meral.edu.mm. Phyo PhD... · Web view2020. 9. 25. · In manufacturing sector of Myanmar, food industry comprises the largest percentage whereas the confectionery business takes

YANGON UNIVERSITY OF ECONOMICS

DEPARTMENT OF COMMERCE

PhD PROGRAMME

INNOVATION AND PERFORMANCE OF

CONFECTIONERY BUSINESS

MA PHYO

JUNE, 2018

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CERTIFICATION

I hereby certify that content of this dissertation is wholly my own work unless

otherwise referenced or acknowledged. Information from sources is referenced with

original comments and ideas from the writer herself/himself.

Ma Phyo

4 PhD Za-

5

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ABSTRACT

In manufacturing sector of Myanmar, food industry comprises the largest

percentage whereas the confectionery business takes the largest role in food industry.

Mandalay is the early well-developed region in Upper Myanmar with regard to the

strategic point of trading. This study intends to examine the drivers of innovation in

confectionery businesses in Mandalay, to identify the influencing types of innovation

on firm performance and to analyze the impact of innovation on firm performance. To

identify the factors influencing innovation and business performance, 89

confectionery businesses located in Mandalay were randomly selected and analyzed.

It was found that the intellectual capital has positive and highly significant effect on

all three types of innovation. Concerning the type of innovation, the majority of firms

mainly used product innovation. Product innovation affects the firm performance in

terms of number of employees, production volume, sale volume and profit. Market

innovation affects only two performance measures: number of employees and profit.

The lack of innovative personality in the part of owner and manager and education

and skill in the part of workforce are major deterrents for the growth of confectionery

businesses. To successfully compete with rivals and new entrants, the confectionery

businesses need to conduct continuous innovation and also need to consider all the

drivers of innovation in order to retain the market share and pursue future prosperity

through sustainable competitive advantages.

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ACKNOWLEDGEMENTS

First and foremost, I would like to express my profound gratitude to

Prof: Dr. Khin Naing Oo, Rector, Yangon University of Economics for giving me the

opportunity to write this PhD thesis. I am also grateful to Prof: Dr. Tun Aung,

Pro-Rector, Yangon University of Economics for giving me the opportunity to

accomplish this dissertation and providing constructive guidance to me.

I would like to show my heartfelt gratitude to the Chairman of PhD Steering

Committee, my supervisor, Prof:, Dr. Daw Soe Thu, Head of Department of

Commerce, Yangon University of Economics, for her supervision, inspirations and

moral support for the completion of this work successfully.

I would like to convey my deepest thanks to the honorable academicians, Prof:

Dr. Kyaw Min Htun, Prof: Dr. Daw Hla Myint, Prof: Dr. Khin May Hla,

Prof: Dr. Sein Min, Prof: Dr. Kyi Kyi Sein for supporting with their useful guidance,

suggestions and encouragement.

I also thank Prof: Dr. Moe Moe Khaing, Head of Department of Management

Studies, Yangon University of Economics, Prof: Dr. Maw Maw Khin, Head of

Department of Statistics, Yangon University of Economics, Prof: Dr. Tin Tin Htwe,

Department of Commerce, Yangon University of Economics for all their valuable

advice and suggestions.I express my sincere thanks to Prof: Dr. Nu Nu Lwin, Department of

Management Studies, Yangon University of Economics for her good opinions and

invaluable suggestions for the improvement of this dissertation.

I am also grateful to Prof: Dr. Myiny Myint Kyi, Department of Management

Studies, Yangon University of Economics for her prompt, insightful advice and

suggestions at the very first discussion.

I am deeply indebted to all the owners and managers of the confectionary

businesses in Mandalay municipal area for cooperating and answering the questions

to accomplish this work.

My special thanks also go to U Win Oo, Deputy Director, Directorate of

Industrial Supervision and Inspection, Mandalay Division, Daw Ei Ei Moe, District

Officer, Directorate of Industrial Supervision and Inspection, Mandalay Division and

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U Naing Oo, Head of Office, Industrial Zone Management Committee, Mandalay

Division for their support and cooperation.

Many people deserve my thanks for help in doing this work. The analysis

cannot be accomplished without help from them.

Last but not the least, I wish to express my sincere gratitude to my beloved

parents for their support, understanding, contribution and encouragement to achieve

my academic and career goals.

Ma Phyo

PhD Za-5

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TABLE OF CONTENTS

Page

Abstract i

Acknowledgements ii

Table of Contents iv

List of Tables vi

List of Figures viii

List of Abbreviations ix

Chapter 1 Introduction 1

1.1 Rationale of the Study 2

1.2 Problem Statement of the Study 5

1.3 Research Question 9

1.4 Objectives of the Study 9

1.5 Method of Study 9

1.6 Research Hypotheses 12

1.7 Scope and Limitations of the Study 13

1.8 Organization of the Study 14

Chapter 2 Literature Review 15

2.1 The Concept of Innovation 15

2.2 Innovation Process 17

2.3 Drivers of Innovation 29

2.4 Types of Innovation 45

2.5 Innovation and Business Performance 49

2.6 Conceptual Framework of the Study 52

2.7 Working Definitions for the Study 54

Chapter 3 Research Methodology 56

3.1 Research Area 56

3.2 Sampling 61

3.3 Profile of the Respondents and Businesses 62

3.4 Data Collection 65

3.5 Assumption for Multiple Regression Analysis of the Study 66

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Chapter 4 Analysis on Innovation of Confectionery Businesses 67

4.1 Testing of Reliability and Validity of the Driving Variables 67

4.2 Analysis on Types of Innovation 76

4.3 Analysis on Innovation Drivers of Each Type of Innovation 80

4.4 Analysis on the Influence of Innovation on Firm Performance 87

4.5 Analysis on Effect of Innovation on Firm Performance 89

Measure

4.6 Summary Innovation and Performance of Confectionery 95

Businesses

Chapter 5 Conclusions 97

5.1 Findings and Discussions 97

5.2 Suggestions and Recommendation 102

5.3 Needs for Further Study 104

References

Appendixes

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LIST OF TABLES

Table No. Description Page

3.1 Distributions of Firms in Confectionary Industry 57

3.2 Number of Registered Confectionary Firms by Townships in 60

Mandalay Municipal Area

3.3 Distribution of Confectionary Businesses by Type 61

3.4 Number of Firms in Different Types of Product by Township 62

3.5 Profile of the Respondents 63

3.6 Profile of Businesses 64

4.1 Descriptive Statistics and Reliability of the Driving Variables 68

4.2 Validity Test for Intellectual Capital 69

4.3 Validity Test for Organization Structure 70

4.4 Validity Test for Organization Culture 71

4.5 Validity Test for Market Strategy 72

4.6 Validity Test for Manufacturing Strategy 73

4.7 Validity Test for Customer Needs and Wants 74

4.8 Validity Test for Intensity of Competition 75

4.9 Validity Test for Technological Opportunity 76

4.10 Mean Values of Product Innovation 77

4.11 Mean Values of Process Innovation 77

4.12 Mean Values of Marketing Innovation 78

4.13 Influential Types of Innovation and Types of Business 79

(Measured by Mean Value)

4.14 Drivers of Product Innovation 81

4.15 Drivers of Process Innovation 84

4.16 Drivers of Marketing Innovation 86

4.17 Influencing Innovation Types on Firm Performance 88

4.18 Influencing Innovation Types on Firm Performance Measure 89

(Number of Employee)


(Production Volume)

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(Sales Volume)


(Profit)

4.22 Summary of Innovation Drivers of Confectionery Businesses 95

4.23 Summary of Innovation and Performance of Confectionery 96Businesses

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LIST OF FIGURES

Figure No. Description Page

2.1 Three Phases of a Simplified Innovation Process 19

2.2 Modeling Factors that Propel Innovation 30

2.3 Internal Determinants of Innovation 31

2.4 External Determinants of Innovation 32

2.5 Various Elements Affected on Innovation 33

2.6 Factor Structure of an Integrated Innovation Model 34

2.7 Determinants of Innovativeness Model 35

2.8 Market Orientations and Firm Innovativeness, and Innovation 40

Performance

2.9 Organizational Characteristics, Innovation Behavior and Firms’ 50

Performance

2.10 Innovation and Related Factors 51

2.11 Conceptual Framework of the Study 54

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LIST OF ABBREVIATIONS

ANOVA

EBRD

GDP

GROI

GROS

MAFPEA

NPD

OECD

ORCI

R & D

ROI

ROS

SMIs

SRS

VIF

Analysis of Variance

European Bank for Reconstruction and Development

Gross Domestic Product

Growth Rate on Investment

Growth Rate on Sales

Myanmar Agricultural Food Processors and Exporters

Association

New Product Development

Organization for Economic Cooperation and Development

Organizational Renewal Capability Inventory

Research and Development

Return on Investment

Return on Sales

Small and Medium Industries

Simple Random Sampling

Variance Inflation Factor

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CHAPTER 1

INTRODUCTION

Myanmar is undergoing a significant political and economic transformation.

To succeed, Myanmar must reach a more rapid, sustainable and equitable

development trajectory. This requires a transformation of the economy from an

agrarian base reliant on small scale agriculture towards a broad range of modern

activities. The country needs to develop its industries because they are the key engine

for boosting the economy and creating job opportunities. The businesses are now

bringing new ideas to the market through innovation. In Myanmar, economic reform

measures for various sectors are aimed at adopting a market oriented system for

encouraging private investments and entrepreneurial activities.

Industrial zones are developed for creating jobs for people in new

townships‚ relocating industries in residential quarters and promoting national

entrepreneurs. However, the industrial zones have been facing many

problems‚ including lack of infrastructure‚ insufficient skilled workers and bank

loans‚ uncompetitiveness due to high production costs‚ land price speculation and

dispute between workers and employers (The New Light of Myanmar‚ August 30,

2014). Many questions have arisen to how these problems can be faced and survived

among them. Therefore there is a need to consider the factors that support the firms to

get competitive edges and survive in the industry.

Since innovation is one of the most important means through which businesses

contribute to economic growth, numerous research studies were conducted to

determine which factors positively impact the innovative efforts of businesses. To be

successful over a long period of time, firms must develop the ability to innovate and

then to profit from that innovation (Nelson, 1991). Innovation is an important driver

of the firm’s improvements. On the other hand, various factors influence firms’ ability

to innovate. It is needed to examine internal and external drivers of innovation.

Therefore this study also intends to find and analyse the factors influencing on

innovation and performance of confectionery businesses.

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New product development is critical for long-term firm performance and has

become a major source of competitive advantage as companies face increasingly

volatile external environments characterized by shorter product cycle time and ever

quickening technological developments. Moreover not only local brand but also

international ones enter into the market. Thus, innovation is necessary to meet the

consumers’ changing needs and wants. Especially, foreign brands come into the field

of confectionery industry in Myanmar. Therefore the confectionery firms need to be

innovative in conducting their firms to be more competitive in the market. Innovation

is an important driver of the firm’s improvements. On the other hand, various factors

influence firms’ ability to innovate. Therefore the drivers of innovation will be needed

to find out. For this reason this study intends to explore the factors affecting on

innovation that is an important way for businesses to achieve competitive advantage.

1.1 Rationale of the Study

Myanmar has increased manufacturing activities but still is an agricultural

country. The manufacturing sector accounted for the lion’s share of Myanmar’s

economy from 2014-2015 at 19.9% of GDP (The Myanmar Consumer Survey, 2016).

Food industry comprises 63.5% of manufacturing sector (Ministry of Industry (1),

2012). Food and beverage production strongly dominates the private manufacturing

sector in Myanmar. It is quite interesting to learn that various food processing

industries are providers of peoples’ daily needs, which include not only food for

breakfast and fast food but also as gifts for those paying respect. In this regards, these

industries provide not only demand for market and consumers but also compete with

various foreign brands so innovation is crucial in these industries.

Myanmar food industry comprises of several distinctive segments. The

confectionery industry is also one of the segments in food industry. These include

baked goods (bakery products) like biscuits, crackers, cookies, bread, cakes and

confectionary products. Confectionery is defined as the art of making confections

which are food items that are rich in sugar and carbohydrates. Confectionery is

generally divided into two broad categories, bakers’ confections and sugar

confections. Bakers’ confection, called flour confections, includes sweet pastries,

cakes and similar baked goods. Sugar confectionary includes sweets, candy, candied

nuts, chocolates, chewing gum and bubblegum, sweetmeats and other confections that

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are made primarily of sugar. In the Middle East and Asia, flour based confections are

more dominant (Myanmar Agro-Based Food Processors and Exporters Association,

2015-2016).

Moreover, over the last years, the Myanmar food sector has transformed as the

range of food prepared and the way it is consumed in Myanmar has changed. More

international food brands are coming into the market and there is a rise in the number

of local food producers, giving consumers greater choice. The food industry is poised

for growth and there are huge opportunities for local food producers and multi-

national food companies. Therefore Myanmar food industry innovates to add value

and to meet evolving consumer demand. The industry has responded to the dynamics

of consumer demand and food retailing by introducing new product offerings that

meet growing demands from consumers for healthfulness and quality.

Bakers’ confections include sweet baked goods, especially those that are

served for the dessert course. Major categories include cakes, sweet pastries,

doughnuts and cookies. This study focuses on bakers’ confectionery industry in

Mandalay. The reasons for choosing this industry as study area are as follows. Firstly,

according to official statistics, the share of Food and Beverage industry in gross

domestic product (GDP) was 15% on average in the 1990s, while the share of the

processing and manufacturing sector to total GDP was just 9% in 1990-1991

(Ministry of National Planning and Economic Development). The share of Food and

Beverage industry in GDP increased to 19% in 2010-2011 while the share of the

processing and manufacturing sector in the total industrial sector increased by 8%

(from 69% to 77%) from 1990-1991 to 2010-2011. Secondly according to the

Directorate of Industrial Supervision and Inspection as of 31st July, 2012, Food and

Beverage Industry includes 63.51% of all categories of registered small and medium

industries (SMIs) in Myanmar. Finally, it is not only the number of small and medium

enterprises but also the number of large enterprises in Food and Beverage industry is

more than all number of enterprises in other industries.

Moreover, in this study Mandalay region was chosen for the following

reasons. Firstly, the strategic location is one of the many strength s of Mandalay, the

second largest city in Myanmar with a population of over 1.2 million. It is also the

major trading and communication center in northern and central Myanmar. Mandalay

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Region is located in central Myanmar and bordering by Sagaing Region to the north,

Sagaing and Magway Regions to the west, the Union Territory of Nay Pyi Taw to the

south, and Shan State to the east. Despite Nay Pyi Taw being the country's capital,

Mandalay still remains Upper Myanmar's main commercial, educational and health

centre as the capital of Mandalay Region. It is the economic hub of Upper Myanmar

and considered the centre of Myanmar culture. Most of Myanmar border trade to

China and India goes through Mandalay (Myanmar Investment Commission,

Mandalay Investment Opportunities Survey Report, 2015). This geographically well

positioned means the potential for food production and significant development for

trade. Secondly, the availability of the raw materials gives a great advantage.

Mandalay is blessed with abundant resources which provide the right environment for

food production. In Upper-Myanmar, most raw materials are easily available in

Mandalay such as the main raw material; wheat. For example Done Pyan Wheat Mill

is located in Mandalay Industrial Zone. Most suppliers have efficiently managed their

supply chain (transportation, delivery, etc…).

Most published research studies, which dealt with determining factors

significant for innovation, come from developed economies. Yet policy makers in

developing countries, faced with the task of crafting regulations to support innovation,

often draw upon the stock of knowledge from investigation of the firms in developed

economies. So an important issue for policy makers would be to find out to which

extent they can rely on these findings. Therefore this study focus on the finding

factors that influence on the innovation‚ to develop new products and to improve the

firms’ success through innovation.

Innovation enables the firms to become competitiveness and to satisfy

customers’ needs and wants that are always changing. As innovation is important in

the firms’ success, it must find the ways which affect innovation. Although businesses

can survive due to royal customers, they will not succeed without innovation. Most

businesses innovate to gain and keep customers and market share both locally and

globally. This study aims to link innovation, one of the main factors for success of

confectionery businesses, the motivating and hindering factors of innovation and their

performance.

According to the previous research, innovations became an important aspect

of every business activity due to the fact that they can create a new space for potential

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specialization and future growth. Innovation is one of the means to be competitive and

to satisfy the customers’ needs and wants. By successfully innovating, the inventor/

business usually earns a reward in the form of money or respect. A satisfactory

outcome for the user/consumer is the improved quality, availability, diversity or

increased quantity of goods and services. The question is whether innovation is

something that can significantly improve chances of the firms in Myanmar to achieve

success.

As the country’s infrastructures are important for the development of a

country, the citizens also need to be healthy. Therefore health consideration of

foodstuff producers is important. The problem statement of the study was motivated

by the question of what are the strong factors that affect innovation and how will the

confectionary businesses be performed.

Large firms provide streams of incremental improvements. Moreover, these

firms voluntarily disseminate much of their innovative technology widely and rapidly,

as a major revenue source and in exchange for complementary technological property

of other firms, including direct competitors. Since innovation is one of the means to

become competitive and to satisfy the customers’ needs and wants, many rival large

firms use innovation as their main weapon, with which they protect themselves from

competitors and with which they seek to beat those competitors out.

1.2 Problem Statement of the Study

The revolution is emerging in many parts of the world, including

confectionary industry. Individuals demand confectionary products which match with

their changing lifestyles. This is the growing consumer trend of eating healthy foods

that promote physical and mental health, support a strong immune system and prevent

disease. Consumers want ‘on-the-go’ eating options that offer more than high fat, high

sugar and ‘empty calories’. Food providers are interpreting consumer needs in

innovative ways such as one by one packing to be more convenient.

Some food product items such as Htoe Mont, La Mont and Sanwinmakin

(kind of pudding made with flour from the heart of wheat grain, sugar, coconut milk,

oil, butter, etc as ingredients) are produced as traditional confectionary business

during the period of twentieth century. Nowadays, new food items such as Jelly

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Pudding, Pumpkin Sanwinmakin, and Carrot Sanwinmakin are produced and sold in

the food market. In the past, packaging is done with newspapers and banana leaves

and now, neat, tidy and beautiful thick card boxes are created to meet the market

demand for consumes’ needs. Additionally, plastic boxes are produced to be more

convenient and for easy use when travelling. Branch shops are also opened to

penetrate the market and to increase market share. One significant tradition of selling

traditional confectionary businesses is that consumers can taste variety of these

Myanmar foods before they buy them.

Bakery Businesses produced European Food namely cake, bread and biscuit

in order to meet the taste of Myanmar People, Moreover, new food products are

carefully prepared to meet the standard of healthy food, in taste, ingredients etc.

Some foods are modified with easy-to-carry packages to suit the changing consumers’

lifestyles. Sales promotions are made by using better distribution system and

transportation throughout the country. These operations are conducted by the

innovation of product, process and market.

Previously, teashops and cafes sold only Marigold, Indian Pancake, but in the

later period they added cakes, La Mont and bean bread to their range of food list.

Teashop culture of Mandalay has become very popular not only as an eating place but

also as a meeting centre for discussing social and business matters. So, teashops

innovated their food products to satisfy and fulfill the demand and preference of

consumers. Today teashops are different from traditional teashops and their modified

and innovative decoration includes air conditioning and Wifi Free Service, on top of

using pure cooking oil and sugar for the consumer, giving careful consideration to the

healthy life of the people. Food producers take into account the fact that most

consumers now have much greater awareness of healthy living. In addition, the

teashop owners also take into account the cleanliness of their shops both inside and

outside, better service of waiters and waitresses and happy hours for consumers. This

study took account of some teashops and cafes as bakery businesses because of their

innovative activities in producing new products.

Innovation in the food sector is driven by trends in consumer demand for food

products with emphasis on variety, quality, nutrition, convenience, safety, reasonable

cost and environmental soundness (Barbosa and Gould, 2000). Food companies

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naturally respond to such trends and increase their efforts as part of this response and

seek to gain a sustainable competitive advantage over other companies by exploiting

new technologies and innovations (Traill and Meulenberg, 2002; Lagnevik, Sjoholm,

Lareke and Ostberg, 2003). Therefore this study intends to explore and define the

important drivers of innovation and types of innovation for successful confectionery

businesses.

The food processing businesses need to innovate in competitive edge in order

to survive. Moreover the businesses must take the consumer protection into account

and so the following Food Regulations and Related Laws are regulated by the

government to be obeyed by food processing industry in Myanmar.

(1) National Drug Law (30.10.92)

(2) National Food Law (3.3.97)

(3) Pesticide Law (11.5.90)

(4) Fertilizer Law (1.1.2002)

(5) Plant’s animals’ protection Law (16.6.93)

(6) Infection controlling and protection Law (20.3.95)

Food and Drug Supervisory Committees, Department of Health, Ministry of

Health enacted National Food Law in 1997 in order to

(a) Enable the public to consume food of genuine quality, free from danger and

hygienic;

(b) Prevent the public from consuming food that may cause danger; or are

injurious to health;

(c) Supervise production of controlled food systematically;

(d) Control and regulate the production, import, export, storage, distribution and

sale of food systematically. (The State Law and Order Restoration Council

Law No. 5/97)

This study is confined to confectionary firms located in Mandalay only.

Mandalay is the second largest city in Myanmar, whose geographical location has

helped it develop into a focal point for the transportation of foodstuffs and goods from

many parts of Myanmar and beyond. As a result of its advantageous geographical

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position, a variety of goods and foodstuffs are readily available in Mandalay.

Furthermore, as a result of modernization, the number of confectionary firms in the

city is increasing and the firms are trying to catch up with the environmental changes.

“Myanmar initially attempted to adjust to the changing local and global

conditions it faced” (Thant Myint, 2004: 105, 9-10, as cited in Phatcharanuruk, 2015: 3)

in “The Making of Modern Burma”. The sustained innovation, political and economic

reforms were taken place over the period 1853 to 1885. However, these reforms did

not succeed due to both internal and external conditions, but did provide the context

for the modernization that took place later during the British rule.

After Independence, Myanmar had a democratic government for a short period

of time, from 1948 to 1961, after which non-democratic socialist government held

power from 1962 to 1987, then a military government from 1988 to 2011. The

military government issued an agricultural development policy, with new techniques

and machinery introduced to the rural population. Factories were also built in the

cities. However developments over the period 1948 to 1987 brought little progress.

The Lives of Burma Women mentioned that at that time food related industries

sprung up and products such as canned fish, sweets and making or processing biscuits

were made.

Under the context of high competition and sophisticated demand of today

consumers, the confectionery business possess several strength such as abundant

natural resources, adequate human capital, sufficient local market, abundant potential

to set-up industries and availability of raw materials at reasonable cost. At the same

time, they have numerous weaknesses to face the challenges in food processing

industry mainly low production capacity, using traditional wisdom in manufacturing,

low local and international branding, low access to international markets, lack of

awareness in international standards and norms. It implies the fact that a

comprehensive research on confectionery business is critical to identify the types of

innovation that can lead to improving the performance of confectionery businesses in

Mandalay.

1.3 Research Questions

Confectionary firms in Mandalay are promoting their businesses with several

types of innovation. However, it is not still assured that all of the businesses will

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know about the factors influencing the innovation and their performance. Therefore

the following questions are emerged.

What are the drivers of innovation?

What types of innovation are more influenced?

What are the results of innovation—such as performance results?

1.4 Objectives of the Study

Based on the specific research questions, this study set the specific objectives.

In Myanmar, many businesses face with the problems of not having enough capital,

inadequate skilled workers, high production costs, land price speculation and dispute

between workers and employers. Therefore businesses need to consider getting

competitive edges and surviving among the rivals. In this situation, innovation is an

important factor for the firm’s improvement. Moreover various factors drive the

firms’ innovation. This study aims:

1. To examine the drivers of innovation in confectionery businesses.

2. To identify the types of innovation that influence on the firm’s performance.

3. To evaluate the effect of innovation on the firm’s performance measures.

1.5 Method of Study

This study employed both qualitative and quantitative approaches for finding

out the drivers of innovation and the types of innovation and performance of the firm.

and then survey with five-point likert scale for three constructs of independent

variables, drivers of innovation: firm structure, firm culture and external factors to

innovation and three dependent variables: product innovation, process innovation and

market innovation. The questionnaire was pre-tested to check its content validity and

modified accordingly. The modified questionnaire was tested to examine its

suitability for the target population before the actual survey.

Primary data is obtained through a questionnaire from production managers or

owners, who were responsible for the production of the confectionery firms in

Mandalay. This study focuses only on manufacturing firms because these firms are

more competitive and so need to innovate for competition. Though innovation process

is started with the step of idea generation by everyone, especially the people who

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make the decision may be from the management level in the implementation process.

Therefore the interview was carried out to obtain the required data from the

management level of the confectionary firms by using structured questionnaires.

The simple random sampling (SRS) method is used to select the sample. The

sample for this study is selected from the firms which are operating especially as

manufacturing firms within at least three years time frame. In the previous study, “the

average company 2.95 years takes for developing more innovative types of new

products” (Page, 1993, as cited in Goffin, Szwejczewski, Sweeney and New, 2000).

In the questionnaire, Likert scale questions and list type are used. The

questionnaire has been divided into two main parts. The first one is concerned with

the profile of the firm and the owners/managers. According to the framework, the

following information is included in the second section.

1. Drivers of innovation

2. Types of Innovation

3. Business Performance

In the framework, the drivers of innovation are used as the independent

variables. The types of innovation are the dependent variables. To understand the

factors influencing innovation and innovativeness, confectionary business owners and

managers in Mandalay municipal area were interviewed by questionnaires. The

questionnaire was designed to assess a firm's general characteristics, business

structures, culture, strategies, barriers and types of innovation and business

performance. The preparation of the questionnaire takes into account questionnaire

forms used in similar studies and commonly accepted measures met in the literature.

Specifically, questions are raised for independent variables regarding firm

characteristics, firm structure, firm culture and external factors using a 5 point likert

scale to inquire the importance the firm awards to each item in a scale ranging from 1

= strongly disagree to 5 = strongly agree. For barriers to innovation was prepared yes

or no questions. The questions about type of innovation are also enquired employing a

5 - point Likert scale. The respondents are asked to indicate “whether the innovative

activities are implemented or not in your organization in the last three years” ranging

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from 1= ‘strongly disagree’, 2= ‘disagree’, 3= ‘neutral’, 4= ‘agree’, 5= ‘strongly

agree’.

On the other hand, some of the determinants of innovativeness such as general

firm characteristics (i.e., size, age and ownership status) is in a different scale (the

answer to these determinants have either nominal values or ordinal). Discussion with

some of the business owner was undertaken before the questionnaires are prepared.

Data collection began at the last quarter of 2016. The questionnaires were used to

make face to face interview with firms’ owners or upper level managers of the

confectionary businesses in Mandalay municipal area.

In the questionnaire, there were two sections. In section one, general

information of the firm were collected by using eight questions (number of

employees, firm age, ownership status, number of product items, time for NPD and

cooperators in innovation and so on) as Part A. In Part B of Section one, the personal

data of the owners/managers was collected with nine questions (position, age, gender,

educational level and the perception of innovativeness). In Section two Part A, as

internal factors, fifty nine items (11 items for intellectual capital, 9 items for

organization structure, 9 items for organization culture, 6 items for market strategy,

10 items for manufacturing strategy 6 items for customer needs and wants, 5 items for

intensity of competition and 3 items for technological opportunity) with five-point

Likert scale were used to measure the selected variables: 1 Strongly disagree, 2

Disagree, 3 Neither agree nor disagree, 4 Agree, 5 Strongly agree. In the Part B of this

section, 13 items (5 items for product innovation, 4 items for process innovation and 4

items for marketing innovation) were used to measure the innovative activities of the

business. And then five point Likert scale were used to measure the business

performance; number of employees, number of production, number of sale and Profit:

1 = Much declined, 2 = Moderate declined, 3 = Not change, 4 = Slightly improved, 5

= Improved. The last part of section two included the questions about the performance

of business.

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1.6 Research Hypotheses

In this study, the hypotheses are tested by analyzing data collected from survey

work. These hypotheses are as follows:

H1 (a) Firm characteristics have a positive and significant effect on product

innovation.

H1 (b) Firm structure has a positive and significant effect on product

innovation.

H1 (c) Firm strategy has a positive and significant effect on product

innovation.

H1 (d) External factors have a positive and significant effect on product

innovation.

H2 (a) Firm characteristics have a positive and significant effect on process

innovation.

H2 (b) Firm structure has a positive and significant effect on process

innovation.

H2 (c) Firm strategy has a positive and significant effect on process

innovation.

H2 (d) External factors have a positive and significant effect on process

innovation.

H3 (a) Firm characteristics have a positive and significant effect on

marketing innovation.

H3 (b) Firm structure has a positive and significant effect on marketing

innovation.

H3 (c) Firm strategy has a positive and significant effect on marketing

innovation.

H3 (d) External factors have a positive and significant effect on marketing

23

innovation.

H4 (a) Product innovation has a positive and significant effect on the firm

performance.

H4 (b) Process innovation has a positive and significant effect on the firm

performance.

H4 (c) Marketing innovation has a positive and significant effect on the firm

performance.


performance in terms of number of employees.






performance in terms of production volume.






performance in terms of sale volume.






24

performance in terms of profit.





1.7 Scope and Limitations of the Study

This study focuses on the factors contributing to the innovative effort of

confectionery businesses and set out to investigate the innovative activities

undertaken by these businesses. From the database of the Industry Supervision and

Inspection Department, 89 confectionary firms in Mandalay municipal area are

surveyed by simple random sampling (SRS). From these firms, only innovative firms

were analyzed to explore the major drivers of innovation. The innovative firms were

selected by asking whether they introduced new product, process and market or not.

Though innovation process begins with the step of idea generation, the people

who make the decision may be from the management level in the implementation

process. In this study, it is assumed that the firms’ managers already have creative

idea. Therefore the first step of innovation process, the idea generation is to be

ignored and the study omitted the idea creation. The interview was carried out to

obtain the required data from the management level of all the innovative

confectionary businesses.

1.8 Organization of the Study

This study consists of five chapters. Chapter one is the introduction of the

study. It includes the rationale of the study, problem statement of the study, research

question, objectives of the study, method of study, research hypotheses, scope and

limitations of the study and organization of the study. Chapter 2 provides the literature

review on business innovation and performance. It describes previous major works on

definition, determinants, process and innovativeness of the businesses. Chapter 3

provides the research methodology with the research area, research method, sampling

25

and then data collection and cleansing. In Chapter 4, the analysis and interpretation

regarding the drivers of innovation and the relationship between the firms’ innovation

and performance of the firm are described. Chapter 5 presents conclusions,

recommendation and suggestions for future research.

CHAPTER 2

LITERATURE REVIEW

This chapter presents the concepts and literature review for the framework of

the study. Firstly, the concept of innovation is reviewed. And then the literature

review of the drivers of innovation, types of innovation and the performance of the

firm are described as the conceptual framework of the study.

26

2.1 The Concept of Innovation

Joseph Schumpeter (1934) as cited in Croitoru (2012) defined innovation as

"the creation of new combinations that is the introduction of new good, of new

quality of good, or of new method of production, the opening of a new market, the

conquest of new source of supply of raw materials or half-manufactured goods, and

finally the carrying out of the new organization of any industry". Excluding any

innovation and innovative activities remained in stationary stage (Bigliardi, Colacino,

and Dormio, 2011). Today it is commonly accepted that without innovative activities

the development in individual companies and the whole of the society will stop. On

the other hand it is important to know what factors influence the business innovation

and how the business succeed through innovation.

The term innovation derived from the Latin (Hsu 2005, as cited in Ottosson

2006) means new or young or novel. It has various accepted definition. For most

people “to be innovative” means to be creative and to make something new. For some

people it means a new idea, for others it means an invention (a materialized new

idea), for some a new product (a developed invention), for some others it means the

art of creating a new product or process, and still for some others it means to create a

new business. For most people “to be innovative” means to be creative and/or to make

something new.

As inventions and innovations are associated phenomena, innovation scholars

make it a point to clarify the distinction between the two. It is explained that though

invention is a prerequisite for many innovations, it is only when an invention is

exploited commercially that it results in innovation (Brenner, 1990). Another, though

less popular approach to distinguish innovation from inventions has been to claim that

inventions relates to new ideas in general whereas innovations are ideas that are new

within a specific context (Van de Ven and Poole, 1989 and Damanpour, 1987).

Research and development (R&D) is shown to be concerned with the

commitment of resources to research and the refinement of ideas aimed at the

development of commercially viable products and processes whereas innovation is

concerned with subsequent product (or service) development process.

27

Innovation, however, is considered a nebulous concept. Godin (2002) believes

that the ambiguity in meaning is caused by the following factors.

1. Depending on the analyst's research focus and convenience of data

availability, it is defined as an outcome or as an action.

2. There is no settled opinion on whether an innovation should be new to the

world, to the nation, to the industry or to the firm.

3. With reference to process innovation, a firm can be innovative both by

inventing new production processes, as well as by using new technologies

invented by others.

4. Conducting R&D as well as acquiring advanced technologies and employing

highly skilled workforce both are perceived as being innovative.

Innovation is the introduction of new ideas, goods, services, and practices

which are intended to be useful (though a number of unsuccessful innovation can be

found throughout history).The main driver for innovation is often the courage energy

to better the world. An essential element for innovation is its application in a

commercially successful way. Innovation has punctuated and changed human history

(consider the development of electricity, steam engines, motor vehicles, etc).

Moreover innovation seems to involve not only new ideas and their development, but

also change and risk (Norris, 1981).

Although the importance of innovation is widely recognized, there is no

unanimously accepted definition on what innovation means. Comparing the numerous

definitions, Goffin and Mitchell (2010) noticed that they cover a set of common

elements:

1. what is changed (products, services, business process, and manufacturing

process);

2. the degree of change (a completely new output or some modifications were

implement to a previous version of the product).

With this regard, there are radical innovations, which represent completely

changes compared to the existing ones and incremental innovations, which represent

small changes to existing products.

28

Promoting economic growth through wealth and employment creation is the

only way to reduce poverty in a sustainable way. Likewise innovation is increasingly

recognized as having an important contribution to make to organizational success,

performance and survival. Drucker (1985) argued that innovation is the tool of

entrepreneurship. In addition, both innovation and entrepreneurship demand

creativity. Creativity is a process by which a symbolic domain in the culture is

changed. Moreover the development of successful new products is one of the ways in

which companies can achieve competitive advantage. New product development

(NPD) is a process which carries a great deal of risk. For NPD to be effective,

companies have to nurture an innovative corporate culture so that everyone in the

organization is encouraged to be innovative in their work.

Most organizations are looking to find the potentials for creating competitive

advantages. The ability to develop new products is among the capability benefits and

it’s also the central point in contesting for many industries and in fact new products

develop more and therefore there is more profits and create a competitive advantage

for companies.

2.2 Innovation Process

The multistage process whereby organizations transform ideas into

new/improved products/services or processes, in order to advance, compete and

differentiate themselves successfully in their marketplace (Baregheh, Rowley, and

Sambrook, 2009). Firms are also motivated to improve processes in order to reduce

costs, expand their production possibilities and also to improve production flexibility

and co-ordination (Davies 1988, Tirole 1988, Davenport 1993). There are three main

stages in the innovation process:

1. Generation of ideas: individuals and teams are producing new ideas and

improving existing ones.

2. Harvesting ideas: the act of gathering the ideas, sifting through them and

evaluating them.

3. Developing and implementing the ideas: the research, testing, improving and

development of the ideas and their implementation (Thomas, 2006).

29

To innovate is to introduce something new – product, method or service. It is a

combination of two processes: generating new ideas and implementation of them.

Innovations, a type of change which can be either a series of steps or one huge leap

towards in a desired direction.

Innovation calls for good leadership management at all levels of the

organization. Good leaders will stimulate people to be more hand on and interested in

their work, and in turn, this will lead to the generation of more good ideas. Managerial

leaders are needed for change to be able to happen and change brings about the need

for leaders.

A general interest in all things leads to ideas. The recognition by management

of these ideas leads to greater job interest, a deeper involvement and commitment

from staff. However innovation is more than having new ideas, practical and

commercial products or services. Most change happens gradually a development of

existing ideas, products and services.

According to Verworn, Hersttt, Nagahara, Luthje, and Herstatt, (2000/2006) a

simplified innovation process encompasses several systematic steps such as

requirement analysis, idea generation, idea evaluation, project planning, product

development, product testing, and product marketing.

30

Figure (2.1) Three Phases of a Simplified Innovation Process

Source: Verworn et al. (2000/2006)

As shown in Figure (2.1), there are three phases of a simplified innovation

process. These three phases are conception, implementation and marketing. Firstly it

is needed to transform the new ideas into new product and then need to test and try

whether the new product may be commercialized. This study emphasized on the

implementation process to assess the relative contribution of the drivers of innovation,

the types of innovation and performance of the firm.



it is also the central points in contesting for many industries and in fact new products


for companies.

