Drivers of innovation capabilities among MSMEs in Saudi Arabia

The business environment is increasingly becoming dynamic and unstable as the world is bedeviled with technological, economic, political and social upheavals. The micro, small and medium enterprises (MSMEs) which represent the largest employer of labor are constraint with the new norm of society. It becomes imperative to explore the innovation capability of the enterprises which is one of the important strategies for a firm’s growth. Since the Kingdom of Saudi Arabia (KSA) aims to increase the contribution of MSMEs to gross domestic product (GDP) from the current 20%–35% by the year 2030, so the purpose of this research is to evaluate the drivers of innovation capability among MSMEs in Saudi Arabia. The survey was conducted among MSMEs in the Eastern province of Saudi Arabia, and the results using logit regression revealed that in-house research and development (R&D), acquisition of new machinery, training, and size of technical staff have a positive and significant impact in influencing the enterprise innovation capability. Also, the newly established firm was found to have a higher likelihood in driving innovation capability than the old ones. However, external R&D, acquisition of external knowledge, collaboration with other companies and universities and other research institutions are not statistically significant. This study has important managerial implications in improving R&D spending and encourage inter-organizational cooperation among the MSMEs to enhance their innovation capability.