Self-employment and innovation. Exploring the determinants of innovative behavior in small businesses

Depósito de Investigación de la Universidad de Sevilla https://idus.us.es/ This is an Accepted Manuscript of an article published by Elsevier in Research Policy, 2012, issue 1, on February, available at: https://doi.org/10.1016/j.respol.2011.07.005 Copyright 2011 Elsevier. En idUS Licencia Creative Commons CC BY-NC-ND 1 SELF-EMPLOYMENT AND INNOVATION. EXPLORING THE DETERMINANTS OF THE INNOVATIVE BEHAVIOR IN SMALL BUSINESSES Isidoro Romero Juan A. Martínez-Román ABSTRACT This paper explores the determinants of innovation in small businesses from a survey of more than 700 self-employed workers in Andalusia (Spain). Self-employed people running businesses with and without employees were included in the study and two types of innovation –product and process innovationwere differentiated. The theoretical framework adopted distinguishes between three levels of factors affecting the innovative activities of the self-employed: (1) Personal characteristics of the selfemployed –such as their motivations and their educational and professional background. (2) Business characteristics –such as the sector, the number of employees, the dependence from suppliers or clients and the management styles. (3) The characteristics of the external environment. Education appears as a key factor whose impact on innovation comes through two main sources: its effect on the self-employed motivations and its influence on the small businesses’ style of management. Also the previous experience as an employee and the comparatively level of income in the area where the business is located are shown to be influential factors explaining innovation. Though firm size favors innovation, it does not play a determining role. Furthermore, results show significant differences between the factors explaining product and process innovation. Moreover, the determinants for innovation in small businesses vary substantially across sectors. Keywords: small business, innovation, process innovation, product innovation, selfemployment. 1. INTRODUCTION 2 In recent decades the self-employed component of the national labor-force has been gaining relevance in many developed economies and notable public efforts have been made to support entrepreneurship and innovation in small and medium-sized enterprises (SMEs). Nevertheless, relevant gaps in knowledge still exist regarding the factors boosting innovation in small businesses and, consequently, regarding the most effective strategy to efficiently support this type of firms in their attempts at innovation. The aim of this work is to shed some additional light on these key issues. This paper studies the determinant of innovation in small businesses from the perspective of self-employment which represents an unusual approach. The concept of ‘selfemployment’ -despite the habitual use of this termis rather elusive due to its mixed nature. On the one side, it can be defined as the residual and heterogeneous category made up of paid employees not remunerated by a wage (Carrasco, 1999). On the other side, self-employed people can be seemed as entrepreneurs who start up and/or run self-owned businesses. However, not all the self-employed are necessarily entrepreneurs (Robinson and Sexton, 1994), given that in many cases they run businesses that they did not founded, carrying out a conservative and unadventurous management. It is also convenient to distinguish the category of self-employed people from the business owners. The difference lies in the fact that business owners are not necessarily involved in the day-to-day operations of their company, since they can opt for hiring a professional manager and have other sources of income, as paid-employees in other companies. So, from this perspective, all the self-employed people –even in the case of mere professionals without employeesare conceptually business owners, whereas business owners do not necessarily have to be self-employed workers. Moreover, the self-employed can run businesses with or without employees. In the first case, the resulting businesses are in the great majority small businesses, though it could be the case of medium or large companies owned and managed by self-employed people. In addition, not all the small businesses are necessary driven by self-employed people. On the contrary, small firms are in some cases part of large corporations or are leaded by managers working as paid-employees. All this conceptual considerations are frequently neglected in research about SMEs and, specifically, about small businesses. This literature generally assumes the hypothesis that SME’s organization, management and performance are significantly influenced by the personal characteristics of the entrepreneur (not clearly defining in many cases what it is exactly meant by entrepreneur). However, research in this field is very often based on surveys conducted 3 among managers or business owners. This design of the empirical work could lead up to some bias, in line with the considerations previously presented. This paper exclusively focuses on the small businesses driven by the self-employed, so that many of those problems can be avoided. Throughout this article, self-employment is considered to be the category made up of people who draw