In response to environmental changes in an appropriate manner, companies

suspend or modify production or supply of some products. In addition, in order to

identify and supply customers’ demands in different markets and to launch long term

business and increase commercial outcomes, the companies must develop new

products. New product development is a term used to describe a complete process to

achieve a new product, a process beginning from ideas and ending to commercial

exploitation of the new product. Companies have to modify previous products or even

develop new products not only for improvement but also for survival in the

31

3 Phases of a Simplified Innovation Process

Conception Implementation Marketing

• RequirementAnalysis• Idea Generation• Idea Evaluation• Project Planning

• Development/Construction• Prototype Dev.• Pilot Application• Testing

• Production• Market Launch and Penetration (national /international)

competitive environment; so that developing new products with superior quality,

reduced cost and time (from designing to reaching marketplace) assures customers’

satisfaction and profitability. New product development is a substantial approach for

company survival in a competitive market.

The product innovation process involves a series of sub-processes dominated

by the product development process. Product development can be defined as “the

process that transforms technical ideas or market needs and opportunities into a new

product and on to the market”. It includes strategy, organization, concept generation,

product and marketing plan creation and evaluation, and the commercialization of a

new product. The product development process is a disciplined and defined set of

tasks, steps, and phases that describe how a company repetitively converts ideas into

saleable products and/or services. The product development process itself can be split

up into three phases: policy formulation, idea finding and strict development.

Enterprises must constantly innovate and conduct research on new products,

choose appropriate products with new technology, cope with customer demands and

the threat from new competitors. A new product development (NPD) strategy is an

important activity that helps enterprises to survive and make continuous

improvements. Most enterprises have now placed great emphasis on shortening the

time for a new product coming into the market. Analyzing performance impact of

customer interaction in new product development on a more general level can yield

important managerial insights.

The US based Product Development & Management Association defines new

product development as “A disciplined and defined set of tasks and steps that describe

the normal means by which a company repetitively converts embryonic ideas into

saleable products or services” (Belliveau, Griffin and Somermeyer, 2002, as cited in

Amue and Adiele, 2012) . According to Wheelwright and Clark (1992), companies

need to be able to bring new products fast to the market in order to succeed in the

global and dynamic competition, products that satisfy the expectations of the

customer.

In fact, it is largely accepted that NPD is remarkably important for the

survival, sustainable competitive advantage and performances of every company

(Cormican and O’Sullivan, 2004; Di Benedetto, Calantone, Van Allen and Montoya-

32

Weiss, 2003; Song and Parry, 1997; De Brentani, 1989). The development of a new

product by a company begins when the need to create a new product appears either

due to the emergence of a new technology, or the appearance of a competitive product

or a change in the existing legal framework and is completed with the final

introduction of the product in the market.

A company or an enterprise may proceed to a new product development

whether that company or enterprise is part of a rapidly changing market or not. Those

new products may be based on other already existing ones and act as a complement or

improvement to existing offerings, or may be totally new products based on new

technology without the need of support from others. A company or enterprise decision

to develop a new product is probably one of the most important decisions to be made

in the history of that company or enterprise, because a new product development is

directly linked with the development and the evolution of that company or enterprise.

Song and Montoya-Weiss (1998) considered the growing in current market

and technology strategy lead to incremental new product development. A

development strategy that pursues a new market with a new product and technology

will create a “real new product”. A strategy involving a current market and new

product or new market and current product is classified as a moderate innovation.

The “newness” of a new product can vary from high to low and depends on

whose perspective and what is new. The different perspectives yield the following:

1. New to the world

2. New to the industry

3. New to the manufacturing firm

4. New to the market

5. New to the customer

Viewed in terms of what is new, yield the following:

1. New technology

2. New process

3. New features

4. New uses

5. New design

33

The degree of newness is an indicator of the difference between the new

product and the existing one. The change (depending on the perspective) can vary

from minor or incremental to major or radical.

In the other study, information on customer needs and user experiences were

viewed as resources companies depend upon for successfully developing new

products. Due to the advances in science and technology and the rapid changes in the

market, a product’s life cycle has become much shorter than before. Therefore

enterprises must constantly innovate and conduct research on new products, choose

appropriate products with new technology, cope with customer’s demands and the

threat from new competitors. A new product development (NPD) strategy is an


improvements.

Cooper (1983) proposed a new product development procedure. This

procedure covers various activities such as creation, creation dissemination,

preliminary product development, economic analysis, product prototype test, pilot

run, product mass production and entry to market.

Song and Parry (1997) adopted four indexes to measure the comparative

success level for a manufacturer’s new product as: (1) overall profit; (2) new product

sales compared with competitors; (3) profit rate for new product compared with

competitors; (4) new product success compared with the expected profit. Calantone,

Di Benedetto, and Haggblom (1995) utilized the return on investment (ROI) and the

growth rate on investment (GROI), return on sales (ROS) and growth rate on sales

(GROS) and market share and growth rate as performance measurement indexes.

Cooper (1984) chose three indexes to measure new product development performance:

(1) overall performance of new product; (2) success rate of new product development;

(3) effect of new product on a company.

Hopkins (1981) took five indexes to measure new product development

performance: (1) finance evaluation; (2) objectives evaluation; (3) rate for new

product accounted for in the gross sales amount; (4) percentage of successful new

product development; (5) overall subjective satisfaction scores for new product

development. Dwyer and Mellor (1991) used four indexes: (1) assessment of the

34

overall success or failure; (2) profit level; (3) sales goal; (4) opportunities that could

be brought by the new product in the future.

Sixotte and Langley (2000) thought that cross department horizontal

communication and information exchanges could greatly decrease the uncertainty in

new product development and improve new product development performance.

New product development strategy thought that there were four variables

concerning a new product development strategy (Cooper 1984).

(1) Orientating the enterprise to a new product: This includes creating a new

product, developing a better product for meeting the customer’s demand than

that of competitors, and product concentration and differentiation.

(2) Market characteristic adopted by the new product: This includes the

characteristics for a new market, customers, competitors and new sales

channels.

(3) The enterprise’s technological orientation and commitment: This includes the

percentage of R&D expense to sales amount, company’s R&D orientation,

etc.

(4) Technological characteristic adopted by the new product: This includes more

advanced and complicated technologies, closely matched with the company’s

R&D resources, technical maturity and concentration.

Komininos, Milossis and Komininos (2002) stated that an enterprise should

follow the new product development model for the proper development of a new

product in New Product Development.

1. Creation of ideas

2. Evaluation of ideas – Selection of final idea

3. Product development

4. Manufacture of prototype

5. Product promotion

35

1. Creation of Ideas

Prior to the development of a new product, it is necessary to have some initial

ideas for new products, one of which will become the new product. The creation of

those ideas forms the basis for the proper development of a new product.

a. Ideas from customers or users of company products

Ideas for new products can quite easily ensue from the customers of the

company or from users of previous company products. In this case, the golden rule is

for the company to offer its customers what they want and not what the company

thinks they want. Gathering such ideas is very easy with the use of questionnaires

either upon the purchase of a product (research at the product outlets), or over the

phone (telephone research based on the company clientele list), or through the

Internet (on-line questionnaires).

b. Ideas deriving from market research

Market research is another good source of ideas for new products. The

successful development of a new product requires very good knowledge of customers

and their needs and, more generally, of the market to which the new product is

addressed. Thus, all the more companies or enterprises develop new products based

on the orientation of the market. The orientation of the market can be defined as a set

of interlinked procedures and activities, aiming at the creation and fulfillment of

customer needs through constant assessment of those needs. In other words, the

enterprises that develop their products based on market-orientation, develop tools to

study the market and elaborate development strategies to constantly satisfy the needs

and desires of the customers – consumers.

Market-orientation studies on companies in Scandinavian countries and the

USA have shown that, despite a significant and intense government intervention and a

low level of competition, those enterprises barely use this mean. On the contrary,

Japanese enterprises depend all the more on the development of products through

market orientation studies. As to European and other Asian enterprises, studies have

shown that the market-orientation analysis process is very important especially for

36

those enterprises that are based on rapid technological changes; it is equally important

within the framework of those markets characterized by stiff competition and doubt.

All the above-mentioned studies point to the fact that, the use of market-

orientation studies as a mean to guide the development of new products depends on

the cultural differences between the markets of the various countries on the globe.

c. Ideas deriving from competitors

Expos, shows and seminars of rival companies may be a very good source for

the creation of ideas, because through these events a company may become informed

on market innovations, on technological advances, as well as on possible

improvements on existing products – competitive or not.

Kotabe (1990) concluded that the product innovation level has a direct relation

to performance, i.e. the higher the product innovation level, the better performance.

However Davies (1988) investigated three new product development cases with seven

activities proposed by Booz, Allen and Hamilton, among which two are failed and

one succeeded. Both the two failed indicates that omitting the important developing

activities, product test, will lead to failure. While another succeeded case for new

product in a hotel is mainly due to implementation of product development activities

step by step.

Cooper (1984) investigated 58 innovative industrial products from 30 different

industrial companies. In the following seven new product developing activities, the

successful cases had complete implementation activities. The failed cases omitted

important activities, such as: creation filtration, market research and product prototype

tests using customers. Hise, O’Neal, McNel and Parasuraman, 1989, as cited in Kleef,

2006) concluded in their studies that a company that performs its operations without a

specific procedure or lacking a complete development schedule would decrease its

success rate for new product development and entry to market. If a non-dominant

company wants to bring a brand new product into a new market, that company must

adopt a complete procedure. If that company wants to bring an existing product into

another country, creation generation, conception evaluation and some other

procedures could be omitted.

37

d. Ideas deriving from company employees or dealers

Company employees and dealers may prove valuable to the creation of ideas,

when that company is operating on a market through them. They are the ones who are

in constant contact with the public – customers or not – from whom they can draw

information regarding company products. The public may inform them on potentially

necessary improvements, complaints on existing products or the need for new

products. Furthermore, in cases where the market is differentiated due to its

geographical position, dealers and employees are the only ones who can offer such

sort of information to a company based far away from the market it is addressed to.

2. Idea Comparison and Assessment (Screening)

The second stage of the product development model is the evaluation of ideas.

In this stage, the ideas are assessed based on objectives, sales and profit and

customers and users.

a. Assessing ideas based on company objectives

The assessment of new product ideas based on the objectives of a specific

enterprise and its strategic course in any market may enhance its objectives, also

allowing it to select the optimum idea for the development of a new product in

accordance with the future course of the enterprise as set through its strategic

planning. This way, selecting the appropriate strategy may also function as a guide for

the assessment of various ideas and the adoption of the best one amongst them.

b. Assessing ideas based on sales and company profit

Each new product to be developed or each new idea to be made into a new

product should be capable of producing a minimum percentage of sales, and

consequently profit, for the enterprise.

c. Assessing ideas based on big customers and users

An important issue that many companies, big or small, tend to overlook is the

assessment of new ideas, which could develop into new products, deriving from big

customers and users. The most common phenomenon is the full development of a

38

product ensuing from a good idea, without the slightest involvement of the end-users,

due to the large enthusiasm entailed in such a development. As a result, when the

product is introduced in the market it fails, jeopardizing not only the investments

made for its development, but also the future of the company.

3. Product Development

The third stage of product development model is to produce product through

research and development.

a. Research and Development

For the development of a new product, in most cases it is necessary to use

research and development departments within the company. The aim of these

departments is to perform research on new technological and non-technological

applications and to further develop them into products. The basic factors constituting

the proper organization and operation of such departments are finance, manpower,

management and so on.

b. Environmental Restrictions

The enactments of strict environmental regulations and consumer awareness

as to the protection of the environment have led many companies to the development

of new products bearing in mind the protection of the environment. However, such a

tactic bears consequences on the way these products are developed, since it concerns

their production, consumption and final disposal as refuse. Either way, each change

as to the way these new products are produced in order to be environmentally friendly

is very costly. The high cost of those changes gave birth to the new product

development tactic known as “Green design”.

This tactic consists of two strategies: the first one is trying to find ways to

reduce environmental pollution during the production and development of the new

product, and the second one is attempting to find ways of reducing pollution after the

use of the product, by optimizing recycling or re-use of part of the product or the

product as a whole.

39

4. Prototype Manufacture

The fourth stage is the development of prototypes that is conducted by

advanced technology.

a. Prototyping

The rapid development of models or prototypes may largely reduce the

development cost and the product development cycle. In addition, they can be used in

test markets prior to the entry of the product in the final production and

commercialization stage.

b. Market Testing

Each new product should be subjected to a limited or extended market testing,

so as to record the reactions of the market and thus perform the final changes or

improvements on the product or even on the way it is developed prior to its full

introduction in the specific market.

5. Promotion of the Product

The final strategic plan for the development of a product before it enters the

market is probably the most important product development step, since it places the

emphasis on the details regarding the presentation, use, etc. of the new product in the

market.

In managing innovation, Tidd, Bessant and Pavitt (2005) presented the four

important routines for innovation as followed:

Successful innovation is strategy-based.

Successful innovation depends on effective internal and external linkages.

Successful innovation requires enabling mechanisms for making change

happen.

Successful innovation only happens within a supporting organizational

context.

40

2.3 Drivers of Innovation

The origins of the determinant perspective to the study of innovation and other

phenomena within the social sciences could be traced to Francis Bacon’s pioneering

work on the scientific method (Bacon, 1902, as cited in Vyas & Renuka, 2013). The

conclusions of capacious investigation of innovation from a determinants perspective

can be better appreciated by dividing them in two parts, endogenous and exogenous

determinants, which can be then divided in two further sub-parts strategic and non-

strategic determinants.

Endogenous strategic determinants crystallised by previous research include

market-orientation (Kohli & Jaworski, 1990), learning process quality (Cohen &

Levinthal, 1990), technology policy (Ettlie & Bridges, 1984); use of cooperative

networks (Beaver & Prince, 2002) and managerial efficiency (Moore, 1995) whereas

endogenous non-strategic determinants include characteristics of entrepreneur

(Casson, 2003), innovativeness of people (Patterson, 2001), existence of innovative

teams (Anderson & West, 1998), financial adequacy (Beaver & Prince, 2002) and age

and size of enterprise (Acs & Audretsch, 1990; Schumpeter, 1934, as cited in

Croitoru, 2012).

Degree of industry concentration, barriers to entry, and intensity of

competition are industry specific exogenous determinants (Acs & Audretsch, 1990)

whereas, regional economic performance (Roper, 2000); industrial policy and

legislation (Antonelli & Calderini, 1999); networks (Breschi, 1999); level of

entrepreneurship (Acs & Audretsch, 1990), potential for spin-off (Oakey, Rothwell &

Cooper, 1988), society’s attitude towards innovation (Rothwell & Zegveld, 1982) and

headquarter branch ratio (Oakey, Rothwell & Cooper, 1988) are region specific

exogenous determinants. Moreover environmental factors, regulations and standards

have also become significant drivers of innovation in the food industry (Jongen and

Meulenberg 2005).

Yachmeneva (2014) also analyzed the factors affecting the level of

innovativeness of the enterprise and identified the relationship between innovation

and the characteristics of its activities by grouping as external and internal

environmental factors. Environmental factors are divided into macro and micro

factors. Macro environmental factors; includes the factors of indirect influence,

41

Determinants of innovation • External factors • Internal factors

Obstacles to innovation

Innovation •Whether innovated or not •Type of innovation

included the legal political, social, technological, economic, sustainable and climatic

factors and micro environmental factors; as factors of direct influence, included the

suppliers, competitors, customers and contact audience.

Figure (2.2) Modeling Factors that Propel Innovation

Source: Radas & Bozˇic´ (2009)

In studying Croatia’s emerging transition economy, Radas & Bozˇic´ (2009)

explored factors that drive and hamper innovation. A number of studies were

conducted recently with the goal to discover which factors contribute to innovation

efforts (Keizer, Johannes and Halman, 2002). Following Keizer et al. (2002), the

factors that have effect on innovation can be divided into internal variables which

refer to characteristics and policies of the firms and external variables which refer to

opportunities that firms can seize from its environment.

Vyas (2009) considered market orientation, learning processes, technology

policy, cooperation and networks, managerial efficiency, age of enterprise, size of

enterprise, human resources, innovative people and financial resources as the internal

drivers of innovation. Radas (2009) studied innovation subsidies by municipality,

innovation subsidies by the government, collaboration with other firms or institutions

and market scope as external factors.

42

Figure (2.3) Internal Determinants of Innovation

Source: Vyas (2009)

Various authors argued that innovation is a very important economic factor

which cannot be ignored. Unlikely developed economies Keizer et al. (2002), Radas

and Bozˇic (2009) found that innovation subsidies are not linked to innovativeness. A

very small number of firms received a subsidy suggests that the existing subsidy

schemes are not effective.

43

Internal characteristics

Strategic Non-Strategic

Market Orientation

Age of Enterprise

Learning processes

Size of Enterprise

Technology Policy

Human Resources

Cooperation and networks

Innovative People

Managerial Efficiency

Financial Resources

Figure (2.4) External Determinants of Innovation

Source: Vyas (2009)

Chryssochoiclis (2003) stated that the following factors as businesses external

environment association with product innovation.

1. Increased uncertainty of the external environment

2. Increased heterogeneity of the external environment

3. Increased dynamism of the external environment

4. Technological elements of the external environment

5. Competitive dynamics and hostility

6. Type of industry

Moreover perceptions of the external environment can vary with CEO/top

management’s ability to scan and interpret the organization’s external environment.

The top management perception may act as a moderator in the link between the nature

of the external environment and decision-making regarding product innovation as a

44

Industry Region

Concentration Headquarter branch ratio

Industrial policy

Competition

Entrepreneurship

Attitude towards innovation

Barriers to EntryPotential for

spin-off

Regional economic performance

Research Networks

External

Technological and organizationalresourcesTechnology and equipmentacquisitionExternal knowledge acquisitionProduction preparationCommercialization preparation

Information managementInternal sourcesMarket related sourcesOthers sources of information

Firm’s performanceEffects on product Effects on processesOther effects

Contingent factorsFirm’s sizeType of market

CooperationOther firms

R&D activitiesInternal R&DExternal R&D

Human resourcesR&D personnel

Financial resourcesR&D expenses

Innovation resultsProcessinnovationProduct innovation

response to environmental changes. CEO’s personality, cognitive and demographic

characteristics such as knowledge, mental models of success, open-mindedness,

tolerance of ambiguity, age, risk propensity, education and past experience can

support to transform and implement strategies for innovation.

Vieites and Calvo (2011) studied the role of several factors and firms’

resources that could have been an impact on the development of innovative activities.

In this study, contingent factors human resources, technological and organizational

resources, information management and financial resources were studied whether they

related innovation or not.

Figure (2.5) Various Elements Affected on Innovation

Source: Vieites & Calvo (2011)

45

Gunduz, Ulusoy, Kilic and Alpkan (2013) presented several independent

principal component analyses, factor structures of innovations, firm performance,

organization culture, intellectual capital, manufacturing strategy, innovation barriers,

and monitoring strategies.

To be more effective Gunduz et al., (2013) studied the firm level

innovativeness at comprehensive view that implies here the total innovative

capabilities of the firm. With such a perspective, a long list of determinants of

innovativeness at the firm level, e.g., organizational culture, intellectual capital, firm

strategies, etc., are emerged. From this analysis reveals that among all possible

determinants considered, the highest impact on innovativeness is intellectual capital.

This determinant is followed by organizational milieu that consists of the

organizational structure and culture components.

Figure (2.6) Factor Structure of an Integrated Innovation Model

Source: Gunday et al., (2013)

46

Innovation Determinants• Firm Strategieso Collaborationo Business Strategies

Market Strategies Technology Strategies Manufacturing Strategies• Cost Efficiency• Quality• Flexibility• On-line Delivery

• Sectoral Conditions and Relationso Market Dynamism & Intensityo Public Intensiveso Barriers to Innovation

In-Firm Out-Firm

Innovativeness-Product Innovation-Process Innovation-Marketing Innovation-Organizational Innovation

Performance

Financial Performance

• Innovative performance•Markert performance

In 2015, Ulusoy, Kılıç and Günday analysized all possible determinants

considered in the following frame work.

Figure (2.7) Determinants of Innovativeness Model

Source: Ulusoy (2015)

2.3.1 General Firm Characteristics

European Bank for Reconstruction and Development (EBRD, 2014) examined size and age of firms, scarcity of innovative start-up, type of ownership, competition, research and development, human capital and information and communication technology as the internal and external drivers of innovation. This report described that innovation may be more common among larger firms that have been operating for a longer period of time. The larger and older forms are indeed more likely to introduce new product.

Radas (2009) also considered the group of factors is related to firm characteristics like firm age, share of highly educated employees, and share of full- time equivalent employees engaged in intramural R&D as internal drivers. Hurley and Halt (1998), as cited in Vyas (2009) analyzed innovation activities considering that some structural and process characteristics (size, resources, age, planning,

47

Innovativeness- Product Innovation- Process Innovation- Marketing Innovation-Organizational Innovation

Innovation Determinants• General Firm Characteristicso Firm Size o Firm Age o Ownership Status

• Firm Structureo Intellectual Capital

Human Capital Social Capital Organizational Capital

o Organizational Structure

Communication Formalization Centralization

o Organizational Culture

Management Support Work Discretion Time Availability Reward System

development and control of activities, information management, etc.) influence innovation capacity.

The theories of Joseph Schumpeter (1883-1950), as cited in Hosper (2005),

described that vertical innovations and creative destruction are the introduction by

capitalists of new and better quality consumer goods and means and methods of

production that render the previous ones out-of-date. According to Schumpeter,

business cycles are caused by innovations. Innovation can be distinguished between

what are later called breakthrough innovations and incremental innovations. This

wave of innovations leads to a period of economic expansion due to an increase in

investment and in the demand for the improved or differentiated goods. In Business

Cycles, Schumpeter suggested that economic fluctuations can be explained by the

conjunction of three cycles. These cycles are: Kitchin cycles, which last three to five

years, Juglar cycles, which last seven to eleven years, and finally Kondratieff cycles,

which last forty-five to sixty years.

Without frequent new products, companies can quickly lose competitiveness

and market share. Therefore the speed and frequency of new product development are

fundamental issues and consequently they have become a focus for management

attention. The time required to develop and introduce a new product referred to as

time-to-market or cycle time.

The large firm operating in a concentrated market is the main engine of

technological progress (Schumpeter, 1942, as cited in Vyas, 2009). According to

Schumpeter’s own work, innovation increases more than proportionately with firm

size because:

1. R&D projects typically involve large fixed costs, and these can only be

covered if sales are sufficiently large.

2. There are scale and scope economies in the production of innovations.

3. Large diversified firms are in a better position to exploit unforeseen

innovations.

4. Large firms can undertake many projects at any one time and hence spread the

risks of R&D.

5. Large firms have better access to external finance.

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2.3.2 Intellectual Capital

According to Edvinsson and Malone (1997), intellectual capital is a two-level

construct: human capital (the knowledge created by and stored in a firm’s employees),

and structural capital (the embodiment, empowerment, and supportive infrastructure

of human capital). Innovation can be seen as one of the managerial functions to be

performed to gain and maintain some competitive advantage. For this, the

entrepreneur and the key decision makers in the firm must possess a unique and

diverse set of managerial skills and capabilities. Freel (1999) believes that

management competency is one of the skills constraints affecting innovation.

Some analysts have advocated a people-centric approach to the analysis of

innovation. They claim that success in innovation is people dependant rather than

resource dependant (Rothwell, 1982) and it is the nature and quality of its work force

that determines whether a business is able to innovate or not. Freel (1999) has tried to

measure skill constraints faced by a small business and its impact on its ability to

innovate. Freel argues “… skill constraints to innovation within small firms are

generally of two principal types, management competency and skilled labor.

Dean and Kretschmer (2007) recognized that economic wealth comes from

knowledge assets -intellectual capital- and its useful application, replacing or perhaps

supplementing labor. The term “Intellectual Capital” is used as a synonym for

intangible or knowledge assets.

Moreover, employees competency needs in relation to innovative activity

appear to be greatest within strategy, business and market areas. In many firms the

lack of desire of management, the owner and founder of the firm for further growth is

an important barrier. While changed in corporate strategies raises probability of

radical innovation, implementation of new or significantly changed organizational

structures raises probability of me-too innovation. Changes in esthetic appearance and

product design leads to introduce product innovations (Radas and Bozˇic´ 2009). The

willingness to differentiate products, to increment processes efficiency and to enter in

new markets is the main reasons that have driven companies to innovate.

49

2.3.3 Organizational Structure and Culture

Radas (2009) considered organizational structure as internal driver of

innovation. Moreover, Hurley and Halt analyzed cultural characteristics that affect

innovation receptiveness. The innovation capacity, its receptiveness and structural

process, and cultural characteristics determine firm’s competitive advantage.

On the basis of the proposal by Edvinsson and Malone (1997), intellectual

capital is a two-level construct: human capital (the knowledge created by and stored

in a firm’s employees), and structural capital (the embodiment, empowerment, and

supportive infrastructure of human capital).

A paucity of integrative devices reduces face-to-face collaboration and

consultation cross functional departments, exacerbating the coordinative problems

and conflicts that arise during the implementation of new products and processes

(Miller, Droge and Toulouse, 1988). In older mature less innovative organizations, the

influence of the controlling formal structure is so tight as to illegitimise the lateral

working and information flows that are necessary to support innovation (Stopford and

Baden-Fuller, 1994).

2.3.4 Firm Strategies

Radas (2009) considered the group of factors speaks about implementation of

changes in strategy, marketing, management and about market orientation as internal

drivers of innovation. Marketing and innovation can be viewed as two basic functions

of any economic activities. Customer needs and expectations evolve over time and

delivering consistently high quality products and services and responsiveness to

changing marketplace needs become important for the success of firms (Jaworski and

Kohli, 1990). Customers today are highly informed and more demanding than before.

Market orientation is variously described as integration of customers into

product innovation processes, ability to explore and reach potential markets, a fit

between market needs and firm’s resources, product planning from inception,

targeting the international market, the span of market experience, and the

understanding of customer needs and user circumstances (Heydebreck, 1997 and

Lindman, 2002, as cited in Vyas, 2009). Heydebreck (1996) showed that the

50

integration of customers into product innovation processes leads to a higher degree of

success in achieving product development objectives.

Responsiveness to customer needs and changing market conditions become

important for the success of firms and calls for the introduction of new products and

services together with innovation capacity for a firm. Market-oriented innovations

apply to the products and services sold into the market. Inside-oriented innovations

apply to the inner workings of an enterprise and are aimed at improving productivity

and performance through establishment or change of best practices.

In the Journal of Global Business and Technology, Erdil (2013) found that

market orientation can lead to firm innovativeness and increase innovation

performance as consistent with the findings of Baker and Sinkula (1999), such that

market orientation can lead to successful new product development activity. Market

orientation as a driver of organizational market information processing activity should

be incorporated into conceptualizations of innovation process. Reacting to market

feedback may allow firms to adapt successfully in the external environment which

may be characterized both as dynamic and stable. Market orientation is a source of

new ideas and motivation to respond to the environment and promotes innovativeness

(Hurley and Hult, 1998, as cited in Vyas, 2009).

Responsiveness to changing market needs often calls for the introduction of

new products and services together with innovation capacity for a firm. Market

orientation has also been described as the implementation of marketing activities

designed to satisfy customer needs better than competitors are able to satisfy customer

needs (Martin and Grbac, 2003, as cited in Erdil, 2013). While there is some

variability in conceptualizations of market orientation, it typically focuses on three

components; 1) customer focus, 2) competitor focus and 3) inter-functional

coordination (Celuch, Kasouf and Peruvemba, 2002).

All conceptualizations have an operational focus on information gathering,

information dissemination and the ability to behaviorally respond to what is received

(Baker and Sinkula, 1999). Kohli and Jaworski (1990) define market orientation in

terms of three dimensions; 1) The generation of market information about needs of

customers and external environmental factors, 2) The dissemination of such

information among organizational functions and 3) The development and

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Collection and use of marketInformation

Development of market oriented strategy

Implementation of market oriented strategy

FirmInnovativeness

InnovationPerformance

implementation of strategies in response to the information. These elements include

continuous and systematic information gathering regarding customers and

competitors; cross-functional sharing of information and coordination of activities,

and responsiveness to changing market needs (Martin and Grbac, 2003, as cited in

Erdil, 2013).

There are the indicators to identify the level of market orientation. These

include integration of customers into product innovation processes, ability to explore

and reach potential markets, fit between market needs and firm’s resources, product

planning from inception, targeting the international market, span of market

experience, understanding of customer needs and user circumstances, competition

analysis, speed and flexibility, market research, market tests and deployment of user

feedback to modify an innovation. Moreover firms use innovation to differentiate

their products from competitors, twice as profitable (Pavitt, 1991).

Figure (2.8) Market Orientations and Firm Innovativeness, and Innovation Performance

Source: Erdil (2013)

Economists have long been interested in the relationship between competition

and innovation, but economic theory seems to be contradicted by the evidence.

Theories of industrial organization typically predict that innovation should decline

with competition while empirical work finds that it increases. The early empirical

52

literature estimated the linear cross-sectional relationships and typically found a

negative relationship between competition and innovation, confirming the theoretical

prejudices of the era (Schumpeter, 1943, as cited in Aghion, Bloom, Blundell, Griffith

and Howitt, 2005).

In the study of Kohli and Jaworski (1990), the greater the market orientation

of an organization, the greater would be the overall performance and this relationship

was moderated by such several external forces like weaker economy, greater market

turbulence and competition. The environmental contexts of an organization probably

influence its level of market orientation. Organizations in more competitive and

dynamic environments may be expected to be more market oriented. As a result, the

linkage between market orientation and performance depends on the environmental

characteristics of an organization (Jaworski and Kohli, 1993). Jaworski and Kohli

(1993) proposed market turbulence (the rate of change in the composition of

customers and their preferences), competitive intensity and technological turbulence

as three environmental characteristics. Organizations that work with rapidly changing

technologies may be able to obtain a competitive advantage through technological

innovation together with the market orientation.

2.3.5 External Factors

There has been increasing interest in the role of use of market information for

strategic purposes. External factors such as competition, uncertainty and needs are

driving forces for strategic applications of market information (Choe, 2003).

Collection and use of market information enabled by information systems is broadly

considered to be a competitive weapon to cope with uncertain and volatile

environments. Companies can deal with uncertainty by increasing their information

processing capability and by creating inter-organizational links between customers

and suppliers. When customers tastes and rivals’ strategies are dynamic, there is need

to redesign or adapt the product. Firm innovativeness described by the development

and marketing of innovations is likely to involve market, technology and competitor

uncertainty. This means need for new information, technical changes and new

organizational arrangements.

It is essential that senior managers are committed to the concept of market

orientation and fully understand the role of market information and sound overall

53

intelligence. Innovation by itself is defined as the generation, acceptance, and

implementation of new ideas, processes, products or services. The measurement of

consumer needs and purchase interest may be valid for screening continuous

innovations and market orientation induces businesses into being interested in short

term customer needs which can be detrimental to innovation and long-term success of

a company (Tse, Sin, Yau, Lee and Chow, 2003). Jaworski and Kohli (1996) suggest

that market orientation might be an antecedent to innovation and market-oriented

organizations tend to be more innovative.

One of the new external factors that impact innovation is market scope (Liu,

Luo and Shi, 2003). Firms that go international encounter stronger competitors and

therefore have to innovate in order to gain and keep their position. Additional push to

innovate comes from the fact that more competitive markets often offer higher

incentives for innovation (Sorescu, Rajest and Jaideep, 2003). For a small developing

country, the further from the head- quarters the company goes, the harder it becomes

to compete because among other things the firm has to solve increasingly complex

supply chain, logistic and marketing issues while contending with incumbent

companies.

In the supply chain context, integration is defined as the extent to which all

activities within an organization, and the activities of its suppliers, customers, and

other supply chain members, are integrated together. An integrated supply chain is

linked organizationally and coordinated with information flow, from raw materials to

the on-time delivery of finished products to customers. The entire supply chain is

linked by information about anticipated and actual demand.

Frohlich and Westbrook (2001) identify two interrelated forms of integration

that manufacturers regularly employ. The first type of integration involves integrating

the forward physical flow of delivery between suppliers, manufacturers and

customers. The second type of integration involves the backward integration of

information technologies and the flow of data from customers to suppliers.

Stevens (1989), as cited in Hosseini Baharanchi (2009) classified supply chain

integration into three levels, from functional integration to internal integration and to

external integration. However, this study focuses only on internal and external

54

integration, because functional integration is claimed as a basic requirement for all

firms to implement and achieve.

A review of external supply chain integration literature reveals two major

areas of emphasis. They are: (i) Customer integration and (ii) Supply integration. For

supply integration, integration back down to the suppliers represents a change in

attitude away from conflict to cooperation, starting from product development, the

supply of high quality products, process and specification change information,

technology exchange and design support. Some researchers have investigated supply-

side integration in different dimensions. Handfield, Ragatz , Petersen and Monczka

(1999) defined supply integration as obtaining frequent deliveries in small lots, using

single or dual sources of supply, evaluating alternative sources on the basis of quality

and delivery instead of price, and establishing long-term contracts with suppliers.

In terms of customer integration, the firm will penetrate deep into the

customer organization to understand the product, culture, market and organization, so

that it can respond rapidly to the customer's needs and requirements. The important

concept of demand integration is based on the improvement of demand planning and

visibility in supply chains. Without information sharing from one end of the supply

chain to the other, tremendous inefficiencies can occur in customer service.

Modern supply chains consist of numerous organizations. In the context of the

confectionary industry, the supply chain starts with suppliers, who provide food

ingredients and raw to manufacturers, which manufactures confectionery goods and

sells them to customers.

Recently, the complexity of food supply chains has also been exacerbated by

the need of including multiple external sources of knowledge when searching for

successful new products and technologies. This process reflects the difficulties of a

food industry in single-handedly meeting the heterogeneous needs of customers, end-

users and legislations (Sarkar and Costa, 2008). Managing the end-customer’s

demand in the food industry requires a kind of product development that involves

developing, or adopting, innovative technological solutions and new business models

(Costa, Dekker, Beumer, Rombouts and Jongen , 2007).

As products and services continue to grow in complexity, much potentially

useful knowledge will necessarily reside outside of the firm (Bercovitz and Feldman,

55

2007, as cited in Bigliardi et al., 2011). The establishment and management of

relationships with customers, competitors, suppliers, and public/private research

institutions, with the aim of acquiring additional knowledge and skills for innovation

processes, are increasingly seen as an important way for the food industry to augment

its innovation capability (Gatignon, Tushman, Smith and Anderson., 2002; Hauser,

Gerard and Griffin., 2006).

Role of suppliers and customers for innovation

According to Handfield et al., (1999), the integration of suppliers in

collaborative innovations (in particular, product innovation) can yield some

significant benefits, which include achieving reduced cost at product development,

decreased risk of failure and reduced time spent in product development. Liker,

Kamath, Wasti and Nagamachi (1996), as cited in Krishman and Ulrich (2001) also

demonstrated that the involvement of first-tier suppliers in co-design activities has

positive impacts on the performance achieved in new product development, in terms

of cost, quality and lead times. The partnership with suppliers may range from a

simple search for new technologies and innovations, up to a collaboration where

suppliers are fully responsible for the design of products required by the customer.

More precisely, there are four main ways suppliers can be involved in collaborative

product innovations (Lamming, 1993, as cited in Chen and Paulraj, 2004):

i. the supplier provides proprietary parts to a company. Often, proprietary parts

are standard components and are designed and developed only by the supplier;

ii. the supplier provides components whose functional and performance

requirements are specified by the customer, but whose engineering is handled

by the supplier;

iii. the supplier provides parts whose characteristics are controlled and defined by

the customer to a greater extent; or

iv. the supplier provides parts whose characteristics are controlled and defined

entirely by the customer.

Collaboration involves active participation in joint innovation projects with

other organizations but excludes pure contracting out of innovation-related work. It

56

can involve the joint implementation of innovations with customers and suppliers, as

well as partnerships with other firms or organizations. For the Eurostat countries,

Brazil, Israel, Japan and Korea, product or process innovative firms engage

collaboration on innovation.

In Australia, Chile and Colombia, collaboration on innovation include product,

process, marketing or organizational innovative firms (including ongoing or

abandoned innovation activities). However, marketing and organizational innovators

are less likely to be involved in collaboration.

In addition, the state economy influences on businesses. After political and

economic reforms, the government is proactively looking to Foreign Direct

Investment (FDI). With this investment comes an increasingly more affluent

population, who are looking for higher quality food and more food choices. This

presents a huge opportunity for food producers. Growing foreign investment in

Myanmar provides a good opportunity for local manufacturers to acquire

technological expertise from international companies who have been exporting high

quality products for decades. Value addition in Myanmar’s food industry is currently

relatively low with the vast majority of the industry focusing on more traditional

manufacturing methods and products. Knowledge transfer from international

companies will allow us to produce higher value products, driving the overall value of

the local food industry. For instance, Bayin biscuit invites expertise from international

to train its bakers.

