of 30 MSMEs was obtained by random sampling representing 4% of total
number of business establishments in La Trinidad. An equal proportion was obtained as a
sample from each subsector, namely manufacturing and service.
Data Gathered
The data gathered was type of innovation MSMEs perform, person responsible for
the innovation and sources of information about the innovation, innovation activities and
effects of innovation to the MSMEs.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
14
Data Gathering Procedure
Data was gathered using a questionnaire that was developed using the model of
the Fourth Community Innovation Survey, 2004.
Data Analysis
The data gathered was analyzed using frequency and percentage.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
15
RESULTS AND DISCUSSION
Classification of Respondents
The enterprises can be classified as micro, small and medium enterprises based on
their total assets and/or number of employee's. As standards set by the Department of
Trade and Industry an enterprise can be classifies as micro if it has a total asset of
Php3,000,000 and below and employing 1-9 individuals. Small enterprises have
Php3,000,001 to 15,000,000 total assets and 10-99 employees. Medium enterprises
havePhp15,000,001 to 100,000,000 total asset and 100-199 employees.
As shown in Table 1, majority (63.33%) of the respondents are micro enterprises,
26.67 % are small enterprises. The lowest classification of respondents is medium
enterprises (10%).
Business Profile
Table 2 shows that majority (23.33%) of the micro and small enterprises are in their 2-10
years in business. The results also show that the smaller sized enterprises are in their
early years of operation while the medium enterprises have been longer inoperation.
Table1. Distribution of Respondents According to Scale Classification
PARTICULARS FREQUENCY
PERCENTAGE
(%)
Micro 19
63.33
Small 8
26.67
Medium 3
10
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
16
Table 2. Distribution of Respondents based on their Number of Years in Business.
PARTICULARS
MICRO
SMALL
MEDIUM
(N=19)
(N=8)
(N=3)
F
%
F
%
F
%
1 and below
4
21.05
1
33.33
2-10
7
23.33
3
15.79
11-20
4
21.05
2
25
21-30
1
5.26
31-40
1
5.26
41 and above
1
12.5
2
66.67
Product Innovation by Enterprise Scale
Product Innovation is the market introduction of new goods or services or a
significantly improved goods or services. The innovation (new or improved) must be new
to the enterprise, but it does not need to be new to the sector or market.
Generally enterprises were product innovative for the past three years (2009-
2011). As shown in Table 3, all of the respondents had introduced product innovations
which were already available in the market. There were 46. 35% product innovation
introduced that were new to the market. Majority of the new products were introduced by
the medium enterprises (66.67%) followed by the micro enterprises (46.67%) and small
enterprises (25%).
Process Innovation by Enterprise Scale
A process innovation is the implementation of a new or significant improved
production process, distribution method of support activity for your goods or services.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
17
Table 4 shows that a total of 80% of the respondents had done new or improved
way of manufacturing or producing goods or services. Around 70% had done new or
significantly improved supporting activities for the process. Finally, 63.33% had new or
improved way of acquiring raw materials delivery, distribution of the products.
Percentage-wise the medium enterprises were more process innovative compared to the
small enterprises.
Product Innovation by Industry Sector
Table 6 shows the distribution of product innovation by industry sector. More
enterprises in the manufacturing sector compared to the service sector introduced new or
improved products or services which was new to the market. Irrespective of the sector, all
the enterprises came up with product or service innovation that were new or improved but
were already available in the market.
According to enterprise scale, in both manufacturing and service sectors, there
were more micro enterprises that introduced new products in the market compared to the
small and medium enterprises.
Table 3. Distribution by Enterprise Scale as to whether Product Innovation was
introduced during 2009-2011
PARTICULARS
MICRO
SMALL MEDIUM TOTAL
F
%
F
%
F
%
F %
New or improved products are new to
9
47.37 2
25
2
66.67 13 46.35
the market.
New or improved products is already
19
100
8
100 3
100
30
100
available in the market
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
18
Table 4. Distribution by Enterprise Scale as to whether Process Innovation was
introduced during 2009-2011
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
(N=19)
(N=8)
(N=3)
(N=30)
F % F % F % F %
New or improved way of
manufacturing or producing
15 78.95 6 75 3 100 24 84.65
goods or services
New or improved way or
acquiring raw materials, delivery, 12 63.16 4 50 3 100 19 71.05
distribution of products
New or significantly improved
13
68.42
5
62.5 3
100
21
76.97
supporting activities for processes
Process innovation by Industry Sector
Table 7 shows that in terms of process innovation, there is a greater majority
(86.7% versus 60%) of the enterprises in the service sector who innovated by introducing
new or significantly improved support activities for their processes. There is a slightly
greater percentage, however, of enterprises in manufacturing compared to the service
sector which introduced new or improved ways of acquiring raw materials, delivery and
distribution of products.