their income from self-owned small businesses (with or without employees) that they operate personally. Therefore, under this definition the self-employed assume a triple role in their businesses: they are workers, managers and business owners. This conceptual delimitation is consistent with the empirical definition employed in the second part of the paper. The self-employed people will be identified then based in the Social Security Administration regulation. According to the Spanish Social Security regulation, selfemployed status is applicable to the “individuals who carry out, on a regular basis, personally, directly, by themselves and outside the scope of another person’s management and organization, an economic or professional activity for profit, giving or not employment to other workers.” (Spanish Institute of Social Security, 2007). In this respect, the paper explores the determinants of innovation in small businesses –differentiating between product and process innovationfrom a survey of about 750 self-employed workers in Andalusia, a region in the south of Spain. The paper is organized as follows. The second section reviews the literature about innovation in small businesses and presents the analytical framework adopted in this work to study the determinants of innovation activities by self-employed people. This theoretical framework gathers the main aspects influencing innovation activities in SMEs distinguishing between three levels of factors: the personal characteristics of the self-employed people, the characteristics of their organizations and the characteristics of the external environment. The third section is devoted to the empirical analysis. The determinants of the innovative activities of the self-employed in the sample are investigated by means of estimating several logistic regressions. The last section puts forward the main conclusions and discusses some relevant policy implications. 2. LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK 4 A wide range of literature exists treating the factors which condition firm innovation and, in particular, innovation in small businesses. From these works it is possible to identify three levels of key factors influencing innovation in small businesses: the personal characteristics of the self-employed individual, the characteristics of the organization and, lastly, the characteristics of the external environment. As shown in Figure 1, these three levels of factors are not independent, but interrelated dimensions. On the one hand, the personal characteristics of the self-employed have a direct and crucial influence on the small businesses’ organization and management. On the other hand, external environment influences the individual characteristics of the self-employed within an area and the organization and management of their businesses. INSERT FIGURE 1 AROUND HERE 2.1. Personal characteristics The activity and characteristics of small businesses, especially in the stage of their creation and the early phases of their development, are directly linked to the characteristics of the entrepreneur. Therefore, when studying the SMEs’ innovative behavior, it is essential to consider the repercussions of certain personal characteristics of the self-employed. In this respect, education has been pointed out as a key aspect for the economic success of the self-employed (Robinson and Sexton, 1994; Kangasharju and Pekkala, 2002). Since knowledge is a fundamental factor in innovation and assimilation of new technologies (Von Hippel, 1988; Hoffman et al., 1998), individual training plays an important role contributing to the internal learning and the generation of new ideas within the business (Damanpour, 1991; Nonaka and Takeuchi, 1995; Galende and De la Fuente, 2003). The educational background of the managers, business owners and entrepreneurs has been found to be an important factor explaining innovation in small business (Koellinger, 2008). Self-employed people with stronger educational backgrounds can carry out more a professional and efficient management and organization of their businesses and, in this way, can be more successful implementing innovations. However, not all the studies reach to this conclusion. For instance, Keizer et al. (2002) did not find a significant effect of the managers’ or business owners’ education on innovation in a study for SMEs in the mechanical and electrical engineering sector in The Netherlands. Previous experience constitutes another conditioning factor in self-employment (Robinson and Sexton, 1994), which can significantly influence innovation in small businesses 5 and start-ups. Innovation, as the result of a process of knowledge accumulation, benefits from previous experience in a particular field (Koellinger, 2008). A large part of the relevant knowledge for innovation is of a tacit and unspoken nature, and derives from experience (Arora and Gambardella, 1994). This non-codified and eminently practical knowledge (know-how) is especially important within the process of organizational learning -“learning by producing”- (Dosi, 1988), the development phase of the innovation process (OECD, 2002), the process of incremental innovation (Abernathy and Clark, 1985; Malerba and Orsenigo, 1995), particularly once the technology used is in a mature and standardized phase. Furthermore, the