2.4 Types of Innovation

Innovation is to be considered in enterprise as a crucial element to increase

profit and market share. Innovation is no longer restricted to the process of creating

something new from beginning to end but can include the capacity to quickly adopt

externally created innovations that may be of benefit to the organization. Innovation

can be considered as a necessary ingredient for firms to remain competitive (Darroch

and McNaughton, 2002; Stock, Greis, and Fisher, 2002). To be successful, the main

task of a firm is to determine the perceptions, needs and wants of the market in order

to create products with a superior value. Mosey, Clare and Woodcock (2002)

suggested that companies with aggressive growth ambitions that repeatedly

introduced innovative new products thus opening up new market niches were also

57

those that performed better. The innovativeness of a new product and firm innovation

capability is important for several reasons. Innovation products present opportunities

for firms in terms of growth and expansion into new areas as well as allow firms to

gain competitive advantage.

Many classifications of innovation types were proposed over the years. Knight

(1967), as cited in Berglund (2004) proposed the following types of innovation:

organizational structure, production process, people, and product/service. Innovation

type categorizations are based on the outcome of the innovation process. According to

several Authors, there are very different types of innovations (e.g., product

innovation, process innovation, or market innovation), and these types of innovation

can be classified by type, degree, impact, competence, and ownership (Narvekar and

Jain, 2001, 2006). These three types of innovation (product, process and marketing)

can vary from incremental to radical and from sustaining to discontinuous. Product

innovation is essential for a country’s economic growth and for the competitive

position of industry. Companies operate in a rapidly changing world in which

customers’ needs and wants are not fixed and where they face increasing competition

due to open markets and globalization. Companies that effectively integrate

innovation in the product development process can gain significant competitive

advantage.

Product innovation deals with the production of new products and services to

create new markets or to satisfy current customers. Knight (1967) and Utterback

(1971) as cited in Godin (2015) described that process innovation is reflected in the

improvements or introduction of new production technology.

According to Utterback and Abernathy (1975), product innovation is to do

more with the outputs that are introduced for the benefits of customers. Process

innovations are defined as new tools, devices, procedures as well as knowledge in

throughput technology that mediate between inputs and output.

Binary models proposed in the 1970s and 1980s discussed, variously,

administrative, technical, incremental, radical, product, and process, as types of

innovation. Radical innovation represents a completely new product or process and

incremental innovation a significant improvement in an existing product or process.

Frenz and Oughton (2005) stated that radical innovations have the power to result in

58

significant and rapid transformation of production whereas the effects of incremental

innovation are felt more slowly, though their cumulative impact may be just as

significant. Dewar and Dutton (1986) and Ettlie et al., (1984) also described that

radical innovation brings about a non-routine change to the very core on how

activities are carried out while incremental innovation is usually part of routine

changes that do not deviate much from present organizational activities.

More recently, a number of integrative models have been proposed all of

which identify a number of different types of innovation. For example, Oke, Burke

and Myers (2007) discussed the following types of innovation:

product (including radical and incremental);

service and

process (including administrative, service and production).

Most definitions of innovation emphasize ‘newness’ and ‘successfulness’.

There are distinctions made between product versus process innovation and

sometimes amongst market, business and management innovation. Product innovation

is the introduction of new products that have characteristics and/or use applications

that differ from existing products on the market. Product innovation is often made by

technology driven companies and helps companies in their competitive positioning

while retaining market presence, not only in radically changed products but also in

differentiating the offerings (Craig and Hart, 1992).

Process innovation is the introduction of a new method of production, that has

not previously been used and/or a new way of handling a commodity commercially to

make production more efficient or to be able to produce new or improved products.

Process innovation embraces reengineering the business process (Cumming, 1998)

and therefore implies the improvement of the internal operations and capacities. The

importance of process innovation is quite well understood, especially in companies

under threat since it may help to improve the company productivity.

Finally, market innovation is concerned with the mix of markets of the

company and how chosen markets are best served while accurately interpreting

buying preferences (Johne, 1999). This directly influences the sales as well as the

company results. Marketing innovation involves entering new markets, new ways of

serving customers, and/or market expansion. Marketing innovation is the offering new

59

idea generation and implementing with the marketing activities of creating,

communicating, delivering value and managing relationships.

There are three types of product innovation: line extensions, ‘‘me-too’’

products, and radical product innovation. The first two types of innovations are

usually referred to as incremental innovations. Line extension refers to minor

modification of an existing product, while ‘‘me-too’’ products are imitations of

competitors’ products that already exist on the market. Both incremental and radical

innovations have an important role. Managers design incremental innovations to

satisfy a perceived market need with products that can be developed in a relatively

short period of time (Ali, 1994, as cited in Radas and Bozˇic´, 2009). The

introduction of incremental innovation is critical for the long time survival of firms

(Banbury and Mitchell, 1995, as cited in Shankar, 2008).

According to Gunday, Ulusoy, Kilic and Alpkan (2011), product innovation is

broadly seen as an essential component of competitiveness, embedded in the

organizational structure, processes, products, operations, and services within a firm.

Product innovation is one of the fundamental instruments of growth strategies to enter

new markets, to increase the existing market share and to provide the company with a

competitive edge.

Product development can be defined as “the process that transforms technical

ideas or market needs and opportunities into a new product and on to the market”. It

includes strategy, organization, concept generation, product and marketing plan

creation and evaluation, and the commercialization of a new product. The product

development process is a disciplined and defined set of tasks, steps, and phases that

describe how a company repetitively converts ideas into salable products and/or

services. The product development process itself can be split up into three phases:

policy formulation, idea finding and strict development.

In the report of Isaksen and Smith (1997) there was presented the strengths and

weaknesses of small firms in innovation. This report identified the range of SME-

related issues in the Norwegian Industrial and innovation system. Food sector firms are

more focused on incremental innovation as opposed to radical innovation, and they are

also more engaged in product and process innovations than in packaging, position and

paradigm innovations (Baregheh, Rowley, Sambrook and Davies, 2012). The

60

innovation imperative is very strong for firms in this sector, and plays a key role in

sustaining and enhancing their competitiveness (Capitanio, Coppola and Pascucci,

2010; Grunert and Ottowitz, 1997; Rama, 2008 and Von Tunzelmann and Acha, 2005).

2.5 Innovation and Business Performance

Numerous models have been proposed to study the relationships between

innovation behavior and firms’ performance. In Spain, Camisón (1999) maintains that

firms’ competitive advantage is based on resources and capacities that are difficult to

imitate by other firms. In this model, organizational characteristics influence

innovation behavior and this affects firms’ performance.

Business performance measures can be divided into three different categories

(Hayes, Wheelwright and Clark, 1988, as cited in Reichstein, 2000):

Process Management Measures

Business Management Measures

External Reporting Measures

Process Management Measures concerns the conditions such as how long it will

take to produce and deliver a specific goods or services, measures of materials used in

the production process and amount of production factors used. Business Management

Measures like which products firms must be developing, what prices firms should be

claiming for its product and whether or not a specific product should be dropped from

the specific firm’s product line. External Reporting Measures is the performance of the

firm relatively to other firms in the market. Profits, values of production, revenues and

firm size are examples of external reporting measures. This study focused on the last

measures that reflect the effect of innovation on business performance.

There is no doubt that the employees are the main force for the organizations

and their innovative behaviors are vital for innovation performance of an

organization. The factors influencing the employee innovative behavior including

organizational commitment, psychological capital on the individual level, and

organizational innovation atmosphere, leadership, social capital, work characteristics

on the organizational level.

61

Firms’ PerformanceInnovation behaviorCharacteristics of the organization

Figure (2.9) Organizational Characteristics, Innovation Behavior and Firms’

Performance

Source: Camisón (1999)

Innovative behavior is an act of generating, promoting and application of

innovative thinking in the organization for the purpose of personal and organizational

performance, which enables employees to use innovative ways of thinking, quickly

and accurately respond to customer demand changes (Robert, 2001, as cited in Erdil,

2013; Woodman, Sawyer and Griffin, 1993; Scott and Bruce, 1994). Kleysen and

Street (2001) divided individual innovative behavior into five stages, including

looking for opportunities, generating ideas, research supporting, and applications. For

that, Huang (2004), Lu Xiaojun (2007) and others have tested it with the actual

situation, and the employee’s innovative behavior is defined as: In the work process,

employees generate innovative ideas or solutions to problems, and efforts will be paid

to the practice. The motivation of employee’s innovative behavior can be divided into

internal and external factors. Internal factors refer to innovative personal traits and

ability to participate in innovation, and external factors including the open team

environment, the support of leaders. Under the mutual working of internal and

external factors, the innovative efficacy and creative willingness of employees have

been improved. (Yang, Yang and Zhao, 2011).

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Economic Performance

Cooperation with institution

Enterprising Courage

Firm Size

Executives’ Age

New Product and Service

Innovation Behavior

Firm Age

Figure (2.10) Innovation and Related Factors

Source: Hernández & de la calle (2006).

Following Camisón’s proposal, Hernández & de la Calle (2006), as cited in

Vieites and Calvo (2011) established a more detailed design of the relationships. The

factors related to innovation are described in Figure (2.10).

In evolutionary theories of economic change, Nelson and Winter (1982)

speculated that the processes of technological innovation and imitation are major

drivers of the relative performance of firms and the evolution of industrial structure.

Corsino and Gabriele (2010) argued that the estimated relationship between

innovation and corporate growth rate will depend on the degree of novelty of the new

devices in dealing only with product innovations.

Ibidunni, Lyiol and Ibidunni (2014) concluded that there is need for SMEs to

carry out research on product innovation; in order to meet and fulfill the demand and

expectations of all consumers and the market in product innovation.

Today it is commonly accepted that without innovative activities the

development in individual companies and the whole of the society will stop.

Therefore it is important how the development of innovation is managed and how the

work is done in the most efficient way. Moreover it is needed to find out which

factors influence innovation and new product development so that the development of

innovation can be managed well. Godin (2002) believes that innovation is considered

63

a nebulous concept due to perceive conducting R&D as well as acquiring advanced

technologies and employing highly skilled workforce both are as being innovative.

Research, over the last 50 years, has consistently linked innovation with

business success. Innovation is shown as a major contributing factor in the growth of

firms (Mansfield, 1968:1971, as cited in Vyas, 2009); new products and processes, the

fastest growing product groups or ‘clusters' (Freeman, 1974); rise and dominance of

large corporations ascribed to the use of new technology (Temin, 1979, as cited in

Vyas, 2009); better business performance related to the higher measures of innovation

(Cavanagh and Clifford, 1983, as cited in Vyas, 2013); levels of competitiveness

linked with the levels of innovativeness (Dosi, 1988); firms using innovation to

differentiate their products from competitors, twice as profitable (Pavitt, 1991);

innovation a key element of business success (Nonaka and Takeuchi, 1995); high

growth companies getting a higher percentage of sales from new products relative to

competitors, (O’Gorman, 1997); new product development leading to greater sales

volume and enhanced profitability (Kotler, 1999, as cited in Vyas, 2009); innovating

firms having lower probability of stagnant or declining employment in comparison to

non-innovating firms (Frenz, Michie and Oughton, 2003) and innovative businesses

growing more than non-innovative businesses (European Commission, 2004).

Therefore firms need to launch additional products and increase the range of

goods and services in order to maintain their viability (Baden-Fuller and Stopford,

1994). Consumer consciousness over diet and health, food safety and nutrition also

drives companies to improve the range and quality of goods (Traill and Grunert

2002).

Van Duren et al. (2003) also found that innovation was rated as a top factor

for success in the food processing industry by some successful food processors in

Canada. Traill and Meulenberg (2002) found that except for very small and very large

companies, there is no relationship between company size and innovation.

2.6 Conceptual Framework of the Study

In this section, the possible factors that may affect on innovation of the

confectionery businesses will be identified for this research. This study grouped the

drivers of innovation into two categories: internals and externals. The internal factors

64

include general firm characteristics (firm age, size, and ownership status), firm

structure (intellectual capital, organization structure and organization culture), and

firm strategies (manufacturing and marketing). On the other hand, external factors are

customer needs and wants, intensity of competition and technological opportunity.

The study examined the impact of firm size, firm age and ownership status on

the types of innovation implemented by the confectionery businesses. The innovative

personality of management and information sharing between skillful labors is defined

as intellectual capital and then analyzed that intellectual capital is an important driver

of innovation for businesses. Centralized decision making and formalized procedures

is defined as organization structure and then analyzed that organization structure is an

important driver of innovation for businesses. Rewarding for innovative ideas and

management support is defined as organization culture and then analyzed that

organization culture actually drives the firm’s innovation. Market orientation is

defined as market strategy and then analyzed that market strategy actually drives the

firm’s innovation. Cost reduction and quality is defined as manufacturing strategy and

then manufacturing strategy analyzed that actually drives the firm’s innovation.

Feedback to customer needs and wants, intensity of competition and technological

opportunity are analyzed as external drivers.

According to the innovation definitions, this study discussed three types of

innovation: product innovation, process innovation and marketing innovation. Product

innovations include the introduction of new products and services to the market and

also major improvements of existing goods and services. Process innovation includes

major changes in production methods and equipment. Marketing innovation aims to

respond better to the customers’ need.

65

Firm StructureIntellectual CapitalOrganization StructureOrganization Culture Innovation

Product innovationProcess innovationMarketing innovation

Firm performanceNumber of employeeProduction volumeSale volume Profit

General Firm CharacteristicsFirm Size Firm Age Ownership Status

Firm StrategyMarket StrategyManufacturing Strategy

External FactorsCustomer needs and wants(Customer orientation)Intensity of competitionTechnological opportunity

Figure (2.11) Conceptual Framework of the Study

Drivers of innovation

Source: Own Compilation (October, 2016)

Figure (2.11) depicts conceptual framework of the study which included the

drivers affecting on the innovation, types of innovation and performance of the

confectionery businesses. In the study, the first step is to identify the drivers of

innovation in confectionery businesses. After that the types of innovation that

influence on firm performance are examined and the effects of innovation on firm

performance are evaluated.

2.7 Working Definitions for the Study

Based on the previous literature, firm characteristics (firm age, size, and

ownership status), firm structure (intellectual capital, organization structure and

organization culture), and firm strategies (manufacturing and marketing) are used as

the internal factors. Therefore these factors are defined as follows for this study.

The innovative personality of management and information sharing between

skillful labors is defined as intellectual capital in the study.

66

Centralized decision making and formalized procedures is defined as

organization structure.

Rewarding for innovative ideas and management support is defined as

organization culture.

Market orientation is defined as market strategy.

Cost reduction and quality is defined as manufacturing strategy.

On the other hand, customer needs and wants, intensity of competition and

technological opportunity are used as external factors in the study.

The term innovation of confectionary businesses is defined as the any

newness in product, production process and marketing activities.

As the product innovation, the study considered developing new products with

new material and technology. Based on the literature review, this study defined that

product innovation consists of ingredients, convenience of consumers, and customer

satisfaction.

As a result, changing process of existing products and extension of producing

new products need to be carried out for product innovation. In the process innovation,

technology and new machines need to be changed. As a result, product quality and

productivity increased gradually. The process innovation included changing the use of

manpower and machines from kneading to packing over time to time.

Marketing innovation includes changing product promotion techniques,

distribution channels and product appearance, packaging, shape and volume necessary

in order to adapt with the market needs.

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CHAPTER 3

RESEARCH METHODOLOGY

This chapter presents the research method as well as the scope of the study,

research method and sampling, data collection method and data analysis. The chapter

is structured as follows: section one introduces the research area, section two presents

sampling design and sample size determination, section three describe research

method, section four disclose the profile of respondents and businesses and finally

discusses data collection and cleansing.

3.1 Research Area

In Myanmar, food and beverage industry is the largest sector in number of

business and employee. Among the number of registered firms 43784 in Myanmar,

28134(64%) are food and beverage firms. Private own food production enterprises

registered with the Ministry of Industry amounted to 27290 (Ministry of Industry,

2015). Myanmar food industry is producing for local market only (MIA, 2009).

According to the Table (3.1), in the distribution of firms in confectionary

industry, the number of firms in Yangon region is the largest with 177 but Mandalay

region also has the second largest number of confectionary firms with 162 (Ministry

of Industry (1), 31-7-2012). In Mandalay, not only Bakery Business, the traditional

confectionary firms such as Myint Myint Khin, Maw Maw San but also Teashop and

Cafe prospered in this region. Previously, teashops and cafes only sold Marigold,

Indian Pancake, but later they added cakes, La Mont and bean bread to their range of

food list. Teashop in Mandalay has become not only an eating place but also a

meeting centre for discussing social and business matters. In this way, teashops

innovated their food products to meet the demand and preference of consumers.

Most of the people have invested in food and beverage industry (CEO

Magazine, 2017). At the same time, food security for the people and innovation in

68

product, process and marketing of food stuff are very important factors for the

businesses. In Mandalay, confectionary businesses are quite innovative in running

their businesses. However, there is no assurance that all of the businesses will know

about the factors influencing the innovation and the business performance. Therefore,

the aim of the research is to explore which factors are driving the innovation and

performance of the confectionary businesses.

Table (3.1) Distributions of Firms in Confectionery Industry

No State/Region Total

1 Kachin 18

2 Kayah 10

3 Kayin 15

4 Chin -

5 Mon 77

6 Rakhine 8

7 Shan 58

8 Yangon 177

9 Mandalay 162

10 Sagaing 22

11 Mgway 14

12 Bago 39

13 Ayeyawady 89

14 Taninthayee 34

Total 723 Source: Ministry of Industry (1), 31-7-2012

In the past, confectionery firms were not as developed in Mandalay as present.

The confectionary firms used to produce traditional snacks such as Htoe Mont, La

Mont, bakery firms produced cake, cookies and bread and café and teashop with

catering service.

Traditional snacks firms were located in Zay Cho Thit Thee Tan.

Confectionery firms were located as Mont Sone Tan in Mandalay Zaychodaw

69

(Zaycho market). Bakery businesses first started in Myanmar during the British

Colonial period. It was learnt that biscuit factories were established in Mandalay over

the period 1948 to 1987 (Phatcharanuruk, 2015). Some bakers’ confectioneries

existed at their own places such as Lakabar and Pawe Tai cake. Some of these firms

are still achieving some measure of success. On the other hand there are still other

firms that are not able to engage in innovative activities due to lack of enough capital

and poor customer adaptation to changes in brand, packing design and taste. In the

market economy, customers are becoming very knowledgeable and most consumers

are becoming much more health conscious.

The first tea shops in Mandalay were opened in 1942. It was opened to serve

breakfast and tea. In addition, they were a place to relax and had a social and

economic function. Tea shops were places providing food and drink, not only serve

biological needs, but also provide information to be shared and connections made, in

support of people economic and social lives. In this technology age, internet cafés

emerged as tea shops in the past. Recently, some of the tea shops serve traditionally

tea and baked. However, some serve coffee, cold drinks and fresh baked.

At present, most of the confectionery firms enable the new product

development and then not only their new production method but also new marketing

and management style are practiced. As mentioned in theories, some businesses

accept and implement the concept of innovation. Some business, however, do not

have enough fund to implement their ideas. So they just follow the market demand.

They cannot innovate as much as their desires. These firms can survive because of

their royal customer but they cannot develop among their competitors. Therefore, the

argument emerged that the factors beyond capital will influence the business

innovation.

The characteristic of modern economy is increased competition. As the role of

innovation and innovative activity in development of enterprise is growing, the

broader study of the impact of factors on innovation and innovative activity is

required more. Although Table (3.1) indicates the number of registered confectionary

firms in seven townships of Mandalay Municipal Area based on the classification of

number of employees, this study classified the firms by their product types.

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The businesses were distinguished by types of product such as traditional

confectionary firms and bakery firms. Traditional firms produced Htoe Mont, La

Mont and Nanwin Makin as the basic product items. And the other products were

created based on the owner’s idea, the customer demand and the product of

competitors. Bakery firms developed new products and tested them in the market

when the sales of some products are slow. Some of the tea shops have the special

items e.g. Chinese dumpling for Manmyodaw and Bean Cake for Minn Thiha. These

firms are trying to produce other items to fulfill their customers’ needs. Therefore

these teashops are considered as bakery businesses due to their bakery services.

71

Table (3.2) Number of Registered Confectionary Firms by Townships in Mandalay Municipal Area

Size

Township

2014-2015 2015-2016 2016-2017

Large Medium Small Total Large Medium Small Total Large Medium Small Total

Aung Myay Thar Zan 10 14 4 28 10 13 4 27 11 11 4 26

Amarapura 2 2 3 7 2 2 2 6 3 2 2 7

Chan Aye Thar Zan 4 9 9 22 4 8 9 21 5 7 6 18

Chan Mya Tharzi 3 5 4 12 3 5 4 12 5 6 2 13

Maha Aung Myay 2 9 4 15 2 8 4 14 2 8 3 13

Patheingyi - 2 1 3 - 3 1 4 1 3 1 5

Pyay Gyi Dagon 22 8 1 31 21 9 1 31 25 9 - 34

Total 118 115 116 Source: Ministry of Industry, Directorate of Industrial Supervision and Inspection, 2017

72

Table (3.2) describes the number of registered confectionary firms by

townships in Mandalay municipal area during the year 2014 to 2017. In 2015-2016,

the total number of confectionary firms was decreased from 118 to 115 because some

of the registered firms were expired and they did not re- registered regularly. For this

study, the number of registered confectionary firms (2016-2017) was considered as

population in order to update.

3.2 Sampling

According to the list of Industry Supervision and Inspection Department,

2016, there are 116 confectionary firms in Mandalay confectionery industry. In order

to get more accuracy, 70 % of population firms were collected as sample. The larger

the sample size, the more sure the result reflect the population.

The selected 89 firms were surveyed by simple random sampling. Before

using the questionnaires, the innovative firms were selected by asking the firms

whether new product, process and marketing were introduced or not. Only innovative

firms were analyzed to explore the major drivers of innovation. The study emphasized

all size of confectionary firms so that the result may be reasonable to conclude the

effect of firm size on innovation.

Table (3.3) Distribution of Confectionary Businesses by Type

Description No. of Business

Percent

Traditional 10 11.24

Bakery 79 88.76

Total 89 100Source: Survey Data (2017)

According to Table (3.3), the bakery businesses are distributed with 88.76 %

and the traditional confectionery businesses are 11.24%. Data was collected over a 6

month period in two types, namely traditional firms 11.24% and bakery firms 88.76%

within the total sample. Then, the questionnaire was applied through face-to-face

interviews. A questionnaire consisting of 108 individual questions was developed to

be filled in by the owners or managers of the firms.

73

Table (3.4) Number of Firms in Different Types of Product by Township

Types of firm

TownshipTraditional Bakery Total

Aung Myay Thar Zan 2 15 17

Amarapura - 8 8

Chan Aye Thar Zan 5 11 16

Chan Mya Tharzi 1 10 11

Maha Aung Myay 1 12 13

Patheingyi - 3 3

Pyi Gyi Dagon 1 20 21

Total 10 79 89Source: Survey data, 2017

Table (3.4) shows the number of firms distributed in different types of product

by township. It is found that the number of bakery businesses is the largest in Pyi Gyi

Dagon Township as Mandalay industrial zone is located in this township. As for the

traditional businesses, Chan Aye Thar Zan Township has the largest number of firms

since Zaycho market is situated in this township.

3.3 Profile of the Respondents and Businesses

The general information includes gender, age, education and position of the

respondents. Of 62 respondents, 69.66 percent was male and 30.34 percent was

female. According to Myanmar culture, most of the businesses were lead by man in

the past. However, today the women have the equal opportunity to manage the

business. In terms of age, the age under 31 years represented 4.49 percent, 31-50

years was 62.92 percent of all respondents, 51-70 years was 30.34 percent and the rest

percentage, 2.25, was 71years and above. The majority of the respondent’s (more than

62 percent) were the age between 31 and 50 years. Regarding education levels, 65

respondents (73.03 percent) were graduated, 22 respondents (24.72 percent) held a

high school level qualification and the rest was post graduated level. Among them,

74

62.92 percent of respondents were the owners of businesses and the rest were the

managers of businesses.

Table (3.5) Profile of the Respondents

Factors Category Respondents Percent

GenderMale

Female

62

27

69.66

30.34

Total 89 100.00

Age

Under 31

31-50

51-70

71 and above

4

56

27

2

4.49

62.92

30.34

2.25

Total 89 100.00

Education

High School

Graduated

Master

22

65

2

24.72

73.03

2.25

Total 89 100.00

PositionOwner

Manager

56

33

62.92

37.08

Total 89 100.00Source: Survey Data (2017)

The general information of the respondents (owners or managers) was

collected and recorded in Table (3.5).

In the profile of business, number of labor is categorized by the definition of

SMEs by the Private Industrial Enterprise Law 1990 (Ministry of Industry (2), 2010).

According to Table (3.6), 47 firms from the selected businesses (52.81 percent)

operated with 1-49 employees and the firms about 17.98 percent worked with the

number of employees above 100.

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Table (3.6) Profile of Businesses

Descriptions Category Respondents

Percent

Number of employees

1-49

50-100

Above100

47

26

16

52.81

29.21

17.98

Total 89 100

Firm Age

3-12 year

13-22 year

23 -32year

33-42 year

43-52 year

53and above

25

36

8

6

6

8

28.09

40.45

8.99

6.74

6.74

8.99

Total 89 100

Ownership Status

Sole-proprietorship

Partnership

Company

88

0

1

98.88

0

1.12

Total 89 100

Start upScratch

Inherited

64

25

71.91

28.09

Total 89 100

MAFPEA memberYes

No

48

41

53.93

46.07


In terms of the firm age, most of the firms (40.45 percent) were established

from 13 to 22 years ago. As the majority of firms, the ownership status was the sole

proprietorship (98.88 percent). About 71.91 percent of the firms are the scratch. It can

be said that some of the businesses are inherited but most tried to establish a new

business by learning, imitating and creating from the previous business. 53.93 percent

of the firms were MAFPEA (Myanmar Agro-based Food Processor and Exporter

Association was formed in 2006 to support the food processing industry) member.

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3.4 Data Collection

The items to measure the selected variables were based on previous studies that

were considered to be important in explaining the direct and indirect effects of driving

factors on innovations. Pilot testing is important to check the content validity of the

instrument, and to improve the questions, format, and the scales. Therefore, the pilot

test was carried out with the convenience sample of 44 confectionary firms to validate

the instrument.

Firstly, factor analysis is used merely for reliability and validity test of

variables and multiple regression analysis is used to discover important innovation

determinants and to understand how innovations are produced at the firm level and

revealing the main factors that shape an innovative atmosphere in confectionary firms.

The reliability intended to measure the extent to which a variable or set of variables is

consistent. Cronbach’s alpha is measure of reliability that ranges from 0 to 1, with

values of .60 to .70 deemed the lower limit of acceptable. Therefore reliability refers

to test consistency. Validity is concerned with how well the concept is defined by the

measures. KMO and Bartlett test of sphericity tested for the overall significance of all

correlations within a correlation matrix. The measure can be interpreted with .80 or

above, meritorious; .70 or above, middling; .60 or above, mediocre; .50 or above,

miserable; and below .50, unacceptable (Hair, Anderson, Tatham and Black 1995).

After that, descriptive analysis is used to investigate the types of innovation

undertaken by confectionery businesses. According to Best (1977), the mean values

of five-point Likert scale items were interpreted as follows:

The score among 1.00 – 1.80 means strongly disagree.

The score among 1.81 – 2.60 means disagree.

The score among 2.61 – 3.40 means neither agree nor disagree.

The score among 3.41 – 4.20 means agree.

The score among 4.21 – 5.00 means strongly agree.

Finally, multiple regression method is used to analyze the relationship

between drivers of innovation, the types of innovation and the business performance.

77

3.5 Assumption for Multiple Regression Analysis of the Study

The assumptions underlying multiple regressions analysis to be examined re as

follows:

1. Linearity of the phenomenon measured. The linearity of the relationship

between dependent and independent variables represents the degree to which

the change in the dependent variable is associated with the independent

variable. The concept of correlation is based on a linear relationship. As

multiple regression analysis is based on the concept of correlation, the

linearity of the relationship between dependent and independent variables is

crucial. Linearity is easily examined through residual plots.

2. Homoscedasticity is the assumption of equal variances between pairs of

variables. By using SPSS software, it can be measured Homogeneity test

which measures the equality of variances for a single pair of variables.

3. Independence of the error terms assumed that the predicted value is not related

to any other prediction that is each predicted value is independent. If the

residuals are independent, the pattern should appear random. Serial correlation

can be measured by Durbin-Watson value.

4. Normality of the error distribution assumed that errors of prediction are

normally distributed. By using normal histogram can be diagnosed the set of

independent variables (Hair, Anderson, Tatham and Black 1995).

78

CHAPTER 4

ANALYSIS ON INNOVATION OF CONFECTIONERY

BUSINESSES

This chapter presents the analysis of the innovation of confectionery

businesses in Mandalay based on the results of data collected from 89 owners or

managers. The statistical analyses used in this study include description of the survey

participants, demographic characteristics, reliability and validity test. Moreover,

regression analyses are performed to find out which factors are the most influencing

factors on innovation and performance of confectionery businesses.

4.1 Testing of Reliability and Validity of the Driving Variables

Descriptive statistics is used in this study not only to express the demographic

factors (age, gender, educational levels, etc.) but also to describe the mean values and

standard deviation of the observed variables. According to the mean values of the

items, the respondents generally agree the drivers of innovation (mean values more

than 3: agree). In this study, three variables for general firm characteristics, three

variables for firm structure, two variables for firm strategy and three variables for

external factors have been measured. Each variable includes different number of items

and is measured on five-point Likert scale.

The first stage of testing of reliability started with Cronbach’s alpha value. It is

one of the major methods of determining the reliability of a test. Therefore

Cronbach’s alpha is used to test the reliability of all variables.

The Bartlett's Test can be used to test the adequacy of the correlation matrix. If

the test value is large and the significance level is small (<0.001), the variables are

independent. The KMO represents the ratio of the squared correlation between

79

variables to the squared partial correlation between variables. When the KMO is near

0, it is difficult to extract a factor, since the amount of variance just two variables

share (partial correlation) is relatively large in comparison with the amount of

variance two variables share with other variables. When the KMO is near 1, a factor

or factors can probably be extracted, since the opposite pattern is visible. Therefore,

KMO “values between 0.5 and 0.7 are mediocre, values between 0.7 and 0.8 are good,

values between 0.8 and 0.9 are great and values above 0.9 are superb.

Table (4.1) Descriptive Statistics and Reliability of the Driving Variables

Sr. No. Factors Items Mean Standard

DeviationCronbach's

Alpha

1 Intellectual Capital 10 3.77 .666 .895

2 Organization Structure 7 4.11 .581 .877

3 Organization Culture 9 4.06 .628 .927

4 Market Strategy 6 4.28 .517 .868

5 Manufacturing Strategy 9 3.69 .663 .913

6 Customer Needs and Wants 6 4.07 .410 .897

7 Intensity of Competition 5 3.87 .542 .863

8 Technological Opportunity 3 3.84 .634 .732

Source: SPSS Outputs

Table (4.1) shows mean value, standard deviation and Cronbach’s alpha value

to test the reliability of independent variables. Cronbach’s alpha values of all

independent variables are greater than 0.70 therefore it can be acceptable.

80

81


For the analysis of intellectual capital, 11 variables were used in the

questionnaire.

Table (4.2) Validity Test for Intellectual Capital

Factors

Develop new ideas and knowledge of employees.

Enough skill of employees to develop new product.

Recruit and retain the competent people needed for new product development.

Seeking new ways to do things by management.

Creative thinking and behavior of management by themselves.

Skeptical of new ideas by management.

Searching new things by management.

Behavior influences by management to others in trying new things.

Knowledge sharing and learning of employees from different department.

Knowledge sharing and learning of employees from same department.

Bartlett's Test 746.258

Cronbach's Alpha 0.895

K-M-O .769Source: SPSS Outputs

Table (4.2) displays the results of validity test for the items of intellectual

capital. Bartlett’s test is conducted to assess the overall significance of the correlation

matrix. As a result, the chi-square score is 746.258 with p<0.001. Therefore it can be

concluded that the variables are uncorrelated in the population. The Cronbach’s α

value for the underlying factors is 0.895, since Cronbach’s α value is greater than

0.70, it can be concluded that all the items are reliable. Next, the KMO score is 0.769,

which is greater than 0.7. It can be said that sampling adequacy for each variable is

enough.

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4.1.2 Organization Structure

For the analysis of organization structure, 9 items were used in the

questionnaire.

Table (4.3) Validity Test for Organization Structure

Factors

Communication channels between upper levels of management and the employees open

Informing corporate plans to employees.

Communication channels among the employees at the same level of hierarchy open.

Seeking assistance in documents such as organization handbook, procedures and manuals for decision making.

Employees Insights on company as a completely institutionalized entity.

Monitoring employees constantly whether they violate the corporate rules and procedures.

Need approval from upper level managers for routine decision making and daily tasks.




Table (4.3) displays the results of validity test for the items of organization

structure. Bartlett’s test is conducted to assess the overall significance of the

correlation matrix. As a result, the chi-square score is 603.977 with p<0.001.

Therefore it can be concluded that the variables are uncorrelated in the population.

The Cronbach’s α value for the underlying factors is 0.877, since Cronbach’s α value is

greater than 0.70. It can be concluded that all the items are reliable. Next, the KMO

score is 0.731, which is greater than 0.7. It can be concluded that sampling adequacy

for each variable is enough.

83

4.1.3 Organization Culture

For the analysis of organization culture, 9 items were used in the

questionnaire.

Table (4.4) Validity Test for Organization Culture

Factors

Encourage for coordination with different department in developing one’s own ideas.

Encourage to develop one’s own ideas for the improvement of the corporation.

Encourage employees from different department to come together to develop new project ideas.

Upper management’ awareness and very receptive to new ideas and suggestions.

Rewards depend on their work on the job.

Reward for innovative and successful projects.

Reward Employees from every level for innovation.

Appreciate Employees for their well performance.

Increase employee’s job responsibilities after well performance.


Cronbach’s α value 0.927



culture. Bartlett’s test is conducted to assess the overall significance of the correlation

matrix. As a result, the chi-square score is 904.132 with p < 0.001. Therefore it can be


value for the underlying factors is 0.927. Since Cronbach’s α value is greater than 0.70,

it can be said that all the items are reliable. Next, the KMO score is 0.617, which is

greater than 0.7. It can be concluded that sampling adequacy for each variable is

reliable.

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4.1.4 Market Strategy

For the analysis of market strategy, 6 items were used in the questionnaire.

Table (4.5) Validity Test for Market Strategy

Factors

Receives customer response for NPD.

Member/s of new product development team regularly travels to new locations in search of new product ideas.

Enables to meet market needs.

Gives priority to customer needs.

Business objectives driven by customer satisfaction.

Business strategy based on understanding of customer needs.


Cronbach’s α 0.868


Table (4.5) displays the results of validity test for the items of market strategy.

Bartlett’s test is conducted to assess the overall significance of the correlation matrix.

As a result, the chi-square score is 263.718 with p < 0.001. Therefore it can be


value for the underlying factors is 0.868. Since Cronbach’s α value is greater than 0.70,


greater than 0.7. It can be concluded that sampling adequacy for each variable is

enough.

85

4.1.5 Manufacturing Strategy

For the analysis of manufacturing strategy, 10 items were used in the

questionnaire.

Table (4.6) Validity Test for Manufacturing Strategy

Factors

Decrease in operating waste.

Increase in delivery speed of products.

Decrease in waste and scrap.

Decrease the make span from taking the orders to the end of delivery.


Decrease the make span from start of manufacturing process to the end of delivery.

Increase in ability of flexible use of current personnel.

Decrease in total cost of manufacturing processes.

Decrease in input costs.




Table (4.6) displays the results of validity test for the items of manufacturing

strategy. Bartlett’s test is conducted to assess the overall significance of the

correlation matrix. As a result, the chi-square score is 695.328 with p < 0.001.


The Cronbach’s α value for the underlying factors is 0.913. Since Cronbach’s α value

is greater than 0.70, it can be concluded that all the items are reliable. Next, the KMO

score is 0.780, which is greater than 0.7. It can be said that sampling adequacy for

each variable is reliable.

4.1.6 Customer Needs and Wants

86

For the analysis of customer needs and wants, 6 items were used in the

questionnaire.

Table (4.7) Validity Test for Customer Needs and Wants

Factors

Inquires the information/feedback from customers.

Increase in product and service quality according to customers’ expectation.

Provide the customer needs.

Decrease in customer complaints.

Accepts the first priority to meet the customer needs and expectation.

Importance the situation of target market for the business.




Table (4.7) displays the results of validity test for the items of customer needs

and wants. Bartlett’s test is conducted to assess the overall significance of the




is greater than 0.70, it can be said that all the items are reliable. Next, the KMO score is

0.858, which is greater than 0.7. It can be concluded that sampling adequacy for each

variable is enough.

4.1.7 Intensity of Competition

87

For the analysis of competitive intensity, 5 items were used in the

questionnaire.