By enterprise scale, there were more micro enterprises in manufacturing
relative to the service sector that introduced a new or improved way of manufacturing or
providing goods or services, and in introducing new or improved way of acquiring raw
materials, delivery, distribution of products. On the other hand, the micro and small
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
19
enterprises under the service sector outnumbered the micro and small enterprises in the
manufacturing sector in terms of introducing new or significantly improved supporting
activities for the processes.
Table 5. Distribution as to whether an Organization and marketing innovation was
introduced during 2009-2011
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
(N=19)
(N=8)
(N=3)
(N=30)
F
%
F
%
F %
F %
New or improved
knowledge management
systems to better use or
exchange information,
15
78.95
7
87.5
3 100
25 83.33
knowledge and skills within
the enterprise
Changes in the management
structure or integrating
different departments or
12
63.16
6
75
3 100
21 70
activities
New or significant changes
in relations with other firms 16
84.21
6
75
3 100
25 83.33
or public institutions
Changes to the design or
packaging of a good
10
52.63
7
87.5
3 100
20 66.67
New or significantly
changed sales or distribution 10 52.63
6
75
3 100
19 63.33
methods
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
20
Organization and Marketing Innovation by Industry Sector
As to organization and marketing innovation by industry sector (Table 8), there is
just a slightly greater percentage of service enterprises compared to the manufacturing
who introduced changes in the management structure or integrated different departments
or activities, and introduced new or significantly changed sales or distribution methods.
By enterprise scale, the small enterprises in the service sector outnumbered the
small enterprises in the manufacturing sector as to introducing organization and
marketing innovation in all areas identified. On the other hand, the micro enterprises in
manufacturing compared to the micro enterprises in the service sector were clearly
greater in percentage as to introducing new or improved knowledge management systems
to better use or exchange information, knowledge and skills within the enterprise, new or
significant changes in relations with other firms or public institutions, and changes to the
design or packaging of a good.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
21
Developer of Product Innovation
There are various developers of new ideas by the MSMEs. This is shown in Table
9. A developer of an innovation maybe defined as one who originates the idea and further
elaborates it with some suggested specifications. The owner or manager (76.67%) is the
major developer of the product innovation followed by the customers (23.33%). Since the
owner or manager is the one who started the enterprise, the owner or manager is carries
the burden for any product improvements. The customers were a developer of innovation
through their suggestion about product improvement. Customers nowadays are more
vocal in their ideas, specification and criteria on what the product or service should look
like. The employees (20%), research and development (16.67%) and business partners
(10%) were also important developers of ideas for innovation.
For medium enterprises the owner and employees were the only developers of
product innovation. It is interesting that the small and micro enterprises generated
product innovation through some kind of research and development activity done. This is
probably done at the level of small experimentations. It can be seen from the Table 9 that
the micro enterprises have more developers of innovation than the small and medium
enterprises.
Developer of Process Innovation
Table 10 shows that just like in Product innovation, the owner or manager
(73.33%) was the major developer of the process innovation. The employees (20%)
through their own initiatives of finding new or better ways of doing things are the second
biggest developer for process innovations. Indications of research and development
activity are mentioned which may refer to trial and error activities in doing things. In
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
22
terms of process innovations, the micro enterprises have also a wide range of developers
compared to the small and medium enterprises.