motivation and personal attitude of the self-employed in carrying out their business activity has been considered as an influential factor on innovation and other energizing initiatives of SMEs. Innovation requires motivated individuals. Among the obstacles to a business’s innovative behavior, the individual’s aversion to new technologies and learning, their hostility to assume responsibilities or their voluntary isolation can be pointed out (Probst and Büchel, 1995). In order to foster innovation, the individual must be motivated and open to commitment and professional challenges. People decide to become entrepreneurs for a variety of reasons (Nooteboom, 1993), so that different taxonomies of entrepreneurial motivations have been proposed in the literature. One of the most usual ones differentiates between intrinsic and extrinsic motivations. An intrinsic entrepreneurial motivation poses that entrepreneurs develop their activity for the mere pleasure of carrying it out, that is, for vocational reasons or for the need of personal development. On the contrary, extrinsic entrepreneurial motivation implies the entrepreneurs’ activity being driven by the desire of gaining an economic reward or making a material achievement. In this respect, Guzmán and Santos (2001) defended that those entrepreneurs with an extrinsic motivation might be less prone to the introduction of innovations, among other energizing business behaviors. Another relevant typology differentiates between ‘necessity’ and ‘opportunity’ motivation. Opportunity entrepreneurs start a business in order to pursue an opportunity in the market, whilst necessity entrepreneurs are pushed by unemployment situations or the dissatisfaction with their previous jobs (Reynolds et al., 2002). In this sense, Block and Sandner (2009) have found, in a study for Germany, that opportunity entrepreneurs remain in self-employment longer than necessity entrepreneurs. However, after controlling for the entrepreneurs’ education in the professional area where they start their business, this effect is no longer significant. 6 In addition, other entrepreneur’s psychological characteristics, as tolerance to risks, innovativeness, positive affect or creativity, have been proposed by some researchers as factors positively related to firm-level innovation (Marcati et al., 2008; Baron and Tang, 2011). 2.2. Organization characteristics The literature includes also certain traits of the business organization, as factors conditioning innovation in small businesses. In this sense, business size has been of special and continuing interest to those studying the SMEs’ innovative activity (Acs and Audretsch, 1990; Vaona and Pianta, 2008). The firm size is related to the capabilities and resources available for innovation (including technical, human and financial resources). In this sense, growth and turnover of the staff can also imply a continual renewal of internal knowledge within the business (Nonaka and Takeuchi, 1995; Hurley and Hult, 1998). Size can affect both the process of internal generation and the transfer of scientific and technical knowledge from outside the organization. However, this supposed direct positive effect of firm size on innovation has been subject to continuing debate (Scherer, 1965; Soete, 1979). In this respect, another hypothesis proposes a non-linear relation between both variables (Martínez, 2010). On the other hand, certain characteristics related to sector condition the innovative path of the small businesses. The technological opportunities within the sector (profits expected from innovations), the level of market concentration (number of competitors) and the conditions for accumulation and appropriation of technology are aspects typically considered when explaining the disparities among sectors in technological innovation (Dosi, 1988; Rosenberg, 1982; Malerba and Orsenigo, 1995). Models analyzing the generation and spread of innovations from a market-based perspective place an emphasis on the “demand pull” (Schmookler, 1966), in response to the “technology push” proposed in Schumpeter’s works (Schumpeter, 1934). This “demand pull” results from the combination of needs and demand with the technological characteristics of the sector. Starting from the market focus, models of technological innovation have been perfected based on the concept of technological trajectory, generically categorized as market or technological trajectory models. According to this approach, the study of innovation should focus on the analysis of common characteristics detected in different industrial branches. This sectoral pattern has a significant influence on innovation since the business adapts its innovative processes to the technological models of the sector (Pavitt, 1984; Dosi et al., 1990). Likewise, clients’ and suppliers’ power of negotiation is a factor which must be considered for its possible repercussions on the innovative activity of the SME. Porter’s model 7 of extended rivalry (1982) pointed out the effects of clients’ and suppliers’ power of negotiation on the competitiveness of the industrial sector. The current tendency is to view clients and suppliers as stakeholders rather than rivals of the business, thus effectively facilitating transactions and cooperation along the business chain. However, too much dependency on