Impediments to innovation: evidence from Malaysian manufacturing firms

Abstract

This work investigates the impediments to innovation faced by Malaysian manufacturing firms and whether they differ between firms that eventually engage in innovation activities and firms that do not. The shortcomings and obstacles encountered are assessed. Complementarities between the obstacles are also evaluated. The data are taken from the National Survey of Innovation 2000–2001 carried out in 2003 and the results show that firms which are engaged in innovation activities are more likely to face impediments. The level of importance of obstacles and the way the obstacles combine to impede innovation activities are also different for the two groups. Policies to encourage innovation should consider the different needs of firms that are engaged in innovation activities and firms that are not.

Keywords:

• innovation policy
• Malaysia
• manufacturing
• obstacles to innovation

Acknowledgements

The authors wish to thank the Ministry of Science, Technology and Innovation, Malaysia for the data. We are grateful to the referees for useful comments. The usual disclaimer applies.

Notes

1. The index we use here has been used to measure the coherence of firms' diversification strategy (Valcano and Vannoni 2003, Karthik and Basant 2004). Testing for complementarity among obstacles can be achieved in a number of different ways (Athey and Stern 1998). One approach is based on revealed preferences, assuming optimization behaviour. Some authors (Mohnen and Rosa 2002, Galia and Legros 2004) have used binary correlations, and further analyzed these using principal components analysis and econometric analysis, using different assumptions about the error term. Since establishing complementarity among obstacles for Malaysian firms is an objective of this paper, it is appropriate to use that a method that does not assume its existence a priori.

2. The classifications are as follows. Size: Small firms, less than 50 employees; medium-sized firms, between 50 and 249 employees; and large firms, 250 employees or more. Export orientation: export oriented firms, with positive export sales; non-export oriented firms, no export sales. Foreign ownership: domestic firms: wholly domestic ownership; foreign firms, some foreign ownership. Technological intensity is based on Hatzichronoglou (1997) classification using two digit SITC codes: low or medium-low, two digits codes 15–22, 25–28 and 36–37 comprising food, tobacco, textiles, wood, furniture, paper, rubber, other minerals, metal and related industries; medium-high or high, two digit codes 23–24 and 29–35 comprising chemical and related products, machinery and equipment, motor vehicles and transport equipment, office, electrical, electronic, communication and medical equipment and related products.

3. As the questionnaire provides neither explanations nor definitions for the various types of shortcomings of innovation, firms would have their own interpretation on the types of shortcomings encountered. For example, a firm might find an innovation activity has burdens and then does not officially launch, or delays or abandons the project, and would then report itself as having no innovation activity.