Table 9. Distribution as to who developed the introduced product innovation
PARTICULARS
MICRO
SMALL
MEDIUM TOTAL
F
%
F
%
F
%
F %
The owner manager
13
68.42
7
87.5
3
100 23 76.67
Employee
4
21.05
1
12.5
1
33.33 6 20
Business partner
3
15.79
0
0
0
0
3 10
Customers directly
4
21.05
3
37.5
0
0
4 13.33
Consultant
0
0
0
0
0
0
0 0
Competitors
1
5.26
0
0
0
0
1 3.33
Associations
0
0
0
0
0
0
0 0
Internal sales & service
1
5.26
0
0
0
0
1 3.33
Research and Development
4
21.05
1
12.5
0
0
4 13.33
Schools
0
0
0
0
0
0
0 0
Labs and/ or other 1
5.26
0
0
0
0
1 3.33
institutions
Suppliers
2
10.53
0
0
0
0
2 6.67
Friend of owner
1
5.26
0
0
0
0
1 3.33
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
23
Table 10. Distribution as to who developed the introduced process innovation
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
F
%
F
%
F
%
F %
The owner manager
13
68.42
6
75
3
100
22 73.33
Employees
2
10.53
2
25
2
66.67
6 20
Business Partner
2
10.53
0
0
0
0
2 6.67
Customers directly
2
10.53
1
12.5
0
0
3 10
Consultant
0
0
0
0
0
0
0 0
Competitors
1
5.26
0
0
0
0
1 3.33
Associations
0
0
0
0
0
0 0
Internal sales
1
5.26
0
0
0
0
1 3.33
Research and
Development
4
21.05
1
12.5
1
33.33
6 20
Labs and/ or other
1
5.26
0
0
0
0
1 3.33
institutions
Suppliers
2
10.53
0
0
0
0
2
6.67
Friends of owner
1
5.26
0
0
0
0
1
3.33
Innovation Activities
Table 11 shows that the MSMEs have engaged in various innovation activities
from 2009-2011.Majority (83.33%) were involved in searching for new ideas and
developing it into a product or service, and for other preparation to finish the introduced
the new or improved product or service in the market. Around 73.33 % had introduced to
the market a new or improved product. 70% had undergone training and 70% got ideas
and knowledge from other businesses.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
24
Table 11. Distribution as innovation activities the MSME’s involved during 2009-2011
PARTICULARS
MICRO
SMALL
MEDIUM
TOTAL
(N=19)
(N=8)
(N=3)
(N=30)
F
%
F
%
F
%
F %
Searching for new ideas and 15
78.95
7
87.5 3
100
25 83.33
develop it into a product or
service
Other do the searching of ideas 10
52.63
4
50
2
66.7
16 53.33
and developing of the product
or services for the business
Acquisition of machinery, 14
73.68
4
50
2
66.7
20 66.67
equipment and software
Getting ideas, knowledge from 12
63.16
8
100
1
33.3
21 70.00
other business
Training
13
68.42
5
62.5 3
100
21 70.00
Introducing to the market the 14
73.68
5
62.5 3
100
22 73.33
new or improved products or
services
Other preparation to finish the 14
73.68
8
100
3
100
25 83.33
introduction of the new or
improved products or service in
the market
Information Sources
Table 12 shows the different sources of information on the innovation activities
undertaken by the MSMEs, and the degree of importance of this different source to the
enterprises.
Overall, the most important source of information for innovation was within the
enterprise group with 70%, followed by clients or customers with 60%, and suppliers of
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
25
equipment, materials, components or software (43.33%), and competitors or other
enterprises in the sector (43.33%).
Universities and schools (43.33%), government (36.67%) and the industry
association were considered as the top three less important sources of information.
Unlike the micro and medium enterprises, specifically all the small enterprises
found as of high importance the sourcing of information from competitors and other
enterprises in the sector.
Effects of Process and Product Innovation
Table 13 shows the effects of the process and product innovation and the degree
of these observed effects to the MSMEs.
The strongest impact from product and process innovation was improved quality
of products or services with 66.67%. Next ranked highest was improved flexibility in
providing the product or service, and meeting the regulatory requirement at 63.33%
respectively; and increased classification of product or service with 60%.
MSMEs considered reduced labor cost per unit output (23.33%), reduced
materials and energy per unit output (20%) and entered new markets or increased sales
(10%) as the three lowest effects under the category a high degree of importance.
All medium enterprises considered of high importance the following effects of
innovation: Entered new markets or increased sales; Improved quality of goods or
services; Improved flexibility of providing products or services; and Increased volume of
production.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
26
Effects of Organization and. Marketing Innovation
Table 14 shows the effects of organization and marketing innovation and its
observed effects. MSMEs had observed that the greatest effects of organization and
marketing innovation were on the improved quality of goods or services with 63.33%,
reduced time to respond to customers and suppliers needs (50%), and improved employee
satisfaction and reduced employees turnover rate (46.67%).
The effects on reducing cost per unit output was felt as with a high effect by a
fewer percentage of the micro enterprises compared to the small and medium enterprises.
Factors Affecting the Decision not to Innovate
Table 15 shows the different factors affecting the decision of the entrepreneurs
whether to innovate or not, and the degree of importance of these factors.
On the whole, the most important factors affecting the decision to innovate
were lack of capital with 56.67%, market dominated by larger enterprises with 46.67%,
innovation cost too high with 40%, lack of qualified personnel lack on information
technology, and lack of information on market, all at 36.67%.
The less important factors that affect the entrepreneur’s decision not to innovate
were absence of demand (43.33%), existence of prior innovations (33.33%) and
uncertainty in demand for the innovative goods and services (30%). Most of these factors
were rated as high by less than 50% of the enterprises.
