Technology Innovations For Growth Of SMEs In Nigeria; The Role Of Management

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Technology Innovations For Growth Of SMEs In Nigeria; The Role Of Management


There is no doubt that new or improved product or process of production continues to create firm’s competitive advantage over others in the market. This study examined the impact of research and development (R&D) expenditure, product and process innovations on small and medium enterprises (SMEs) performance in the manufacturing industry in Nigeria using a survey of 1,000 SMEs with a response rate of 52.1% in year 2009. The results with least squares method showed that R&D spending by the firms as well as product and process innovation has significant impacts on the firm’s performance with the probability value of 0.0529, 0.0624 and 0.0086 respectively at 10% level of significant. Also, training of workforce constitutes the major innovation activities in the Nigerian manufacturing SMEs as against in-house and outsourced R&D activities. This study suggests improvement in R&D spending and other technological activities which are expected to increase SMEs’ profitability and thus generate more employment in the country.

Chapter One:


1.1 Background of the Study

Technology is a systematic application of physical forces for production of goods and services. The knowledge used in practical ways in industry (Oxford 2005). It is the knowledge, process, tools, methods and systems employed in the creation of goods and improving in services. Technology is the result of man’s learned and acquired knowledge or his technical skills regarding how to do things well (Khalil, 2000). Technological innovation provides the life-blood of economic activities. Technological innovation is a tool for economic growth and the application of those inventions to meet emerging business opportunities, and to meet social needs, and environmental challenges.
For any organization to be able to compete, it must be technologically innovative. Technological innovation and core competitiveness enjoy symbiotic relationship (Prhanlad & Hamel, 1990). Technological Innovation Capability (T.I.C) is an important component of the core competitiveness of the manufacturing industry, and core competitiveness play a role in promoting or influencing technological innovation. Technology should be so designed to be able to match the marketing capability of the organization and be seen as reflecting in the strategic plan of the firm and its overall success.

Globally, innovation is recognised as a vital driver of economic growth and development (Bosworth and Collins, 2003). The impact of which has been felt on business activities as it leads to new products and services with improve quality and lower cost of production (Rose et al., 2009). Based on Schumpeter’s description of innovation, Organisation for Economic Cooperation and Development (OECD) Oslo Manual (2005) extracted four different innovation types which are grouped into technological and non-technological innovations. Product and process are closely related to the concept of technological innovation, whereas, marketing and organisational are referred to as non-technological innovation. This study focus on technological innovation, defined as the technical process through which new and/or improved technologies are developed and proliferated through commercialisation (Ambuj and Zwaan, 2006; Lee et al., 2011). Notably is the firms’ deployment of technological innovation as a strategic catalyst to maintain sustainable growth in today’s global and competitive business environments (Wei, 2012). This is apparently credited to two contending tendencies, the globalisation of economic activity and the localisation of industries. Globalisation fundamentally influences all fields of businesses, including production with the role of large multinational companies determining the development of their sectors globally by setting the trends of technical/technological innovation and also by applying and disseminating cutting-edge management approaches (Chikan and Demeter, 2003). While trends towards globalisation of industries and companies have appeared to reduce the importance and distinctiveness of regions, a tendency towards localisation of certain industries and economic activities seems to do exactly the opposite (OECD, 2000). By this we are referring to user-producer relationships syndrome in the innovation process that domestic demand gives local firms an advantage over the foreign counter-parts in perceiving the local demand preferences. This is so because user-producer interaction are more efficient within countries, but not in the case of exportation (Beise and Gemunden, 2004).

Interest in localised groups of firms in related industries has grown in lips and bounds across countries with Nigeria inclusive. These successes have been recorded in form of clusters comprising of small and medium enterprises (SMEs) such as the one found in Otigba and Nnewi industrial estates of Nigeria. These firms mostly belong to the manufacturing sector have contributed marginally to the growth of the Nigeria’s economies in recent times with their average contributions far less than 10% of the gross domestic products (GDP) unlike their counterpart from Malaysia with about 45% GDP contributions (Atoyebi et al., 2014).

In today’s growing multifaceted world, small and mid-size enterprises (SMEs) are concentrating more on using technology to spur growth, client value and market differentiation as such, these businesses are embracing innovative technologies for breakthrough change and diversification and this is eventually the case in a recovering global economy (Peter, 2011). Technological innovation is an important means to stimulate economic efficiency of SMEs and a source to attain a sustainable development (Bala-Subrahmanya et al., 2010). Essentially, if the SMEs must adapt to the changing external environment and meet market needs, they must take technological innovation as the basic way (Bala-Subrahmanya, 2012). In fact, the progressive development and growth of most successful SMEs is relying on continued technological innovation (Sun, 2009).

