Drivers of Innovation, Dynamics of Innovation Persistence and Performance: The Case of Small Food Industry Businesses in Australia

Abstract

<p>There is strong evidence that innovation is the primary driver of the economic growth of small businesses in the Australian food industry. As Australia continues to compete and grow the share of the Australian food industry in the global market, it is imperative that food and nonfood businesses be innovative to improve performance. With the small food businesses playing a significant role in the Australian economy by creating jobs and economic growth, and offering service opportunities to the regional economies, this dissertation investigates the dynamic relationships among the key drivers of innovation, innovation persistence and business performance within small businesses in the food industry in Australia.</p> <p>Using a panel of business-level data collected through the ABS Business Characteristics Survey (2006/07 to 2010/11 Australian Bureau of Statistics’ Business Longitudinal Database Confidential Unit Record File), this dissertation provides evidence on: (1) the factors driving small food businesses to innovate in any of the four innovation dimensions—goods and services, organisational and managerial processes, operational processes and marketing methods; (2) the degree and dynamics of innovation persistence; and (3) their impacts on four business performance measures—gross output, gross value-added, labour productivity and productivity dispersion. The author employs several complex dynamic panel data modelling techniques with bootstrapping and other econometric procedures in the empirical analyses. </p> <p>The empirical findings show that engaging in collaboration; using science, technology, engineering and mathematics (STEM) skills; having higher information and communication technology (ICT) intensity; implementing flexible working arrangements; having exporting capability; seeking finance through debt and equity; and facing some degree of market competition are significant factors influencing the small food businesses’ innovation behaviour. The relative importance of these factors varies in the different aspects of innovation—the propensity to innovate, innovation dimensions, innovation intensity and innovation persistence—and between agricultural and non-agricultural food subsectors. Persistent innovation-active small food businesses are shown to introduce more than one type of innovation, and the degree of persistence in business’ innovation behaviour was strong for new products, new operational processes and new marketing methods whereas new organisational and managerial processes exhibited weak persistence of innovative behaviour. Results evidently confirm the hypotheses of: true state-dependence; the variation in the degree of innovation persistency among the innovation dimensions; and the important role of unobserved heterogeneity in explaining the persistence of innovation behaviour. Moreover, it is observed that innovation-active small food businesses, particularly persistent innovators, tended to have higher contributions to growth in gross output, value-added and labour productivity, with the impacts being different for the different types of innovation. Further, the dissertation reveals significant, positive and direct associations among the key drivers of business innovation, innovation persistence, business growth performance and productivity dispersion within small food businesses in Australia.</p> <p>This dissertation provides important contributions in the literature. Empirical studies on the determinants of innovation in the Australian food sector are non-existent. No Australian food industry study to date has simultaneously observed whether different types of business performance growth and changes in productivity dispersion are supported by persistence in different types of innovation, and by their innovation determinants. Providing empirical evidence that connects innovation behaviour and productivity dispersion in the food businesses is also a novelty to the growing body of empirical literature on productivity dynamics. In addition, establishing the role of work flexibility and STEM skills as key determinants of innovation in the food industry is a pioneering work. </p> <p>The empirical results support the Australian government’s innovation agenda and initiatives which would motivate and trigger the small food businesses in Australia to start and/or continue to engage in innovation through development of new products or services, new operational processes, new marketing strategies and methods, and new organisational and managerial processes, for job creation, global competitiveness, and income growth. The fact that the overall innovation behaviour of small food businesses in the Australian food industry is characterised by true state-dependence in the new marketing methods and new operational processesimplies that innovation-stimulating policy programmes for these types of innovations will potentially have long-lasting effects in the industry. For the food subsectors, government assistance should be provided to agricultural small food businesses engaged in products and marketing methods innovations whereas for non-agricultural small food businesses, government should provide stimulus for organisational and managerial processes, operational processes and marketing methods innovation activities. Most importantly, the empirical results of this research provide useful inputs to the current research undertaking of the Department of Industry, Innovation and Science on assessing the impact of the Industry Growth Centres programme, particularly in the Food and Agribusiness Growth Sector in Australia.</p>