Innovation and firm performance in small and medium enterprises in Vietnam
Abstract
Innovation is a very broad concept and accepting it as a key determinant of economic growth and firm performance. Therefore, it is important to determine the variables that affect innovation, especially where there is uncertainty and a turbulent environment as is the case with markets and technologies today. This paper looks at the impact of innovation on the financial performance of small and medium-sized enterprises (SMEs) in Vietnam, exploring the moderating role of organizational legal form and training. Using the Vietnam SME Survey, this thesis seeks to answer the question of how varied innovation activities impact profitability.The findings indicate that innovation strongly affects firm performance, and this effect is enhanced by formalized organizational forms and higher employee training. SMEs with formalized organizational forms as compared to household businesses can easily access resources, pursue strategic actions and protect intellectual property. However, some household businesses lack resources to fully engage in innovation.Training of employees emerges as a key variable influencing innovation and financial performance. Firms that engage in training and education of their employees obtain higher returns from their innovation activities. The investment in human capital improves the capacity of the firm to generate greater productivity and efficiency which directly affect profits.This study offers practical implications for SMEs managers and contributes further to the understanding of innovation dynamics in the context of developing countries. The results indicate the importance of formalized organizational forms and training of employees to fully exploit financial benefits from innovation activities. These considerations are beneficial for policymakers and entrepreneurs to encourage a higher level of innovativeness in firms, industries and the economy as well.