Twelfth International Conference on Management of the Pakistan Economy Technology, Entrepreneurship and Productivity Growth – Where Pakistan stands and where it must go:Innovation in the Textiles Sector of Pakistan: A Firm Level Analysis of Technological and Non-technological innovation, Sources of Knowledge Spillovers, Constraints, and Economic Returns

Abstract

In recent years, information technology has led to extraordinary increase in access to information and new markets for firms in many developing countries. This coupled with increased globalization is constantly changing the landscape of innovation and firm’s competitiveness. It has also resulted in greater international competition and in new organizational forms for the effective management of global supply chain. As a result, knowledge has taken a central place as the main driver of innovation and economic growth. In such knowledge-based economy, it has become increasingly important to better understand critical aspects of the innovation process, such as innovation activities beyond the R&D, the interaction among different actors in the market and the relevant knowledge flows. Using sample of 614 textiles manufacturers, this study explores the dynamics of firm’s innovation activities by analyzing the innovation behavior, the extent and types of innovation, the resources devoted to innovation, sources of knowledge spillovers, factors hampering technological innovation, and the returns to innovation for three years 2013-2015. Our results showed that 56 percent of firms introduced technological or non-technological innovations. 38 percent firms introduced new products, however, these innovations were generally incremental in nature as vast majority of innovations were only new to firm. There were six enterprises who introduced products that were first in the World and all the six are from Sialkot. 30 enterprises introduced new product on their market. Innovation rate increases with firm size; large firms have innovation rate of 83 percent, followed by medium sized firms (68 percent) and small sized firms (39 percent). Technological innovative firms spent on average 10 percent of their turnover in 2015 on innovation expenditure. Acquiring newer vintages of capital with a purpose to introduce new/improved product and processes was the dominant innovation activity. Acquisition of machinery and equipment was the main innovation activity with 56 percent of innovation expenditures devoted to it. 31 percent innovation expenditure was on R&D (25 percent on in-house and 6 percent on external R&D). Overall, firms considered market sources as the most important source of knowledge spillover. However, large firms consider foreign market sources (clients and suppliers), whereas small firms consider local market sources as the important source of information and cooperation. Firms appear to be more focused on innovations that promote growth. Product outcomes dominate the objectives with 63 percent technological innovators reporting improving quality of goods as most important objective. Lack of availability of funds within the enterprise was the single most important cost factor hampering innovation, followed by high costs of innovation. The economic importance of innovation seems very high as measured by the percentage of share due to innovative products. Our results showed that 67 percent of the turnover of product innovative firms in 2015 resulted from product innovations that were either new to market or new to firm.