Innovation and Knowledge Management as the Catalyst of Small Medium Enterprise's Performance: A Conceptual Paper

Malaysia is now moving towards becoming a developed nation, targeting on the high-income nation by 2020. In order to execute this intention, Malaysia needs to develop and strengthen the economic growth. Small and Medium Enterprises (SMEs) are acknowledged have a significant role in Malaysian economic growth and expected to contribute 41% of GDP by 2020. However, there are a few factors hinder SMEs to maximize their growth and it has been reported that SMEs contributions to the country's economy are still comparatively low compared with the contributions of SMEs in many developed and developing countries. Innovation is one of the important factors to remaining competitive in this globalization world. Therefore, SMEs need to focus on innovation activities to increase contribution and remain competitive. Knowledge management is one of the most effective strategies that may help to stimulate innovations and enable innovation activities into the business. Hence, the main aim of this study is to investigate the role of innovation in the relationship between knowledge management practices and SMEs Performance. This study proposed to investigate innovation activities at SMEs manufacturing sector focusing in food and beverages industry. Specifically, innovation types that will be focused in this study are product, process and management innovation. The result hopefully will become an empirical evidence that confirmed innovation is crucial to increase SMEs competitive ability and increase organizational performance. In addition, the result also expectantly prove knowledge management practices have an impact on innovation. Lastly, this study will help Malaysian Government to strategies the policy to overcome difficulties and more importantly in ensuring the sustainability and competitiveness of Malaysian SMEs.