Table (4.8) Validity Test for Intensity of Competition

Factors

Inquires the information from competitors.

Cooperates with others in the same industry.

Increase in product and service quality compared to rivals.

Creates/imitates the product as the competitors.

Accepts that the industry is competitive.




Table (4.8) displays the results of validity test for the items of competitive

intensity. Bartlett’s test is conducted to assess the overall significance of the




is greater than 0.70, it can be concluded that all the items are reliable. Next, the KMO

score is 0.742, which is greater than 0.7. It can be said that sampling adequacy for

each variable is reliable.

4.1.8 Technological Opportunity

88

For the analysis of technological opportunity, 3 items were used in the

questionnaire.

Table (4.9) Validity Test for Technological Opportunity

Factors

Technology improving product quality.

Sufficient technical knowledge.

Sufficient technical experience.




Table (4.9) displays the results of validity test for the items of technological

opportunity. Bartlett’s test is conducted to assess the overall significance of the




is greater than 0.70, it can be said that all the items are reliable. Next, the KMO score is

0.511, which is greater than 0.7. It can be said that sampling adequacy for each

variable is enough.

4.2 Analysis on Types of Innovation

Descriptive analysis is used to investigate the types of innovation; product

innovation, process innovation and marketing innovation, undertaken by

confectionery businesses. It was assumed that the confectionery businesses agreed

with conducting the three types of innovation with the score of mean values above

3.41 according to Best, 1977.

The results of descriptive statistics of innovative activities are shown in the

following table.

Table (4.10) Mean Values of Product Innovation

89

Description MeanStandard Deviation

Develop new products with totally differing from the current ones. 4.01 .790

Develop newness for current products to improve ease of use for customers and to improved customer satisfaction. 4.11 .818

Develop new products with ingredients differing from the current ones. 3.51 1.198

Increased manufacturing cost in ingredients of new products. 4.04 .656

Increased quality in ingredients of current products. 4.24 .477

Product Innovation (overall mean) 4.12Source: SPSS Outputs

According to Table (4.10), the overall mean value of product innovation

factors was 4.12, which indicate that the confectionary firms improved the existing

products and also developed the new ones. It can be found that the confectionery

businesses performed product innovation by developing new products with different

materials and components considering the customers’ health consciousness. The

businesses developed newness for current products leading to improve ease of use for

customers according to the changing lifestyles.

Table (4.11) Mean Values of Process Innovation

Description MeanStandard

Deviation

Used new and more effective techniques and machines in

NPD processes. 3.84 .796

Decreased cost in NPD processes. 2.90 1.001

Decreased variable cost and/or increasing productivity in

production processes.3.84 .520

Increased output quality in NPD processes. 3.99 .488

Process Innovation (overall mean) 3.92Source: SPSS Outputs

90

According to Table (4.11), the overall mean value of process innovation

factors was 3.92, which indicate that the confectionary firms changed existing

manufacturing processes, techniques and machinery to improve productivity and

output quality to meet the market needs. In addition, the businesses considered the

product quality and the healthy life of customers. The making by manpower and even

the using of coal boiler can impact on product quality such as leaving ashtray and the

cleanness of working environment. As the process innovation, the confectionery

businesses changed the uses of manpower and machineries from kneading to backing

and packaging. In this way, the businesses cannot reduce cost in NPD process because

of emphasizing to improve product quality.

In the previous confectionary businesses, a small bakery business produced

products with the usage of average 270 visses raw material per day by using together

manpower and machineries from kneading to baking process. Kneading, rolling,

moulding, sending to the bakeries with the use of chains, adjusting the chains

movement to be slow or fast by checking the trays coming out from the bakeries,

arranging the finished trays are continuous processes to be in harmony with by the

utility of manpower and machineries. It takes a long time to produce quality product.

Currently, when coal boilers are replaced and machineries are used more from

kneading to baking process, more than average 400 visses raw material per day are

used for these processes. Some confectionary businesses use electronic machines over

1000 visses of wheat per day that are used for production processes.

Table (4.12) Mean Values of Marketing Innovation

Description Mean Standard Deviation

Renewed the product promotion techniques employed for the promotion of the current and/or new products. 3.22 .951

Renewed the distribution channels in the delivery of the product. 3.67 .863

Renewed the product pricing techniques employed for the pricing of the current and/or new products. 3.21 1.017

Renewed the design of the current and/or new products through changes such as in appearance, packaging, shape and volume.

3.90 1.023

Marketing Innovation(overall mean) 3.57Source: SPSS Outputs

91

According to Table (4.12), the overall mean value of marketing innovation

factors was 3.57, which indicates that the confectionary firms renewed the design of

the current and/or new products through changes such as in appearance, packaging,

shape and so on. The mean value of these variables showed that the firms emphasized

the innovation activities as the firms’ essential factors to get competition edges and

survive among the rivals. In the previous period, confectionery can be bought in the

main confectionary shops, various food shops in Mandalay Zay Cho. As the

marketing innovation, the confectionery businesses used motorbike carriers and own

distribution vehicles to fulfill customer needs in right time. It can be known by the

mean values of marketing innovation variables.

Table (4.13) Influential Types of Innovation and Types of Business


Types of Innovation

Types of

Business

Product Process Marketing

Mixing Two TypesMixing Three Types

Product &

Process

Product & Marketing

Process & Marketing

Product, Process & Marketing

Innovative Firms

Traditional

Bakery

9

74

9

68

8

59

8

63

8

58

8

53

7

53

83 77 67 71 66 61 60

Non-Innovative Firms 6 12 22 18 23 28 29

Total 89 89 89 89 89 89 89Source: Survey Data (2017)

Table (4.13) shows the innovation types performing by the traditional

confectionery and bakery firms. By examining the Table, it can be found that the

number of confectionery business doing product innovation is the largest with 83

which contain 9 traditional confectionery and 74 bakery business. And, in studying

the mixing two types of innovation, the number of firm performing both product and

process innovation is also more than the other mixing three types of innovation. From

the Table, it can be concluded that the confectionery businesses firstly innovated the

products to meet the demand of customers and the intensity of competition. And then

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technology advanced and using new machineries was followed by product innovation.

Finally, the businesses implemented marketing innovation with increased productivity

by process innovation to fulfill the customers’ needs in time.

4.3 Analysis on Innovation Drivers of Each Type of Innovation

In this study, there are four main drivers (eleven dimensions) on the

innovation; namely firm characteristics, firm structure, firm strategy and external

factors. After finding out the underlying dimensions of determinants of innovations by

using confirmatory factor analysis, an analysis on innovative activities is carried out.

Finally the results of multiple regression analysis are described in detail.

4.3.1 Drivers of Product Innovation

In analyzing the drivers of product innovation, firm size, firm age and

ownership status as general firm characteristics; intellectual capital, organization

structure, organization culture as firm structure; marketing strategy and manufacturing

strategy as firm strategy; customer needs and wants, intensity of competition and

technological opportunity as external factors are taken in consideration.

Multiple regression analysis is applied to investigate the factors of product

innovation. To develop the multiple regression method, the product innovation is used

as dependent variable and firm size, firm age, ownership status, intellectual capital,

organization structure, organization culture, marketing strategy, manufacturing

strategy, customer needs and wants, intensity of competition and technological

opportunity are used as independent variables.

93

Table (4.14) Drivers of Product Innovation

Dependent variable

(Product Innovation)

Unstandardized Coefficients

t test Sig VIFB

Std.

Error

(Constant) -.405 .625 -.648 .519

Firm size .000 .000 .486 .629 1.284

Firm age .002 .002 .984 .328 1.147

Ownership Status -.002 .143 -.016 .987 1.089

Intellectual Capital .195** .088 2.211 .030 2.066

Organization Structure .007 .149 .044 .965 4.480

Organization Culture .002 .101 .016 .987 2.428

Market Strategy .420*** .113 3.715 .000 2.046

Manufacturing Strategy -.247** .091 -2.720 .008 2.179

Customer needs and wants .109 .146 .743 .460 2.159

Intensity of competition .484*** .101 4.811 .000 1.785

Technological opportunity .129 .081 1.584 .117 1.591

Adjusted R Square 0.557

F-value 11.053***

Durbin-Watson 2.207 Source: SPSS Outputs *, **, ***: Indicate statistical significance at the 10% level, 5% level and 1% level

As shown in Table (4.14), the coefficient of determination (R2) is more than

55%. It can be said that 55% of the variation in product innovation is explained by the

drivers of innovation. The value of F test is highly significant at 1% level. The value

of Durbin-Watson d is 2.207. Since d is around 2, there is no serial correlation. The

VIF is used to assess the inflation in parameter estimates that are due to the

collinearities among the variables (multicollinerity). The level of multicollinearity

with VIF excess 10 was problematic. In this study, each VIF is less than 10. These

results show that muticollinearity problems are not included in this case. Moreover

according to the result of normality test, the histogram looks like a normal distribution

94

(a bell-shaped curve). For the checking of homoscedsticity, it can be seen from

Appendix Table B-12, there is no definite pattern in the residuals.

As expected, the coefficient of intellectual capital has been found to have a

positively significant at 5% level. This result has proved that intellectual capital is

important drivers of product innovation. The coefficient of market strategy has also

been found to have a positive and highly significant at 1% level. This result has

proved that market strategy is important drivers of product innovation. The coefficient

of manufacturing strategy has also been found to have a negatively significant at 5%

level. This result has proved that manufacturing strategy is important but there is

indirect relationship between manufacturing strategy and product innovation.

Moreover, the coefficient of competition intensity has been found to have a positive

and highly significant at 1% level. This result has proved that competition intensity is

important drivers of product innovation.

In this study, customer needs and wants, intensity of competition and

technological opportunity are considered as external factor. The rapid environmental

change and the uncertainty stimulate the decision-makers to innovate in organizations

(Zaltman, Duncn and Holbeck, 1973; Slappendel, 1996). Product innovations are

prevalent in uncertain environments in which competing products or customers’

preferences alter significantly.

The result cannot support Hypothesis 1(a) that “Firm characteristics have a

positive and significant effect on product innovation”. However, the result can

support Hypothesis 1(b) that “Firm structure has a positive and significant effect

on product innovation”. The desire and innovative personality of management and

skilled labor encourage the product innovation. Beyond human capital, an important

part of knowledge, abilities, experiences, and behaviors required for the successful

development of new products and services lies inside and embedded thorough the

organization. Furthermore, in order to get involved workers in the innovation process,

the firm should develop support organizational mechanisms, infrastructure,

governance, and so on (O’Connor and McDermott, 2004). Tseng and Goo (2005)

argued that a good structural capital will translate the human dimension of innovation

into company property, through appropriate managerial leadership and ability.

95

The result can support Hypothesis 1(c) that “Firm strategy has a positive

and significant effect on product innovation”. Orienting customer needs and

satisfaction drives the product innovation. Bennett and Cooper (1981) suggested that

the adoption of the marketing concept philosophy stifles the development and

marketing of radically new products, and rather encourages the development of

incremental product innovations. This is due to customers being unable to articulate

their future needs beyond current consumption experiences.

The result can support Hypothesis 1(d) that “External factors have a

positive and significant effect on product innovation”. If the firms have customer

orientation, technological improvement and enough funds to get competitive edge,

firms would have more product innovation as much as they can. Unfortunately, it is

found that the cost of manufacturing for product innovation cannot be reduced.

Although the owners and managers have innovative personality, they do not

implement their ideas strategically. Subramanian (1996), as cited in Chryssochoidis

(2003) found that firm innovativeness is not statistically higher in unstable external

environments, but firms in such environments adopt innovations earlier than firms in

more stable ones. In a cross-sectional analysis of Fortune 500 firms discovered that a

significant inverted-U shape, with higher competition initially increasing then

decreasing the rate of innovation (Scherer, 1967, as cited in Aghion, Bloom, Blundell, Griffith and Howitt, 2005).

4.3.2 Drivers of Process Innovation

Process innovation included four dimensions. Mean process innovation is

effected by firm size, firm age, ownership status, intellectual capital, organization

structure, organization culture, marketing strategy, manufacturing strategy, customer

needs and wants, intensity of competition and technological opportunity.

Multiple regression analysis is applied to investigate the factors of process

innovation. To develop the multiple regression method, the process innovation is used

as dependent variable and firm size, firm age, ownership status, intellectual capital,

organization structure, organization culture, marketing strategy, manufacturing

strategy and external factor are used as independent variables. Regression analysis is

conducted with process innovation and eleven dimensions of drivers of innovation as

the independent variables.

96

Table (4.15) Drivers of Process Innovation

Dependent variable

(Process Innovation)


t test Sig VIFB Std.

Error

(Constant) 1.940 .807 2.404 .019 -

Firm size .000 .001 .342 .733 1.284

Firm age -.001 .003 -.263 .793 1.147

Ownership Status .091 .184 .494 .622 1.089

Intellectual Capital .349*** .114 3.072 .003 2.066

Organization Structure .240* .143 1.681 .097 1.794

Organization Culture -.234* .131 -1.793 .077 2.428

Market Strategy -.038 .146 -.258 .797 2.046

Manufacturing Strategy -.044 .117 -.377 .708 2.179

Customer needs and wants -.042 .189 -.224 .824 2.159

Intensity of competition .255* .130 1.964 .053 1.785

Technological opportunity .357*** .105 3.406 .001 1.591


F-value 3.215***

Durbin-Watson 2.321


*, **, ***: Indicate statistical significance at the 10% level, 5% level and 1% level

As shown in Table (4.15), the coefficient of determinations (R2) is above 21%.

It can be concluded that 21% of the variation in process innovation is explained by the

drivers of innovation. The value of F test is highly significant at 1% level. The value

of Durbin-Watson d is 2.321. Since d is around 2, there is no serial correlation. The

level of multicollinearity with VIF excess 10 is problematic and each VIF is less than

10 in this study. These results show that muticollinearity problems are not included in

this case. Moreover, according to the result of the normality test the histogram looks

like a normal distribution (a bell-shaped curve). For the checking of homoscedsticity,

it can be seen from Appendix Table B-13, there is no systematic part in the residuals.


positive and highly significant at 1% level. This result has proved that intellectual

capital is important drivers of process innovation. However, the coefficient of

97

organization culture has been found to have a negative and significant at 10% level.

This result has proved that organization culture is important drivers of process

innovation but there is indirect relationship between organization culture and process

innovation. The coefficient of intensity of competition has been found to have a

positive and significant at 5% level. This result has proved that intensity of

competition is positively important drivers of process innovation. In addition, the

coefficient of technological opportunity has been found to have a positive and highly

significant at 1% level. This shows that there is important and direct relationship

between technological opportunity and process innovation.


positive and significant effect on process innovation”. However, the result can


on process innovation”. According to the result, the firms implemented the new

production process by the innovative personality of management with skillful labor.

The investment decision for production process improvement is made by the owner of

businesses. The labours need to be expertise with new machineries in the process

innovation. The businesses encourage developing new product ideas and receiving the

feedback of employees. By appreciating the employees for their new ideas and well

performance, the organization culture drives the process innovation.

The result cannot support Hypothesis 2(c) that “Firm strategy has a positive

and significant effect on process innovation”. The result can support Hypothesis

2(d) that “External factors have a positive and significant effect on process

innovation”. As the confectionery businesses increment their current product and

create new product to survive in competitive edge, the business owners enable the

process innovation with product innovation by inquiring the information of

competitors. The opportunity to improve technology is also important for process

innovation.

4.3.3 Drivers of Marketing Innovation

Marketing innovation included four dimensions. Mean marketing innovation

is effected by firm size, firm age, ownership status, intellectual capital, organization



98

Multiple regression analysis was applied to investigate the factors of

marketing innovation. To develop the multiple regression method, the marketing

innovation was used as dependent variable and firm size, firm age, ownership status,

intellectual capital, organization structure, organization culture, marketing strategy,

manufacturing strategy, customer needs and wants, intensity of competition and

technological opportunity are used as independent variables. Regression analysis is

conducted with marketing innovation and eleven dimensions of drivers of innovation

as the independent variables.

Table (4.16) Drivers of Marketing Innovation

Dependent variable (Marketing Innovation)

Unstandardized Coefficients t test Sig VIFB Std. Error

(Constant) .387 1.111 .348 .728Firm size -6.848E-5 .001 -.084 .933 1.284Firm age .003 .004 .711 .479 1.147Ownership Status -.226 .254 -.890 .376 1.089Intellectual Capital .517*** .157 3.303 .001 2.066Organization Structure -.032 .264 -.119 .905 4.480 Organization Culture -.190 .180 -1.056 .294 2.428


Market Strategy -.002 .162 -.012 .990 2.179

Customer needs and wants .648** .260 2.491 .015 2.159

Intensity of competition -.045 .179 -.252 .802 1.785Technological opportunity .094 .144 .652 .516 1.591Adjusted R Square 0.220F-value 3.251***


As shown in Table (4.16), the coefficient of determinations (R2) is 22%. It can

be said that 22% of the variation in marketing innovation is explained by the drivers

of innovation. The value of F test is highly significant at 1% level. The value of

Durbin-Watson d is 2.026. Since d is around 2, there is no serial correlation. Each VIF

is less than 10. These results show that muticollinearity problems are not included in

99

this case. According to the result of normality test, the histogram looks like a normal

distribution (a bell-shaped curve). For the checking of homoscedsticity, it can be seen

from Appendix Table B-14, there is no definite pattern in the residuals.


positive and highly significant at 1% level. This result has proved that intellectual

capital is important drivers of marketing innovation. The coefficient of customer

needs and wants also has been found to have a positive and significant at 5% level.

This result has proved that customer needs and wants are important drivers of



positive and significant effect on marketing innovation”. However, the result can


on marketing innovation”. In changing product promotion techniques, distribution

channels and product appearance, packaging, shape and volume necessary in order to

adapt with the market needs, the innovative personality of management level and

involvement of skill workers are important drivers. The result cannot support

Hypothesis 3(c) that “Firm strategy has a positive and significant effect on the

marketing innovation”. The result can support Hypothesis 3(d) that “External

factors have a positive and significant effect on marketing innovation”. The

confectionery businesses relied on customer needs and wants in implementing


4.4 Analysis on the Influence of Innovation on Firm Performance

The relationship between overall innovation and overall performance

measured is shown in Table (4.17) in an extracted form. The original result is shown

in Appendix Table B-4.

Table (4.17) Influencing Innovation Types on Firm Performance Dependent variable

(Performance) Unstandardized Coefficient

t test Sig

100

VIFB Std. Error

(Constant) 2.248 .374 6.011 .000

Product Innovation .317*** .084 3.797 .000 1.204

Process Innovation .033 .104 .313 .755 1.769

Market Innovation .117 .071 1.650 .103 1.547

Adjusted R Square .221

F-value 9.330***

Durbin-Watson 1.711Source: SPSS Outputs *, **, ***: Indicate statistical significance at the 10% level, 5% level and 1% level

According to Table (4.17), the coefficient of determinations (R2) is 22%. It can

be said that 22% of the variation in firm performance is explained by product

innovation, process innovation and market innovation. The value of F test is highly

significant at 1% level. The value of Durbin-Watson d is 1.711. For 89 observations

and three explanatory variables, dl is 1.434 and du is 1.577 at the 1 percent level. Since

the computed d of 1.711 is greater than du=1.577. It can be concluded that there is no

serial correlations in the residuals. Each VIF is less than 10. These results show that

multicollinearity problems were not included in this case. According to the result of

normality test, the histogram looks like a normal distribution (a bell-shaped curve).

For the checking of Homoscedsticity assumption, it can be seen from the Appendix

Table B-15, there is no systematic part in the residuals.

The coefficient of product innovation has been found to have a positive and

highly significant at 1% level. It can be concluded that product innovation is direct

positive impact on performance of confectionary businesses. The overall performance

of the firm is significantly influenced by product innovation.

The result can support Hypothesis 4(a) that “Product innovation has a

positive and significant effect on the firm performance”. Of 83 confectionery

businesses, 93 percent have product innovation activities. Consequently, production

innovation effects on the firm performance by developing new products with totally

differing from the current ones. Moreover, the businesses improved current products

to ease of use for customers. The result cannot support Hypothesis 4 (b) that

“Process innovation has a positive and significant effect on the firm

101

performance” and Hypothesis 4 (c) that “Marketing innovation has a positive

and significant effect on the firm performance”.

4.5 Analysis on Effect of Innovation on Firm Performance Measures

To analyze the correlations of innovation and performance, the four measures

of performance were used in this study: increase in number of employees, increase in

number of production, increase in sale volume and increase in profit during the last

three years (2013-2015). In the following, the influencing types of innovation on each

performance measure are analyzed.

4.5.1 Influencing Types of Innovation on Firm Performance Measures


To analyze the influencing types of innovation on firm performance in terms

of number of employees, the multiple regression method is applied by identifying the

product, process and market innovation as the independent variables and the number

of employees as dependent variable.

Table (4.18) Influencing Innovation Types on Firm Performance Measure(Number of Employee)

Dependent variable (Performance)

Unstandardized Coefficient t test Sig VIF

B Std. Error

(Constant) 2.068 .443 4.663 .000


Process Innovation -.053 .124 -.426 .671 1.769

Market Innovation .187** .084 2.231 .028 1.547


F-value 8.094***


Table (4.18) mentioned the relationship between innovation types and

performance measured with number of employee. The multiple regression method is

applied by identifying the product, process and market innovation as the independent

variables and the number of employees as dependent variable. According to the result,

102

the coefficient of determinations (R2) is above 19%. It can be said that 19% of the

variation in firm performance in terms of number of employee is explained by

product, process and market innovation. The value of F test is highly significant at

1% level. The value of Durbin-Watson d is 1.939. For 89 observations and three

explanatory variables, dl is 1.434 and du is 1.577 at the 1 percent level. Since the

computed d of 1.939 is greater than du=1.577. It can be concluded that there is no


multicollinearity problems were not included in this case. The coefficient of product

innovation has been found to have a positive and highly significant at 1% level. It can

be concluded that product innovation has direct positive impact on performance

measured with number of employees in confectionary businesses.

The result can support Hypothesis 5(a) that: “Product innovation has a

positive and significant effect on the firm performance in terms of number of

employees”. The management’ innovative personality and increased number of

skillful workers is one of the important drivers to improve product quality and

productivity. Product innovation leads to increase human resource. However, the

result cannot support Hypothesis 5(b) that: “Process innovation has a positive and

significant effect on the firm performance in terms of number of employees”. The

coefficient of marketing innovation has been found to have a positive and significant

at 5% level. It can be concluded that marketing innovation has direct positive impact

on performance measured with number of employees in confectionary businesses.

Therefore the result can support Hypothesis 5(c) that: “Marketing innovation has a


employees”. Because of the businesses renewed the distribution channels in the

delivery of the product, the production volume need to increase with higher sale

volume. The more need for work force as the more increase in productivity.

4.5.2 Influencing Types of Innovation on Firm Performance Measure(Production Volume)


of production volume, the multiple regression method is applied by identifying the

103

product, process and market innovation as the independent variables and the

production volume as dependent variable.

Table (4.19) Influencing Innovation Types on Firm Performance Measure

(Production Volume)


Unstandardized Coefficients t test Sig VIF

B Std. Error

(Constant) 2.887 .491 5.881 .000

Product Innovation .274** .110 2.497 .014 1.204


Market Innovation .027 .093 .288 .774 1.547


F-value 3.630***


In Table (4.19), the impact of innovation types on performance measured with

number of production. As shown in the Table, the coefficient of determinations (R2) is

8%. It can be said that 8% of the variation in firm performance measured with number

of production by product, process and market innovation. The value of F test is highly

significant at 1% level. The value of Durbin-Watson d is 1.816. For 89 observations

and three explanatory variables, dl is 1.434 and du is 1.577 at the 1 percent level. Since

the computed d of 1.816 is greater than du=1.577. It can be concluded that there is no



innovation has been found to have a positive and significant at 5% level. It can be

concluded that product innovation has direct positive impact on performance

measured with number of production in confectionary businesses. The result can

support Hypothesis 6 (a) that: “Product innovation has a positive and significant

effect on the firm performance in terms of production volume”. However, the

result cannot support Hypothesis 6(b) that: “Process innovation has a positive and

104

significant effect on the firm performance in terms of production volume” and

Hypothesis 6(c) that: “Marketing innovation has a positive and significant effect

on the firm performance in terms of production volume”.

4.5.3 Influencing Types of Innovation on Firm Performance Measure

(Sales Volume)


of sales volume, the multiple regression method is applied by identifying the product,

process and market innovation as the independent variables and the sales volume as

dependent variable.

Table (4.20) Influencing Innovation Types on Firm Performance Measure (Sales Volume)


Unstandardized Coefficient

t test Sig VIFB Std. Error

(Constant) 2.887 .491 5.881 .000





F-value 3.630***


As shown in Table (4.20), the coefficient of determinations (R2) is 8%. The

value of F test is highly significant at 1% level. The value of Durbin-Watson d is

1.816. For 89 observations and three explanatory variables, dl is 1.434 and du is 1.577

at the 1 percent level. Since the computed d of 1.816 is greater than du=1.577. It can

be concluded that there is no serial correlations in the residuals. Each VIF is less than

10. These results show that multicollinearity problems were not included in this case.


significant at 1% level. It can be concluded that product innovation has direct positive

105

impact on performance measured with sales volume in confectionary businesses. The

result can support Hypothesis 7 (a) that: “Product innovation has a positive and

significant effect on the firm performance in terms of sale volume”.

Relating the product innovation to firm performance causes to distinguish

between three sources from which the extra revenue comes from (Kerin, Harvey and

Rothe, 1978, as cited in Reichstein, 2000):

New consumers who were not previously buyers of the product type.

Consumers of competitive brands.

Consumers of an existing company brand who switch to the new or

reformulated brand or product.

However, the result cannot support Hypothesis 7(b) that: “Process innovation

has a positive and significant effect on the firm performance in terms of sale

volume” and Hypothesis 7(c) that: “Marketing innovation has a positive and

significant effect on the firm performance in terms of sale volume”.

4.5.4 Influencing Types of Innovation on Firm Performance Measure (Profit)


of profit, the multiple regression method is applied by identifying the product, process

and market innovation as the independent variables and profit as dependent variable.

106

Table (4.21) Influencing Innovation Types on Firm Performance Measure (Profit)



B Std. Error

(Constant) 1.518 .454 3.348 .001





F-value 13.124***


According to Table (4.21), the coefficient of determinations (R2) is 29%. The

value of F test is highly significant at 1% level. The value of Durbin-Watson d is

1.778. For 89 observations and three explanatory variables, dl is 1.434 and du is 1.577

at the 1 percent level. Since the computed d of 1.778 is greater than du=1.577. It can

be concluded that there is no serial correlations in the residuals. Each VIF is less than

10. These results show that multicollinearity problems were not included in this case.

The coefficient of product innovation has been found to have a positive and highly


impact on performance measured with profit of confectionary businesses. In addition,

the coefficient of market innovation has been found to have a positive and significant

at 5% level. It can be concluded that market innovation has direct positive impact on

performance measured with profit of confectionary businesses. The result can support

Hypothesis 8(a) that: “Product innovation has a positive and significant effect on

the firm performance in terms of Profit”. However, the result cannot support

Hypothesis 8(b) that: “Process innovation has a positive and significant effect on

the firm performance in terms of Profit”. The result can support Hypothesis 8(c)

that: “Marketing innovation has a positive and significant effect on the firm

performance in terms of Profit”. In three types of innovation, product innovation

highly and significantly impact on performance with all measures. It can be concluded

that developing new product and increased output quality caused to increase the firm

performance.

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4.6 Summary of Innovation and Performance of Confectionery Businesses

By analyzing the drivers of innovation, types of innovation and performance

for randomly selected 86 confectionery businesses in Mandalay municipal area, the

result of drivers and innovation of confectionery businesses can be explored. This

result summary is presented with Table (4.22) for simplicity.

Table (4.22) Summary of Innovation Drivers of Confectionery Businesses

Independent Variable

Dependent Variable

Product Innovation

Process Innovation

Marketing Innovation

B Sig B Sig B Sig

Intellectual Capital.195** .030

.349*** .003

.517*** .001

Organization Structure - - .240* .097 - -

Organization Culture - - -.234* .077 - -

Market Strategy .420*** .000 - - - -

Manufacturing Strategy -.247** .008 - - - -

Customer Needs and Wants

- - - - .648** .015

Intensity of Competition .484*** .000 .255* .053 - -

Technological Opportunity

-.357*** .001 - -

Source: SPSS Outputs *, **, ***: Indicate statistical significance at the 10% level, 5% level and 1% level

According to the result, although this study found that the sizes of the firms do

not impact on product innovation because every size of the firms innovated in

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Mandalay confectionary industry, Miller, Droge and Toulouse (1988) said that once

organizations increase in size, they require more elaborate control systems and

gradually lose on their ability to innovate. It is difficult for older organizations to

generate innovations due to distorted perceptions, dulled motivation, poor creativity,

political deadlocks and disconnected actions (Dougherty and Heller, 1994). In this

study, the age of the firm is not an important factor in innovation. It can be seen that

some long life span businesses have so many new things e.g., Traditional

confectionery firms, Myint Myint Khin, has more than 100 years life span (since

1912), have the product, process and marketing innovative activities. The business

minded the customers’ health consciousness in using ingredients, the customers’

changing lifestyles in packing, marketing and distribution.

Table (4.22) shows the analysis result after using multiple regression method.

According to table, intellectual capital can cause the firm innovation. In the study,

centralized and formalized organization structure is mostly founded. Therefore

management support is important in decision making even though the employees are

rewarded for their creative ideas. Rewarding employees for their innovative idea and

well performance drives the firms’ innovation. In addition, customer orientation by

understanding the needs and circumstances of the customers very well namely market

strategy is a force in the firm innovation. Making cost effective in manufacturing

process can drive the firm innovation. Moreover, the external factors: customer

orientation, intensity of competition and technological opportunity, drive the firm

innovations.

Table (4.23) Summary of Innovation and Performance of Confectionery Businesses


Dependent Variable

No. of employees

Production volume Sale volume Profit

B Sig B Sig B Sig B Sig

Product Innovation

.351*** .001

.274** .014

.274** .014

.451*** .000


.187** .028 - - - - .239** .007

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As the types of innovation, product innovation is mostly implemented by the

confectionery businesses. Table (4.23) describes the result of analyzing the types of

innovation and the performance of businesses. The product innovation influenced on

all performance measured of the firm. The market innovation impact on number of

employee and profit measured.

CHAPTER 5

CONCLUSION

This chapter discusses the findings from the study of Mandalay confectionary

businesses that are innovated and baked based confectionary. The baked based

confectionary businesses are classified into two types such as traditional

confectionery and bakery firms. Data analysis concerning the drivers of innovation,

types of innovation and performance of confectionary businesses in Mandalay and the

results are discussed. It also provides suggestions and comments and the needs for

further study.

5.1 Findings and Discussions

In Mandalay, although confectionary businesses have fostered the innovation

in their businesses, it is not assured that all of the businesses will know about the

factors influencing the innovation and the business performance. Therefore this study

intends to explore the drivers on each type of innovation and analyzed the relationship

between types of innovation and firm performance of confectionery businesses in

Mandalay.

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Moreover, in Mandalay confectionary industry, new food products are

carefully prepared to meet the standard of healthy food quality, in taste, ingredients

etc as the consumption patterns have shifted over time toward more low-fat and less

sugar. Some foods are modified with easy-to-carry packages due to the changing of

consumers’ lifestyles. Sales promotions are made by using better distribution system

and transportation throughout the country. Therefore it is important to know what

factors are driving the innovation and the performance of confectionary businesses in

Mandalay.

Innovation enables the firms to become competitive and to satisfy customers’

needs and wants that are always changing. As innovation is important in the success

of businesses, there is a need to find out the factors that are driving force of the

innovation. Although previous studies considered several factors that had effect on

innovation, this study aims to analyze general firm characteristics, firm structure, firm

strategy, customer needs and wants, intensity of competition and technological

opportunity as independent variables and types of innovation and firm performance as

dependent variables. The important innovation drivers are summarized after

conducting factor analysis. And then the correlation coefficient between independent

and dependent variables can be calculated by using multiple regression method.

Previously in confectionary businesses, manpower and machineries are used

together starting from kneading to baking process. During this processes, it is

important to make them step by step. Kneading, rolling, moulding, sending to the

baking sheet with the use of chains, adjusting the chains movement to be slow or fast

by checking the trays coming out from the baking sheet, arranging the finished trays

are continuous processed to be in harmony with the utility of manpower and

machineries. At that time the role of bakers were the main workers in business. At

present, coal boilers are replaced and machineries are used more for kneading to

baking process. Therefore the leaders’ experience is important in managing the


Chryssochoidis (2003) studied firm size, firm age and ownership status as

organizational demographic characteristics associated with product innovation.

However, this study found that general characteristics of the firm are not related to

any types of innovation. It can be concluded that the confectionery businesses in

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Mandalay are innovated within the scope of business regardless of the firm size, firm

age and ownership status

Firstly, the result of the study confirmed the belief of Freel (1999) that

management competency is one of the skills constraints affecting innovation. Beaver

and Jennings (2000) and Jennings and Beaver (1997), as cited in Vyas (2009) said

that the innovative personality of firm’s key decision makers caused competitive

advantage. In this study, one of the innovation drivers, intellectual capital which

contained innovative personality, skilled labor and social capital, strongly impact on

all three types of innovation.

In order to get involved workers in the innovation process, the firm should

develop support organizational mechanisms, infrastructure, governance, and so on

(O’Connor and McDermott, 2004). An important part of knowledge, abilities,

experiences, and behaviors required for the successful development of new products

and services lies inside and embedded within the organization. The supply of higher

levels of education, training and skills is strongly related to the increased demand for

and supply of innovation. At the most fundamental level it has been shown that

investment in capital equipment, innovation and human capital are broadly

complementary and mutually reinforcing (Lloyd-Ellis and Roberts, 2002, as cited in

Toner, 2011).

Among the internal factors shown to be the most important determinants of

innovative activity are high incidence of qualified workers, and strong leadership

provided by a highly educated director or founder (Hoffman, Parejo, Bessant, Perren,

1998; Le Blanc, Nash, Gallagher, Gonda, Kakizaki, 1997) although some studies do

not find that effect (Keizer et al., 2002). Innovation is not related to the number of

highly educated staff (Radas et al., 2009). However Mohnen and Roller (2005)

showed that human capital is one of the crucial factors in innovative activities, and

that absence of necessary skills is a serious impediment to innovation.

In this study, the present employees in the business are more involved than the

new workers in implementing the business’s innovative activities. From the

management point of view, the retention of these employees is an important factor.

Therefore the business considered the plan to secure the services of these existing

workers. For example, Bayin biscuit never layoff even though in the sale decline

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season. During that time, the business is engaged in producing products in advanced

for the peak season. In this way, the confectionery businesses manage to retain their

skillful employees. Some of the confectionery businesses hired international bakers

and trained their workers. Moreover, the business permitted their employees to create

new product, welcome their original ideas to create and to test the prototype and then

if the market testing is successful, the business rewarded the innovative workers.

However, according to Myanmar culture the business owners mostly generated the

innovative idea and are decision makers.

During the implementation phase, greater formalization and centralization can

be allowed because role conflict and ambiguity is reduced. In this study, most of the

innovated confectionery businesses applied formalized and centralized organization

structure. However, Zaltman et al., (1973) concluded that complex innovation projects

cannot be successfully pursued in highly politically empowered, centralized

unspecialized and highly rigid bureaucratic structures. Such structures overburden for

managements, affording them too little time or assistance to initiate complex projects

of innovation. Gersick (1991) noted that a “deep structure” that inhibits innovations is

in place. Zaltman et al., (1973) suggested that it is necessary to employ low

formalization and low centralization during innovation initiation phases because at

this stage information gathering and processing is crucial for success. Johne (1984)

found indeed that leaders in high-tech sectors predominantly used spoken word (low

formalization) during initiation and written progress monitoring tools during

implementation.

In order to succeed, businesses need to continually adapt to changing market

pressures to ensure customer satisfaction is achieved in a way that creates growth for

the business. Therefore businesses must innovate in order to succeed, in order to

grow, then understanding what factors are driving the innovation and how to assure

success, is essential. Organization cultures including the factors namely reward

system and management support was also positively correlated with product

innovation. The confectionery businesses recognized the new ideas and suggestions of

employees and then rewarded for the well performance. For example, Zalatwar

confectionery encouraged the employees’ new ideas by rewarding if the new ideas

were really innovated.

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As shown in the conceptual framework, market orientation is the superior firm

performance through the satisfaction of customer’s needs. According to Kohli and

Jaworski (1990), responsiveness is a key when trying to change market needs and

expectations. The studied businesses responded by making innovation to market needs.

According to Narver and Slater (1990), the three major components of market orientation,

customer orientation, competitor orientation and interfunctional coordination are long-

term in vision and profit-driven. It can be found that the confectionery businesses focused

customers’ and competitors’ orientation.

