Assessing the impact of firm attributes on the adoption of innovations in Sri Lankan SMEs

Abstract

This paper investigates how firm-level attributes influence the adoption of product, process, organizational and marketing innovations among Sri Lankan small and medium enterprises (SMEs). Drawing on the OECD Oslo Manual framework and a resource-based perspective, the authors use primary survey data from 115 SMEs across five provinces collected in 2022 and estimate Ordinary Least Squares (OLS) regressions to assess the impact of firm size, sector, competition, export orientation, registration status, access to bank loans, diversification, product customization and a set of control indices (owner characteristics, institutional support and a geographical index). Owner characteristics were condensed via factor analysis, institutional support was measured as a composite of 17 indicators, and geographical characteristics were standardized from three location measures; analyses were performed in STATA 13.0. Key findings show that access to bank loans and the degree of product customization are robustly and positively associated with all four types of innovation, while export orientation is associated with lower product innovation. Smaller firms tend to adopt more process innovations, and greater competitive intensity diminishes process innovation. Notably, measured institutional support is negatively associated with process and organizational innovations, suggesting a misalignment between public programmes and SME innovation needs. The authors conclude that strengthening innovation-linked financing, reorienting institutional support to be more demand-driven and localized, and promoting cluster-based collaboration and customer-centric business models would better foster SME innovation in Sri Lanka.