By enterprise scale, about 42.11% of the micro enterprises found lack of capital as
of high importance in whether to pursue innovation or not. Of medium importance by
more than 40% of the enterprises was the lack of information on technology (43.37%),
costs too high (42.11%), and the uncertainty of demand for the innovative products or
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
27
services. For the small enterprises, there is a clear majority (50% or higher) who
indicated of high importance the following factors: lack of capital (75%), market
dominated by larger enterprises (75%), and the lack of information on the technology
(50%), For the medium enterprises, the lack of capital was of high importance by all the
enterprises, and the lack of finance by 66.67%.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 6. Distribution of the Product Innovation Done by Industry Sector
PARTICULARS
MANUFACTURING
SERVICE
MICRO SMALL MEDIUM
TOTAL
MICRO SMALL
MEDIUM
TOTAL
(N=8)
(N=5)
(N=2)
(N=15)
(N=10)
(N=4)
(N=1)
(N=15)
F
%
F
%
F
%
F
%
F
%
F
%
F
%
F
%
New or improved products
5
62.5 1
20
2
100
8
53.3
4
40
1
25
0
0
5
33.3
are new to the market.
New or improved products is
8
100
5 100
2
100 15
100
10 100
4
100
1
100
15
100
already available in the
market
*Multiple Response
Table 7. Distribution of Process Innovation per Industry Sector
PARTICULARS
MANUFACTURING
SERVICE
MIC
SMALL
MEDIUM
TOTAL
MICR
SMALL MEDIU
TOTAL
RO
(N=5)
(N=2)
(N=15)
O
(N=4)
M
(N=15)
(N=8)
(N=10)
(N=1)
F
%
F
%
F
%
F
%
F
%
F
%
F
%
F
%
New or improved way of manufacturing
or producing goods or services
8 100
4
80
2
100
12
80
7
70 3
75
1
100 12
80
New or improved way or acquiring raw
materials, delivery, distribution of
7 87.5
2
40
2
100
10
66.7
5
50 3
75
1
100 9
60
products
New or significantly improved
5 62.5 2 40 2 100 9 60 7 70 4 100 1 100 13 86.7
supporting activities for processes
Table 8. Distribution of Organization and Marketing Innovation per Industry Sector
PARTICULARS
MANUFACTURING
SERVICE
MICRO SMALL
MEDIU
TOTAL
MICRO SMALL
MEDIUM TOTAL
(N=8)
(N=5)
M (N=2) (N=15)
(N=10)
(N=4)
(N=1)
(N=15)
F %
F
%
F %
F
%
F
%
F
%
F
%
F
%
New or improved knowledge
management systems to better
use or exchange information,
8 100 3 60 2 100 13 86.7 8 80 4 100 1 100 13 86.7
knowledge and skills within the
enterprise
Changes in the management
structure or integrating different 5 62.5 3 60 2 100 10 66.7 8 80 3 75 1 100 11 73.3
departments or activities
New or significant changes in
relations with other firms or
8 100 2 40 2 100 13 68.7 8 80 4 100 1 100 13 68.7
public institutions
Changes to the design or
packaging of a good
6 75 3 60 2 100 10 66.7 6 60 4 100 1 100 10 66.7
New or significantly changed
5
62.5
2
40
2
100
9 60 6 60
4
100 1
100
10 66.7
sales or distribution methods
*Multiple
Response
Table 12. Percent Distribution of the Different Sources of Information on the Innovation Activities
PARTICULARS
MICRO (N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H
M
L
NR
H
M
L
NR
H
M
L
NR
H
M
L
NR
Within the enterprise or
enterprise group
57.89
15.79
21.05
10.53
100
0
0
0
66.67
33.33
0
0
70
13
13.33
6.67
Suppliers of equipment,
materials, components, or
software
47.37
21.05
26.32
5.26
38
38
12.5
13
33.33
66.67
0
0
43
30
20
6.67
Clients or customers
52.63
36.84
5.26
5.26
75
25
0
0
66.67
33.33
0
0
60
33
3.33
3.33
Competitors or other
enterprises in the sector
31.58
36.84
5.26
5.26
75
25
0
0
33.33
33.33
33.33
0
43
33
6.67
3.33
Consultants, commercial
labs, or private Research
and Development institute
21.05
31.58
36.84
10.53
13
25
37.5
25
33.33
66.67
0
0
20
33
33.33
13.33
Government
10.53
26.32
36.84
26.32
25
38
37.5
0
33.33
0
33.33
33.33
17
27
36.67
20
Universities or other
schools
10.53
21.05
47.37
21.05
13
38
37.5
13
33.33
0
33.33
33.33
13
23
43.33
20
Conferences, trade fairs,
exhibitions
26.32
26.32
31.58
15.79
38
25
37.5
0
66.67
33.33
0
0
33
27
30
10
Magazines or books
21.05
21.05
31.58
26.32
0
