DETERMINANTS OF INNOVATION IN CROATIAN SMES - COMPARISON OF SERVICE AND MANUFACTURING FIRMS

Purpose - In this paper we focus on SMEs in Croatia operating in the manufacturing and services sectors, and seek to compare them in terms of their involvement in innovation activities, and the factors determining their decision to innovate, in general and in four types of innovations in particular: product/service, process, organizational and marketing innovations. Design/Methodology/Approach - The analysis relies on the Croatian Community Innovation Survey 2010 (CIS 2010) data. To find out whether innovations have a different pattern of drivers in manufacturing and in services, we estimate the probit and multivariateprobit models separately on these two groups of firms. Findings and implications - The findings reveal that, despite some differences, service and manufacturing SMEs are not that different from one another when it comes to innovation activities. Service SMEs are somewhat less likely to introduce technological innovations, but manufacturing and service SMEs do not differ significantly when it comes to non-technological innovations. One noteworthy difference between manufacturing and service SMEs is that the latter rely on acquired knowledge much more than do the former. Limitations - One limitation of the study is that most variables in the CIS dataset, including those on inno-vations, are of a binary nature, a fact that dictated the choice of the econometric model. In addition, the data pertain to the time period of an economic downturn in Croatia, which possibly affected the results obtained. Originality - This research contributes to understanding the drivers of innovation activities in SMEs and differences in this regard between manufacturing and services in Croatia.