clients and suppliers can generate weakness at the negotiating table and thus may constitute a strategic restriction affecting the competitive rivalry and innovative activity of small businesses (Guzmán and Cáceres, 2009). These dependent relationships are especially intense for those SMEs belonging to Global Value Chains (GVC) which are governed by large multinational corporations (OECD, 2008). In these cases, some authors maintain that the SMEs participating in value chains could stimulate their processes of innovation and technological improvement by the spillover of knowledge and demands from larger organizations, while others consider that this possibility has been overestimated (Romero, 2009). On the other hand, business cooperation can constitute an important route for transmission of knowledge and experience in the production network. This is even more important in the case of small businesses, because, in comparison with large companies, they have a reduced innovative autonomy and they do not usually collaborate with technological centers regarding Research and Development (R&D) activities (Dyer and Singh, 1998). Business cooperation in the technological field has been subject to numerous studies, as it is considered the intermediate step between internal development and the acquisition of technology (Hagedoorn et al., 2000; Fritsch and Lukas, 2001; Keizer et al., 2002). Cooperation between small businesses generally involves innovative projects of an incremental nature, developed by SMEs with complementary activities and with the goal of sharing resources and knowledge. The competitive advantage sought in this type of small scale cooperation is generally the differentiation of the product or service and its better adaptation to the needs of the client (Porter, 1990). The role of cooperation as a strategic support for innovation has been favored by the generalization of the latest information technologies and the capacity of these technologies to receive and transmit information and knowledge. These cooperative relations may be of a formal nature -based on some form of contract- or may originate informal agreements, they may also be stable, periodic or even sporadic, and they may affect only very specific areas of the business. The informal exchange of know-how, if used selectively, is an effective solution for SMEs wishing to access new technologies at a lower transaction cost than in formal agreements. However, its informal nature makes it difficult to study, and for this 8 reason, researchers have normally focused on business relations of a formal nature (Von Hippel, 1988; Hagedoorn et al., 2000). In addition to business cooperation, the development of other invigorating activities has sometimes been cited as a factor favoring innovation in small businesses. In this sense, the stimulus of continued personnel training encourages innovation because it contributes to learning and stimulates the creativity of individuals (Damanpour, 1991; Nonaka and Takeuchi, 1995). Therefore, the existence of training systems is a factor which favors innovation (Johnson et al., 1996; Freel, 2005), as it allows new knowledge to be shared and incorporated into the organization and helps individuals to learn and become more competent. Likewise, activities related to the systematic search for new markets and business opportunities, participation in conferences or trade fairs related to the sector and the development of planning, control and risk management activities have been considered examples of invigorating behaviors in the activity of an SME (Guzmán and Santos, 2001). These activities are usually associated with the most proactive and innovative entrepreneurs. 2.3. External environment characteristics Innovation is a complex, dynamic and interactive process conditioned by the characteristics of the business environment (Rosenberg, 1982; Porter and Stern, 2001; Koellinger, 2008). However, the relationship between the SMEs’ performance regarding innovation and the external environment has remained underdeveloped in the literature (Edwards et al., 2005). The influence of external conditions comes from different sources. On the one hand, physical proximity facilitates the personal contact between individuals working in businesses and research institutions, favoring the exchange and spread of knowledge within the region (Jaffe et al., 1993; Murray, 2004; Singh, 2005). Thus, small businesses can benefit from the proximity to universities and research centers, incorporating them to their innovation networks (Keizer et al., 2002). In this respect, the knowledge-spillover theory of entrepreneurship (Audretsch, 1995) postulates that small and new firms are able to innovate without assuming large investments into R&D by exploiting knowledge created in universities and large corporations. Thus, entrepreneurship can act as a key source for knowledge spillovers and innovation by taking knowledge created within the context of one organization or incumbent firm as a basis for starting a new firm (Audretsch and Lehmann, 2005; Audretsch and Keilbach, 2008). According 15 influence of tertiary education on innovation comes basically from its effect on the motivations and the management style of self-employed people. Once these influences are captured in the regressions by the specific variables, the