Product innovation in small manufacturers, market orientation and the industry's five competitive forces : Empirical evidence from Spain

Purpose – The purpose of this paper is to study whether the effectiveness of innovation in improving a firm's performance varies in different competitive situations and to analyze whether the competitive forces act as a motivator or as an inhibitor. Design/methodology/approach – The paper formulates some hypotheses from the literature review. These hypotheses are tested using structural equation modelling with data collected from 218 manufacturers. Findings – The findings show that small firms must invest in innovation preferably when competitive forces are more intense. Moreover it is found the positive role that market orientation plays in promoting innovation and performance, no matter the level of the competitive forces. Research limitations/implications – A decision had to be taken on the range of concepts and the domain used for measuring each concept. For future research the paper suggests considering different types of innovations (e.g. incremental vs radical) to get a more precise explanation of the set of relationships considered in this research. Practical implications – SMEs have to use product innovation in accordance with their competitive situation. When competitive pressure is low, SMEs should be cautious about exaggerating investments on product innovation, whereas investments in other type of market oriented behaviours could be more productive. On the other hand, firms should focus on innovations based on market orientation when the competitive forces expose them to a harsh environment. Originality/value – This paper provides a clarification of the reasons that may be behind a positive, a negative, or a non‐significant moderating effect of the firm's competitive forces on the market orientation‐product innovation relationship in small manufacturers.