Breaking Through Barriers: Unveiling Innovation Challenges of SMEs in Bosnia and Herzegovina?

Small and medium-sized enterprises are essential for economic growth, especially in emerging economies. However, innovation—a key driver of competitiveness—poses a significant challenge for these businesses. This study concentrates on identifying specific barriers SMEs in Bosnia and Herzegovina face in their innovation efforts. Using an input-throughput-output framework, we couple a review of existing literature with interviews to investigate these challenges. Our findings reveal a disconnect between the educational system and the labor market demands, resulting in difficulty attracting and retaining qualified personnel, which is compounded by the issue of brain drain. Furthermore, bureaucratic complexities and a lack of financial support stifle the innovation process. We also identify internal obstacles, such as insufficient employee engagement and motivation, which affect the throughput phase of innovation. Finally, SMEs often prioritize client relations over pursuing innovative strategies, influencing their output and market stance. This study provides new insights into the systematic impediments to innovation in SMEs within an emerging economy context and suggests areas for policy and practice improvement.