residual effect of tertiary education is not significant and the ter_edu variable can be neglected without significantly deteriorating the regression’s results. INSERT FIGURE 2 AROUND HERE So, finally, model 4 was also estimated including all the independent variables with the only exception of ter_edu. As can be seen, this exclusion improves the goodness of fit in the three regressions given by the Nagelkerke R Square and the percentages of correct predictions. The odd ratios for the regression coefficients in final model 4 are presented in Appendix F. INSERT FIGURE 3 AROUND HERE As can be seen in Appendices A and B, six variables are common statisticallysignificant factors explaining product innovation and process innovation in model 4: business education (bus_edu), previous experience as an employee (exp), number of employees (emp), square number of employees (emp_2), provincial level of per capita income (prov_inc), and cooperation (coop). However, certain differences can also be observed between the determinants of product and process innovations. Thus, the variables for the dependency on the main client and the main supplier (for_dep and back_dep) and the managerial practices (manag_x) are significant for product innovation, but not for process innovation (with the exception of manag_5, which is neither significant for product innovation, nor for process innovation). On the contrary, the strength of intrinsic (int_mot) and extrinsic motivation (ext_mot) are significant variables for process innovation, but not for product innovation. Next, let us concentrate on those innovative-oriented self-employed who introduced both product and process innovations (see Appendix D). The explanatory variables which have a statistically-significant effect on the innovative behavior at the confidence levels either of 0.05 or 0.01 are the following ones: business education (bus_edu), previous experience as an employee (exp), number of employees (emp), square firm size (emp_2) -with a negative sign, dependency on the main client (for_dep) –with a negative sign, provincial level of per capita income (prov_inc), intrinsic motivation (int_mot), cooperation (coop) and undertaking of 16 activities for control and forecast of the firm’s results (manag_3). Also, necessity motivation (nec_mot) -with a negative sign, formal business planning (manag_2) and alertness and identification of new markets and business opportunities (manag_4) are marginally significant factors explaining innovation activities by those self-employed interviewed (with a level of confidence of 0.10). Among them, the larger β coefficients and odd ratios are those for the level of provincial per capita income (prov_inc), undertaking of activities for control and forecast of the firm’s results (manag_3), the previous experience as an employee (exp), the cooperation activities (coop) and the business education (bus_edu). These overall results provide a general picture which, however, hides very different sectoral patterns regarding the determinants of innovation in small businesses. Appendix E shows the results of the regression model 4 for the self-employed who introduced both product and process innovations estimating separate models for industry, knowledge-intense services, and trade and rest of services (the odds ratios can be observed in Appendix F). In this respect, firstly, it is noticeable that these sectoral models provide a higher goodness of fit than the overall regression. Secondly, business size (emp) is the only variable which is a statistically-significant factor determining innovation in the three sectors. Nevertheless, this positive effect decreases as the number of employees increases in the case of the knowledge-intensive services, and trade and the rest of services, as the negative coefficient for the square number of employees (emp_2) reveals. In the case of industry, the rest of statistically-significant effects are associated to extrinsic motivation (ext_mot), cooperation (coop) and the activities for control and forecast of the firm’s results (manag_3). In the case of the knowledge-intensive services, those selfemployed, with previous experience (exp) and extrinsic motivation (ext_mot), with business education (bus_edu) and alert to new markets and business opportunities (manag_4) seem to introduce more innovations. Finally, in the case of trade and the rest of services, business education (bus_edu), previous experience (exp) and intrinsic motivation (int_mot) appear as characteristics personal traits of the more innovative self-employed. Furthermore, in this sector, forward dependence from specific clients (ford_dep) seems to have a negative effect on innovation, whereas the level of per capita provincial income (prov_inc), cooperation (coop) and the activities for control and forecast of the firm’s results (manag_3) represent positive factors influencing innovation. 