Innovation in small and medium enterprises in Bosnia and Herzegovina: conceptual framework and empirical analysis of innovation behaviour

Abstract

The survival and growth of SMEs hinge on innovation, a multifaceted driver steered by factors such as entrepreneurial orientation and collaboration. Overcoming resource constraints and market uncertainties, effective government support and policy frameworks foster an environment conducive to SME innovation, pivotal in shaping organisational competitiveness and global business performance. Permeability challenges, including inadequate employee education, limited staff involvement, and a lack of company focus on innovation, hinder SME innovation. Additionally, the issue of brain drain in BiH compounds the struggle for staff retention, impacting business development and innovative ideas within SMEs. By employing a mixed-method analysis, including interviews and a survey, this research amalgamated comprehensive perspectives to understand SME attitudes toward innovation. Moreover, a SLR identified internal (organisational innovation-oriented culture, leadership orientation, collaboration) and external (government support, technology orientation, market orientation) determinants that shape innovative behaviour, informing a conceptual model. In particular, interviews with BiH SMEs highlighted a complex landscape of internal and external innovation barriers, emphasising the need for collaborative efforts among government bodies, educational institutions, industry partners, and SMEs. Creating an innovation-oriented culture, investing in human capital, and fostering an enabling ecosystem drive economic expansion and innovation in BiH. The research used indicators from validated empirical studies for construct measurement, evaluated through content and construct validity tests. The study involved answers from 265 SME managers in BiH. The analysis confirmed four of the seven hypotheses, contributing significantly to understanding the dynamics affecting innovative behaviour and business performance within SMEs. Highlighted determinants such as collaboration, managerial orientation, and market orientation emerged as crucial factors fostering innovative behaviour within SMEs. Company size emerged as a significant factor influencing innovative behaviour, while the scale of the company or export activity did not significantly explain variations in business performance or innovative behaviour. These findings underscore the intricate interplay between determinants of innovative behaviour and business success, emphasising the need for a holistic approach to leverage these factors and enhance SME business performance. The study culminates in a comprehensive conceptual model integrating various determinants, offering a nuanced understanding of their influence on SME innovation and business performance in today's transitioning economic landscapes.