The negative correlation between manufacturing strategy and product

innovation reflected the firms’ effort to improve product quality. But the businesses

cannot efficiently reduce the cost to improve the product quality. Significantly, the

influencing strength of external factors on product innovation including customers’

needs and wants, intensity of competition and technological opportunity were the

best. For example, some confectionery business reduces the total cost of production

processes but the distribution channels cannot be changed. On the other hand, the

firms renewed the design of current or new products but the total cost of

manufacturing processes cannot be reduced.

In process innovation, intellectual capital is also the important driver to use

advanced technology and machineries. Another one, the effect of formalized

communication and centralized organization structure on process innovation reflected

the Myanmar culture. Although the confectionery businesses in Mandalay encouraged

the employees for new ideas, the important decision making was limited in the senior

management. Since the process innovation was followed by the product innovation,

organization structure, organization culture, intensity of competition and

technological opportunity are main drivers for both product and process innovation.

Marketing innovation is effected by intellectual capital and customer needs

and wants. For example, Bayin biscuit tries to implement the desire of customer that

can be known through the distributers and delivering carriers. Even though the

business wants and is able to produce new product with new price, it must be

continued production of new product with old price due to customers’ résistance in

target market.

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Consequently, the businesses measure how innovation creates the increasing

value such as revenue from new products or services, profit from new products or

services as financial and market measures (Burnett, 2011). Businesses use a variety of

measures to achieve a better understanding of the value produced, such as

profitability, new product introduction and so on. In fact, innovation remains one of

the most elusive dimensions of organizational performance to quantitatively

comprehend (Gatignon et al., 2002, as cited in Carayannis and Provance, 2007).

Performance is the result of innovation. It can be measured in three levels: output,

outcome and impact. Outputs occur as the immediate, internalized results of

innovation. New product introduction, sale volume and number of employees are

among the outputs that emerge. Outcomes include mid-range results such as revenues

and profit contributed by new products. Finally impacts represent more lasting, long-

range benefits that accrue to the firm from its innovative competence. Example of

impact performance includes status as a top innovator in the industry (Carayannis and

Provance, 2007).

This study used number of employees, production volume, sale volume and

profit as the performance measured and influenced by the types of innovation in

confectionery businesses. In analyzing the influencing innovation types on firm

performance measure: increased in number of employee: it was found that product

innovation significantly impacted on firm performance. In measuring business

performance in terms of number of production, number of sales and profit, the

significantly effect of product innovation were found on these measurements.

Continuously, the correlations of factors of product innovation and firm performance

were analyzed. The confectionery businesses used different material, components and

technology in developing new products. Moreover the businesses improved quality

and cost of material and components for product innovation. According to the

regression result of influencing innovation types on firm performance, process

innovation also impacted on firm performance measured by number of sales and

profit. The confectionery businesses implemented process innovation by using new

and more effective techniques and machines in new product development process. In

this study, the percentage of business implementing marketing innovation is very low

and the businesses with marketing innovation especially renewed the design of the

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current and new products through changes such as in appearance, packing, shape and

volume.

In Summary, among the drivers of innovation, intellectual capital is significant

driver in Mandalay confectionery businesses. Even though the confectionery

businesses gave employees freedom to materialize their ideas, according to Myanmar

culture the employees implemented the innovation under the control and support of

management. On the other hand, using the new technology and machineries for the

process innovation increased the product quality and productivity but it can also

increase cost.

5.2 Suggestions and Recommendation

Innovation is one of the most important means through which businesses




then to profit from that innovation (Nelson, 1991). From studying the confectionery

businesses in Mandalay, the drivers of innovation, namely intellectual capital,

organization structure, organization culture, market strategy and manufacturing

strategy were internally important to innovation. The lack of an educated and skilled

workforce in modern technology will be a problem for the growing of the economy.

In addition, external drivers, namely customer needs and wants, intensity of

competition and technological opportunity, are also important to innovation. After

discussing with the businesses owner, it can be known that the sales of some business

obviously declined after 2015 due to the entrance of more competitors to the

confectionery industry. These new entries competed with advanced technology and

low cost strategy. The existing businesses will be able to overcome these difficulties if

they have enough funds to catch up with the advanced technology and low cost

strategy. Therefore the realization of Myanmar’s transformation depends upon how

effectively the country can mobilize and allocate the vast financial resources needed

to support its development targets. In all areas, the institutions and policy frameworks

need to be strengthened to meet Myanmar’s ambitious reform goals. Great

government support will be fundamental to increasing productivity and to promoting

innovation in food industry.

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Although international food brands are coming into the market, these brands

cannot penetrate all clusters of consumers. Therefore the current businesses

continuously need to innovate in order to retain the success and to consider all the

drivers of innovation to get competitive advantages. Moreover the confectionery

businesses need to integrate with not only customers but also suppliers and

manufacturers in the supply chain. To get the integration, the businesses should join

the industrial association such as Myanmar Agricultural Food Processors and

Exporters Association. This organization focused on continuing to educate processors

for understanding what it takes to make nutritious, safe and high quality food and

build capacity and consumers about what constitutes good food. Moreover, it supports

the members with a broad range of capacity building programmed including food

labeling guidelines and food safety training seminars. It intends food processors to use

current technology to be able to strengthen the safety of the food and align with

international standards. Useful information about what is happening in the local but

also regional food industry can gain by joining the industrial associations. It will

support to have the capabilities to export to overseas markets. In addition, the public

and private sectors should collaborate on key food industry issues such as producing

safe and high quality food and sourcing raw materials from countries outside. The

collaboration can create value for enterprises and consumers by building capacity and

helping to drive a harmonized approach to Myanmar’s food standards. In addition,

most of the businesses provide the required information about their product such as

list of ingredients and expiry date. Although all food products have to be labeled:

FDA (according to officials from the Food and Drug Association) to ensure quality

and safety, only some confectionery businesses have FDA certification. If the

authorities could keep a check to ensure food safety, it is good for both the

manufacturers and the consumers to have more awareness. The policy makers should

support the local businesses to survive among the rivals.

5.3 Needs for Further Study

In the study, the data are collected from the confectionery businesses in

Mandalay only. Hence, the first recommendation is that further research should be

done by opening the survey to other locations in order to improve the findings of the

study. By doing so will also ascertain larger sample size where questionnaire can be

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distributed to more businesses. For example, Yangon may be the research area from

which more data about confectionery businesses can be obtained even if it does not

have traditional confectionery business such as Myint Myint Khin.

Moreover, the organizational capacities for innovation can be assessed with

the ORCI (Organizational Renewal Capability Inventory) method, which enables a

reliable diagnosis of the main organizational strengths and weaknesses in terms of

innovation. To assess and develop the capacities for company-wide sustained

innovation, the ORCI (Organizational Renewal Capability Inventory) (Nisula and

Kianto, 2013) can be applied. Organizational renewal capability is based on the

knowledge-based view of the organization (Spender, 1996) and addresses the ability

of an organization to produce sustained learning and innovation, that is, new products,

processes, practices, insights, and mental models, which enable the organization to

adapt to external changes as well as to create change from within the organization

(Kianto, 2008; Leonard-Barton, 1995; Pöyhönen, 2005).

As a final, further study can be done by focusing on the innovative

performance of confectionery businesses from the customer point of view. The impact

of innovation on customer satisfaction of confectionery business can be analyzed as

further study since this study considered the factors driving the innovation from the

side of the business.

CHAPTER 1

INTRODUCTION

Myanmar is undergoing a significant political and economic transformation.

To succeed, Myanmar must reach a more rapid, sustainable and equitable

development trajectory. This requires a transformation of the economy from an

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agrarian base reliant on small scale agriculture towards a broad range of modern

activities. The country needs to develop its industries because they are the key engine

for boosting the economy and creating job opportunities. The businesses are now

bringing new ideas to the market through innovation. In Myanmar, economic reform

measures for various sectors are aimed at adopting a market oriented system for

encouraging private investments and entrepreneurial activities.

Industrial zones are developed for creating jobs for people in new

townships‚ relocating industries in residential quarters and promoting national

entrepreneurs. However, the industrial zones have been facing many

problems‚ including lack of infrastructure‚ insufficient skilled workers and bank

loans‚ uncompetitiveness due to high production costs‚ land price speculation and

dispute between workers and employers (The New Light of Myanmar‚ August 30,

2014). Many questions have arisen to how these problems can be faced and survived

among them. Therefore there is a need to consider the factors that support the firms to

get competitive edges and survive in the industry.

Since innovation is one of the most important means through which businesses




then to profit from that innovation (Nelson, 1991). Innovation is an important driver

of the firm’s improvements. On the other hand, various factors influence firms’ ability

to innovate. It is needed to examine internal and external drivers of innovation.

Therefore this study also intends to find and analyse the factors influencing on

innovation and performance of confectionery businesses.

New product development is critical for long-term firm performance and has

become a major source of competitive advantage as companies face increasingly

volatile external environments characterized by shorter product cycle time and ever

quickening technological developments. Moreover not only local brand but also

international ones enter into the market. Thus, innovation is necessary to meet the

consumers’ changing needs and wants. Especially, foreign brands come into the field

of confectionery industry in Myanmar. Therefore the confectionery firms need to be

innovative in conducting their firms to be more competitive in the market. Innovation

is an important driver of the firm’s improvements. On the other hand, various factors

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influence firms’ ability to innovate. Therefore the drivers of innovation will be needed

to find out. For this reason this study intends to explore the factors affecting on

innovation that is an important way for businesses to achieve competitive advantage.

1.1 Rationale of the Study

Myanmar has increased manufacturing activities but still is an agricultural

country. The manufacturing sector accounted for the lion’s share of Myanmar’s

economy from 2014-2015 at 19.9% of GDP (The Myanmar Consumer Survey, 2016).

Food industry comprises 63.5% of manufacturing sector (Ministry of Industry (1),

2012). Food and beverage production strongly dominates the private manufacturing

sector in Myanmar. It is quite interesting to learn that various food processing

industries are providers of peoples’ daily needs, which include not only food for

breakfast and fast food but also as gifts for those paying respect. In this regards, these

industries provide not only demand for market and consumers but also compete with

various foreign brands so innovation is crucial in these industries.

Myanmar food industry comprises of several distinctive segments. The

confectionery industry is also one of the segments in food industry. These include

baked goods (bakery products) like biscuits, crackers, cookies, bread, cakes and

confectionary products. Confectionery is defined as the art of making confections

which are food items that are rich in sugar and carbohydrates. Confectionery is

generally divided into two broad categories, bakers’ confections and sugar

confections. Bakers’ confection, called flour confections, includes sweet pastries,

cakes and similar baked goods. Sugar confectionary includes sweets, candy, candied

nuts, chocolates, chewing gum and bubblegum, sweetmeats and other confections that

are made primarily of sugar. In the Middle East and Asia, flour based confections are

more dominant (Myanmar Agro-Based Food Processors and Exporters Association,

2015-2016).

Moreover, over the last years, the Myanmar food sector has transformed as the

range of food prepared and the way it is consumed in Myanmar has changed. More

international food brands are coming into the market and there is a rise in the number

of local food producers, giving consumers greater choice. The food industry is poised

for growth and there are huge opportunities for local food producers and multi-

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national food companies. Therefore Myanmar food industry innovates to add value

and to meet evolving consumer demand. The industry has responded to the dynamics

of consumer demand and food retailing by introducing new product offerings that

meet growing demands from consumers for healthfulness and quality.

Bakers’ confections include sweet baked goods, especially those that are

served for the dessert course. Major categories include cakes, sweet pastries,

doughnuts and cookies. This study focuses on bakers’ confectionery industry in

Mandalay. The reasons for choosing this industry as study area are as follows. Firstly,

according to official statistics, the share of Food and Beverage industry in gross

domestic product (GDP) was 15% on average in the 1990s, while the share of the

processing and manufacturing sector to total GDP was just 9% in 1990-1991

(Ministry of National Planning and Economic Development). The share of Food and

Beverage industry in GDP increased to 19% in 2010-2011 while the share of the

processing and manufacturing sector in the total industrial sector increased by 8%

(from 69% to 77%) from 1990-1991 to 2010-2011. Secondly according to the

Directorate of Industrial Supervision and Inspection as of 31st July, 2012, Food and

Beverage Industry includes 63.51% of all categories of registered small and medium

industries (SMIs) in Myanmar. Finally, it is not only the number of small and medium

enterprises but also the number of large enterprises in Food and Beverage industry is

more than all number of enterprises in other industries.

Moreover, in this study Mandalay region was chosen for the following

reasons. Firstly, the strategic location is one of the many strength s of Mandalay, the

second largest city in Myanmar with a population of over 1.2 million. It is also the

major trading and communication center in northern and central Myanmar. Mandalay

Region is located in central Myanmar and bordering by Sagaing Region to the north,

Sagaing and Magway Regions to the west, the Union Territory of Nay Pyi Taw to the

south, and Shan State to the east. Despite Nay Pyi Taw being the country's capital,

Mandalay still remains Upper Myanmar's main commercial, educational and health

centre as the capital of Mandalay Region. It is the economic hub of Upper Myanmar

and considered the centre of Myanmar culture. Most of Myanmar border trade to

China and India goes through Mandalay (Myanmar Investment Commission,

Mandalay Investment Opportunities Survey Report, 2015). This geographically well

positioned means the potential for food production and significant development for

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trade. Secondly, the availability of the raw materials gives a great advantage.

Mandalay is blessed with abundant resources which provide the right environment for

food production. In Upper-Myanmar, most raw materials are easily available in

Mandalay such as the main raw material; wheat. For example Done Pyan Wheat Mill

is located in Mandalay Industrial Zone. Most suppliers have efficiently managed their

supply chain (transportation, delivery, etc…).

Most published research studies, which dealt with determining factors

significant for innovation, come from developed economies. Yet policy makers in

developing countries, faced with the task of crafting regulations to support innovation,

often draw upon the stock of knowledge from investigation of the firms in developed

economies. So an important issue for policy makers would be to find out to which

extent they can rely on these findings. Therefore this study focus on the finding

factors that influence on the innovation‚ to develop new products and to improve the

firms’ success through innovation.

Innovation enables the firms to become competitiveness and to satisfy

customers’ needs and wants that are always changing. As innovation is important in

the firms’ success, it must find the ways which affect innovation. Although businesses

can survive due to royal customers, they will not succeed without innovation. Most

businesses innovate to gain and keep customers and market share both locally and

globally. This study aims to link innovation, one of the main factors for success of

confectionery businesses, the motivating and hindering factors of innovation and their

performance.

According to the previous research, innovations became an important aspect

of every business activity due to the fact that they can create a new space for potential

specialization and future growth. Innovation is one of the means to be competitive and

to satisfy the customers’ needs and wants. By successfully innovating, the inventor/

business usually earns a reward in the form of money or respect. A satisfactory

outcome for the user/consumer is the improved quality, availability, diversity or

increased quantity of goods and services. The question is whether innovation is

something that can significantly improve chances of the firms in Myanmar to achieve

success.

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As the country’s infrastructures are important for the development of a

country, the citizens also need to be healthy. Therefore health consideration of

foodstuff producers is important. The problem statement of the study was motivated

by the question of what are the strong factors that affect innovation and how will the

confectionary businesses be performed.

Large firms provide streams of incremental improvements. Moreover, these

firms voluntarily disseminate much of their innovative technology widely and rapidly,

as a major revenue source and in exchange for complementary technological property

of other firms, including direct competitors. Since innovation is one of the means to

become competitive and to satisfy the customers’ needs and wants, many rival large

firms use innovation as their main weapon, with which they protect themselves from

competitors and with which they seek to beat those competitors out.

1.2 Problem Statement of the Study

The revolution is emerging in many parts of the world, including

confectionary industry. Individuals demand confectionary products which match with

their changing lifestyles. This is the growing consumer trend of eating healthy foods

that promote physical and mental health, support a strong immune system and prevent

disease. Consumers want ‘on-the-go’ eating options that offer more than high fat, high

sugar and ‘empty calories’. Food providers are interpreting consumer needs in

innovative ways such as one by one packing to be more convenient.

Some food product items such as Htoe Mont, La Mont and Sanwinmakin

(kind of pudding made with flour from the heart of wheat grain, sugar, coconut milk,

oil, butter, etc as ingredients) are produced as traditional confectionary business

during the period of twentieth century. Nowadays, new food items such as Jelly

Pudding, Pumpkin Sanwinmakin, and Carrot Sanwinmakin are produced and sold in

the food market. In the past, packaging is done with newspapers and banana leaves

and now, neat, tidy and beautiful thick card boxes are created to meet the market

demand for consumes’ needs. Additionally, plastic boxes are produced to be more

convenient and for easy use when travelling. Branch shops are also opened to

penetrate the market and to increase market share. One significant tradition of selling

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traditional confectionary businesses is that consumers can taste variety of these

Myanmar foods before they buy them.

Bakery Businesses produced European Food namely cake, bread and biscuit

in order to meet the taste of Myanmar People, Moreover, new food products are

carefully prepared to meet the standard of healthy food, in taste, ingredients etc.

Some foods are modified with easy-to-carry packages to suit the changing consumers’


transportation throughout the country. These operations are conducted by the

innovation of product, process and market.

Previously, teashops and cafes sold only Marigold, Indian Pancake, but in the

later period they added cakes, La Mont and bean bread to their range of food list.

Teashop culture of Mandalay has become very popular not only as an eating place but

also as a meeting centre for discussing social and business matters. So, teashops

innovated their food products to satisfy and fulfill the demand and preference of

consumers. Today teashops are different from traditional teashops and their modified

and innovative decoration includes air conditioning and Wifi Free Service, on top of

using pure cooking oil and sugar for the consumer, giving careful consideration to the

healthy life of the people. Food producers take into account the fact that most

consumers now have much greater awareness of healthy living. In addition, the

teashop owners also take into account the cleanliness of their shops both inside and

outside, better service of waiters and waitresses and happy hours for consumers. This

study took account of some teashops and cafes as bakery businesses because of their

innovative activities in producing new products.

Innovation in the food sector is driven by trends in consumer demand for food

products with emphasis on variety, quality, nutrition, convenience, safety, reasonable

cost and environmental soundness (Barbosa and Gould, 2000). Food companies

naturally respond to such trends and increase their efforts as part of this response and

seek to gain a sustainable competitive advantage over other companies by exploiting

new technologies and innovations (Traill and Meulenberg, 2002; Lagnevik, Sjoholm,

Lareke and Ostberg, 2003). Therefore this study intends to explore and define the

important drivers of innovation and types of innovation for successful confectionery

businesses.

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The food processing businesses need to innovate in competitive edge in order

to survive. Moreover the businesses must take the consumer protection into account

and so the following Food Regulations and Related Laws are regulated by the

government to be obeyed by food processing industry in Myanmar.

(1) National Drug Law (30.10.92)

(2) National Food Law (3.3.97)

(3) Pesticide Law (11.5.90)

(4) Fertilizer Law (1.1.2002)

(5) Plant’s animals’ protection Law (16.6.93)

(6) Infection controlling and protection Law (20.3.95)

Food and Drug Supervisory Committees, Department of Health, Ministry of

Health enacted National Food Law in 1997 in order to

(a) Enable the public to consume food of genuine quality, free from danger and

hygienic;

(b) Prevent the public from consuming food that may cause danger; or are

injurious to health;

(c) Supervise production of controlled food systematically;

(d) Control and regulate the production, import, export, storage, distribution and

sale of food systematically. (The State Law and Order Restoration Council

Law No. 5/97)

This study is confined to confectionary firms located in Mandalay only.

Mandalay is the second largest city in Myanmar, whose geographical location has

helped it develop into a focal point for the transportation of foodstuffs and goods from

many parts of Myanmar and beyond. As a result of its advantageous geographical

position, a variety of goods and foodstuffs are readily available in Mandalay.

Furthermore, as a result of modernization, the number of confectionary firms in the

city is increasing and the firms are trying to catch up with the environmental changes.

“Myanmar initially attempted to adjust to the changing local and global

conditions it faced” (Thant Myint, 2004: 105, 9-10, as cited in Phatcharanuruk, 2015: 3)

in “The Making of Modern Burma”. The sustained innovation, political and economic

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reforms were taken place over the period 1853 to 1885. However, these reforms did

not succeed due to both internal and external conditions, but did provide the context

for the modernization that took place later during the British rule.

After Independence, Myanmar had a democratic government for a short period

of time, from 1948 to 1961, after which non-democratic socialist government held

power from 1962 to 1987, then a military government from 1988 to 2011. The

military government issued an agricultural development policy, with new techniques

and machinery introduced to the rural population. Factories were also built in the

cities. However developments over the period 1948 to 1987 brought little progress.

The Lives of Burma Women mentioned that at that time food related industries

sprung up and products such as canned fish, sweets and making or processing biscuits

were made.

Under the context of high competition and sophisticated demand of today

consumers, the confectionery business possess several strength such as abundant

natural resources, adequate human capital, sufficient local market, abundant potential

to set-up industries and availability of raw materials at reasonable cost. At the same

time, they have numerous weaknesses to face the challenges in food processing

industry mainly low production capacity, using traditional wisdom in manufacturing,

low local and international branding, low access to international markets, lack of

awareness in international standards and norms. It implies the fact that a

comprehensive research on confectionery business is critical to identify the types of

innovation that can lead to improving the performance of confectionery businesses in

Mandalay.

1.3 Research Questions

Confectionary firms in Mandalay are promoting their businesses with several

types of innovation. However, it is not still assured that all of the businesses will

know about the factors influencing the innovation and their performance. Therefore

the following questions are emerged.

What are the drivers of innovation?

What types of innovation are more influenced?

What are the results of innovation—such as performance results?

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1.4 Objectives of the Study

Based on the specific research questions, this study set the specific objectives.

In Myanmar, many businesses face with the problems of not having enough capital,

inadequate skilled workers, high production costs, land price speculation and dispute

between workers and employers. Therefore businesses need to consider getting

competitive edges and surviving among the rivals. In this situation, innovation is an

important factor for the firm’s improvement. Moreover various factors drive the

firms’ innovation. This study aims:

4. To examine the drivers of innovation in confectionery businesses.

5. To identify the types of innovation that influence on the firm’s performance.

6. To evaluate the effect of innovation on the firm’s performance measures.

1.5 Method of Study

This study employed both qualitative and quantitative approaches for finding

out the drivers of innovation and the types of innovation and performance of the firm.

and then survey with five-point likert scale for three constructs of independent

variables, drivers of innovation: firm structure, firm culture and external factors to

innovation and three dependent variables: product innovation, process innovation and

market innovation. The questionnaire was pre-tested to check its content validity and

modified accordingly. The modified questionnaire was tested to examine its

suitability for the target population before the actual survey.

Primary data is obtained through a questionnaire from production managers or

owners, who were responsible for the production of the confectionery firms in

Mandalay. This study focuses only on manufacturing firms because these firms are

more competitive and so need to innovate for competition. Though innovation process

is started with the step of idea generation by everyone, especially the people who

make the decision may be from the management level in the implementation process.

Therefore the interview was carried out to obtain the required data from the

management level of the confectionary firms by using structured questionnaires.

The simple random sampling (SRS) method is used to select the sample. The

sample for this study is selected from the firms which are operating especially as

manufacturing firms within at least three years time frame. In the previous study, “the

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average company 2.95 years takes for developing more innovative types of new

products” (Page, 1993, as cited in Goffin, Szwejczewski, Sweeney and New, 2000).

In the questionnaire, Likert scale questions and list type are used. The

questionnaire has been divided into two main parts. The first one is concerned with

the profile of the firm and the owners/managers. According to the framework, the

following information is included in the second section.

4. Drivers of innovation

5. Types of Innovation

6. Business Performance

In the framework, the drivers of innovation are used as the independent

variables. The types of innovation are the dependent variables. To understand the

factors influencing innovation and innovativeness, confectionary business owners and

managers in Mandalay municipal area were interviewed by questionnaires. The

questionnaire was designed to assess a firm's general characteristics, business

structures, culture, strategies, barriers and types of innovation and business

performance. The preparation of the questionnaire takes into account questionnaire

forms used in similar studies and commonly accepted measures met in the literature.

Specifically, questions are raised for independent variables regarding firm

characteristics, firm structure, firm culture and external factors using a 5 point likert

scale to inquire the importance the firm awards to each item in a scale ranging from 1

= strongly disagree to 5 = strongly agree. For barriers to innovation was prepared yes

or no questions. The questions about type of innovation are also enquired employing a

5 - point Likert scale. The respondents are asked to indicate “whether the innovative

activities are implemented or not in your organization in the last three years” ranging

from 1= ‘strongly disagree’, 2= ‘disagree’, 3= ‘neutral’, 4= ‘agree’, 5= ‘strongly

agree’.

On the other hand, some of the determinants of innovativeness such as general

firm characteristics (i.e., size, age and ownership status) is in a different scale (the

answer to these determinants have either nominal values or ordinal). Discussion with

some of the business owner was undertaken before the questionnaires are prepared.

Data collection began at the last quarter of 2016. The questionnaires were used to

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make face to face interview with firms’ owners or upper level managers of the

confectionary businesses in Mandalay municipal area.

In the questionnaire, there were two sections. In section one, general

information of the firm were collected by using eight questions (number of

employees, firm age, ownership status, number of product items, time for NPD and

cooperators in innovation and so on) as Part A. In Part B of Section one, the personal

data of the owners/managers was collected with nine questions (position, age, gender,

educational level and the perception of innovativeness). In Section two Part A, as

internal factors, fifty nine items (11 items for intellectual capital, 9 items for

organization structure, 9 items for organization culture, 6 items for market strategy,

10 items for manufacturing strategy 6 items for customer needs and wants, 5 items for

intensity of competition and 3 items for technological opportunity) with five-point

Likert scale were used to measure the selected variables: 1 Strongly disagree, 2

Disagree, 3 Neither agree nor disagree, 4 Agree, 5 Strongly agree. In the Part B of this

section, 13 items (5 items for product innovation, 4 items for process innovation and 4

items for marketing innovation) were used to measure the innovative activities of the

business. And then five point Likert scale were used to measure the business

performance; number of employees, number of production, number of sale and Profit:

1 = Much declined, 2 = Moderate declined, 3 = Not change, 4 = Slightly improved, 5

= Improved. The last part of section two included the questions about the performance

of business.

1.6 Research Hypotheses

In this study, the hypotheses are tested by analyzing data collected from survey

work. These hypotheses are as follows:

H1 (a) Firm characteristics have a positive and significant effect on product

innovation.

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H1 (b) Firm structure has a positive and significant effect on product innovation.

H1 (c) Firm strategy has a positive and significant effect on product innovation.

H1 (d) External factors have a positive and significant effect on product

innovation.

H2 (a) Firm characteristics have a positive and significant effect on process

innovation.

H2 (b) Firm structure has a positive and significant effect on process innovation.

H2 (c) Firm strategy has a positive and significant effect on process innovation.

H2 (d) External factors have a positive and significant effect on process

innovation.

H3 (a) Firm characteristics have a positive and significant effect on marketing

innovation.

H3 (b) Firm structure has a positive and significant effect on marketing

innovation.

H3 (c) Firm strategy has a positive and significant effect on marketing innovation.

H3 (d) External factors have a positive and significant effect on marketing

innovation.


performance.


performance.


performance.




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1.7 Scope and Limitations of the Study

This study focuses on the factors contributing to the innovative effort of

confectionery businesses and set out to investigate the innovative activities

undertaken by these businesses. From the database of the Industry Supervision and

Inspection Department, 89 confectionary firms in Mandalay municipal area are

surveyed by simple random sampling (SRS). From these firms, only innovative firms

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were analyzed to explore the major drivers of innovation. The innovative firms were

selected by asking whether they introduced new product, process and market or not.

Though innovation process begins with the step of idea generation, the people

who make the decision may be from the management level in the implementation

process. In this study, it is assumed that the firms’ managers already have creative

idea. Therefore the first step of innovation process, the idea generation is to be

ignored and the study omitted the idea creation. The interview was carried out to

obtain the required data from the management level of all the innovative


1.8 Organization of the Study

This study consists of five chapters. Chapter one is the introduction of the

study. It includes the rationale of the study, problem statement of the study, research

question, objectives of the study, method of study, research hypotheses, scope and

limitations of the study and organization of the study. Chapter 2 provides the literature

review on business innovation and performance. It describes previous major works on

definition, determinants, process and innovativeness of the businesses. Chapter 3

provides the research methodology with the research area, research method, sampling

and then data collection and cleansing. In Chapter 4, the analysis and interpretation

regarding the drivers of innovation and the relationship between the firms’ innovation

and performance of the firm are described. Chapter 5 presents conclusions,

recommendation and suggestions for future research.

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CHAPTER 2

LITERATURE REVIEW

This chapter presents the concepts and literature review for the framework of

the study. Firstly, the concept of innovation is reviewed. And then the literature

review of the drivers of innovation, types of innovation and the performance of the

firm are described as the conceptual framework of the study.

2.1 The Concept of Innovation

Joseph Schumpeter (1934) as cited in Croitoru (2012) defined innovation as

"the creation of new combinations that is the introduction of new good, of new

quality of good, or of new method of production, the opening of a new market, the

conquest of new source of supply of raw materials or half-manufactured goods, and

finally the carrying out of the new organization of any industry". Excluding any

innovation and innovative activities remained in stationary stage (Bigliardi, Colacino,

and Dormio, 2011). Today it is commonly accepted that without innovative activities

the development in individual companies and the whole of the society will stop. On

the other hand it is important to know what factors influence the business innovation

and how the business succeed through innovation.

The term innovation derived from the Latin (Hsu 2005, as cited in Ottosson

2006) means new or young or novel. It has various accepted definition. For most

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people “to be innovative” means to be creative and to make something new. For some

people it means a new idea, for others it means an invention (a materialized new

idea), for some a new product (a developed invention), for some others it means the

art of creating a new product or process, and still for some others it means to create a

new business. For most people “to be innovative” means to be creative and/or to make

something new.

As inventions and innovations are associated phenomena, innovation scholars

make it a point to clarify the distinction between the two. It is explained that though

invention is a prerequisite for many innovations, it is only when an invention is

exploited commercially that it results in innovation (Brenner, 1990). Another, though

less popular approach to distinguish innovation from inventions has been to claim that

inventions relates to new ideas in general whereas innovations are ideas that are new

within a specific context (Van de Ven and Poole, 1989 and Damanpour, 1987).

Research and development (R&D) is shown to be concerned with the

commitment of resources to research and the refinement of ideas aimed at the

development of commercially viable products and processes whereas innovation is

concerned with subsequent product (or service) development process.

Innovation, however, is considered a nebulous concept. Godin (2002) believes

that the ambiguity in meaning is caused by the following factors.

5. Depending on the analyst's research focus and convenience of data

availability, it is defined as an outcome or as an action.

6. There is no settled opinion on whether an innovation should be new to the

world, to the nation, to the industry or to the firm.

7. With reference to process innovation, a firm can be innovative both by

inventing new production processes, as well as by using new technologies

invented by others.

8. Conducting R&D as well as acquiring advanced technologies and employing

highly skilled workforce both are perceived as being innovative.

Innovation is the introduction of new ideas, goods, services, and practices

which are intended to be useful (though a number of unsuccessful innovation can be

found throughout history).The main driver for innovation is often the courage energy

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to better the world. An essential element for innovation is its application in a

commercially successful way. Innovation has punctuated and changed human history

(consider the development of electricity, steam engines, motor vehicles, etc).

Moreover innovation seems to involve not only new ideas and their development, but

also change and risk (Norris, 1981).

Although the importance of innovation is widely recognized, there is no

unanimously accepted definition on what innovation means. Comparing the numerous

definitions, Goffin and Mitchell (2010) noticed that they cover a set of common

elements:

1. what is changed (products, services, business process, and manufacturing

process);

2. the degree of change (a completely new output or some modifications were

implement to a previous version of the product).

With this regard, there are radical innovations, which represent completely

changes compared to the existing ones and incremental innovations, which represent

small changes to existing products.

Promoting economic growth through wealth and employment creation is the

only way to reduce poverty in a sustainable way. Likewise innovation is increasingly

recognized as having an important contribution to make to organizational success,

performance and survival. Drucker (1985) argued that innovation is the tool of

entrepreneurship. In addition, both innovation and entrepreneurship demand

creativity. Creativity is a process by which a symbolic domain in the culture is

changed. Moreover the development of successful new products is one of the ways in

which companies can achieve competitive advantage. New product development

(NPD) is a process which carries a great deal of risk. For NPD to be effective,

companies have to nurture an innovative corporate culture so that everyone in the

organization is encouraged to be innovative in their work.



it’s also the central point in contesting for many industries and in fact new products


for companies.

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2.2 Innovation Process

The multistage process whereby organizations transform ideas into

new/improved products/services or processes, in order to advance, compete and

differentiate themselves successfully in their marketplace (Baregheh, Rowley, and

Sambrook, 2009). Firms are also motivated to improve processes in order to reduce

costs, expand their production possibilities and also to improve production flexibility

and co-ordination (Davies 1988, Tirole 1988, Davenport 1993). There are three main

stages in the innovation process:

4. Generation of ideas: individuals and teams are producing new ideas and

improving existing ones.

5. Harvesting ideas: the act of gathering the ideas, sifting through them and

evaluating them.

6. Developing and implementing the ideas: the research, testing, improving and

development of the ideas and their implementation (Thomas, 2006).

To innovate is to introduce something new – product, method or service. It is a

combination of two processes: generating new ideas and implementation of them.

Innovations, a type of change which can be either a series of steps or one huge leap

towards in a desired direction.

Innovation calls for good leadership management at all levels of the

organization. Good leaders will stimulate people to be more hand on and interested in

their work, and in turn, this will lead to the generation of more good ideas. Managerial

leaders are needed for change to be able to happen and change brings about the need

for leaders.

A general interest in all things leads to ideas. The recognition by management

of these ideas leads to greater job interest, a deeper involvement and commitment

from staff. However innovation is more than having new ideas, practical and

commercial products or services. Most change happens gradually a development of

existing ideas, products and services.

According to Verworn, Hersttt, Nagahara, Luthje, and Herstatt, (2000/2006) a

simplified innovation process encompasses several systematic steps such as

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requirement analysis, idea generation, idea evaluation, project planning, product

development, product testing, and product marketing.

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Figure (2.1) Three Phases of a Simplified Innovation Process

Source: Verworn et al. (2000/2006)

As shown in Figure (2.1), there are three phases of a simplified innovation

process. These three phases are conception, implementation and marketing. Firstly it

is needed to transform the new ideas into new product and then need to test and try

whether the new product may be commercialized. This study emphasized on the

implementation process to assess the relative contribution of the drivers of innovation,

the types of innovation and performance of the firm.



it is also the central points in contesting for many industries and in fact new products


for companies.

In response to environmental changes in an appropriate manner, companies

suspend or modify production or supply of some products. In addition, in order to

identify and supply customers’ demands in different markets and to launch long term

business and increase commercial outcomes, the companies must develop new

products. New product development is a term used to describe a complete process to

achieve a new product, a process beginning from ideas and ending to commercial

exploitation of the new product. Companies have to modify previous products or even

develop new products not only for improvement but also for survival in the

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3 Phases of a Simplified Innovation Process

Conception Implementation Marketing

• RequirementAnalysis• Idea Generation• Idea Evaluation• Project Planning

• Development/Construction• Prototype Dev.• Pilot Application• Testing

• Production• Market Launch and Penetration (national /international)

competitive environment; so that developing new products with superior quality,

reduced cost and time (from designing to reaching marketplace) assures customers’

satisfaction and profitability. New product development is a substantial approach for

company survival in a competitive market.

The product innovation process involves a series of sub-processes dominated

by the product development process. Product development can be defined as “the

process that transforms technical ideas or market needs and opportunities into a new

product and on to the market”. It includes strategy, organization, concept generation,

product and marketing plan creation and evaluation, and the commercialization of a

new product. The product development process is a disciplined and defined set of

tasks, steps, and phases that describe how a company repetitively converts ideas into

saleable products and/or services. The product development process itself can be split

up into three phases: policy formulation, idea finding and strict development.

Enterprises must constantly innovate and conduct research on new products,

choose appropriate products with new technology, cope with customer demands and

the threat from new competitors. A new product development (NPD) strategy is an


improvements. Most enterprises have now placed great emphasis on shortening the

time for a new product coming into the market. Analyzing performance impact of

customer interaction in new product development on a more general level can yield

important managerial insights.

The US based Product Development & Management Association defines new

product development as “A disciplined and defined set of tasks and steps that describe

the normal means by which a company repetitively converts embryonic ideas into

saleable products or services” (Belliveau, Griffin and Somermeyer, 2002, as cited in

Amue and Adiele, 2012) . According to Wheelwright and Clark (1992), companies

need to be able to bring new products fast to the market in order to succeed in the

global and dynamic competition, products that satisfy the expectations of the

customer.