4. DISCUSSION AND POLICY IMPLICATIONS 17 Though many works have addressed the determinants of innovation in SMEs, the conclusions are not completely consistent and some aspects are still a matter of controversy. When studying SMEs, and especially, small businesses, the personal characteristics of the entrepreneur are generally assumed to play a primary role in firms’ performance. However, some conceptual and practical problems –when carrying empirical researchrise regarding the delimitation of the entrepreneur/business owner/manager, as has been discussed in the introduction of this paper. In this respect, the current article adopts an original approach investigating the factors determining the innovative activities of the self-employed people running small businesses. In this way, the mentioned problems are overcome, since it is easier to conceptually and empirically delimitate and identify the figure of the self-employed. From a conceptual perspective, the self-employed simultaneously assume three roles: they are business owners, managers and workers in the same firm. From an empirical perspective, the legal status represents a clear criterion to identify the self-employed. When considering innovation in this research, the classical distinction between product and process innovation is employed in order to check whether there might be differences in the factors behind these two types of innovations. The paper proposes an integrated framework to analyze innovation in small businesses gathering those variables which have been more frequently considered in the literature and some others whose influence has been usually neglected. In this respect, three levels of explanatory factors for small businesses’ innovation activities are considered: the personal characteristics of the self-employed people, the organization characteristics and the characteristics of the external environment (though the paper has a focus on the first two dimensions). Regarding the personal characteristics of the self-employed workers, the paper makes a contribution studying the effect on innovation due to different types of motivations. To our knowledge, this factor have not been considered –or not thoroughly so - in previous studies about innovation activities in small businesses. In this respect, those self-employed who are moved by a sound intrinsic motivation have a higher probability of introducing innovations. Furthermore, the strength of extrinsic motivation is shown also to have a positive effect on innovation activities in the case of process innovations. On the contrary, those self-employed workers with a necessity motivation who start up a business as an alternative to escape from unemployment are less innovative than the rest. Another explanatory factor that has not merited sufficient attention in previous studies is the dependency of small businesses on special clients and suppliers. In this respect, on the 18 one hand, dependency on the most important clients -due to a high concentration of the sales with themis observed as negatively affecting the innovation behavior of self-employed workers, specifically regarding product innovation. The expression ‘false self-employed workers’ has been applied to this type of situation, in which certain firms externalize some activities hiring the services of self-employed workers who are completely dependent on the main firm. The objective in these cases is to avoid the obligation of paying social contributions or to escape from the applying of the labor laws. The results put forward in this paper seem to indicate that these self-employed workers have frequently no autonomy to change the characteristics of the goods or services they produce and they are often also poorly motivated to introduce innovations. Nevertheless, the empirical analysis carried out here point out education –both general and specific business education programsas the major factor explaining the innovative behavior of the self-employed people. Regarding this, the paper delves into the sources through which the general education level of the self-employed people affects the innovation activities in small businesses. This effect comes mainly from two channels: the personal motivations of self-employed people and their management style. In this respect, this study shows that those self-employed people with tertiary studies (university degree or formal high professional training) are more strongly motivated for entrepreneurship and innovation. In addition, these self-employed people with a better educational background also develop an entrepreneuriallyoriented style of management, undertaking different energizing initiatives which boost innovation. Moreover, taking part in courses, seminars or other educational initiatives regarding entrepreneurship, management or issues especially connected with the activity that the selfemployed workers develop also appears as a highly-relevant issue favoring innovation behavior. Previous experience as an employee also appears as a major determinant of innovation in small firms, regardless of this experience being obtained in the same or in a different sector. Furthermore, the results of this paper show that a management style which gives importance to cooperation, business planning and the control and forecasting of the firm’s performance significantly favors innovation in small businesses. Firm size (in terms of number of employees) has a significant positive effect on innovation in small businesses as well. However, this factor does not seem to play a determining role. Thus, the coefficients and the odd ratios for this variable are the smallest among the statistically-significant explanatory variables for innovation and this `size’ effect diminishes as 19 the number of employees