13 37.5 50 0 66.67 33.33 0 13 23 33.33 30
**Legend:
H-
High L-
Low
M-Medium
NR-
Not
Relevant
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 13.Percent Distribution of the Effects of Process and Product Innovation
PARTICULARS MICRO
(N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H
M
L
NR
H
M
L
NR
H
M
L
NR
H
M
L
NR
Increased classification of
products or services
52.63
42.11
5.26
0
75
25
0
0 66.67 0
33.33
0
60
33
7
0
Entered new markets or
increased sales
26.32
57.89
15.79
0
50
50
0
0 100 0
0
0
40
50
10
0
Improved quality of goods or
services
52.63
42.11
5.26
0
88
13
0
0 100 0
0
0
66.67
30
3
0
Improved flexibility of
providing products or services
52.63
42.11
5.26
0
75
25
0
0 100 0
0
0
63.33
33
3
0
Increased volume of production
21.05
68.42
5.26
5.26
63
38
0
0 100 0
0
0
40
53
3
3
Reduced labor costs per unit
output
26.32
31.58
36.84
5.26
25
75
0
0 66.67
33.33
0
0
30
43
23
3
Reduced materials and energy
per unit output
31.58
36.84
31.58
0
25
75
0
0 66.67
33.33
0
0
33.33
47
20
0
Reduced environmental impacts
or improved health and safety
52.63
31.58
10.53
0
50
50
0
0 100 0
0
0 56.67
33
7
0
Met regulatory requirements
52.63
31.58
10.53
0
75
25
0
0
100
0
0
0
63.33
27
7
0
**Legend: H- High
M-Medium
L- Low
NR- Not Relevan
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 14. Percentage distribution of effects of Organization and Marketing Innovation
PARTICULARS
MICRO (N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H M
L NR H M L NR H M L NR H M L NR
Reduced time to
respond to customer or
supplier needs
47.37
42.11
5.26
0
50
25
25
0
67
33
0
0
50
36.67
10
0
Improved quality of
goods or services
63.16
31.58
5.26
0
63
38
0
0
67
33
0
0
63.33
33.33
3.33
0
Reduced cost per unit
output
5.26
42.11
21.05
5.26
38
50
13
0
67
33
0
0
20
43.33
16.67
3.33
Improved employee
satisfaction and/or
reduced rates of
42.11
42.11
10.53
5.26
50
50
0
0
67
33
0
0
46.67
43.33
6.67
3.33
employee turnover
**Legend:
H- High
M-Medium
L-
Low
NR- Not Relevant
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Table 15. Percent Distribution of the Factors Affecting the Decision to Innovate
PARTICULARS
MICRO(N=19)
SMALL (N=8)
MEDIUM (N=3)
TOTAL (N=30)
H
M
L
NR
H
M
L
NR
H
M
L
NR
H
M
L
NR
Lack of capital
42.11
21.05
31.58
5.26
75
13
0
13
100
0
0
0
56.67
16.67
20
6.67
Lack of finance
31.58
36.84
26.32
5.26
38
25
12.5
13
66.67
33.33
0
0
36.67
33.33
20
0
Innovation costs too
high
31.58
42.11
26.32
0
63
25
0
13
33.33
33.33
0
0
40
36.67
16.67
0
Lack of qualified
personnel
36.84
31.58
31.58
0
38
25
12.5
13
33.33
66.67
0
0
36.67
33.33
23.33
0
Lack of information on
technology
31.58
47.37
21.05
0
50
13
25
13
33.33
33.33
33.33
0
36.67
36.67
23.33
0
Lack of information on
markets
36.84
31.58
26.32
0
38
38
0
13
0
66.67
33.33
0
33.33
36.67
20
0
Market dominated by
established enterprises
36.84
31.58
26.32
0
75
13
0
13
33.33
33.33
33.33
0
46.67
26.67
20
0
Uncertain demand for
innovative goods or
services
15.79
42.11
36.84
5.26
25
50
12.5
13
0
66.67
33.33
0
16.67
46.67
30
0
No need due to prior
innovations
21.05
31.58
42.11
52.63
13
63
12.5
13
0
66.67
33.33
0
16.67
43.33
33.33
0
No need because of no
demand for innovations
21.05
26.32
0
0
13
63
12.5 13 0 33.33 66.67 0 16.67 36.67 43.33 0
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
31
SUMMARY, CONCLUSIONS AND RECOMMENDATION
Summary
The study was conducted for the following: 1) to determine the type of innovation
adopted by MSMEs in the last three years (2009-2011); 2) to identify the person/s
responsible for the introduced innovation; 3) to identify the activities associated with the
innovation; 4) to identify the information sources of innovation in MSMEs; 5) to identify
the effects of innovation to the MSMEs; and 6) the factors affecting the decision of
MSMEs not to innovate. The data were gathered using a survey questionnaire. A total of
30 MSMEs in La Trinidad served as respondents, 15 were in the manufacturing sector
and 15 in the service sector.
