Resource scarcity in SMEs: effects on incremental and radical innovations

Purpose This study deals with the impact of resource scarcity on the innovation performance of small- and medium-sized enterprises (SMEs). The purpose of this paper is to scrutinise whether resource scarcity among SMEs has an effect on their innovation performance. Design/methodology/approach The sample was based on panel data for 302 SMEs from the mechanical and electrical engineering sectors. Firms were divided into four groups by resource scarcity: human resource scarcity, financial resource scarcity, both types of resource scarcity and no resource scarcity. To test for significant inter-group differences in innovation performance, multivariate analysis of covariance and a multiple discriminant function analysis were carried out. Findings The results indicated that resource scarcity can have a positive effect on incremental but not radical innovation performance in SMEs. However, the authors found this to be true for financial resource scarcity only. Research limitations/implications These results may not be applicable to all SMEs, as the authors only focused on the industries of mechanical and electrical engineering. Future studies should focus on analysing the internal structures of SMEs that led to this study’s results. More research should also be conducted on ways that resource-limited SMEs can appropriately conduct radical innovations. Finally, resources should be made available for both practitioners and academics, explaining why the acquisition of resources is not always be the best option in response to limited resources. Practical implications These results indicate that resource-constrained SMEs, especially those that struggle with limited finances, should concentrate their innovation activities on incremental rather than radical innovations. Originality/value This study closes the knowledge gap as to whether it is beneficial for resource-limited SMEs to focus on either incremental or radical innovation. From the theoretical viewpoint, the resource-based view provides two strategies for resource-limited SMEs: acquiring new resources or recombining available resources. The authors were able to clearly demonstrate for the first time that the recombination of resources is especially important for SMEs that specifically wish to pursue incremental innovation.