Assessing the Impact of Firm Attributes on the Adoption of Innovations in Sri Lankan SMEs

This study highlights several critical insights into the innovation behaviour of Sri Lankan SMEs. The consistent positive impact of bank loan accessibility across all innovation types underscores the essential role of finance in enabling innovations. In Sri Lanka, where many SMEs face collateral-related credit constraints, this finding signals the urgent need to expand accessible and innovation-linked financing mechanisms. Similarly, the positive association of product customisation with innovation suggests that customer-oriented strategies are a practical pathway for SMEs to enhance competitiveness through incremental innovations. However, increased competition was found to discourage product and process innovations. In the Sri Lankan context, this may reflect market saturation in certain sectors and price-driven competition that leaves little room for innovation investments. It also indicates a need for strategic support to help SMEs move from survival-based competition to value-based competition. The negative relationship between institutional support and innovation may point to the inefficiency or misalignment of government Programmes and public sector initiatives. Many such initiatives in Sri Lanka tend to be bureaucratic and detached from the ground-level challenges of SMEs, resulting in limited uptake or practical impact. Based on these findings, several policy actions are recommended. First, Sri Lanka should enhance innovation-oriented credit schemes, particularly through institutions like the SME Banks and Regional Development Banks (RDB), targeting process and product innovations with favourable terms. Second, existing institutional support services should be restructured to be more demand-driven, localized, and participatory, including mentoring, innovation vouchers, and technical consultancy services. Third, fostering SME collaboration through industry clusters and value chains can help reduce the adverse effects of intense competition. Finally, innovation Programmes should actively promote customer-centric business models and product tailoring as viable strategies for SME growth in both urban and rural settings.