Can internal factors improve innovation performance via innovation culture in SMEs?

Innovation performance is an issue that has a profound effect not only on Malaysian large companies but also among small and medium enterprises (SMEs) especially Bumiputera SMEs. The purpose of this paper is to explore the theoretical review of innovation culture pertaining to innovation performance by conducting a literature review on SME studies. The previous reference on innovation performance in Malaysian SMEs is still scarce, even though it is the key benchmark to measure firm performance. It has been demonstrated by the literature that innovation culture is significantly associated with innovation performance. Nonetheless, its effect on Bumiputera SMEs is still underexplored. Thus, this study examines the importance of internal factors (specific human capital and social capital) to innovation culture in driving innovation performance.

A questionnaire-based survey was conducted to gather data from Bumiputera SMEs. A total of 140 responses were obtained and analyses were carried out using Smart-PLS software to produce interesting findings.

The findings indicate that social capital (relational capital and social network) has a significant impact on innovation culture and indirectly impacts innovation performance. The findings also reveal that specific human capital does not have significant impact on innovation culture and innovation performance. This paper shows the importance of social capital and how it directly influences Bumiputera SMEs and innovation performance. This result will be encouraging to firms in other developing countries.

Although SMEs play an important role in economic development, their contribution to innovation is small and marginal. This study makes an important contribution by providing information to the Malaysian SMEs, especially those that are of Bumiputera status on the factors that could enhance innovation performance and nurture innovation culture in their organisations. Thus, it is hoped that this study will generate interest among researchers to attain more conclusive evidence about the practice of innovation culture among Malaysian SMEs.

This paper is one of the first to address the mediating effect of innovation culture on specific human capital, social capital and innovation performance.