Abstract
The huge base of manufacturing in India is characterized by the predominance of micro, small and medium enterprises (MSMEs), the export performance of which has been far from impressive. Poor product quality has often been attributed to inadequacy in institutional framework supporting innovation in MSMEs, even those in the knowledge-based information and communication technology (ICT) subsector that holds much promise for its global presence. Recognizing the ICT sector’s sensitivity to the global industrial environment, this chapter investigates the relationship between innovation activities and firm performance. They attempt to identify factors influencing innovation related to product quality and, in the process, investigate the role of institutional support in innovation activities of MSMEs of ICT clusters. In addition to traditional variables representing size and CEO characteristics, the study includes variables representing innovation strategies. The results show that firm-specific characteristics influence innovation activities and supporting institutional policies stimulate innovation; firms formally associated with state facilities (as the Software Technology Parks of India) pursued better innovation strategies than those which did not. The role of the state in terms of providing for both technological and infrastructural support is seen as a broad-based approach to improve innovation potential of MSMEs and, in turn, ensuring higher product standards through endogenous efforts.
Acknowledgments: We would like to thank Graduate School of Engineering, Nagoya University for allowing us to use the data collected for their project. The CEOs of sample firms deserve appreciation for sparing their time and sharing data related to their firms. An earlier version of the chapter was presented in a conference organized by Knowledge Forum at IIT Bombay during October 25–27, 2013. We are grateful to the participants for their comments.
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Notes
- 1.
The MSMEs in India are defined as per the Micro, Small and Medium Enterprises Development (MSMED) Act 2006, based on their investment in plant and machinery (for manufacturing enterprise) and on equipment for enterprises providing or rendering services. The detailed statement of the Act is contained in The Gazette of India, Extraordinary, Para II, Sect. 3, Sub-section (ii), New Delhi, September 30, 2006, Government of India. For manufacturing enterprise, a micro firm is that in which the investment in plant and machinery does not exceed ₹ 2.5 million; a small firm is where the investment in plant and machinery does not exceed ₹ 50 million and a medium enterprise is where the investment in plant and machinery does not exceed ₹ 100 million. In case of services, a micro enterprise involves investment in equipments that does not exceed ₹ 1.0 million; a small enterprise is where the investment does not exceed ₹ 20 million and a medium enterprise where the investment in equipment does not exceed ₹ 50 million (Lal and Paul 2013).
- 2.
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Lal, K., Paul, S. (2014). Institutions and Innovation: A Study of ICT-MSMEs in India. In: Das, K. (eds) Globalization and Standards. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1994-1_10
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