The majority of the respondents were in business for 2-10 years. The majority
(63.33%) of the respondents are micro enterprises.
For the year 2009-2011, MSMEs in La Trinidad engaged in various innovation
activities. All the enterprises had done product innovation mostly in the form of
introducing new products that were already available in the market. There were also
46.35% of the product innovations that were introduced that were really new to the
market; Most of these products were introduced by the medium enterprises (66.67%).
The MSMEs also were involved in process innovation where majority (84.65%) of the
respondents had done new or an improved way of manufacturing or producing goods or
services. All of the activity under process innovation had been done by all the medium
enterprises. The MSMEs were more creative in introducing organization and marketing
innovations. Specifically, majority (88.82%) of the respondents had introduced new or
improved knowledge management system to better use of information. Moreover, the
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
32
medium enterprise were more active in this innovation compared to the small and micro
enterprises.
More enterprises in the manufacturing sector than the service sector had
introduced product innovations that were new to the market. In terms of the process
innovation, there is a slightly higher percentage of manufacturing enterprises that
introduced new or improved ways of acquiring raw materials, delivery and distribution of
products. For the organization and marketing innovation, there is just a slightly greater
percentage of service enterprises compared to the manufacturing whointroduced changes
in the management structure or integrated different departments or activities, and
introduced new or significantly changed sales or distribution methods.
The major developers of product innovation in the MSME’s were the owner
manager of the enterprise, the employees and customers. But for the medium enterprises
the customers were not included as a developer of innovation. Process innovations were
developed by the owner or manager of the enterprise, employees and through research
and development.
Majority (83.33%) of the innovation activities for the year 2009-2011 were
searching for new ideas and developing it into a product or service and for other
preparations to finish the introduction of the new or improved product or service in the
market.
There are many sources of information about the innovation activities of the
MSMEs and the strongest source of information was the enterprise group (70%),
followed by clients or customers (60%), and suppliers and competitors (43.33%).
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
33
Innovation has different effects for the MSMEs. The strongest impact from
product and process innovation was improved quality of product or services (66.67%).
Next highest in rank was improved flexibility in providing the product or service with
63.33% and increased classification of product or service (60%). For organization and
marketing innovation, MSMEs had observed that the effects were improved quality of
goods or services (63.33%), reduced time to respond to customer and supplier
needs,improved employees satisfaction, and reduced employees turnover rate.
The factors rated with high effects, on innovation decision were lack of capital
(56.67%), market dominated by larger enterprises (46.67%), innovation cost too high
(40%), lack of qualified personnel, lack on information technology and lack of
information on market (36.67 %,).
Conclusion
Based from the results, the following conclusions were derived:
1. MSMEs in La Trinidad introduced product, process, organization and
marketing innovations for the past three years (2009-2011).
2. The owner or manager of the enterprises is the main developer of innovation in
the MSMEs.
3. There are a lot of activities that the MSMEs involved in for the past three years
(2009-2011) which included searching for new ideas and developing it into a product or
service, and engaging in other preparations to finish the introduced the new or improved
product or service in the market; as the critical ones
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
34
4. There are different sources of information for the innovation activities of
MSMEs. The major sources of information were within the enterprise group; the clients
or customers; and the suppliers and competitors.
5. Product and Process Innovation have a lot of effects for the enterprises namely:
improved quality of products or services; improved flexibility in providing the product or
service; and increased classification of product or service. For organization and
marketing innovations, the greatest effects are improved quality of goods or services;
reduced time to response to customers and suppliers needs, and improved employees
satisfaction and reduced employees turnover.
6. There are factors affecting decision of the entrepreneurs whether to innovate.
The strongest factor that affects the decision of the entrepreneur to innovation were lack
of capital; market dominated by larger enterprises; and the high cost of innovation.
Recommendation
Based on the findings and conclusion the following recommendations are made:
1. The MSMEs should continue to innovate so that their enterprises will
continuously enjoy the positive effect of the innovations.
2. The government should also help the MSMEs in their innovation activities.
Trainings, bench marking opportunities and financial support should be given to MSMEs
to enhance their innovation activities especially the micro enterprises.
3. Enterprises should help each other in coming up with innovations since most
find the source of innovation from within the enterprise group. Avenueswhere the
different enterprises can meet and share ideas should be encouraged by the government
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
35
or by the industry association. MSMEs especially large scale enterprises, should help one
another in acquiring fund for the innovation.