In fact, it is largely accepted that NPD is remarkably important for the

survival, sustainable competitive advantage and performances of every company

(Cormican and O’Sullivan, 2004; Di Benedetto, Calantone, Van Allen and Montoya-

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Weiss, 2003; Song and Parry, 1997; De Brentani, 1989). The development of a new

product by a company begins when the need to create a new product appears either

due to the emergence of a new technology, or the appearance of a competitive product

or a change in the existing legal framework and is completed with the final

introduction of the product in the market.

A company or an enterprise may proceed to a new product development

whether that company or enterprise is part of a rapidly changing market or not. Those

new products may be based on other already existing ones and act as a complement or

improvement to existing offerings, or may be totally new products based on new

technology without the need of support from others. A company or enterprise decision

to develop a new product is probably one of the most important decisions to be made

in the history of that company or enterprise, because a new product development is

directly linked with the development and the evolution of that company or enterprise.

Song and Montoya-Weiss (1998) considered the growing in current market

and technology strategy lead to incremental new product development. A

development strategy that pursues a new market with a new product and technology

will create a “real new product”. A strategy involving a current market and new

product or new market and current product is classified as a moderate innovation.

The “newness” of a new product can vary from high to low and depends on

whose perspective and what is new. The different perspectives yield the following:

1. New to the world

2. New to the industry

3. New to the manufacturing firm

4. New to the market

5. New to the customer

Viewed in terms of what is new, yield the following:

1. New technology

2. New process

3. New features

4. New uses

5. New design

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The degree of newness is an indicator of the difference between the new

product and the existing one. The change (depending on the perspective) can vary

from minor or incremental to major or radical.

In the other study, information on customer needs and user experiences were

viewed as resources companies depend upon for successfully developing new

products. Due to the advances in science and technology and the rapid changes in the

market, a product’s life cycle has become much shorter than before. Therefore

enterprises must constantly innovate and conduct research on new products, choose

appropriate products with new technology, cope with customer’s demands and the

threat from new competitors. A new product development (NPD) strategy is an


improvements.

Cooper (1983) proposed a new product development procedure. This

procedure covers various activities such as creation, creation dissemination,

preliminary product development, economic analysis, product prototype test, pilot

run, product mass production and entry to market.

Song and Parry (1997) adopted four indexes to measure the comparative

success level for a manufacturer’s new product as: (1) overall profit; (2) new product

sales compared with competitors; (3) profit rate for new product compared with

competitors; (4) new product success compared with the expected profit. Calantone,

Di Benedetto, and Haggblom (1995) utilized the return on investment (ROI) and the

growth rate on investment (GROI), return on sales (ROS) and growth rate on sales

(GROS) and market share and growth rate as performance measurement indexes.

Cooper (1984) chose three indexes to measure new product development performance:

(1) overall performance of new product; (2) success rate of new product development;

(3) effect of new product on a company.

Hopkins (1981) took five indexes to measure new product development

performance: (1) finance evaluation; (2) objectives evaluation; (3) rate for new

product accounted for in the gross sales amount; (4) percentage of successful new

product development; (5) overall subjective satisfaction scores for new product

development. Dwyer and Mellor (1991) used four indexes: (1) assessment of the

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overall success or failure; (2) profit level; (3) sales goal; (4) opportunities that could

be brought by the new product in the future.

Sixotte and Langley (2000) thought that cross department horizontal

communication and information exchanges could greatly decrease the uncertainty in

new product development and improve new product development performance.

New product development strategy thought that there were four variables

concerning a new product development strategy (Cooper 1984).

(1) Orientating the enterprise to a new product: This includes creating a new

product, developing a better product for meeting the customer’s demand than

that of competitors, and product concentration and differentiation.

(2) Market characteristic adopted by the new product: This includes the

characteristics for a new market, customers, competitors and new sales

channels.

(3) The enterprise’s technological orientation and commitment: This includes the

percentage of R&D expense to sales amount, company’s R&D orientation,

etc.

(4) Technological characteristic adopted by the new product: This includes more

advanced and complicated technologies, closely matched with the company’s

R&D resources, technical maturity and concentration.

Komininos, Milossis and Komininos (2002) stated that an enterprise should

follow the new product development model for the proper development of a new

product in New Product Development.

1. Creation of ideas

2. Evaluation of ideas – Selection of final idea

3. Product development

4. Manufacture of prototype

5. Product promotion

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1. Creation of Ideas

Prior to the development of a new product, it is necessary to have some initial

ideas for new products, one of which will become the new product. The creation of

those ideas forms the basis for the proper development of a new product.

a. Ideas from customers or users of company products

Ideas for new products can quite easily ensue from the customers of the

company or from users of previous company products. In this case, the golden rule is

for the company to offer its customers what they want and not what the company

thinks they want. Gathering such ideas is very easy with the use of questionnaires

either upon the purchase of a product (research at the product outlets), or over the

phone (telephone research based on the company clientele list), or through the

Internet (on-line questionnaires).

b. Ideas deriving from market research

Market research is another good source of ideas for new products. The

successful development of a new product requires very good knowledge of customers

and their needs and, more generally, of the market to which the new product is

addressed. Thus, all the more companies or enterprises develop new products based

on the orientation of the market. The orientation of the market can be defined as a set

of interlinked procedures and activities, aiming at the creation and fulfillment of

customer needs through constant assessment of those needs. In other words, the

enterprises that develop their products based on market-orientation, develop tools to

study the market and elaborate development strategies to constantly satisfy the needs

and desires of the customers – consumers.

Market-orientation studies on companies in Scandinavian countries and the

USA have shown that, despite a significant and intense government intervention and a

low level of competition, those enterprises barely use this mean. On the contrary,

Japanese enterprises depend all the more on the development of products through

market orientation studies. As to European and other Asian enterprises, studies have

shown that the market-orientation analysis process is very important especially for

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those enterprises that are based on rapid technological changes; it is equally important

within the framework of those markets characterized by stiff competition and doubt.

All the above-mentioned studies point to the fact that, the use of market-

orientation studies as a mean to guide the development of new products depends on

the cultural differences between the markets of the various countries on the globe.

c. Ideas deriving from competitors

Expos, shows and seminars of rival companies may be a very good source for

the creation of ideas, because through these events a company may become informed

on market innovations, on technological advances, as well as on possible

improvements on existing products – competitive or not.

Kotabe (1990) concluded that the product innovation level has a direct relation

to performance, i.e. the higher the product innovation level, the better performance.

However Davies (1988) investigated three new product development cases with seven

activities proposed by Booz, Allen and Hamilton, among which two are failed and

one succeeded. Both the two failed indicates that omitting the important developing

activities, product test, will lead to failure. While another succeeded case for new

product in a hotel is mainly due to implementation of product development activities

step by step.

Cooper (1984) investigated 58 innovative industrial products from 30 different

industrial companies. In the following seven new product developing activities, the

successful cases had complete implementation activities. The failed cases omitted

important activities, such as: creation filtration, market research and product prototype

tests using customers. Hise, O’Neal, McNel and Parasuraman, 1989, as cited in Kleef,

2006) concluded in their studies that a company that performs its operations without a

specific procedure or lacking a complete development schedule would decrease its

success rate for new product development and entry to market. If a non-dominant

company wants to bring a brand new product into a new market, that company must

adopt a complete procedure. If that company wants to bring an existing product into

another country, creation generation, conception evaluation and some other

procedures could be omitted.

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d. Ideas deriving from company employees or dealers

Company employees and dealers may prove valuable to the creation of ideas,

when that company is operating on a market through them. They are the ones who are

in constant contact with the public – customers or not – from whom they can draw

information regarding company products. The public may inform them on potentially

necessary improvements, complaints on existing products or the need for new

products. Furthermore, in cases where the market is differentiated due to its

geographical position, dealers and employees are the only ones who can offer such

sort of information to a company based far away from the market it is addressed to.

2. Idea Comparison and Assessment (Screening)

The second stage of the product development model is the evaluation of ideas.

In this stage, the ideas are assessed based on objectives, sales and profit and

customers and users.

a. Assessing ideas based on company objectives

The assessment of new product ideas based on the objectives of a specific

enterprise and its strategic course in any market may enhance its objectives, also

allowing it to select the optimum idea for the development of a new product in

accordance with the future course of the enterprise as set through its strategic

planning. This way, selecting the appropriate strategy may also function as a guide for

the assessment of various ideas and the adoption of the best one amongst them.

b. Assessing ideas based on sales and company profit

Each new product to be developed or each new idea to be made into a new

product should be capable of producing a minimum percentage of sales, and

consequently profit, for the enterprise.

c. Assessing ideas based on big customers and users

An important issue that many companies, big or small, tend to overlook is the

assessment of new ideas, which could develop into new products, deriving from big

customers and users. The most common phenomenon is the full development of a

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product ensuing from a good idea, without the slightest involvement of the end-users,

due to the large enthusiasm entailed in such a development. As a result, when the

product is introduced in the market it fails, jeopardizing not only the investments

made for its development, but also the future of the company.

3. Product Development

The third stage of product development model is to produce product through

research and development.

a. Research and Development

For the development of a new product, in most cases it is necessary to use

research and development departments within the company. The aim of these

departments is to perform research on new technological and non-technological

applications and to further develop them into products. The basic factors constituting

the proper organization and operation of such departments are finance, manpower,

management and so on.

b. Environmental Restrictions

The enactments of strict environmental regulations and consumer awareness

as to the protection of the environment have led many companies to the development

of new products bearing in mind the protection of the environment. However, such a

tactic bears consequences on the way these products are developed, since it concerns

their production, consumption and final disposal as refuse. Either way, each change

as to the way these new products are produced in order to be environmentally friendly

is very costly. The high cost of those changes gave birth to the new product

development tactic known as “Green design”.

This tactic consists of two strategies: the first one is trying to find ways to

reduce environmental pollution during the production and development of the new

product, and the second one is attempting to find ways of reducing pollution after the

use of the product, by optimizing recycling or re-use of part of the product or the

product as a whole.

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4. Prototype Manufacture

The fourth stage is the development of prototypes that is conducted by

advanced technology.

a. Prototyping

The rapid development of models or prototypes may largely reduce the

development cost and the product development cycle. In addition, they can be used in

test markets prior to the entry of the product in the final production and

commercialization stage.

b. Market Testing

Each new product should be subjected to a limited or extended market testing,

so as to record the reactions of the market and thus perform the final changes or

improvements on the product or even on the way it is developed prior to its full

introduction in the specific market.

5. Promotion of the Product

The final strategic plan for the development of a product before it enters the

market is probably the most important product development step, since it places the

emphasis on the details regarding the presentation, use, etc. of the new product in the

market.

In managing innovation, Tidd, Bessant and Pavitt (2005) presented the four

important routines for innovation as followed:

Successful innovation is strategy-based.

Successful innovation depends on effective internal and external linkages.

Successful innovation requires enabling mechanisms for making change

happen.

Successful innovation only happens within a supporting organizational

context.

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2.3 Drivers of Innovation

The origins of the determinant perspective to the study of innovation and other

phenomena within the social sciences could be traced to Francis Bacon’s pioneering

work on the scientific method (Bacon, 1902, as cited in Vyas & Renuka, 2013). The

conclusions of capacious investigation of innovation from a determinants perspective

can be better appreciated by dividing them in two parts, endogenous and exogenous

determinants, which can be then divided in two further sub-parts strategic and non-

strategic determinants.

Endogenous strategic determinants crystallised by previous research include

market-orientation (Kohli & Jaworski, 1990), learning process quality (Cohen &

Levinthal, 1990), technology policy (Ettlie & Bridges, 1984); use of cooperative

networks (Beaver & Prince, 2002) and managerial efficiency (Moore, 1995) whereas

endogenous non-strategic determinants include characteristics of entrepreneur

(Casson, 2003), innovativeness of people (Patterson, 2001), existence of innovative

teams (Anderson & West, 1998), financial adequacy (Beaver & Prince, 2002) and age

and size of enterprise (Acs & Audretsch, 1990; Schumpeter, 1934, as cited in

Croitoru, 2012).

Degree of industry concentration, barriers to entry, and intensity of

competition are industry specific exogenous determinants (Acs & Audretsch, 1990)

whereas, regional economic performance (Roper, 2000); industrial policy and

legislation (Antonelli & Calderini, 1999); networks (Breschi, 1999); level of

entrepreneurship (Acs & Audretsch, 1990), potential for spin-off (Oakey, Rothwell &

Cooper, 1988), society’s attitude towards innovation (Rothwell & Zegveld, 1982) and

headquarter branch ratio (Oakey, Rothwell & Cooper, 1988) are region specific

exogenous determinants. Moreover environmental factors, regulations and standards

have also become significant drivers of innovation in the food industry (Jongen and

Meulenberg 2005).

Yachmeneva (2014) also analyzed the factors affecting the level of

innovativeness of the enterprise and identified the relationship between innovation

and the characteristics of its activities by grouping as external and internal

environmental factors. Environmental factors are divided into macro and micro

factors. Macro environmental factors; includes the factors of indirect influence,

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Determinants of innovation • External factors • Internal factors

Obstacles to innovation

Innovation •Whether innovated or not •Type of innovation

included the legal political, social, technological, economic, sustainable and climatic

factors and micro environmental factors; as factors of direct influence, included the

suppliers, competitors, customers and contact audience.

Figure (2.2) Modeling Factors that Propel Innovation

Source: Radas & Bozˇic´ (2009)

In studying Croatia’s emerging transition economy, Radas & Bozˇic´ (2009)

explored factors that drive and hamper innovation. A number of studies were

conducted recently with the goal to discover which factors contribute to innovation

efforts (Keizer, Johannes and Halman, 2002). Following Keizer et al. (2002), the

factors that have effect on innovation can be divided into internal variables which

refer to characteristics and policies of the firms and external variables which refer to

opportunities that firms can seize from its environment.

Vyas (2009) considered market orientation, learning processes, technology

policy, cooperation and networks, managerial efficiency, age of enterprise, size of

enterprise, human resources, innovative people and financial resources as the internal

drivers of innovation. Radas (2009) studied innovation subsidies by municipality,

innovation subsidies by the government, collaboration with other firms or institutions

and market scope as external factors.

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Figure (2.3) Internal Determinants of Innovation

Source: Vyas (2009)

Various authors argued that innovation is a very important economic factor

which cannot be ignored. Unlikely developed economies Keizer et al. (2002), Radas

and Bozˇic (2009) found that innovation subsidies are not linked to innovativeness. A

very small number of firms received a subsidy suggests that the existing subsidy

schemes are not effective.

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Internal characteristics

Strategic Non-Strategic

Market Orientation

Age of Enterprise

Learning processes

Size of Enterprise

Technology Policy

Human Resources

Cooperation and networks

Innovative People

Managerial Efficiency

Financial Resources

Figure (2.4) External Determinants of Innovation

Source: Vyas (2009)

Chryssochoiclis (2003) stated that the following factors as businesses external

environment association with product innovation.

7. Increased uncertainty of the external environment

8. Increased heterogeneity of the external environment

9. Increased dynamism of the external environment

10. Technological elements of the external environment

11. Competitive dynamics and hostility

12. Type of industry

Moreover perceptions of the external environment can vary with CEO/top

management’s ability to scan and interpret the organization’s external environment.

The top management perception may act as a moderator in the link between the nature

of the external environment and decision-making regarding product innovation as a

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Industry Region

Concentration Headquarter branch ratio

Industrial policy

Competition

Entrepreneurship

Attitude towards innovation

Barriers to EntryPotential for

spin-off

Regional economic performance

Research Networks

External

Technological and organizationalresourcesTechnology and equipmentacquisitionExternal knowledge acquisitionProduction preparationCommercialization preparation

Information managementInternal sourcesMarket related sourcesOthers sources of information

Firm’s performanceEffects on product Effects on processesOther effects

Contingent factorsFirm’s sizeType of market

CooperationOther firms

R&D activitiesInternal R&DExternal R&D

Human resourcesR&D personnel

Financial resourcesR&D expenses

Innovation resultsProcessinnovationProduct innovation

response to environmental changes. CEO’s personality, cognitive and demographic

characteristics such as knowledge, mental models of success, open-mindedness,

tolerance of ambiguity, age, risk propensity, education and past experience can

support to transform and implement strategies for innovation.

Vieites and Calvo (2011) studied the role of several factors and firms’

resources that could have been an impact on the development of innovative activities.

In this study, contingent factors human resources, technological and organizational

resources, information management and financial resources were studied whether they

related innovation or not.

Figure (2.5) Various Elements Affected on Innovation

Source: Vieites & Calvo (2011)

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Gunduz, Ulusoy, Kilic and Alpkan (2013) presented several independent

principal component analyses, factor structures of innovations, firm performance,

organization culture, intellectual capital, manufacturing strategy, innovation barriers,

and monitoring strategies.

To be more effective Gunduz et al., (2013) studied the firm level

innovativeness at comprehensive view that implies here the total innovative

capabilities of the firm. With such a perspective, a long list of determinants of

innovativeness at the firm level, e.g., organizational culture, intellectual capital, firm

strategies, etc., are emerged. From this analysis reveals that among all possible

determinants considered, the highest impact on innovativeness is intellectual capital.

This determinant is followed by organizational milieu that consists of the

organizational structure and culture components.

Figure (2.6) Factor Structure of an Integrated Innovation Model

Source: Gunday et al., (2013)

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Innovation Determinants• Firm Strategieso Collaborationo Business Strategies

Market Strategies Technology Strategies Manufacturing Strategies• Cost Efficiency• Quality• Flexibility• On-line Delivery

• Sectoral Conditions and Relationso Market Dynamism & Intensityo Public Intensiveso Barriers to Innovation

In-Firm Out-Firm

Innovativeness-Product Innovation-Process Innovation-Marketing Innovation-Organizational Innovation

Performance

Financial Performance

• Innovative performance•Markert performance

In 2015, Ulusoy, Kılıç and Günday analysized all possible determinants

considered in the following frame work.

Figure (2.7) Determinants of Innovativeness Model

Source: Ulusoy (2015)

2.3.1 General Firm Characteristics

European Bank for Reconstruction and Development (EBRD, 2014) examined size and age of firms, scarcity of innovative start-up, type of ownership, competition, research and development, human capital and information and communication technology as the internal and external drivers of innovation. This report described that innovation may be more common among larger firms that have been operating for a longer period of time. The larger and older forms are indeed more likely to introduce new product.

Radas (2009) also considered the group of factors is related to firm characteristics like firm age, share of highly educated employees, and share of full- time equivalent employees engaged in intramural R&D as internal drivers. Hurley and Halt (1998), as cited in Vyas (2009) analyzed innovation activities considering that some structural and process characteristics (size, resources, age, planning,

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Innovation Determinants• General Firm Characteristicso Firm Size o Firm Age o Ownership Status

• Firm Structureo Intellectual Capital

Human Capital Social Capital Organizational Capital

o Organizational Structure

Communication Formalization Centralization

o Organizational Culture

Management Support Work Discretion Time Availability Reward System

Innovativeness- Product Innovation- Process Innovation- Marketing Innovation-Organizational Innovation

development and control of activities, information management, etc.) influence innovation capacity.

The theories of Joseph Schumpeter (1883-1950), as cited in Hosper (2005),

described that vertical innovations and creative destruction are the introduction by

capitalists of new and better quality consumer goods and means and methods of

production that render the previous ones out-of-date. According to Schumpeter,

business cycles are caused by innovations. Innovation can be distinguished between

what are later called breakthrough innovations and incremental innovations. This

wave of innovations leads to a period of economic expansion due to an increase in

investment and in the demand for the improved or differentiated goods. In Business

Cycles, Schumpeter suggested that economic fluctuations can be explained by the

conjunction of three cycles. These cycles are: Kitchin cycles, which last three to five

years, Juglar cycles, which last seven to eleven years, and finally Kondratieff cycles,

which last forty-five to sixty years.

Without frequent new products, companies can quickly lose competitiveness

and market share. Therefore the speed and frequency of new product development are

fundamental issues and consequently they have become a focus for management

attention. The time required to develop and introduce a new product referred to as

time-to-market or cycle time.

The large firm operating in a concentrated market is the main engine of

technological progress (Schumpeter, 1942, as cited in Vyas, 2009). According to

Schumpeter’s own work, innovation increases more than proportionately with firm

size because:

1. R&D projects typically involve large fixed costs, and these can only be

covered if sales are sufficiently large.

2. There are scale and scope economies in the production of innovations.

3. Large diversified firms are in a better position to exploit unforeseen

innovations.

4. Large firms can undertake many projects at any one time and hence spread the

risks of R&D.

5. Large firms have better access to external finance.

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According to Edvinsson and Malone (1997), intellectual capital is a two-level

construct: human capital (the knowledge created by and stored in a firm’s employees),

and structural capital (the embodiment, empowerment, and supportive infrastructure

of human capital). Innovation can be seen as one of the managerial functions to be

performed to gain and maintain some competitive advantage. For this, the

entrepreneur and the key decision makers in the firm must possess a unique and

diverse set of managerial skills and capabilities. Freel (1999) believes that

management competency is one of the skills constraints affecting innovation.

Some analysts have advocated a people-centric approach to the analysis of

innovation. They claim that success in innovation is people dependant rather than

resource dependant (Rothwell, 1982) and it is the nature and quality of its work force

that determines whether a business is able to innovate or not. Freel (1999) has tried to

measure skill constraints faced by a small business and its impact on its ability to

innovate. Freel argues “… skill constraints to innovation within small firms are

generally of two principal types, management competency and skilled labor.

Dean and Kretschmer (2007) recognized that economic wealth comes from

knowledge assets -intellectual capital- and its useful application, replacing or perhaps

supplementing labor. The term “Intellectual Capital” is used as a synonym for

intangible or knowledge assets.

Moreover, employees competency needs in relation to innovative activity

appear to be greatest within strategy, business and market areas. In many firms the

lack of desire of management, the owner and founder of the firm for further growth is

an important barrier. While changed in corporate strategies raises probability of

radical innovation, implementation of new or significantly changed organizational

structures raises probability of me-too innovation. Changes in esthetic appearance and

product design leads to introduce product innovations (Radas and Bozˇic´ 2009). The

willingness to differentiate products, to increment processes efficiency and to enter in

new markets is the main reasons that have driven companies to innovate.

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2.3.3 Organizational Structure and Culture

Radas (2009) considered organizational structure as internal driver of

innovation. Moreover, Hurley and Halt analyzed cultural characteristics that affect

innovation receptiveness. The innovation capacity, its receptiveness and structural

process, and cultural characteristics determine firm’s competitive advantage.

On the basis of the proposal by Edvinsson and Malone (1997), intellectual

capital is a two-level construct: human capital (the knowledge created by and stored

in a firm’s employees), and structural capital (the embodiment, empowerment, and

supportive infrastructure of human capital).

A paucity of integrative devices reduces face-to-face collaboration and

consultation cross functional departments, exacerbating the coordinative problems

and conflicts that arise during the implementation of new products and processes

(Miller, Droge and Toulouse, 1988). In older mature less innovative organizations, the

influence of the controlling formal structure is so tight as to illegitimise the lateral

working and information flows that are necessary to support innovation (Stopford and

Baden-Fuller, 1994).

2.3.4 Firm Strategies

Radas (2009) considered the group of factors speaks about implementation of

changes in strategy, marketing, management and about market orientation as internal

drivers of innovation. Marketing and innovation can be viewed as two basic functions

of any economic activities. Customer needs and expectations evolve over time and

delivering consistently high quality products and services and responsiveness to

changing marketplace needs become important for the success of firms (Jaworski and

Kohli, 1990). Customers today are highly informed and more demanding than before.

Market orientation is variously described as integration of customers into

product innovation processes, ability to explore and reach potential markets, a fit

between market needs and firm’s resources, product planning from inception,

targeting the international market, the span of market experience, and the

understanding of customer needs and user circumstances (Heydebreck, 1997 and

Lindman, 2002, as cited in Vyas, 2009). Heydebreck (1996) showed that the

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integration of customers into product innovation processes leads to a higher degree of

success in achieving product development objectives.

Responsiveness to customer needs and changing market conditions become

important for the success of firms and calls for the introduction of new products and

services together with innovation capacity for a firm. Market-oriented innovations

apply to the products and services sold into the market. Inside-oriented innovations

apply to the inner workings of an enterprise and are aimed at improving productivity

and performance through establishment or change of best practices.

In the Journal of Global Business and Technology, Erdil (2013) found that

market orientation can lead to firm innovativeness and increase innovation

performance as consistent with the findings of Baker and Sinkula (1999), such that

market orientation can lead to successful new product development activity. Market

orientation as a driver of organizational market information processing activity should

be incorporated into conceptualizations of innovation process. Reacting to market

feedback may allow firms to adapt successfully in the external environment which

may be characterized both as dynamic and stable. Market orientation is a source of

new ideas and motivation to respond to the environment and promotes innovativeness

(Hurley and Hult, 1998, as cited in Vyas, 2009).

Responsiveness to changing market needs often calls for the introduction of

new products and services together with innovation capacity for a firm. Market

orientation has also been described as the implementation of marketing activities

designed to satisfy customer needs better than competitors are able to satisfy customer

needs (Martin and Grbac, 2003, as cited in Erdil, 2013). While there is some

variability in conceptualizations of market orientation, it typically focuses on three

components; 1) customer focus, 2) competitor focus and 3) inter-functional

coordination (Celuch, Kasouf and Peruvemba, 2002).

All conceptualizations have an operational focus on information gathering,

information dissemination and the ability to behaviorally respond to what is received

(Baker and Sinkula, 1999). Kohli and Jaworski (1990) define market orientation in

terms of three dimensions; 1) The generation of market information about needs of

customers and external environmental factors, 2) The dissemination of such

information among organizational functions and 3) The development and

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Collection and use of marketInformation

Development of market oriented strategy

Implementation of market oriented strategy

FirmInnovativeness

InnovationPerformance

implementation of strategies in response to the information. These elements include

continuous and systematic information gathering regarding customers and

competitors; cross-functional sharing of information and coordination of activities,

and responsiveness to changing market needs (Martin and Grbac, 2003, as cited in

Erdil, 2013).

There are the indicators to identify the level of market orientation. These

include integration of customers into product innovation processes, ability to explore

and reach potential markets, fit between market needs and firm’s resources, product

planning from inception, targeting the international market, span of market

experience, understanding of customer needs and user circumstances, competition

analysis, speed and flexibility, market research, market tests and deployment of user

feedback to modify an innovation. Moreover firms use innovation to differentiate

their products from competitors, twice as profitable (Pavitt, 1991).

Figure (2.8) Market Orientations and Firm Innovativeness, and Innovation Performance

Source: Erdil (2013)

Economists have long been interested in the relationship between competition

and innovation, but economic theory seems to be contradicted by the evidence.

Theories of industrial organization typically predict that innovation should decline

with competition while empirical work finds that it increases. The early empirical

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literature estimated the linear cross-sectional relationships and typically found a

negative relationship between competition and innovation, confirming the theoretical

prejudices of the era (Schumpeter, 1943, as cited in Aghion, Bloom, Blundell, Griffith

and Howitt, 2005).

In the study of Kohli and Jaworski (1990), the greater the market orientation

of an organization, the greater would be the overall performance and this relationship

was moderated by such several external forces like weaker economy, greater market

turbulence and competition. The environmental contexts of an organization probably

influence its level of market orientation. Organizations in more competitive and

dynamic environments may be expected to be more market oriented. As a result, the

linkage between market orientation and performance depends on the environmental

characteristics of an organization (Jaworski and Kohli, 1993). Jaworski and Kohli

(1993) proposed market turbulence (the rate of change in the composition of

customers and their preferences), competitive intensity and technological turbulence

as three environmental characteristics. Organizations that work with rapidly changing

technologies may be able to obtain a competitive advantage through technological

innovation together with the market orientation.

2.3.5 External Factors

There has been increasing interest in the role of use of market information for

strategic purposes. External factors such as competition, uncertainty and needs are

driving forces for strategic applications of market information (Choe, 2003).

Collection and use of market information enabled by information systems is broadly

considered to be a competitive weapon to cope with uncertain and volatile

environments. Companies can deal with uncertainty by increasing their information

processing capability and by creating inter-organizational links between customers

and suppliers. When customers tastes and rivals’ strategies are dynamic, there is need

to redesign or adapt the product. Firm innovativeness described by the development

and marketing of innovations is likely to involve market, technology and competitor

uncertainty. This means need for new information, technical changes and new

organizational arrangements.

It is essential that senior managers are committed to the concept of market

orientation and fully understand the role of market information and sound overall

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intelligence. Innovation by itself is defined as the generation, acceptance, and

implementation of new ideas, processes, products or services. The measurement of

consumer needs and purchase interest may be valid for screening continuous

innovations and market orientation induces businesses into being interested in short

term customer needs which can be detrimental to innovation and long-term success of

a company (Tse, Sin, Yau, Lee and Chow, 2003). Jaworski and Kohli (1996) suggest

that market orientation might be an antecedent to innovation and market-oriented

organizations tend to be more innovative.

One of the new external factors that impact innovation is market scope (Liu,

Luo and Shi, 2003). Firms that go international encounter stronger competitors and

therefore have to innovate in order to gain and keep their position. Additional push to

innovate comes from the fact that more competitive markets often offer higher

incentives for innovation (Sorescu, Rajest and Jaideep, 2003). For a small developing

country, the further from the head- quarters the company goes, the harder it becomes

to compete because among other things the firm has to solve increasingly complex

supply chain, logistic and marketing issues while contending with incumbent

companies.

In the supply chain context, integration is defined as the extent to which all

activities within an organization, and the activities of its suppliers, customers, and

other supply chain members, are integrated together. An integrated supply chain is

linked organizationally and coordinated with information flow, from raw materials to

the on-time delivery of finished products to customers. The entire supply chain is

linked by information about anticipated and actual demand.

Frohlich and Westbrook (2001) identify two interrelated forms of integration

that manufacturers regularly employ. The first type of integration involves integrating

the forward physical flow of delivery between suppliers, manufacturers and

customers. The second type of integration involves the backward integration of

information technologies and the flow of data from customers to suppliers.

Stevens (1989), as cited in Hosseini Baharanchi (2009) classified supply chain

integration into three levels, from functional integration to internal integration and to

external integration. However, this study focuses only on internal and external

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integration, because functional integration is claimed as a basic requirement for all

firms to implement and achieve.

A review of external supply chain integration literature reveals two major

areas of emphasis. They are: (i) Customer integration and (ii) Supply integration. For

supply integration, integration back down to the suppliers represents a change in

attitude away from conflict to cooperation, starting from product development, the

supply of high quality products, process and specification change information,

technology exchange and design support. Some researchers have investigated supply-

side integration in different dimensions. Handfield, Ragatz , Petersen and Monczka

(1999) defined supply integration as obtaining frequent deliveries in small lots, using

single or dual sources of supply, evaluating alternative sources on the basis of quality

and delivery instead of price, and establishing long-term contracts with suppliers.

In terms of customer integration, the firm will penetrate deep into the

customer organization to understand the product, culture, market and organization, so

that it can respond rapidly to the customer's needs and requirements. The important

concept of demand integration is based on the improvement of demand planning and

visibility in supply chains. Without information sharing from one end of the supply

chain to the other, tremendous inefficiencies can occur in customer service.

Modern supply chains consist of numerous organizations. In the context of the

confectionary industry, the supply chain starts with suppliers, who provide food

ingredients and raw to manufacturers, which manufactures confectionery goods and

sells them to customers.

Recently, the complexity of food supply chains has also been exacerbated by

the need of including multiple external sources of knowledge when searching for

successful new products and technologies. This process reflects the difficulties of a

food industry in single-handedly meeting the heterogeneous needs of customers, end-

users and legislations (Sarkar and Costa, 2008). Managing the end-customer’s

demand in the food industry requires a kind of product development that involves

developing, or adopting, innovative technological solutions and new business models

(Costa, Dekker, Beumer, Rombouts and Jongen , 2007).

As products and services continue to grow in complexity, much potentially

useful knowledge will necessarily reside outside of the firm (Bercovitz and Feldman,

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2007, as cited in Bigliardi et al., 2011). The establishment and management of

relationships with customers, competitors, suppliers, and public/private research

institutions, with the aim of acquiring additional knowledge and skills for innovation

processes, are increasingly seen as an important way for the food industry to augment

its innovation capability (Gatignon, Tushman, Smith and Anderson., 2002; Hauser,

Gerard and Griffin., 2006).

Role of suppliers and customers for innovation

According to Handfield et al., (1999), the integration of suppliers in

collaborative innovations (in particular, product innovation) can yield some

significant benefits, which include achieving reduced cost at product development,

decreased risk of failure and reduced time spent in product development. Liker,

Kamath, Wasti and Nagamachi (1996), as cited in Krishman and Ulrich (2001) also

demonstrated that the involvement of first-tier suppliers in co-design activities has

positive impacts on the performance achieved in new product development, in terms

of cost, quality and lead times. The partnership with suppliers may range from a

simple search for new technologies and innovations, up to a collaboration where

suppliers are fully responsible for the design of products required by the customer.

More precisely, there are four main ways suppliers can be involved in collaborative

product innovations (Lamming, 1993, as cited in Chen and Paulraj, 2004):

i. the supplier provides proprietary parts to a company. Often, proprietary parts

are standard components and are designed and developed only by the supplier;

ii. the supplier provides components whose functional and performance

requirements are specified by the customer, but whose engineering is handled

by the supplier;

iii. the supplier provides parts whose characteristics are controlled and defined by

the customer to a greater extent; or

iv. the supplier provides parts whose characteristics are controlled and defined

entirely by the customer.

Collaboration involves active participation in joint innovation projects with

other organizations but excludes pure contracting out of innovation-related work. It

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can involve the joint implementation of innovations with customers and suppliers, as

well as partnerships with other firms or organizations. For the Eurostat countries,

Brazil, Israel, Japan and Korea, product or process innovative firms engage

collaboration on innovation.

In Australia, Chile and Colombia, collaboration on innovation include product,

process, marketing or organizational innovative firms (including ongoing or

abandoned innovation activities). However, marketing and organizational innovators

are less likely to be involved in collaboration.

In addition, the state economy influences on businesses. After political and

economic reforms, the government is proactively looking to Foreign Direct

Investment (FDI). With this investment comes an increasingly more affluent

population, who are looking for higher quality food and more food choices. This

presents a huge opportunity for food producers. Growing foreign investment in

Myanmar provides a good opportunity for local manufacturers to acquire

technological expertise from international companies who have been exporting high

quality products for decades. Value addition in Myanmar’s food industry is currently

relatively low with the vast majority of the industry focusing on more traditional

manufacturing methods and products. Knowledge transfer from international

companies will allow us to produce higher value products, driving the overall value of

the local food industry. For instance, Bayin biscuit invites expertise from international

to train its bakers.

2.4 Types of Innovation

Innovation is to be considered in enterprise as a crucial element to increase

profit and market share. Innovation is no longer restricted to the process of creating

something new from beginning to end but can include the capacity to quickly adopt

externally created innovations that may be of benefit to the organization. Innovation

can be considered as a necessary ingredient for firms to remain competitive (Darroch

and McNaughton, 2002; Stock, Greis, and Fisher, 2002). To be successful, the main

task of a firm is to determine the perceptions, needs and wants of the market in order

to create products with a superior value. Mosey, Clare and Woodcock (2002)

suggested that companies with aggressive growth ambitions that repeatedly

introduced innovative new products thus opening up new market niches were also

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those that performed better. The innovativeness of a new product and firm innovation

capability is important for several reasons. Innovation products present opportunities

for firms in terms of growth and expansion into new areas as well as allow firms to

gain competitive advantage.

Many classifications of innovation types were proposed over the years. Knight

(1967), as cited in Berglund (2004) proposed the following types of innovation:

organizational structure, production process, people, and product/service. Innovation

type categorizations are based on the outcome of the innovation process. According to

several Authors, there are very different types of innovations (e.g., product

innovation, process innovation, or market innovation), and these types of innovation

can be classified by type, degree, impact, competence, and ownership (Narvekar and

Jain, 2001, 2006). These three types of innovation (product, process and marketing)

can vary from incremental to radical and from sustaining to discontinuous. Product

innovation is essential for a country’s economic growth and for the competitive

position of industry. Companies operate in a rapidly changing world in which

customers’ needs and wants are not fixed and where they face increasing competition

due to open markets and globalization. Companies that effectively integrate

innovation in the product development process can gain significant competitive

advantage.

Product innovation deals with the production of new products and services to

create new markets or to satisfy current customers. Knight (1967) and Utterback

(1971) as cited in Godin (2015) described that process innovation is reflected in the

improvements or introduction of new production technology.

According to Utterback and Abernathy (1975), product innovation is to do

more with the outputs that are introduced for the benefits of customers. Process

innovations are defined as new tools, devices, procedures as well as knowledge in

throughput technology that mediate between inputs and output.

Binary models proposed in the 1970s and 1980s discussed, variously,

administrative, technical, incremental, radical, product, and process, as types of

innovation. Radical innovation represents a completely new product or process and

incremental innovation a significant improvement in an existing product or process.

