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Economic development without compromising on the environment requires the adoption of cleaner production systems and sustainable practices (Pachouri and Sharma, 2014; Khurana, Haleem and Mannan, 2019). Despite having a huge base of Micro, Small, and Medium Enterprises (MSMEs) in India and their significant contribution to the economy, the sector suffers from various sustainability challenges. The reasons for these challenges are not well researched. Recognising the importance of innovation for sustainability, the study was designed to- a) Examine the reason for the low rate of adoption of innovation for sustainability in the MSME sector in India; b) Identify the drivers and inhibiters of innovation; and c) Propose sustainability innovation index for assessing and ranking the effectiveness of the innovation ecosystem (s) of the MSMEs which can guide the policy making and development strategies in an economy.
The study employed a mix of qualitative and quantitative techniques using a well-representative sample of four key MSME sectors (Textile, Foundry, Leather, and Bamboo) of Socio, Economic, and Environmental (SEE) relevance. The data was collected from 160 MSMEs and 115 other key support stakeholders in the ecosystem. The finding shows that “new process” is the most common innovation done by the MSMEs followed by “new machines”, “product modification”; “new product” and then the “new raw material”. It is also observed that in more than 70% of the cases, innovations are incremental rather than path-breaking. Innovations are largely done by the entrepreneurs themselves in traditional manufacturing sector like-handloom, bamboo, whereas in non-traditional manufacturing areas such as- leather, textiles (non-handloom) and foundry entrepreneurs have taken help of specialised technical institutions, experts to adopt/adapt the innovations.
The likely influencing variables of innovation were grouped under 6 board headings viz- (i) Education and Experience; (ii) Business Knowledge; (iii) Market Sophistication; (iv) Linkage with Association/ Business Membership Organisation (BMO); (v) Market Sources; and (vi) Institutional Sources. These variables were regressed as independent variables on “innovativeness” of an enterprise as dependent variable. “Market sources” came out to be the most influential variable of innovation, followed by “Institutional sources”, “Market sophistication” and “Association/ Business Membership Organisations (BMOs)”. Further, Principal Component Analysis (PCA) was used to identify the drivers and inhibiters of innovation. Findings revealed that “Productivity and Profitability” consideration is the most important driver of innovation by MSME units followed by “Regulatory and OHS Needs”; “Immediate Survival Needs” in the Business; need to solve “Raw Material and Cost Issues”; innovation driven with “Developmental Support” by support agencies/ policy stakeholders; and need arising out of “Competition from Similar Units”.
The inhibiting factors were measured in two different situations as follows: a) the entrepreneur came up with an idea but could not translate that into a solution; and b) idea was translated into a solution but it could not be scaled up or commercialized and thus the innovation was abandoned. For the situation (a), “Uncertain Business Benefits and Linkages” came out to be a major bottleneck followed by “Cost and Capacity Constraints”; “Risk Aversion” and “Lack of Financial Capital” of the MSMEs to translate the innovative idea to solution. For situation (b), “Lack of financial capital” to sustain the innovation came out to be the key constraining factor. Innovation does not yield profits if the product is not reaching to the appropriate market to fetch higher price to cover the enhanced cost. The “enhanced cost and reduced profit margin” became the second constraining factor followed by “lack of pre-testing facility” of the products. “Unacceptability by the client/ customer” is the last limiting factor causing abandonment of the innovation by the innovators.
Based on the quantitative analysis supported by qualitative assessment, a “sustainability innovation index” was created which can be used to measure and rank the effectiveness of the innovation ecosystem at four levels viz-National, Regional, Sectoral and Enterprise level. This index can be used in any economy irrespective of its economic advancement like least developed, developing or developed economy.
