The Role of External Network, Government Support, and Absorptive Capacity on the Innovative Activities of SMEs in Vietnam

Abstract

This paper analyzes the determinants of innovative probability of SMEs using the Vietnamese manufacturing SME survey dataset. The study emphasizes external network, government support, and the absorptive capability in performing innovative activities. The logistic regression model is used in this study. The result shows that network quality does not affect innovation activities of SMEs. Network range and network size are important structures for SMEs in the process of conducting innovation activities. Government technical support is more important than government financial support. Government technical supports contribute to innovation in all three aspects of innovation including product innovation, product improvement, and process innovation. Absorptive capacity affects innovation in which capacity comes not only from R&D expenditure but also from investment in machinery and equipment and the level and legal knowledge capacity of the business owner. Intangible asset expenditure and skilled employees do not affect the innovative process of SMEs. The study also gives some practical recommendations for both the government and enterprises.