Frenz and Oughton (2005) stated that radical innovations have the power to result in

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significant and rapid transformation of production whereas the effects of incremental

innovation are felt more slowly, though their cumulative impact may be just as

significant. Dewar and Dutton (1986) and Ettlie et al., (1984) also described that

radical innovation brings about a non-routine change to the very core on how

activities are carried out while incremental innovation is usually part of routine

changes that do not deviate much from present organizational activities.

More recently, a number of integrative models have been proposed all of

which identify a number of different types of innovation. For example, Oke, Burke

and Myers (2007) discussed the following types of innovation:

product (including radical and incremental);

service and

process (including administrative, service and production).

Most definitions of innovation emphasize ‘newness’ and ‘successfulness’.

There are distinctions made between product versus process innovation and

sometimes amongst market, business and management innovation. Product innovation

is the introduction of new products that have characteristics and/or use applications

that differ from existing products on the market. Product innovation is often made by

technology driven companies and helps companies in their competitive positioning

while retaining market presence, not only in radically changed products but also in

differentiating the offerings (Craig and Hart, 1992).

Process innovation is the introduction of a new method of production, that has

not previously been used and/or a new way of handling a commodity commercially to

make production more efficient or to be able to produce new or improved products.

Process innovation embraces reengineering the business process (Cumming, 1998)

and therefore implies the improvement of the internal operations and capacities. The

importance of process innovation is quite well understood, especially in companies

under threat since it may help to improve the company productivity.

Finally, market innovation is concerned with the mix of markets of the

company and how chosen markets are best served while accurately interpreting

buying preferences (Johne, 1999). This directly influences the sales as well as the

company results. Marketing innovation involves entering new markets, new ways of

serving customers, and/or market expansion. Marketing innovation is the offering new

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idea generation and implementing with the marketing activities of creating,

communicating, delivering value and managing relationships.

There are three types of product innovation: line extensions, ‘‘me-too’’

products, and radical product innovation. The first two types of innovations are

usually referred to as incremental innovations. Line extension refers to minor

modification of an existing product, while ‘‘me-too’’ products are imitations of

competitors’ products that already exist on the market. Both incremental and radical

innovations have an important role. Managers design incremental innovations to

satisfy a perceived market need with products that can be developed in a relatively

short period of time (Ali, 1994, as cited in Radas and Bozˇic´, 2009). The

introduction of incremental innovation is critical for the long time survival of firms

(Banbury and Mitchell, 1995, as cited in Shankar, 2008).

According to Gunday, Ulusoy, Kilic and Alpkan (2011), product innovation is

broadly seen as an essential component of competitiveness, embedded in the

organizational structure, processes, products, operations, and services within a firm.

Product innovation is one of the fundamental instruments of growth strategies to enter

new markets, to increase the existing market share and to provide the company with a

competitive edge.

Product development can be defined as “the process that transforms technical

ideas or market needs and opportunities into a new product and on to the market”. It

includes strategy, organization, concept generation, product and marketing plan

creation and evaluation, and the commercialization of a new product. The product

development process is a disciplined and defined set of tasks, steps, and phases that

describe how a company repetitively converts ideas into salable products and/or

services. The product development process itself can be split up into three phases:

policy formulation, idea finding and strict development.

In the report of Isaksen and Smith (1997) there was presented the strengths and

weaknesses of small firms in innovation. This report identified the range of SME-

related issues in the Norwegian Industrial and innovation system. Food sector firms are

more focused on incremental innovation as opposed to radical innovation, and they are

also more engaged in product and process innovations than in packaging, position and

paradigm innovations (Baregheh, Rowley, Sambrook and Davies, 2012). The

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innovation imperative is very strong for firms in this sector, and plays a key role in

sustaining and enhancing their competitiveness (Capitanio, Coppola and Pascucci,

2010; Grunert and Ottowitz, 1997; Rama, 2008 and Von Tunzelmann and Acha, 2005).

2.5 Innovation and Business Performance

Numerous models have been proposed to study the relationships between

innovation behavior and firms’ performance. In Spain, Camisón (1999) maintains that

firms’ competitive advantage is based on resources and capacities that are difficult to

imitate by other firms. In this model, organizational characteristics influence

innovation behavior and this affects firms’ performance.

Business performance measures can be divided into three different categories

(Hayes, Wheelwright and Clark, 1988, as cited in Reichstein, 2000):

Process Management Measures

Business Management Measures

External Reporting Measures

Process Management Measures concerns the conditions such as how long it will

take to produce and deliver a specific goods or services, measures of materials used in

the production process and amount of production factors used. Business Management

Measures like which products firms must be developing, what prices firms should be

claiming for its product and whether or not a specific product should be dropped from

the specific firm’s product line. External Reporting Measures is the performance of the

firm relatively to other firms in the market. Profits, values of production, revenues and

firm size are examples of external reporting measures. This study focused on the last

measures that reflect the effect of innovation on business performance.

There is no doubt that the employees are the main force for the organizations

and their innovative behaviors are vital for innovation performance of an

organization. The factors influencing the employee innovative behavior including

organizational commitment, psychological capital on the individual level, and

organizational innovation atmosphere, leadership, social capital, work characteristics

on the organizational level.

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Firms’ PerformanceInnovation behaviorCharacteristics of the organization

Figure (2.9) Organizational Characteristics, Innovation Behavior and Firms’

Performance

Source: Camisón (1999)

Innovative behavior is an act of generating, promoting and application of

innovative thinking in the organization for the purpose of personal and organizational

performance, which enables employees to use innovative ways of thinking, quickly

and accurately respond to customer demand changes (Robert, 2001, as cited in Erdil,

2013; Woodman, Sawyer and Griffin, 1993; Scott and Bruce, 1994). Kleysen and

Street (2001) divided individual innovative behavior into five stages, including

looking for opportunities, generating ideas, research supporting, and applications. For

that, Huang (2004), Lu Xiaojun (2007) and others have tested it with the actual

situation, and the employee’s innovative behavior is defined as: In the work process,

employees generate innovative ideas or solutions to problems, and efforts will be paid

to the practice. The motivation of employee’s innovative behavior can be divided into

internal and external factors. Internal factors refer to innovative personal traits and

ability to participate in innovation, and external factors including the open team

environment, the support of leaders. Under the mutual working of internal and

external factors, the innovative efficacy and creative willingness of employees have

been improved. (Yang, Yang and Zhao, 2011).

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Economic Performance

Cooperation with institution

Enterprising Courage

Firm Size

Executives’ Age

New Product and Service

Innovation Behavior

Firm Age

Figure (2.10) Innovation and Related Factors

Source: Hernández & de la calle (2006).

Following Camisón’s proposal, Hernández & de la Calle (2006), as cited in

Vieites and Calvo (2011) established a more detailed design of the relationships. The

factors related to innovation are described in Figure (2.10).

In evolutionary theories of economic change, Nelson and Winter (1982)

speculated that the processes of technological innovation and imitation are major

drivers of the relative performance of firms and the evolution of industrial structure.

Corsino and Gabriele (2010) argued that the estimated relationship between

innovation and corporate growth rate will depend on the degree of novelty of the new

devices in dealing only with product innovations.

Ibidunni, Lyiol and Ibidunni (2014) concluded that there is need for SMEs to

carry out research on product innovation; in order to meet and fulfill the demand and

expectations of all consumers and the market in product innovation.

Today it is commonly accepted that without innovative activities the

development in individual companies and the whole of the society will stop.

Therefore it is important how the development of innovation is managed and how the

work is done in the most efficient way. Moreover it is needed to find out which

factors influence innovation and new product development so that the development of

innovation can be managed well. Godin (2002) believes that innovation is considered

170

a nebulous concept due to perceive conducting R&D as well as acquiring advanced

technologies and employing highly skilled workforce both are as being innovative.

Research, over the last 50 years, has consistently linked innovation with

business success. Innovation is shown as a major contributing factor in the growth of

firms (Mansfield, 1968:1971, as cited in Vyas, 2009); new products and processes, the

fastest growing product groups or ‘clusters' (Freeman, 1974); rise and dominance of

large corporations ascribed to the use of new technology (Temin, 1979, as cited in

Vyas, 2009); better business performance related to the higher measures of innovation

(Cavanagh and Clifford, 1983, as cited in Vyas, 2013); levels of competitiveness

linked with the levels of innovativeness (Dosi, 1988); firms using innovation to

differentiate their products from competitors, twice as profitable (Pavitt, 1991);

innovation a key element of business success (Nonaka and Takeuchi, 1995); high

growth companies getting a higher percentage of sales from new products relative to

competitors, (O’Gorman, 1997); new product development leading to greater sales

volume and enhanced profitability (Kotler, 1999, as cited in Vyas, 2009); innovating

firms having lower probability of stagnant or declining employment in comparison to

non-innovating firms (Frenz, Michie and Oughton, 2003) and innovative businesses

growing more than non-innovative businesses (European Commission, 2004).

Therefore firms need to launch additional products and increase the range of

goods and services in order to maintain their viability (Baden-Fuller and Stopford,

1994). Consumer consciousness over diet and health, food safety and nutrition also

drives companies to improve the range and quality of goods (Traill and Grunert

2002).

Van Duren et al. (2003) also found that innovation was rated as a top factor

for success in the food processing industry by some successful food processors in

Canada. Traill and Meulenberg (2002) found that except for very small and very large

companies, there is no relationship between company size and innovation.

2.6 Conceptual Framework of the Study

In this section, the possible factors that may affect on innovation of the

confectionery businesses will be identified for this research. This study grouped the

drivers of innovation into two categories: internals and externals. The internal factors

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include general firm characteristics (firm age, size, and ownership status), firm

structure (intellectual capital, organization structure and organization culture), and

firm strategies (manufacturing and marketing). On the other hand, external factors are

customer needs and wants, intensity of competition and technological opportunity.

The study examined the impact of firm size, firm age and ownership status on

the types of innovation implemented by the confectionery businesses. The innovative

personality of management and information sharing between skillful labors is defined

as intellectual capital and then analyzed that intellectual capital is an important driver

of innovation for businesses. Centralized decision making and formalized procedures

is defined as organization structure and then analyzed that organization structure is an

important driver of innovation for businesses. Rewarding for innovative ideas and

management support is defined as organization culture and then analyzed that

organization culture actually drives the firm’s innovation. Market orientation is

defined as market strategy and then analyzed that market strategy actually drives the

firm’s innovation. Cost reduction and quality is defined as manufacturing strategy and

then manufacturing strategy analyzed that actually drives the firm’s innovation.

Feedback to customer needs and wants, intensity of competition and technological

opportunity are analyzed as external drivers.

According to the innovation definitions, this study discussed three types of

innovation: product innovation, process innovation and marketing innovation. Product

innovations include the introduction of new products and services to the market and

also major improvements of existing goods and services. Process innovation includes

major changes in production methods and equipment. Marketing innovation aims to

respond better to the customers’ need.

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Firm StructureIntellectual CapitalOrganization StructureOrganization Culture Innovation

Product innovationProcess innovationMarketing innovation

Firm performanceNumber of employeeProduction volumeSale volume Profit

General Firm CharacteristicsFirm Size Firm Age Ownership Status

Firm StrategyMarket StrategyManufacturing Strategy

External FactorsCustomer needs and wants(Customer orientation)Intensity of competitionTechnological opportunity

Figure (2.11) Conceptual Framework of the Study

Drivers of innovation

Source: Own Compilation (October, 2016)

Figure (2.11) depicts conceptual framework of the study which included the

drivers affecting on the innovation, types of innovation and performance of the

confectionery businesses. In the study, the first step is to identify the drivers of

innovation in confectionery businesses. After that the types of innovation that

influence on firm performance are examined and the effects of innovation on firm

performance are evaluated.

2.7 Working Definitions for the Study

Based on the previous literature, firm characteristics (firm age, size, and

ownership status), firm structure (intellectual capital, organization structure and

organization culture), and firm strategies (manufacturing and marketing) are used as

the internal factors. Therefore these factors are defined as follows for this study.

The innovative personality of management and information sharing between

skillful labors is defined as intellectual capital in the study.

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Centralized decision making and formalized procedures is defined as

organization structure.

Rewarding for innovative ideas and management support is defined as

organization culture.

Market orientation is defined as market strategy.

Cost reduction and quality is defined as manufacturing strategy.

On the other hand, customer needs and wants, intensity of competition and

technological opportunity are used as external factors in the study.

The term innovation of confectionary businesses is defined as the any

newness in product, production process and marketing activities.

As the product innovation, the study considered developing new products with

new material and technology. Based on the literature review, this study defined that

product innovation consists of ingredients, convenience of consumers, and customer

satisfaction.

As a result, changing process of existing products and extension of producing

new products need to be carried out for product innovation. In the process innovation,

technology and new machines need to be changed. As a result, product quality and

productivity increased gradually. The process innovation included changing the use of

manpower and machines from kneading to packing over time to time.

Marketing innovation includes changing product promotion techniques,

distribution channels and product appearance, packaging, shape and volume necessary

in order to adapt with the market needs.

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CHAPTER 3

RESEARCH METHODOLOGY

This chapter presents the research method as well as the scope of the study,

research method and sampling, data collection method and data analysis. The chapter

is structured as follows: section one introduces the research area, section two presents

sampling design and sample size determination, section three describe research

method, section four disclose the profile of respondents and businesses and finally

discusses data collection and cleansing.

3.1 Research Area

In Myanmar, food and beverage industry is the largest sector in number of

business and employee. Among the number of registered firms 43784 in Myanmar,

28134(64%) are food and beverage firms. Private own food production enterprises

registered with the Ministry of Industry amounted to 27290 (Ministry of Industry,

2015). Myanmar food industry is producing for local market only (MIA, 2009).

According to the Table (3.1), in the distribution of firms in confectionary

industry, the number of firms in Yangon region is the largest with 177 but Mandalay

region also has the second largest number of confectionary firms with 162 (Ministry

of Industry (1), 31-7-2012). In Mandalay, not only Bakery Business, the traditional

confectionary firms such as Myint Myint Khin, Maw Maw San but also Teashop and

Cafe prospered in this region. Previously, teashops and cafes only sold Marigold,

Indian Pancake, but later they added cakes, La Mont and bean bread to their range of

food list. Teashop in Mandalay has become not only an eating place but also a

meeting centre for discussing social and business matters. In this way, teashops

innovated their food products to meet the demand and preference of consumers.

Most of the people have invested in food and beverage industry (CEO

Magazine, 2017). At the same time, food security for the people and innovation in

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product, process and marketing of food stuff are very important factors for the

businesses. In Mandalay, confectionary businesses are quite innovative in running

their businesses. However, there is no assurance that all of the businesses will know

about the factors influencing the innovation and the business performance. Therefore,

the aim of the research is to explore which factors are driving the innovation and

performance of the confectionary businesses.

Table (3.1) Distributions of Firms in Confectionery Industry

No State/Region Total

1 Kachin 18

2 Kayah 10

3 Kayin 15

4 Chin -

5 Mon 77

6 Rakhine 8

7 Shan 58

8 Yangon 177

9 Mandalay 162

10 Sagaing 22

11 Mgway 14

12 Bago 39

13 Ayeyawady 89

14 Taninthayee 34

Total 723 Source: Ministry of Industry (1), 31-7-2012

In the past, confectionery firms were not as developed in Mandalay as present.

The confectionary firms used to produce traditional snacks such as Htoe Mont, La

Mont, bakery firms produced cake, cookies and bread and café and teashop with

catering service.

Traditional snacks firms were located in Zay Cho Thit Thee Tan.

Confectionery firms were located as Mont Sone Tan in Mandalay Zaychodaw

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(Zaycho market). Bakery businesses first started in Myanmar during the British

Colonial period. It was learnt that biscuit factories were established in Mandalay over

the period 1948 to 1987 (Phatcharanuruk, 2015). Some bakers’ confectioneries

existed at their own places such as Lakabar and Pawe Tai cake. Some of these firms

are still achieving some measure of success. On the other hand there are still other

firms that are not able to engage in innovative activities due to lack of enough capital

and poor customer adaptation to changes in brand, packing design and taste. In the

market economy, customers are becoming very knowledgeable and most consumers

are becoming much more health conscious.

The first tea shops in Mandalay were opened in 1942. It was opened to serve

breakfast and tea. In addition, they were a place to relax and had a social and

economic function. Tea shops were places providing food and drink, not only serve

biological needs, but also provide information to be shared and connections made, in

support of people economic and social lives. In this technology age, internet cafés

emerged as tea shops in the past. Recently, some of the tea shops serve traditionally

tea and baked. However, some serve coffee, cold drinks and fresh baked.

At present, most of the confectionery firms enable the new product

development and then not only their new production method but also new marketing

and management style are practiced. As mentioned in theories, some businesses

accept and implement the concept of innovation. Some business, however, do not

have enough fund to implement their ideas. So they just follow the market demand.

They cannot innovate as much as their desires. These firms can survive because of

their royal customer but they cannot develop among their competitors. Therefore, the

argument emerged that the factors beyond capital will influence the business

innovation.

The characteristic of modern economy is increased competition. As the role of

innovation and innovative activity in development of enterprise is growing, the

broader study of the impact of factors on innovation and innovative activity is

required more. Although Table (3.1) indicates the number of registered confectionary

firms in seven townships of Mandalay Municipal Area based on the classification of

number of employees, this study classified the firms by their product types.

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The businesses were distinguished by types of product such as traditional

confectionary firms and bakery firms. Traditional firms produced Htoe Mont, La

Mont and Nanwin Makin as the basic product items. And the other products were

created based on the owner’s idea, the customer demand and the product of

competitors. Bakery firms developed new products and tested them in the market

when the sales of some products are slow. Some of the tea shops have the special

items e.g. Chinese dumpling for Manmyodaw and Bean Cake for Minn Thiha. These

firms are trying to produce other items to fulfill their customers’ needs. Therefore

these teashops are considered as bakery businesses due to their bakery services.

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Table (3.2) Number of Registered Confectionary Firms by Townships in Mandalay Municipal Area

Size

Township

2014-2015 2015-2016 2016-2017

Large Medium Small Total Large Medium Small Total Large Medium Small Total

Aung Myay Thar Zan 10 14 4 28 10 13 4 27 11 11 4 26

Amarapura 2 2 3 7 2 2 2 6 3 2 2 7

Chan Aye Thar Zan 4 9 9 22 4 8 9 21 5 7 6 18

Chan Mya Tharzi 3 5 4 12 3 5 4 12 5 6 2 13

Maha Aung Myay 2 9 4 15 2 8 4 14 2 8 3 13

Patheingyi - 2 1 3 - 3 1 4 1 3 1 5

Pyay Gyi Dagon 22 8 1 31 21 9 1 31 25 9 - 34

Total 118 115 116 Source: Ministry of Industry, Directorate of Industrial Supervision and Inspection, 2017

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Table (3.2) describes the number of registered confectionary firms by townships

in Mandalay municipal area during the year 2014 to 2017. In 2015-2016, the total

number of confectionary firms was decreased from 118 to 115 because some of the

registered firms were expired and they did not re- registered regularly. For this study, the

number of registered confectionary firms (2016-2017) was considered as population in

order to update.

3.2 Sampling

According to the list of Industry Supervision and Inspection Department, 2016,

there are 116 confectionary firms in Mandalay confectionery industry. In order to get

more accuracy, 70 % of population firms were collected as sample. The larger the

sample size, the more sure the result reflect the population.

The selected 89 firms were surveyed by simple random sampling. Before using

the questionnaires, the innovative firms were selected by asking the firms whether new

product, process and marketing were introduced or not. Only innovative firms were

analyzed to explore the major drivers of innovation. The study emphasized all size of

confectionary firms so that the result may be reasonable to conclude the effect of firm

size on innovation.

Table (3.3) Distribution of Confectionary Businesses by Type

Description No. of Business

Percent

Traditional 10 11.24

Bakery 79 88.76


According to Table (3.3), the bakery businesses are distributed with 88.76 % and

the traditional confectionery businesses are 11.24%. Data was collected over a 6 month

period in two types, namely traditional firms 11.24% and bakery firms 88.76% within

the total sample. Then, the questionnaire was applied through face-to-face interviews. A

questionnaire consisting of 108 individual questions was developed to be filled in by the

owners or managers of the firms.

Table (3.4) Number of Firms in Different Types of Product by Township180

Types of firm

TownshipTraditional Bakery Total

Aung Myay Thar Zan 2 15 17

Amarapura - 8 8

Chan Aye Thar Zan 5 11 16

Chan Mya Tharzi 1 10 11

Maha Aung Myay 1 12 13

Patheingyi - 3 3

Pyi Gyi Dagon 1 20 21

Total 10 79 89Source: Survey data, 2017

Table (3.4) shows the number of firms distributed in different types of product

by township. It is found that the number of bakery businesses is the largest in Pyi Gyi

Dagon Township as Mandalay industrial zone is located in this township. As for the

traditional businesses, Chan Aye Thar Zan Township has the largest number of firms

since Zaycho market is situated in this township.

3.3 Profile of the Respondents and Businesses

The general information includes gender, age, education and position of the

respondents. Of 62 respondents, 69.66 percent was male and 30.34 percent was female.

According to Myanmar culture, most of the businesses were lead by man in the past.

However, today the women have the equal opportunity to manage the business. In terms

of age, the age under 31 years represented 4.49 percent, 31-50 years was 62.92 percent

of all respondents, 51-70 years was 30.34 percent and the rest percentage, 2.25, was

71years and above. The majority of the respondent’s (more than 62 percent) were the

age between 31 and 50 years. Regarding education levels, 65 respondents (73.03

percent) were graduated, 22 respondents (24.72 percent) held a high school level

qualification and the rest was post graduated level. Among them, 62.92 percent of

respondents were the owners of businesses and the rest were the managers of businesses.

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Table (3.5) Profile of the Respondents

Factors Category Respondents Percent

GenderMale

Female

62

27

69.66

30.34

Total 89 100.00

Age

Under 31

31-50

51-70

71 and above

4

56

27

2

4.49

62.92

30.34

2.25

Total 89 100.00

Education

High School

Graduated

Master

22

65

2

24.72

73.03

2.25

Total 89 100.00

PositionOwner

Manager

56

33

62.92

37.08

Total 89 100.00Source: Survey Data (2017)

The general information of the respondents (owners or managers) was collected

and recorded in Table (3.5).

In the profile of business, number of labor is categorized by the definition of

SMEs by the Private Industrial Enterprise Law 1990 (Ministry of Industry (2), 2010).

According to Table (3.6), 47 firms from the selected businesses (52.81 percent) operated

with 1-49 employees and the firms about 17.98 percent worked with the number of

employees above 100.

Table (3.6) Profile of Businesses

Descriptions Category Respondents

Percent

Number of employees 1-49 47 52.81182

50-100

Above100

26

16

29.21

17.98

Total 89 100

Firm Age

3-12 year

13-22 year

23 -32year

33-42 year

43-52 year

53and above

25

36

8

6

6

8

28.09

40.45

8.99

6.74

6.74

8.99

Total 89 100

Ownership Status

Sole-proprietorship

Partnership

Company

88

0

1

98.88

0

1.12

Total 89 100

Start upScratch

Inherited

64

25

71.91

28.09

Total 89 100

MAFPEA memberYes

No

48

41

53.93

46.07


In terms of the firm age, most of the firms (40.45 percent) were established from

13 to 22 years ago. As the majority of firms, the ownership status was the sole

proprietorship (98.88 percent). About 71.91 percent of the firms are the scratch. It can be

said that some of the businesses are inherited but most tried to establish a new business

by learning, imitating and creating from the previous business. 53.93 percent of the

firms were MAFPEA (Myanmar Agro-based Food Processor and Exporter Association

was formed in 2006 to support the food processing industry) member.

3.4 Data Collection

The items to measure the selected variables were based on previous studies that were

considered to be important in explaining the direct and indirect effects of driving factors on

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innovations. Pilot testing is important to check the content validity of the instrument, and

to improve the questions, format, and the scales. Therefore, the pilot test was carried out

with the convenience sample of 44 confectionary firms to validate the instrument.

Firstly, factor analysis is used merely for reliability and validity test of variables

and multiple regression analysis is used to discover important innovation determinants

and to understand how innovations are produced at the firm level and revealing the main

factors that shape an innovative atmosphere in confectionary firms. The reliability

intended to measure the extent to which a variable or set of variables is consistent.

Cronbach’s alpha is measure of reliability that ranges from 0 to 1, with values of .60

to .70 deemed the lower limit of acceptable. Therefore reliability refers to test

consistency. Validity is concerned with how well the concept is defined by the

measures. KMO and Bartlett test of sphericity tested for the overall significance of all

correlations within a correlation matrix. The measure can be interpreted with .80 or

above, meritorious; .70 or above, middling; .60 or above, mediocre; .50 or above,

miserable; and below .50, unacceptable (Hair, Anderson, Tatham and Black 1995).

After that, descriptive analysis is used to investigate the types of innovation

undertaken by confectionery businesses. According to Best (1977), the mean values of

five-point Likert scale items were interpreted as follows:

The score among 1.00 – 1.80 means strongly disagree.

The score among 1.81 – 2.60 means disagree.

The score among 2.61 – 3.40 means neither agree nor disagree.

The score among 3.41 – 4.20 means agree.

The score among 4.21 – 5.00 means strongly agree.

Finally, multiple regression method is used to analyze the relationship between

drivers of innovation, the types of innovation and the business performance.

3.5 Assumption for Multiple Regression Analysis of the Study

The assumptions underlying multiple regressions analysis to be examined re as

follows:

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5. Linearity of the phenomenon measured. The linearity of the relationship between

dependent and independent variables represents the degree to which the change

in the dependent variable is associated with the independent variable. The

concept of correlation is based on a linear relationship. As multiple regression

analysis is based on the concept of correlation, the linearity of the relationship

between dependent and independent variables is crucial. Linearity is easily

examined through residual plots.

6. Homoscedasticity is the assumption of equal variances between pairs of

variables. By using SPSS software, it can be measured Homogeneity test which

measures the equality of variances for a single pair of variables.

7. Independence of the error terms assumed that the predicted value is not related to

any other prediction that is each predicted value is independent. If the residuals

are independent, the pattern should appear random. Serial correlation can be

measured by Durbin-Watson value.

8. Normality of the error distribution assumed that errors of prediction are normally

distributed. By using normal histogram can be diagnosed the set of independent

variables (Hair, Anderson, Tatham and Black 1995).

185

CHAPTER 4

ANALYSIS ON INNOVATION OF CONFECTIONERY

BUSINESSES

This chapter presents the analysis of the innovation of confectionery businesses

in Mandalay based on the results of data collected from 89 owners or managers. The

statistical analyses used in this study include description of the survey participants,

demographic characteristics, reliability and validity test. Moreover, regression analyses

are performed to find out which factors are the most influencing factors on innovation

and performance of confectionery businesses.

4.1 Testing of Reliability and Validity of the Driving Variables

Descriptive statistics is used in this study not only to express the demographic

factors (age, gender, educational levels, etc.) but also to describe the mean values and

standard deviation of the observed variables. According to the mean values of the items,

the respondents generally agree the drivers of innovation (mean values more than 3:

agree). In this study, three variables for general firm characteristics, three variables for

firm structure, two variables for firm strategy and three variables for external factors

have been measured. Each variable includes different number of items and is measured

on five-point Likert scale.

The first stage of testing of reliability started with Cronbach’s alpha value. It is

one of the major methods of determining the reliability of a test. Therefore Cronbach’s

alpha is used to test the reliability of all variables.

The Bartlett's Test can be used to test the adequacy of the correlation matrix. If

the test value is large and the significance level is small (<0.001), the variables are

independent. The KMO represents the ratio of the squared correlation between variables

to the squared partial correlation between variables. When the KMO is near 0, it is

difficult to extract a factor, since the amount of variance just two variables share (partial

correlation) is relatively large in comparison with the amount of variance two variables

share with other variables. When the KMO is near 1, a factor or factors can probably be

extracted, since the opposite pattern is visible. Therefore, KMO “values between 0.5 and

186

0.7 are mediocre, values between 0.7 and 0.8 are good, values between 0.8 and 0.9 are

great and values above 0.9 are superb.

Table (4.1) Descriptive Statistics and Reliability of the Driving Variables

Sr. No. Factors Items Mean Standard

DeviationCronbach's

Alpha

1 Intellectual Capital 10 3.77 .666 .895

2 Organization Structure 7 4.11 .581 .877

3 Organization Culture 9 4.06 .628 .927

4 Market Strategy 6 4.28 .517 .868

5 Manufacturing Strategy 9 3.69 .663 .913

6 Customer Needs and Wants 6 4.07 .410 .897

7 Intensity of Competition 5 3.87 .542 .863

8 Technological Opportunity 3 3.84 .634 .732


Table (4.1) shows mean value, standard deviation and Cronbach’s alpha value to

test the reliability of independent variables. Cronbach’s alpha values of all independent

variables are greater than 0.70 therefore it can be acceptable.

187


For the analysis of intellectual capital, 11 variables were used in the

questionnaire.

Table (4.2) Validity Test for Intellectual Capital

Factors

Develop new ideas and knowledge of employees.

Enough skill of employees to develop new product.

Recruit and retain the competent people needed for new product development.

Seeking new ways to do things by management.

Creative thinking and behavior of management by themselves.

Skeptical of new ideas by management.

Searching new things by management.

Behavior influences by management to others in trying new things.

Knowledge sharing and learning of employees from different department.

Knowledge sharing and learning of employees from same department.




Table (4.2) displays the results of validity test for the items of intellectual capital.

Bartlett’s test is conducted to assess the overall significance of the correlation matrix. As

a result, the chi-square score is 746.258 with p<0.001. Therefore it can be concluded that

the variables are uncorrelated in the population. The Cronbach’s α value for the

underlying factors is 0.895, since Cronbach’s α value is greater than 0.70, it can be

concluded that all the items are reliable. Next, the KMO score is 0.769, which is greater

than 0.7. It can be said that sampling adequacy for each variable is enough.

4.1.2 Organization Structure

188

For the analysis of organization structure, 9 items were used in the

questionnaire.

Table (4.3) Validity Test for Organization Structure

Factors

Communication channels between upper levels of management and the employees open

Informing corporate plans to employees.

Communication channels among the employees at the same level of hierarchy open.

Seeking assistance in documents such as organization handbook, procedures and manuals for decision making.

Employees Insights on company as a completely institutionalized entity.

Monitoring employees constantly whether they violate the corporate rules and procedures.

Need approval from upper level managers for routine decision making and daily tasks.





structure. Bartlett’s test is conducted to assess the overall significance of the correlation

matrix. As a result, the chi-square score is 603.977 with p<0.001. Therefore it can be

concluded that the variables are uncorrelated in the population. The Cronbach’s α value

for the underlying factors is 0.877, since Cronbach’s α value is greater than 0.70. It can be


than 0.7. It can be concluded that sampling adequacy for each variable is enough.

4.1.3 Organization Culture

For the analysis of organization culture, 9 items were used in the questionnaire.

189

Table (4.4) Validity Test for Organization Culture

Factors

Encourage for coordination with different department in developing one’s own ideas.

Encourage to develop one’s own ideas for the improvement of the corporation.

Encourage employees from different department to come together to develop new project ideas.

Upper management’ awareness and very receptive to new ideas and suggestions.

Rewards depend on their work on the job.

Reward for innovative and successful projects.

Reward Employees from every level for innovation.

Appreciate Employees for their well performance.

Increase employee’s job responsibilities after well performance.


Cronbach’s α value 0.927



culture. Bartlett’s test is conducted to assess the overall significance of the correlation



for the underlying factors is 0.927. Since Cronbach’s α value is greater than 0.70, it can be

said that all the items are reliable. Next, the KMO score is 0.617, which is greater than

0.7. It can be concluded that sampling adequacy for each variable is reliable.

4.1.4 Market Strategy

For the analysis of market strategy, 6 items were used in the questionnaire.

Table (4.5) Validity Test for Market Strategy

Factors

190

Receives customer response for NPD.

Member/s of new product development team regularly travels to new locations in search of new product ideas.

Enables to meet market needs.

Gives priority to customer needs.

Business objectives driven by customer satisfaction.

Business strategy based on understanding of customer needs.




Table (4.5) displays the results of validity test for the items of market strategy.

Bartlett’s test is conducted to assess the overall significance of the correlation matrix. As

a result, the chi-square score is 263.718 with p < 0.001. Therefore it can be concluded

that the variables are uncorrelated in the population. The Cronbach’s α value for the

underlying factors is 0.868. Since Cronbach’s α value is greater than 0.70, it can be said

that all the items are reliable. Next, the KMO score is 0.764, which is greater than 0.7. It

can be concluded that sampling adequacy for each variable is enough.

4.1.5 Manufacturing Strategy

For the analysis of manufacturing strategy, 10 items were used in the

questionnaire.

Table (4.6) Validity Test for Manufacturing Strategy

Factors

Decrease in operating waste.191

Increase in delivery speed of products.

Decrease in waste and scrap.



Decrease the make span from start of manufacturing process to the end of delivery.

Increase in ability of flexible use of current personnel.

Decrease in total cost of manufacturing processes.

Decrease in input costs.




Table (4.6) displays the results of validity test for the items of manufacturing

strategy. Bartlett’s test is conducted to assess the overall significance of the correlation





than 0.7. It can be said that sampling adequacy for each variable is reliable.

4.1.6 Customer Needs and Wants

For the analysis of customer needs and wants, 6 items were used in the

questionnaire.

Table (4.7) Validity Test for Customer Needs and Wants

Factors

Inquires the information/feedback from customers.

Increase in product and service quality according to customers’ expectation.

Provide the customer needs.

192

Decrease in customer complaints.

Accepts the first priority to meet the customer needs and expectation.

Importance the situation of target market for the business.




Table (4.7) displays the results of validity test for the items of customer needs

and wants. Bartlett’s test is conducted to assess the overall significance of the correlation




said that all the items are reliable. Next, the KMO score is 0.858, which is greater than

0.7. It can be concluded that sampling adequacy for each variable is enough.

4.1.7 Intensity of Competition

For the analysis of competitive intensity, 5 items were used in the questionnaire.

Table (4.8) Validity Test for Intensity of Competition

Factors

Inquires the information from competitors.

Cooperates with others in the same industry.

Increase in product and service quality compared to rivals.

Creates/imitates the product as the competitors.

Accepts that the industry is competitive.


193



Table (4.8) displays the results of validity test for the items of competitive

intensity. Bartlett’s test is conducted to assess the overall significance of the correlation





than 0.7. It can be said that sampling adequacy for each variable is reliable.

4.1.8 Technological Opportunity

For the analysis of technological opportunity, 3 items were used in the

questionnaire.

Table (4.9) Validity Test for Technological Opportunity

Factors

Technology improving product quality.

Sufficient technical knowledge.

Sufficient technical experience.




194

Table (4.9) displays the results of validity test for the items of technological

opportunity. Bartlett’s test is conducted to assess the overall significance of the

correlation matrix. As a result, the chi-square score is 118.507 with p < 0.001. Therefore

it can be concluded that the variables are uncorrelated in the population. The Cronbach’s

α value for the underlying factors is 0.732. Since Cronbach’s α value is greater than 0.70,


greater than 0.7. It can be said that sampling adequacy for each variable is enough.

4.2 Analysis on Types of Innovation

Descriptive analysis is used to investigate the types of innovation; product

innovation, process innovation and marketing innovation, undertaken by confectionery

businesses. It was assumed that the confectionery businesses agreed with conducting the

three types of innovation with the score of mean values above 3.41 according to Best,

1977.

The results of descriptive statistics of innovative activities are shown in the

following table.

Table (4.10) Mean Values of Product Innovation

Description MeanStandard Deviation

Develop new products with totally differing from the current ones. 4.01 .790

Develop newness for current products to improve ease of use for customers and to improved customer satisfaction. 4.11 .818

Develop new products with ingredients differing from the current ones. 3.51 1.198

Increased manufacturing cost in ingredients of new products. 4.04 .656

Increased quality in ingredients of current products. 4.24 .477

Product Innovation (overall mean) 4.12Source: SPSS Outputs

According to Table (4.10), the overall mean value of product innovation factors

was 4.12, which indicate that the confectionary firms improved the existing products and 195

also developed the new ones. It can be found that the confectionery businesses

performed product innovation by developing new products with different materials and

components considering the customers’ health consciousness. The businesses developed

newness for current products leading to improve ease of use for customers according to

the changing lifestyles.

Table (4.11) Mean Values of Process Innovation

Description MeanStandard

Deviation

Used new and more effective techniques and machines in

NPD processes. 3.84 .796

Decreased cost in NPD processes. 2.90 1.001

Decreased variable cost and/or increasing productivity in

production processes.3.84 .520

Increased output quality in NPD processes. 3.99 .488

Process Innovation (overall mean) 3.92Source: SPSS Outputs

According to Table (4.11), the overall mean value of process innovation factors

was 3.92, which indicate that the confectionary firms changed existing manufacturing

processes, techniques and machinery to improve productivity and output quality to meet

the market needs. In addition, the businesses considered the product quality and the

healthy life of customers. The making by manpower and even the using of coal boiler

can impact on product quality such as leaving ashtray and the cleanness of working

environment. As the process innovation, the confectionery businesses changed the uses

of manpower and machineries from kneading to backing and packaging. In this way, the

businesses cannot reduce cost in NPD process because of emphasizing to improve

product quality.