4. Other institutions such as universities and civic societies should involve the
MSMEs in activities that promote development of innovations.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
39
LITERATURE CITED
ASEAN POLICY BLUEPRINT, 2003, Profile of SMEs and SME Issues in APEC 1990-
2000, retrieved at www.google.com
BROUWER, E., KLEINKNECHT, A., REIJNEN, J. 1993. Employment Growth and
Innovation at the Firm Level. An Empirical Study, Date retrieved August 25,
2011, at www.google.com
CORORATON, C., 2005, Research and Development and Technology in the Philippines,
Philippine Institute for Development Science, pages 3,44.
DE RIDDER,P. 2007. Sources of Innovation: Where do Business Leaders Think Ideas
and New Innovation came From. Date Retrieved October, 25, 2011.
atwww.google.com
DEPARTMENT OF TRADE AND INDUSTRY. 2008. Micro, Small and Medium
enterprises, Date Retrieved July 27, 2011, at www.googole.com
DRUCKER, P. 1985. Entrepreneurship, Date Retrieved July 27, 2011.atwww.google.com
EUROPEAN COMMISSION. 2011. Innovation Activities, OSLO Manual, Date
Retrieved October 25, 2011. at www.google.com
FOURTH COMMUNITY INNOVATION SURVEY.2004. Date Retrieved October 25,
2011. atwww.google,com
GLOSSARY OF STATISTICAL TERMS, 2005, Innovation Activities, Date Retrieved
October 32, 2011. atwww.google.com
GRILICHES, Z., 1995, R&D and Productivity: Econometric Results and Measurement
Issues, in Paul Stoneman (ed.), Handbook of the Economics of Innovation
Technological Change, Blackwell, 52-89.
INTERNATIONAL JOURNAL OF BUSINESS AND SOCIAL SCIENCES, 2011,
Effects of Learning, Networking and Innovation Adoption on Successful
Entrepreneurs in Central Java, Indonesia, Date Retrieved July 23, 2011.
atwww.google.com
INTERNATIONAL ENTREPRENUERSHIP, 2011, Entreprenuership in the Philippines,
Date Retreived July 23, 2011, at www.google.com
JAUMANDREU, J. 2003. Does Innovation Spur Employment? A Firm level analysis
using Spanish IS data. Date Retrieved July 23, 2011.atwww.google.com
MACHFOEDZ, M. 2002. Kewirausahaan, UPP AMP YKPN Yogyakarta
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PETERS, B., 2008, Innovation and Firm’s Performance. An Empirical Investigation for
German Firms, Date Retrieved July 23, 2011. atwww.google.com
SCHUMPETER, J. 1939. Business Cycles: A Theoretical, Historical and Statistical
Analysis of the Capitalist process. Date Retrieved July 23, 2011.
atwww.google.com
SCHRODDER, R., VAN DE VEN, A. SCUDDER, G., and POLLEY, D. 1989. The
Development of Innovation Ideas. Date Retrieved August 19, 2011.
atwww.google.com
SOLOMON, G., WINSLOW, E., TARABISHY, A. 2004.The Role of Climate in
Fostering Innovative Behaviour in Entrepreneurial SMEs. Date Retrieved July
23,2011. atww.google.com
VAN DE VEN, A. 1989. Central Problems in the management of Innovation Sciences,
Date Retrieved July 29, 2011.atwww.google.com
TIDD, J., BESSANT, J., PAVITT, 2005, Managing Innovation, 2rd ed., Jophnwiley and
Sons LTD, 53-55
TUOMINEN, T., and TOIVONEN, M. 2007.Studying Innovation Activities of KIBS
through the Lens of Innovative Behaviour.Date Retrieved July 23,
2011.atwww.google.com
APPENDIX A
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
41
Letter to the Respondents
________________
Sir/ Madam,
Greetings!
I am Mary Ann D. Wayet, a student of Benguet State University currently taking
up Bachelor of Science in agribusiness major in Enterprise Management. I am now
currently conducting a research entitled, “An Assessment of the Innovation of MSMEs in
La Trinidad, Benguet.” In connection may I ask a portion of your precious time in
answering my questionnaires. Rest assured that the information will be kept
confidentially.
Thank you very much.
