Department of Agribusiness ManagementFaculty of Agriculture & Plantation Management

Wayamba University of Sri Lanka

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Barriers for Innovation among Small and Medium Scale Entrepreneurs in the Food and Beverage

Industry in Sri Lanka

Sales Growth

H. M. L. PEIRIS106040

2013

2012

2011

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Content

• Introduction• Methodology• Study Area and Data• Results • Conclusion • Acknowledgements• References

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Introduction

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Innovation

• InnovationSearch for, and the discovery, experimentation, development,

imitation, and adoption of new production process and new organizational set-ups

• Small Scale entrepreneurships Employees less than 5

• Medium Scale entrepreneurships Employees less than 25 Working capital less than Rs. 4 million per year except fixed assets

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Importance of Small and Medium Entrepreneurs (SMEs)

• SMEs account for 80% or all businesses

• Agri business SMEs 20% of all industrial establishments

Economy is based around the Small and Medium scale entrepreneurships

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Food and Beverage Industry of Sri Lanka

• Small and Medium scale entrepreneurs and the industry • Importance

No. of establishments 3,340 Employees 24,093 Salaries Rs. 3.3 Billion Value of output Rs. 90 Billion per year

• GDP in 2011 Rs. 2,864 Billion 1 : 307

Distribution of Food and Beverage Enterprises

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7%5%

4%

17%

3%2%

9%14%

39%

Sabaragamuwa

Uva

North Central

North West

Eastern

Nothern

Southern

Central

Western

Categorization of Firms

Tea and Non alcoholic beverages

Coconut products

Food and Beverage small

and medium scale firms

Dairy products Processed Fruits, Vegetable food

Bakery products

Other

• 6 types of firms

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Objectives

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Objectives of the Study

• To identify,1. Barriers to innovate among small and medium scale

entrepreneurs in food and beverage sector

2. Degree to which those barriers have an impact on number of product, process and management innovations

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Innovation Categorized Under

• What are the innovations in last 3 years

• Product innovationChanges in the physical product

• Process innovationChanges in the production process

• Management innovationchanges in management practices that is responsible of changing the product and process

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Degree of Innovation

• 3 levels of innovation1. New to the world

First of its kind

2. New to the market Product exists in other countries but new to the market

3. New to the firm Competitors are producing the product

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Barriers to Innovation

Internal barriers• High costs• Excessive risk• Innovation cost difficult to control• Lack of qualified personnel• Poor accessibility to financial resources• Difficulty of keeping qualified

employees• Lack of internal employee training• Employee resistance to change • Manager resistance to change

External barriers • Insufficient government support• Economic turbulence• Lack of market information• Lack of regional infrastructure• Lack of information about

technologies• Lack of external partner opportunities

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Other Factors Influence Innovation

• Firm characters Firm age or experience Annual turnover Firm type Number of employees

1. Tea and Non alcoholic beverages2. Coconut products3. Dairy products4. Fruits, vegetables and processed foods5. Bakery products6. Other

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Methodology

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Conceptuel Framework

Internal Barriers

External

Barriers

Innovation activities

Firm characters Firm age Firm typeTurnover Number of employees

Product innovations

Process innovations

Management innovations

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Ranking of Barriers

• 155 respondents from 5 districts• The barriers were ranked by entrepreneurs

Giving 1 to most critical barrier The Likert scale of Strongly agree to Strongly disagree for each barrierInternal and external barriers were ranked separately

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Measuring the Internal and External Barriers

• Index for Internal barrier = * 100%

• Index for External barrier = * 100%

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Empirical Model

• Y = a0 + b1X1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6 +0

Y = sum of number of product, process, and management innovations X1 = Index value for internal barrierX2 = Index value for external barrierX3 = Firm age X4 = Annual turnover (Dummy variable)X5 = Industry type (TNAB, CP, DP, FVPF, BP, Other)X6 = Number of employees (Dummy variable)0 = Error term 20

Study Area

• Covering two major provinces Western province North western province

• Districts covered - Colombo- Gampaha- Kalutara- Kurunegala- Puttalam

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Data

• 155 entrepreneurs in food and beverage industry• Owner or the manager were the respondent

• Sampling technique Simple random sampling List of entrepreneurs were taken from Department of Census and Statistics

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Results and Discussion

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Descriptive Statistical Analysis of the Sample

• Firm types in the sample

5% 15%

26%20%3%

31%TNABCPDPFVPFBPOther

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Product, Process and Management Innovations

TNAB CP DP FVPF BP Other

51 57 59 54 56 57

32 32 28 28 28 28

17 11 17 18 16 15

Product% Process% Management% 25

Results of Kruskal-Wallis Test

• Internal Barriers

26High costLack of qualified personals

Innovation cost difficult to control

Difficulty of keeping qualified employeesManager resistance to change

Poor accessibility to financial resourcesExcessive risk

Lack of internal employee trainingEmployee resistance to change

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

Chart Title P-value 0.00

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• External barriers

Insufficient government support

Lack of information about technology

Economic turbulence

Lack of market information

Lack of regional infrastructure

Lack of external partner opportunities

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

P-value 0.00

Results of Ordinal Logistic Regression

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Variable Coefficient Probability

Internal Barrier -0.0352 0.605

External Barrier -0.0679 0.089

Firm Age -0.3510 0.103

TNAB 1.6623 0.072

CP 0.8999 0.130

DP 0.9846 0.061

FVPF -0.7692 0.128

BP -0.6021 0.584

ANE > 5 0.7352 0.606

ANE 5 – 10 -0.1670 0.899

ANE 11 – 15 -0.6954 0.557

ANE 16 - 20 -1.4529 0.227

AAT < 1 2.3479 0.056

AAT 1 – 2 0.4251 0.701

AAT 2 – 3 -0.5050 0.632

AAT 3 – 4 -0.3327 0.723

Output of Ordinal Logistic Regression

• Significance and Relationship to number of innovations

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Factor Significance Relationship

External Factors Significant Negative

TNAB Significant Positive

DP Significant Positive

AAT < 1 Significant Positive

Conclusions

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• Only external barriers were significantly associated to innovations External barriers have a crucial impact on number of innovations Concentrate on major external barriers and eliminate them Negative relationship with number of innovations

• Internal barriers declared as not significant ??? May be there are more internal barriers What Kruskal-Wallis test reveals Opens up a new avenue of research

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Major barriers for Entrepreneurs

To Overcome the Barriers

• Economic policy makers should be informed How to balance the advantage between large scale entrepreneurs and

small, medium scale entrepreneurs

• New technology Entrepreneurs willing to adopt new technology Access to information about technology

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• Educate managers and owners about modern management practices Skill development Revenue and expense management Employee training Debt control

• Employees for SMEs reducing by day Technology plays a major part 33

Acknowledgements

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Acknowledgements

• Industrial division of Department of Census and Statistics Sri Lanka • Respondents of the research

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References

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References

• Anon. (2011a). Central Bank Annual Report. Central Bank of Sri Lanka, Colombo.

• Anon. (2011b). Annual survey of industries. Department of Census and Statistics, Colombo, Sri Lanka. Available from:http://www.statistics.gov.lk/page.asp?pa ge=Industry (Accessed 03 March 2014).

• Dosi, G. (1988). Sources, procedures, and microeconomic effects of innovation.Journal of Evolutionary Economic Literature, 26 (3), 1120–1171.

• Storey, J. (2000). The management of innovation problem. International Journal of Innovation Management, 4 (3), 347–369. 38

Kruskal-Wallis Test Internal Barriers

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Kruskal-Wallis Test for External Barriers

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