CAN SME BENEFIT FROM INNOVATION IN AN EMERGING MARKET ECONOMY?

Despite the abundance of literature on SME innovation, this interlinked and complex concept requires further investigation. The present study examines Small and Medium Enterprise (SME) innovation outcomes in order to see whether SME innovation, which is represented by innovation capability and risk taking, has contributed positively (or negatively) to SME which in turn enhance SME financial performance in the context of Indonesia as an emerging market. More often than not, innovation is seen as an effective way to enhance performance especially financial performance as it is highly beneficial for SMEs in an emerging market. However, it is possible that innovations might be regarded as a burden rather than a benefit for SMEs. The present study uses the conceptualization of innovation outcomes as these reflect the organization's ability to benefit from the implementation of innovation. It is important to understand this theme in the context of an emerging market which may offer both golden opportunity to innovate and unprecedented challenges to innovate. There is little research regarding the impact of SME innovation outcomes on SME performance in an emerging market. The present study used a quantitative approach, a partial least square, WarpPLS 6.0. Data were collected from 120 SME owners in creative industries residing in three Indonesian cities in West Sumatra. It was found that innovation capability had a significant positive relationship with positive outcomes which in turn lead to a better financial performance. This means that innovation outcomes play a greater role in identifying whether innovations benefit SMEs or not. SME innovation in an emerging market economy such as Indonesia may be costly, but it is worth doing as innovation can give monetary benefit as well as better organizational performance.