Factors Determining Innovation in Micro Enterprise Clusters

This paper argues that the primary drivers of innovation for micro enterprises in clusters are human factors sharpened through business processes (including learning by seeing and learning by doing), market sources (backward, forward and horizontal linkages) and market sophistication (size of the firm and nature of the buyer), in that order. Any change in or introduction of new processes, products or organizational arrangements has been considered as an innovation at the cluster level. It presents findings based on statistical analysis of primary data collected from 50 “innovators” in four clusters. Interestingly, factors related to the influence of institutional source and role of associations were found to be negatively correlated and insignificant in explaining the phenomenon, as these were mostly underdeveloped or absent in these clusters. Traditional horizontal active cooperation, the principal clustering process per se, was not a significant explanatory variable to promote innovation in underperforming underachiever clusters. Also, while market was a major mover of economic innovations, social and environmental innovations are found as a kind of push factors coming from backward linkages.