Respectfully yours,
MARY ANN D. WAYET
Student
Noted by:
DR. DARLYN D. TAGARINO
Adviser
APPENDIX B
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
42
Questionnaire
Respondent #_______
Personal Information
Name:__________________________________________
Position in the Company:________________________________________
Business Profile
Name of the Enterprise:______________________________________
Location of the Enterprise:_____________________________________
__________________________________________________________
Number of years in Business:___________________________________
Number of employees:______________________________________
Total Asset in the present:______________3,000,000 and below
____________ 3,000,001-15,000,000
____________ 15,000,001-100,000,000
1. Product (good or service) innovation/ new or improved product
1.1 During 2009 to 2011, did your enterprise introduce:
Yes
No
New or improved goods.
1.2 Who developed/introduced these product innovations?
Select the most appropriate option only
The owner manager
employees
business partner
customers directly
consultant
competitors
associations
internal sales & service unit
through Research and Development
schools
Labs and/ or other institutions
Others pls specify:_____________________________________________________
1.3 During 2009-2011; were any of your product and service innovation /new or
improved products or service:
Yes
No
new or improved products or services
introduced by your business is new to the
market.
new or improved productsor services
introduced by your business is already
available in the market
2. Process innovation/ new or improved process
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
43
2.1 During 2009 to 2011, did your enterprise introduce:
yes
no
New or improved way of manufacturing or producing goods
or services
New or improved way of acquiring raw materials, delivery,
distribution of products
New or significantly improved supporting activities for your
processes, such as maintenance systems, computization
2.2 Who developed/ introduced these process innovations/ new or improved process
The owner manager
employees
business partner
customers directly
consultant
competitors
associations
internal sales & service unit
through Research and Development
schools
Labs and/ or other institutions
Others pls specify:_____________________________________________________
3. Innovation activities
3.1 During 2009 to 2011, did your enterprise engage in the following innovation
activities:
yes
no
your business is searching for new ideas and develop it into a
product or service
other do the searching of ideas and developing of the product or
services for your business
Acquisition of machinery, equipment and software
getting ideas, knowledge from other business
Training
introducing to the market the new or improved products or
services
other preparation to finish the introduction of the new or
improved products or service in the market
3.2 During the three years 2009 to 2011, did your enterprise receive any public financial
support for innovation activities from the government.
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
44
yes
no
Local or regional authorities
national goverment
4. Sources of information
4.1 During 2009 to 2011, how important to your enterprise’s innovation activities were
each of the following information sources?
Degree of importance
High
Medium Low
Not used
Within your enterprise or enterprise
group
Suppliers of equipment, materials,
components, or software
Clients or customers
Competitors or other enterprises in your
sector
Consultants, commercial labs, or private
Research and Development institute
Universities or other schools
Government or public research institutes
Conferences, trade fairs, exhibitions
magazines or books
Professional and industry associations
5. Effects of innovation during 2009-2011
5.1 How important were each of the following effects of your product (good or service)
andprocess innovations introduced during 2009 to 2011?
Degree of observed effect
High
Medium
Low
Not
relevant
Increased classification of products or
services
Entered new markets or increased sales
Improved quality of goods or services
improved flexibility of providing products or
services
increased volume of production
Reduced labour costs per unit output
Reduced materials and energy per unit output
Reduced environmental impacts or improved
health and safety
Met regulatory requirements
6. . Factors affecting innovation activities
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
45
6.1 During 2009 to 2011, how important were the following factors for affecting
your innovation activities or projects influencing a decision not to innovate?
Degree of importance
High
Medium Low
Factor not
experienced
Lack of capital
Lack of finance from outside sources
Innovation costs too high
Lack of qualified personnel
Lack of information on technology
Lack of information on markets
Market dominated by larger business
Not sure demand for the new or
improved product or service
No need due to past improvements of
products or service
No need because of no demand for new
product or service
7 . Organisational and marketing innovations
7.1 During the three years 2009 to 2011, did your enterprise introduce:
yes
no
New or improved use of information, knowledge and skills
within the business
Change in management structure and re arrangement of
works.
New or change in relationship with other business and people
associated with the business
Change in the packaging of the product
New or change in the distribution method
7.2 If your enterprise introduced an organisational innovation during 2009 to 2011, please
rate the effects as applicable:
Degree of observed effect
High
Medium Low
Not
relevant
Reduced time to respond to customer or supplier
needs
Improved quality of your goods or services
Reduced costs per unit output
Improved employee satisfaction and/or reduced
the frequency in replacing employee’s
An Assessment of the Innovation of the MSMEs in La Trinidad / Mary Ann D. Wayet. 20120
Document Outline
- An Assessment of the Innovation of theMSMEs in La Trinidad
- BIBLIOGRAPHY
- TABLE OF CONTENT
- INTRODUCTION
- REVIEW OF LITERATURE
- METHODOLOGY
- RESULTS AND DISCUSSION
- SUMMARY, CONCLUSIONS AND RECOMMENDATION
- LITERATURE CITED
- APPENDIX