The Federal Government of Nigeria in its effort to make SMEs more effectual in the economy and in lieu to ensure balance industrial development has decided to promote their development in domestic industrial activities. This is aimed at repositioning the sector for international competitiveness and also to make it source of export earnings in a global economy (Ehinomen and Adeleke, 2012). To this end productivity of the SMEs can be further improved through technological innovation and engaging in research and development (R&D) related activities. Nevertheless, the innovative capacity of SMEs significantly varies depending on their sector, magnitude, target, resources, locations and the opportunities accrued to such business environment in which they operate (Burrone and Jaiya, 2005). It is in lieu of this that this study seeks to establish the magnitude and direction of relationship between firm’s performance (profitability) and technological innovation in Nigeria.

Nigerian government has a vision of becoming among the top 20 economies by the year 2020 which is termed ‘vision 20:2020’and manufacturing sector is being considered as a key sector in realising this vision. The Nigerian government has recently focused on the development of manufacturing sector so as to build indigenous capacities as well as preventing the country from ‘Dutch disease’ which arise as a result of over reliance on the petroleum industry. Despite the governmental efforts on this sector, the contribution of the sector to GDP is still relatively low (less than 5%) when compared to other Sub-Saharan African countries (average of 30%) (World Bank, 2010).

1.2 Statement of the Problem

In advanced economy, SMEs played an essential role in driving economic growth through investment in fixed assets, generating exports and promoting technology integration. It is observed that in some newly industrialised countries like Taiwan, Malaysia, South Korea and Singapore, SMEs have powerfully dictated not only on industrial production strategies but also on the export earnings (Ehinomen and Adeleke, 2012). Notably, SMEs constitute the production wheels for the large scale enterprises of these countries, and as pointed out by Adeleke (2002), SMEs act as impetus of accelerated economic growth and development. However, the much anticipated accelerated pace of economic development through SME has not been reached in Nigeria (Awe, 2012).

SMEs dominate the large proportions of firms in the manufacturing sector in Nigeria, and there is dearth of studies in the area of harnessing technological innovations to drive profitability of SMEs in the Nigerian manufacturing sector. As a result, this study seeks to fill such gap in the literature by examining the technological innovation and profitability of Nigerian SMEs in the manufacturing sector.

1.3 Aims and Objectives

The major aim of this research is to find out the impact of technological innovation on SMEs.

The specific objectives are to

  1. To determine if expenditure on R&D has no significant impact on the performance of SMEs or not
  2. Product and process innovations no significant impact on the firm’s performance.
  3. Product and process innovations are not jointly significantly important in explaining changes in SME’s performance

1.4 Research Hypothesis

H01: Each independent variable has no significant impact on the firm’s performance while the alternative hypothesis

H02: The independent variables are not jointly significantly important in explaining changes in SME’s performance

H03: Expenditure on R&D has no significant impact on the performance of SMEs or not

1.5 Significance of the Study

The essential role of SMEs in the growth and the development of nations’ economy cannot be gainsaid. SMEs have remained the catalysts for economic development both for the developed and developing nations in terms of employment generation, development of indigenous entrepreneurship, forward integration with large-scale enterprises and added value to gross domestic product (GDP) (Ussahawanitchaki, 2012).

This work is of great importance to SMEs, Government Agencies, Policy Makers and the general Public at large.

1.6 Scope and Limitations of the Study

This work is on the impact of technological innovations for growth of SMEs in Nigeria; the role of management. The limitations are constraints of Time and Finance.

1.7 Definition of Terms


Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ fewer than a given number of employees. This number varies across countries.


Innovation in its modern meaning is “a new idea, creative thoughts, new imaginations in form of device or method”. Innovation is often also viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs.


Technology refers to methods, systems, and devices which are the result of scientific knowledge being used for practical purposes.

Chapter Five

Conclusion and Recommendations

This paper has been able to explore the concept of technological innovation in Nigerian manufacturing SMEs. The paper showed the relationship between technological innovation (product and process) and SMEs performance (measured as firms’ turnover). Based on the outcome of the study, it can be concluded that product and process innovations with p-value of 0.0624 and 0.008 have significant impact on SME performance at 10% level of significant. The expenditures on R&D also have significant impact on SMEs performance in Nigeria. The level of innovation activities such as in-house (34.2%) and outsourced R&D (22.5%), industrial design (31.7%), lease and rental of equipment (14%) are relatively low in the SMEs sampled. Though training of workforce (60%) is the commonest among the SMEs, however 40% of the SMEs not engaging in this is also worrisome. It becomes necessary for SMEs in the manufacturing industry to intensify their innovation activities so as to create a competitive advantage environment which will further improve their turnover and profitability. This implied that innovating firms in the manufacturing industry which allocate their assets more effectively are more profitable. The firms are encouraged to spend more on research that relates to the improvement of their products as well as improve the level of production process to enhance their productivity. Any enterprise that refuses to engage in R&D and innovation activities will find it very difficult to compete with its rivals in the industry. Nigerian government can provide tax rebate and other forms of incentives for the SMEs that engage in technological innovation in the short run as this will ensure them to break even. There is limitation of considering only R&D expenditure, product and process innovations as the independent variables of SMEs performance in which other variables like marketing, organisation behaviours among others can be considered in further research. Therefore, the paper concludes that technological innovation is important for SMEs in Nigeria to achieve profitability. This leads to the growth of firms hence, employment generation.

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