increases. The latter is shown by the negative β coefficient for the square number of employees, which is also a statistically-significant variable in the model. Finally, the external environment plays a crucial role in influencing innovation in small businesses. This factor has been introduced in this research just by means of a proxy variable related to the provincial level of per capita income. Thus, those self-employed workers in territories with higher per capita income are associated with higher probabilities of being innovative. This conclusion is in line with a wide literature stressing the significance of the territorial dimension in innovation. However, the proxy variable used in this study is insufficient to identify the different types of spatial externalities through which the impact of this territorial dimension on innovation takes place. Though the main determinants of product and process innovation are basically the same, there are also interesting differences regarding some influential factors which are specific for each type of innovation. Thus, the personal motivations seem to matter significantly for process innovation, but have no effect on product innovation. On the contrary, the variables regarding management practices exert a clear influence on product innovation, but are not relevant as determinants of process innovation. In addition, the firms’ dependency on the most important client and/or supplier diminishes the probability of product innovations, but is irrelevant for process innovation. In the same way, the results indicate that the factors determining innovation in small businesses substantially vary across sectors. These results have direct implications for SME policy, specifically, for those actions aiming at stimulating innovation in small businesses. In this respect, according to the conclusions put forward here, efforts to improve the educational background of self-employed people might increase innovation and favoring an entrepreneurial orientation in small businesses. This applies to general education, but also to specific business education programs. Furthermore, when specific incentives for innovation are introduced, it is convenient to concentrate them on those self-employed with previous work experience, and with a strong intrinsic or extrinsic motivation (but no target the necessity-driven entrepreneurs). In addition, actions aiming to foster innovation in small business should be designed specifically for each sector taking into account the key factors conditioning innovation in each case. As mentioned before, a more thorough analysis of the external environment’s influence on innovation activities in small businesses could be one possible extension of the analytical framework proposed in this paper. Also a more precise delimitation of different types of innovation might lead to relevant conclusions. In this respect, when considering product 20 innovation, it could be interesting to differentiate between radical, incremental and small improvements in the firm’s products. Similarly, regarding process innovation, it could be revealing to investigate the specific factors influencing radical, incremental and the adaptation or mere incorporation of existing technology. Moreover, it could be interesting to distinguish between process innovations in the production, marketing, logistics, human resources or other functional areas of firm management. Acknowledgements This research was supported by the Department of Employment of the Regional Government of Andalusia. The authors express their gratitude to the anonymous reviewers for their helpful comments on earlier versions of this article. 21 22 23 24 APPENDIX A. CORRELATION MATRIX Variables prod_inn proc_inn both_inn emp emp_2 ford_dep back_dep prov_inc ter_edu bus_edu prod_inn 1 proc_inn 0.587*** 1 both_inn 0.856*** 0.754*** 1 emp 0.189*** 0.183*** 0.206*** 1 emp_2 0.014 0.004 0.018 0.809*** 1 ford_dep -0.103*** -0.055 -0.091** -0.012 0.000 1 back_dep -0.124*** -0.066 -0.121*** -0.109*** -0.039 0.073** 1 prov_inc 0.248*** 0.306*** 0.292*** 0.264*** 0.088** -0.013 -0.095*** 1 ter_edu 0.221*** 0.209*** 0.235*** 0.150*** 0.056 0.022 -0.156*** 0.169*** 1 bus_edu 0.285*** 0.260*** 0.269*** 0.133*** 0.053 0.017 -0.100*** 0.257*** 0.319*** 1 exp 0.134*** 0.135*** 0.146*** 0.037 0.029 -0.098*** -0.028 -0.011 0.076** 0.074** int_mot 0.162*** 0.205*** 0.224*** 0.157*** 0.035 0.078** -0.030 0.024 2.272*** 0.207*** ext_mot 0.105*** 0.167*** 0.168*** 0.142*** 0.045 0.037 -0.021 -0.034 0.084** 0.066 nec_mot -0.170*** -0.110*** -0.198*** -0.121*** -0.021 0.033 0.110*** -0.100*** -0.149*** -0.171*** coop 0.259*** 0.270*** 0.306*** 0.215*** 0.079** 0.030 -0.058 0.236*** 0.288*** 0.235*** manag_1 0.252*** 0.216*** 0.233*** 0.175*** 0.085** -0.011 -0.052 0.084** 0.142*** 0.307*** manag_2 0.319*** 0.305*** 0.330*** 0.269*** 0.091** -0.022 -0.003 0.242*** 0.211*** 0.215*** manag_3 0.336*** 0.270*** 0.314*** 0.207*** 0.071 -0.068 -0.025 0.174*** 0.205*** 0.241*** manag_4 0.201*** 0.253*** 0270*** 0.155*** 0.061 0.000 -0.004 0.119*** 0.201*** 0.246*** manag_5 0.121*** 0.171*** 0.125*** 0.225*** 0.097 0.102*** -0.027 0.029 0.055 0.159*** ***Significant correlations at 0.01 level.**Significant correlations at 0.05 level. 31 Block, J., Sandner, P., 2009. 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