In the previous confectionary businesses, a small bakery business produced

products with the usage of average 270 visses raw material per day by using together

manpower and machineries from kneading to baking process. Kneading, rolling,

moulding, sending to the bakeries with the use of chains, adjusting the chains movement

to be slow or fast by checking the trays coming out from the bakeries, arranging the

finished trays are continuous processes to be in harmony with by the utility of manpower

196

and machineries. It takes a long time to produce quality product. Currently, when coal

boilers are replaced and machineries are used more from kneading to baking process,

more than average 400 visses raw material per day are used for these processes. Some

confectionary businesses use electronic machines over 1000 visses of wheat per day that

are used for production processes.

Table (4.12) Mean Values of Marketing Innovation

Description Mean Standard Deviation

Renewed the product promotion techniques employed for the promotion of the current and/or new products. 3.22 .951

Renewed the distribution channels in the delivery of the product. 3.67 .863

Renewed the product pricing techniques employed for the pricing of the current and/or new products. 3.21 1.017

Renewed the design of the current and/or new products through changes such as in appearance, packaging, shape and volume.

3.90 1.023

Marketing Innovation(overall mean) 3.57Source: SPSS Outputs

According to Table (4.12), the overall mean value of marketing innovation

factors was 3.57, which indicates that the confectionary firms renewed the design of the

current and/or new products through changes such as in appearance, packaging, shape

and so on. The mean value of these variables showed that the firms emphasized the

innovation activities as the firms’ essential factors to get competition edges and survive

among the rivals. In the previous period, confectionery can be bought in the main

confectionary shops, various food shops in Mandalay Zay Cho. As the marketing

innovation, the confectionery businesses used motorbike carriers and own distribution

vehicles to fulfill customer needs in right time. It can be known by the mean values of

marketing innovation variables.

Table (4.13) Influential Types of Innovation and Types of Business


Types of Innovation

Types of

Product Process MarketingMixing Two Types

Mixing Three Types

Product &

Process

Product & Marketing

Process & Marketing

Product, Process & Marketing

197

BusinessInnovative Firms

Traditional

Bakery

9

74

9

68

8

59

8

63

8

58

8

53

7

53

83 77 67 71 66 61 60

Non-Innovative Firms 6 12 22 18 23 28 29

Total 89 89 89 89 89 89 89Source: Survey Data (2017)

Table (4.13) shows the innovation types performing by the traditional

confectionery and bakery firms. By examining the Table, it can be found that the

number of confectionery business doing product innovation is the largest with 83 which

contain 9 traditional confectionery and 74 bakery business. And, in studying the mixing

two types of innovation, the number of firm performing both product and process

innovation is also more than the other mixing three types of innovation. From the Table,

it can be concluded that the confectionery businesses firstly innovated the products to

meet the demand of customers and the intensity of competition. And then technology

advanced and using new machineries was followed by product innovation. Finally, the

businesses implemented marketing innovation with increased productivity by process

innovation to fulfill the customers’ needs in time.

4.3 Analysis on Innovation Drivers of Each Type of Innovation

In this study, there are four main drivers (eleven dimensions) on the innovation;

namely firm characteristics, firm structure, firm strategy and external factors. After

finding out the underlying dimensions of determinants of innovations by using

confirmatory factor analysis, an analysis on innovative activities is carried out. Finally

the results of multiple regression analysis are described in detail.

4.3.1 Drivers of Product Innovation

In analyzing the drivers of product innovation, firm size, firm age and ownership

status as general firm characteristics; intellectual capital, organization structure,

organization culture as firm structure; marketing strategy and manufacturing strategy as

firm strategy; customer needs and wants, intensity of competition and technological

opportunity as external factors are taken in consideration.

198

Multiple regression analysis is applied to investigate the factors of product

innovation. To develop the multiple regression method, the product innovation is used as

dependent variable and firm size, firm age, ownership status, intellectual capital,

organization structure, organization culture, marketing strategy, manufacturing strategy,

customer needs and wants, intensity of competition and technological opportunity are

used as independent variables.

Table (4.14) Drivers of Product Innovation

Dependent variable

(Product Innovation)


t test Sig VIFB

Std.

Error

(Constant) -.405 .625 -.648 .519

Firm size .000 .000 .486 .629 1.284

Firm age .002 .002 .984 .328 1.147

Ownership Status -.002 .143 -.016 .987 1.089

Intellectual Capital .195** .088 2.211 .030 2.066

Organization Structure .007 .149 .044 .965 4.480

Organization Culture .002 .101 .016 .987 2.428

Market Strategy .420*** .113 3.715 .000 2.046

Manufacturing Strategy -.247** .091 -2.720 .008 2.179

Customer needs and wants .109 .146 .743 .460 2.159

Intensity of competition .484*** .101 4.811 .000 1.785

Technological opportunity .129 .081 1.584 .117 1.591

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F-value 11.053***


As shown in Table (4.14), the coefficient of determination (R2) is more than

55%. It can be said that 55% of the variation in product innovation is explained by the

drivers of innovation. The value of F test is highly significant at 1% level. The value of

Durbin-Watson d is 2.207. Since d is around 2, there is no serial correlation. The VIF is

used to assess the inflation in parameter estimates that are due to the collinearities

among the variables (multicollinerity). The level of multicollinearity with VIF excess 10

was problematic. In this study, each VIF is less than 10. These results show that

muticollinearity problems are not included in this case. Moreover according to the result

of normality test, the histogram looks like a normal distribution (a bell-shaped curve).

For the checking of homoscedsticity, it can be seen from Appendix Table B-12, there is

no definite pattern in the residuals.


positively significant at 5% level. This result has proved that intellectual capital is

important drivers of product innovation. The coefficient of market strategy has also

been found to have a positive and highly significant at 1% level. This result has proved

that market strategy is important drivers of product innovation. The coefficient of

manufacturing strategy has also been found to have a negatively significant at 5% level.

This result has proved that manufacturing strategy is important but there is indirect

relationship between manufacturing strategy and product innovation. Moreover, the

coefficient of competition intensity has been found to have a positive and highly

significant at 1% level. This result has proved that competition intensity is important

drivers of product innovation.

In this study, customer needs and wants, intensity of competition and

technological opportunity are considered as external factor. The rapid environmental

change and the uncertainty stimulate the decision-makers to innovate in organizations

(Zaltman, Duncn and Holbeck, 1973; Slappendel, 1996). Product innovations are

prevalent in uncertain environments in which competing products or customers’

preferences alter significantly.

200


positive and significant effect on product innovation”. However, the result can

support Hypothesis 1(b) that “Firm structure has a positive and significant effect on

product innovation”. The desire and innovative personality of management and skilled

labor encourage the product innovation. Beyond human capital, an important part of

knowledge, abilities, experiences, and behaviors required for the successful development

of new products and services lies inside and embedded thorough the organization.

Furthermore, in order to get involved workers in the innovation process, the firm should


(O’Connor and McDermott, 2004). Tseng and Goo (2005) argued that a good structural

capital will translate the human dimension of innovation into company property, through

appropriate managerial leadership and ability.

The result can support Hypothesis 1(c) that “Firm strategy has a positive and

significant effect on product innovation”. Orienting customer needs and satisfaction

drives the product innovation. Bennett and Cooper (1981) suggested that the adoption of

the marketing concept philosophy stifles the development and marketing of radically

new products, and rather encourages the development of incremental product

innovations. This is due to customers being unable to articulate their future needs

beyond current consumption experiences.

The result can support Hypothesis 1(d) that “External factors have a positive

and significant effect on product innovation”. If the firms have customer orientation,

technological improvement and enough funds to get competitive edge, firms would have

more product innovation as much as they can. Unfortunately, it is found that the cost of

manufacturing for product innovation cannot be reduced. Although the owners and

managers have innovative personality, they do not implement their ideas strategically.

Subramanian (1996), as cited in Chryssochoidis (2003) found that firm innovativeness is

not statistically higher in unstable external environments, but firms in such environments

adopt innovations earlier than firms in more stable ones. In a cross-sectional analysis of

Fortune 500 firms discovered that a significant inverted-U shape, with higher

competition initially increasing then decreasing the rate of innovation (Scherer, 1967, as

cited in Aghion, Bloom, Blundell, Griffith and Howitt, 2005).

4.3.2 Drivers of Process Innovation

201

Process innovation included four dimensions. Mean process innovation is




Multiple regression analysis is applied to investigate the factors of process

innovation. To develop the multiple regression method, the process innovation is used as

dependent variable and firm size, firm age, ownership status, intellectual capital,

organization structure, organization culture, marketing strategy, manufacturing strategy

and external factor are used as independent variables. Regression analysis is conducted

with process innovation and eleven dimensions of drivers of innovation as the

independent variables.

Table (4.15) Drivers of Process Innovation

Dependent variable

(Process Innovation)


t test Sig VIFB Std.

Error

(Constant) 1.940 .807 2.404 .019 -

Firm size .000 .001 .342 .733 1.284

Firm age -.001 .003 -.263 .793 1.147

Ownership Status .091 .184 .494 .622 1.089

Intellectual Capital .349*** .114 3.072 .003 2.066

Organization Structure .240* .143 1.681 .097 1.794

Organization Culture -.234* .131 -1.793 .077 2.428

Market Strategy -.038 .146 -.258 .797 2.046


Customer needs and wants -.042 .189 -.224 .824 2.159

Intensity of competition .255* .130 1.964 .053 1.785

Technological opportunity .357*** .105 3.406 .001 1.591


F-value 3.215***

Durbin-Watson 2.321



As shown in Table (4.15), the coefficient of determinations (R2) is above 21%. It

can be concluded that 21% of the variation in process innovation is explained by the 202

drivers of innovation. The value of F test is highly significant at 1% level. The value of

Durbin-Watson d is 2.321. Since d is around 2, there is no serial correlation. The level of

multicollinearity with VIF excess 10 is problematic and each VIF is less than 10 in this

study. These results show that muticollinearity problems are not included in this case.

Moreover, according to the result of the normality test the histogram looks like a normal

distribution (a bell-shaped curve). For the checking of homoscedsticity, it can be seen

from Appendix Table B-13, there is no systematic part in the residuals.


positive and highly significant at 1% level. This result has proved that intellectual capital

is important drivers of process innovation. However, the coefficient of organization

culture has been found to have a negative and significant at 10% level. This result has

proved that organization culture is important drivers of process innovation but there is

indirect relationship between organization culture and process innovation. The

coefficient of intensity of competition has been found to have a positive and significant

at 5% level. This result has proved that intensity of competition is positively important

drivers of process innovation. In addition, the coefficient of technological opportunity

has been found to have a positive and highly significant at 1% level. This shows that

there is important and direct relationship between technological opportunity and process

innovation.


positive and significant effect on process innovation”. However, the result can


process innovation”. According to the result, the firms implemented the new

production process by the innovative personality of management with skillful labor. The

investment decision for production process improvement is made by the owner of

businesses. The labours need to be expertise with new machineries in the process

innovation. The businesses encourage developing new product ideas and receiving the

feedback of employees. By appreciating the employees for their new ideas and well

performance, the organization culture drives the process innovation.

The result cannot support Hypothesis 2(c) that “Firm strategy has a positive

and significant effect on process innovation”. The result can support Hypothesis 2(d)

that “External factors have a positive and significant effect on process innovation”.

As the confectionery businesses increment their current product and create new product

203

to survive in competitive edge, the business owners enable the process innovation with

product innovation by inquiring the information of competitors. The opportunity to

improve technology is also important for process innovation.

4.3.3 Drivers of Marketing Innovation

Marketing innovation included four dimensions. Mean marketing innovation is




Multiple regression analysis was applied to investigate the factors of marketing

innovation. To develop the multiple regression method, the marketing innovation was

used as dependent variable and firm size, firm age, ownership status, intellectual capital,

organization structure, organization culture, marketing strategy, manufacturing strategy,

customer needs and wants, intensity of competition and technological opportunity are

used as independent variables. Regression analysis is conducted with marketing

innovation and eleven dimensions of drivers of innovation as the independent variables.

Table (4.16) Drivers of Marketing Innovation

Dependent variable (Marketing Innovation)

Unstandardized Coefficients t test Sig VIFB Std. Error

(Constant) .387 1.111 .348 .728Firm size -6.848E-5 .001 -.084 .933 1.284Firm age .003 .004 .711 .479 1.147Ownership Status -.226 .254 -.890 .376 1.089Intellectual Capital .517*** .157 3.303 .001 2.066Organization Structure -.032 .264 -.119 .905 4.480 Organization Culture -.190 .180 -1.056 .294 2.428


Market Strategy -.002 .162 -.012 .990 2.179

Customer needs and wants .648** .260 2.491 .015 2.159

Intensity of competition -.045 .179 -.252 .802 1.785Technological opportunity .094 .144 .652 .516 1.591Adjusted R Square 0.220F-value 3.251***

204


As shown in Table (4.16), the coefficient of determinations (R2) is 22%. It can be

said that 22% of the variation in marketing innovation is explained by the drivers of

innovation. The value of F test is highly significant at 1% level. The value of Durbin-

Watson d is 2.026. Since d is around 2, there is no serial correlation. Each VIF is less

than 10. These results show that muticollinearity problems are not included in this case.

According to the result of normality test, the histogram looks like a normal distribution

(a bell-shaped curve). For the checking of homoscedsticity, it can be seen from

Appendix Table B-14, there is no definite pattern in the residuals.


positive and highly significant at 1% level. This result has proved that intellectual capital

is important drivers of marketing innovation. The coefficient of customer needs and

wants also has been found to have a positive and significant at 5% level. This result has

proved that customer needs and wants are important drivers of marketing innovation.


positive and significant effect on marketing innovation”. However, the result can


marketing innovation”. In changing product promotion techniques, distribution

channels and product appearance, packaging, shape and volume necessary in order to

adapt with the market needs, the innovative personality of management level and

involvement of skill workers are important drivers. The result cannot support

Hypothesis 3(c) that “Firm strategy has a positive and significant effect on the

marketing innovation”. The result can support Hypothesis 3(d) that “External

factors have a positive and significant effect on marketing innovation”. The

confectionery businesses relied on customer needs and wants in implementing marketing

innovation.

4.4 Analysis on the Influence of Innovation on Firm Performance

The relationship between overall innovation and overall performance measured

is shown in Table (4.17) in an extracted form. The original result is shown in Appendix

Table B-4.

205

Table (4.17) Influencing Innovation Types on Firm Performance


Unstandardized Coefficient t test Sig

VIFB Std. Error

(Constant) 2.248 .374 6.011 .000



Market Innovation .117 .071 1.650 .103 1.547


F-value 9.330***


According to Table (4.17), the coefficient of determinations (R2) is 22%. It can

be said that 22% of the variation in firm performance is explained by product

innovation, process innovation and market innovation. The value of F test is highly

significant at 1% level. The value of Durbin-Watson d is 1.711. For 89 observations and

three explanatory variables, dl is 1.434 and du is 1.577 at the 1 percent level. Since the

computed d of 1.711 is greater than du=1.577. It can be concluded that there is no serial

correlations in the residuals. Each VIF is less than 10. These results show that

multicollinearity problems were not included in this case. According to the result of

normality test, the histogram looks like a normal distribution (a bell-shaped curve). For

the checking of Homoscedsticity assumption, it can be seen from the Appendix Table B-

15, there is no systematic part in the residuals.


highly significant at 1% level. It can be concluded that product innovation is direct

positive impact on performance of confectionary businesses. The overall performance of

the firm is significantly influenced by product innovation.

The result can support Hypothesis 4(a) that “Product innovation has a positive

and significant effect on the firm performance”. Of 83 confectionery businesses, 93

206

percent have product innovation activities. Consequently, production innovation effects

on the firm performance by developing new products with totally differing from the

current ones. Moreover, the businesses improved current products to ease of use for

customers. The result cannot support Hypothesis 4 (b) that “Process innovation has a

positive and significant effect on the firm performance” and Hypothesis 4 (c) that

“Marketing innovation has a positive and significant effect on the firm

performance”.

4.5 Analysis on Effect of Innovation on Firm Performance Measures

To analyze the correlations of innovation and performance, the four measures of

performance were used in this study: increase in number of employees, increase in

number of production, increase in sale volume and increase in profit during the last three

years (2013-2015). In the following, the influencing types of innovation on each

performance measure are analyzed.

4.5.1 Influencing Types of Innovation on Firm Performance Measures


To analyze the influencing types of innovation on firm performance in terms of

number of employees, the multiple regression method is applied by identifying the

product, process and market innovation as the independent variables and the number of

employees as dependent variable.

Table (4.18) Influencing Innovation Types on Firm Performance Measure(Number of Employee)



B Std. Error

(Constant) 2.068 .443 4.663 .000





F-value 8.094***

Durbin-Watson 1.939 Source: SPSS Outputs

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Table (4.18) mentioned the relationship between innovation types and

performance measured with number of employee. The multiple regression method is

applied by identifying the product, process and market innovation as the independent

variables and the number of employees as dependent variable. According to the result,

the coefficient of determinations (R2) is above 19%. It can be said that 19% of the

variation in firm performance in terms of number of employee is explained by product,

process and market innovation. The value of F test is highly significant at 1% level. The

value of Durbin-Watson d is 1.939. For 89 observations and three explanatory variables,

dl is 1.434 and du is 1.577 at the 1 percent level. Since the computed d of 1.939 is greater

than du=1.577. It can be concluded that there is no serial correlations in the residuals.

Each VIF is less than 10. These results show that multicollinearity problems were not

included in this case. The coefficient of product innovation has been found to have a

positive and highly significant at 1% level. It can be concluded that product innovation

has direct positive impact on performance measured with number of employees in


The result can support Hypothesis 5(a) that: “Product innovation has a


employees”. The management’ innovative personality and increased number of skillful

workers is one of the important drivers to improve product quality and productivity.

Product innovation leads to increase human resource. However, the result cannot

support Hypothesis 5(b) that: “Process innovation has a positive and significant

effect on the firm performance in terms of number of employees”. The coefficient of

marketing innovation has been found to have a positive and significant at 5% level. It

can be concluded that marketing innovation has direct positive impact on performance

measured with number of employees in confectionary businesses. Therefore the result

can support Hypothesis 5(c) that: “Marketing innovation has a positive and

significant effect on the firm performance in terms of number of employees” .

Because of the businesses renewed the distribution channels in the delivery of the

product, the production volume need to increase with higher sale volume. The more

need for work force as the more increase in productivity.

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4.5.2 Influencing Types of Innovation on Firm Performance Measure(Production Volume)


production volume, the multiple regression method is applied by identifying the product,

process and market innovation as the independent variables and the production volume

as dependent variable.

Table (4.19) Influencing Innovation Types on Firm Performance Measure

(Production Volume)


Unstandardized Coefficients t test Sig VIF

B Std. Error

(Constant) 2.887 .491 5.881 .000





F-value 3.630***


In Table (4.19), the impact of innovation types on performance measured with

number of production. As shown in the Table, the coefficient of determinations (R2) is

8%. It can be said that 8% of the variation in firm performance measured with number

of production by product, process and market innovation. The value of F test is highly

significant at 1% level. The value of Durbin-Watson d is 1.816. For 89 observations and

three explanatory variables, dl is 1.434 and du is 1.577 at the 1 percent level. Since the

computed d of 1.816 is greater than du=1.577. It can be concluded that there is no serial

correlations in the residuals. Each VIF is less than 10. These results show that


innovation has been found to have a positive and significant at 5% level. It can be

concluded that product innovation has direct positive impact on performance measured

with number of production in confectionary businesses. The result can support

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Hypothesis 6 (a) that: “Product innovation has a positive and significant effect on

the firm performance in terms of production volume”. However, the result cannot

support Hypothesis 6(b) that: “Process innovation has a positive and significant

effect on the firm performance in terms of production volume” and Hypothesis 6(c)

that: “Marketing innovation has a positive and significant effect on the firm

performance in terms of production volume”.

4.5.3 Influencing Types of Innovation on Firm Performance Measure

(Sales Volume)


sales volume, the multiple regression method is applied by identifying the product,

process and market innovation as the independent variables and the sales volume as

dependent variable.

Table (4.20) Influencing Innovation Types on Firm Performance Measure (Sales Volume)


Unstandardized Coefficient

t test Sig VIFB Std. Error

(Constant) 2.887 .491 5.881 .000





F-value 3.630***


As shown in Table (4.20), the coefficient of determinations (R2) is 8%. The value

of F test is highly significant at 1% level. The value of Durbin-Watson d is 1.816. For

89 observations and three explanatory variables, dl is 1.434 and du is 1.577 at the 1

percent level. Since the computed d of 1.816 is greater than du=1.577. It can be

concluded that there is no serial correlations in the residuals. Each VIF is less than 10.

These results show that multicollinearity problems were not included in this case. The 210

coefficient of product innovation has been found to have a positive and significant at 1%

level. It can be concluded that product innovation has direct positive impact on

performance measured with sales volume in confectionary businesses. The result can

support Hypothesis 7 (a) that: “Product innovation has a positive and significant

effect on the firm performance in terms of sale volume”.

Relating the product innovation to firm performance causes to distinguish

between three sources from which the extra revenue comes from (Kerin, Harvey and

Rothe, 1978, as cited in Reichstein, 2000):

New consumers who were not previously buyers of the product type.

Consumers of competitive brands.

Consumers of an existing company brand who switch to the new or reformulated

brand or product.

However, the result cannot support Hypothesis 7(b) that: “Process innovation has

a positive and significant effect on the firm performance in terms of sale volume”

and Hypothesis 7(c) that: “Marketing innovation has a positive and significant

effect on the firm performance in terms of sale volume”.

4.5.4 Influencing Types of Innovation on Firm Performance Measure (Profit)


profit, the multiple regression method is applied by identifying the product, process and

market innovation as the independent variables and profit as dependent variable.

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Table (4.21) Influencing Innovation Types on Firm Performance Measure (Profit)



B Std. Error

(Constant) 1.518 .454 3.348 .001





F-value 13.124***


According to Table (4.21), the coefficient of determinations (R2) is 29%. The

value of F test is highly significant at 1% level. The value of Durbin-Watson d is 1.778.

For 89 observations and three explanatory variables, dl is 1.434 and du is 1.577 at the 1

percent level. Since the computed d of 1.778 is greater than du=1.577. It can be

concluded that there is no serial correlations in the residuals. Each VIF is less than 10.

These results show that multicollinearity problems were not included in this case. The

coefficient of product innovation has been found to have a positive and highly


impact on performance measured with profit of confectionary businesses. In addition,

the coefficient of market innovation has been found to have a positive and significant at

5% level. It can be concluded that market innovation has direct positive impact on

performance measured with profit of confectionary businesses. The result can support

Hypothesis 8(a) that: “Product innovation has a positive and significant effect on

the firm performance in terms of Profit”. However, the result cannot support

Hypothesis 8(b) that: “Process innovation has a positive and significant effect on

the firm performance in terms of Profit”. The result can support Hypothesis 8(c) that:

“Marketing innovation has a positive and significant effect on the firm

performance in terms of Profit”. In three types of innovation, product innovation

highly and significantly impact on performance with all measures. It can be concluded

that developing new product and increased output quality caused to increase the firm

performance.

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4.6 Summary of Innovation and Performance of Confectionery Businesses

By analyzing the drivers of innovation, types of innovation and performance for

randomly selected 86 confectionery businesses in Mandalay municipal area, the result of

drivers and innovation of confectionery businesses can be explored. This result summary

is presented with Table (4.22) for simplicity.

Table (4.22) Summary of Innovation Drivers of Confectionery Businesses


Dependent Variable

Product Innovation

Process Innovation


B Sig B Sig B Sig

Intellectual Capital .195** .030 .349*** .003 .517*** .001

Organization Structure - - .240* .097 - -

Organization Culture - - -.234* .077 - -

Market Strategy .420*** .000 - - - -

Manufacturing Strategy -.247** .008 - - - -

Customer Needs and Wants - - - - .648** .015

Intensity of Competition .484*** .000 .255* .053 - -

Technological Opportunity - .357*** .001 - -


According to the result, although this study found that the sizes of the firms do

not impact on product innovation because every size of the firms innovated in Mandalay

confectionary industry, Miller, Droge and Toulouse (1988) said that once organizations

increase in size, they require more elaborate control systems and gradually lose on their

ability to innovate. It is difficult for older organizations to generate innovations due to

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distorted perceptions, dulled motivation, poor creativity, political deadlocks and

disconnected actions (Dougherty and Heller, 1994). In this study, the age of the firm is

not an important factor in innovation. It can be seen that some long life span businesses

have so many new things e.g., Traditional confectionery firms, Myint Myint Khin, has

more than 100 years life span (since 1912), have the product, process and marketing

innovative activities. The business minded the customers’ health consciousness in using

ingredients, the customers’ changing lifestyles in packing, marketing and distribution.

Table (4.22) shows the analysis result after using multiple regression method.

According to table, intellectual capital can cause the firm innovation. In the study,

centralized and formalized organization structure is mostly founded. Therefore

management support is important in decision making even though the employees are

rewarded for their creative ideas. Rewarding employees for their innovative idea and

well performance drives the firms’ innovation. In addition, customer orientation by

understanding the needs and circumstances of the customers very well namely market

strategy is a force in the firm innovation. Making cost effective in manufacturing

process can drive the firm innovation. Moreover, the external factors: customer

orientation, intensity of competition and technological opportunity, drive the firm

innovations.

Table (4.23) Summary of Innovation and Performance of Confectionery Businesses


Dependent Variable

No. of employees

Production volume Sale volume Profit

B Sig B Sig B Sig B Sig

Product Innovation

.351*** .001 .274** .014 .274** .014 .451*** .000


.187** .028 - - - - .239** .007


As the types of innovation, product innovation is mostly implemented by the

confectionery businesses. Table (4.23) describes the result of analyzing the types of

innovation and the performance of businesses. The product innovation influenced on all 214

performance measured of the firm. The market innovation impact on number of

employee and profit measured.

CHAPTER 5

CONCLUSION

This chapter discusses the findings from the study of Mandalay confectionary

businesses that are innovated and baked based confectionary. The baked based

confectionary businesses are classified into two types such as traditional confectionery

and bakery firms. Data analysis concerning the drivers of innovation, types of

innovation and performance of confectionary businesses in Mandalay and the results are

discussed. It also provides suggestions and comments and the needs for further study.

5.1 Findings and Discussions

In Mandalay, although confectionary businesses have fostered the innovation in

their businesses, it is not assured that all of the businesses will know about the factors

influencing the innovation and the business performance. Therefore this study intends to

explore the drivers on each type of innovation and analyzed the relationship between

types of innovation and firm performance of confectionery businesses in Mandalay.

Moreover, in Mandalay confectionary industry, new food products are carefully

prepared to meet the standard of healthy food quality, in taste, ingredients etc as the

consumption patterns have shifted over time toward more low-fat and less sugar. Some

foods are modified with easy-to-carry packages due to the changing of consumers’


transportation throughout the country. Therefore it is important to know what factors are

driving the innovation and the performance of confectionary businesses in Mandalay.

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Innovation enables the firms to become competitive and to satisfy customers’

needs and wants that are always changing. As innovation is important in the success of

businesses, there is a need to find out the factors that are driving force of the innovation.

Although previous studies considered several factors that had effect on innovation, this

study aims to analyze general firm characteristics, firm structure, firm strategy, customer

needs and wants, intensity of competition and technological opportunity as independent

variables and types of innovation and firm performance as dependent variables. The

important innovation drivers are summarized after conducting factor analysis. And then

the correlation coefficient between independent and dependent variables can be

calculated by using multiple regression method.

Previously in confectionary businesses, manpower and machineries are used

together starting from kneading to baking process. During this processes, it is important

to make them step by step. Kneading, rolling, moulding, sending to the baking sheet

with the use of chains, adjusting the chains movement to be slow or fast by checking the

trays coming out from the baking sheet, arranging the finished trays are continuous

processed to be in harmony with the utility of manpower and machineries. At that time

the role of bakers were the main workers in business. At present, coal boilers are

replaced and machineries are used more for kneading to baking process. Therefore the

leaders’ experience is important in managing the confectionary businesses.

Chryssochoidis (2003) studied firm size, firm age and ownership status as

organizational demographic characteristics associated with product innovation.

However, this study found that general characteristics of the firm are not related to any

types of innovation. It can be concluded that the confectionery businesses in Mandalay

are innovated within the scope of business regardless of the firm size, firm age and

ownership status

Firstly, the result of the study confirmed the belief of Freel (1999) that

management competency is one of the skills constraints affecting innovation. Beaver

and Jennings (2000) and Jennings and Beaver (1997), as cited in Vyas (2009) said that

the innovative personality of firm’s key decision makers caused competitive advantage.

In this study, one of the innovation drivers, intellectual capital which contained

innovative personality, skilled labor and social capital, strongly impact on all three types

of innovation.

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In order to get involved workers in the innovation process, the firm should


(O’Connor and McDermott, 2004). An important part of knowledge, abilities,

experiences, and behaviors required for the successful development of new products and

services lies inside and embedded within the organization. The supply of higher levels of

education, training and skills is strongly related to the increased demand for and supply

of innovation. At the most fundamental level it has been shown that investment in

capital equipment, innovation and human capital are broadly complementary and

mutually reinforcing (Lloyd-Ellis and Roberts, 2002, as cited in Toner, 2011).

Among the internal factors shown to be the most important determinants of

innovative activity are high incidence of qualified workers, and strong leadership

provided by a highly educated director or founder (Hoffman, Parejo, Bessant, Perren,

1998; Le Blanc, Nash, Gallagher, Gonda, Kakizaki, 1997) although some studies do not

find that effect (Keizer et al., 2002). Innovation is not related to the number of highly

educated staff (Radas et al., 2009). However Mohnen and Roller (2005) showed that

human capital is one of the crucial factors in innovative activities, and that absence of

necessary skills is a serious impediment to innovation.

In this study, the present employees in the business are more involved than the

new workers in implementing the business’s innovative activities. From the

management point of view, the retention of these employees is an important factor.

Therefore the business considered the plan to secure the services of these existing

workers. For example, Bayin biscuit never layoff even though in the sale decline season.

During that time, the business is engaged in producing products in advanced for the peak

season. In this way, the confectionery businesses manage to retain their skillful

employees. Some of the confectionery businesses hired international bakers and trained

their workers. Moreover, the business permitted their employees to create new product,

welcome their original ideas to create and to test the prototype and then if the market

testing is successful, the business rewarded the innovative workers. However, according

to Myanmar culture the business owners mostly generated the innovative idea and are

decision makers.

During the implementation phase, greater formalization and centralization can be

allowed because role conflict and ambiguity is reduced. In this study, most of the

innovated confectionery businesses applied formalized and centralized organization

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structure. However, Zaltman et al., (1973) concluded that complex innovation projects

cannot be successfully pursued in highly politically empowered, centralized

unspecialized and highly rigid bureaucratic structures. Such structures overburden for

managements, affording them too little time or assistance to initiate complex projects of

innovation. Gersick (1991) noted that a “deep structure” that inhibits innovations is in

place. Zaltman et al., (1973) suggested that it is necessary to employ low formalization

and low centralization during innovation initiation phases because at this stage

information gathering and processing is crucial for success. Johne (1984) found indeed

that leaders in high-tech sectors predominantly used spoken word (low formalization)

during initiation and written progress monitoring tools during implementation.

In order to succeed, businesses need to continually adapt to changing market

pressures to ensure customer satisfaction is achieved in a way that creates growth for the

business. Therefore businesses must innovate in order to succeed, in order to grow, then

understanding what factors are driving the innovation and how to assure success, is

essential. Organization cultures including the factors namely reward system and

management support was also positively correlated with product innovation. The

confectionery businesses recognized the new ideas and suggestions of employees and

then rewarded for the well performance. For example, Zalatwar confectionery

encouraged the employees’ new ideas by rewarding if the new ideas were really

innovated.

As shown in the conceptual framework, market orientation is the superior firm

performance through the satisfaction of customer’s needs. According to Kohli and Jaworski

(1990), responsiveness is a key when trying to change market needs and expectations. The

studied businesses responded by making innovation to market needs. According to Narver

and Slater (1990), the three major components of market orientation, customer orientation,

competitor orientation and interfunctional coordination are long-term in vision and profit-

driven. It can be found that the confectionery businesses focused customers’ and

competitors’ orientation.

The negative correlation between manufacturing strategy and product innovation

reflected the firms’ effort to improve product quality. But the businesses cannot

efficiently reduce the cost to improve the product quality. Significantly, the influencing

strength of external factors on product innovation including customers’ needs and wants,

intensity of competition and technological opportunity were the best. For example, some

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confectionery business reduces the total cost of production processes but the distribution

channels cannot be changed. On the other hand, the firms renewed the design of current

or new products but the total cost of manufacturing processes cannot be reduced.

In process innovation, intellectual capital is also the important driver to use

advanced technology and machineries. Another one, the effect of formalized

communication and centralized organization structure on process innovation reflected

the Myanmar culture. Although the confectionery businesses in Mandalay encouraged

the employees for new ideas, the important decision making was limited in the senior

management. Since the process innovation was followed by the product innovation,

organization structure, organization culture, intensity of competition and technological

opportunity are main drivers for both product and process innovation.

Marketing innovation is effected by intellectual capital and customer needs and

wants. For example, Bayin biscuit tries to implement the desire of customer that can be

known through the distributers and delivering carriers. Even though the business wants

and is able to produce new product with new price, it must be continued production of

new product with old price due to customers’ résistance in target market.

Consequently, the businesses measure how innovation creates the increasing

value such as revenue from new products or services, profit from new products or

services as financial and market measures (Burnett, 2011). Businesses use a variety of

measures to achieve a better understanding of the value produced, such as profitability,

new product introduction and so on. In fact, innovation remains one of the most elusive

dimensions of organizational performance to quantitatively comprehend (Gatignon et

al., 2002, as cited in Carayannis and Provance, 2007). Performance is the result of

innovation. It can be measured in three levels: output, outcome and impact. Outputs

occur as the immediate, internalized results of innovation. New product introduction,

sale volume and number of employees are among the outputs that emerge. Outcomes

include mid-range results such as revenues and profit contributed by new products.

Finally impacts represent more lasting, long-range benefits that accrue to the firm from

its innovative competence. Example of impact performance includes status as a top

innovator in the industry (Carayannis and Provance, 2007).

This study used number of employees, production volume, sale volume and

profit as the performance measured and influenced by the types of innovation in

confectionery businesses. In analyzing the influencing innovation types on firm

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performance measure: increased in number of employee: it was found that product

innovation significantly impacted on firm performance. In measuring business

performance in terms of number of production, number of sales and profit, the

significantly effect of product innovation were found on these measurements.

Continuously, the correlations of factors of product innovation and firm performance

were analyzed. The confectionery businesses used different material, components and

technology in developing new products. Moreover the businesses improved quality and

cost of material and components for product innovation. According to the regression

result of influencing innovation types on firm performance, process innovation also

impacted on firm performance measured by number of sales and profit. The

confectionery businesses implemented process innovation by using new and more

effective techniques and machines in new product development process. In this study,

the percentage of business implementing marketing innovation is very low and the

businesses with marketing innovation especially renewed the design of the current and

new products through changes such as in appearance, packing, shape and volume.

In Summary, among the drivers of innovation, intellectual capital is significant

driver in Mandalay confectionery businesses. Even though the confectionery businesses

gave employees freedom to materialize their ideas, according to Myanmar culture the

employees implemented the innovation under the control and support of management.

On the other hand, using the new technology and machineries for the process innovation

increased the product quality and productivity but it can also increase cost.

5.2 Suggestions and Recommendation

Innovation is one of the most important means through which businesses

contribute to economic growth, numerous research studies were conducted to determine

which factors positively impact the innovative efforts of businesses. To be successful

over a long period of time, firms must develop the ability to innovate and then to profit

from that innovation (Nelson, 1991). From studying the confectionery businesses in

Mandalay, the drivers of innovation, namely intellectual capital, organization structure,

organization culture, market strategy and manufacturing strategy were internally

important to innovation. The lack of an educated and skilled workforce in modern

technology will be a problem for the growing of the economy. In addition, external

drivers, namely customer needs and wants, intensity of competition and technological

opportunity, are also important to innovation. After discussing with the businesses 220

owner, it can be known that the sales of some business obviously declined after 2015

due to the entrance of more competitors to the confectionery industry. These new entries

competed with advanced technology and low cost strategy. The existing businesses will

be able to overcome these difficulties if they have enough funds to catch up with the

advanced technology and low cost strategy. Therefore the realization of Myanmar’s

transformation depends upon how effectively the country can mobilize and allocate the

vast financial resources needed to support its development targets. In all areas, the

institutions and policy frameworks need to be strengthened to meet Myanmar’s

ambitious reform goals. Great government support will be fundamental to increasing

productivity and to promoting innovation in food industry.

Although international food brands are coming into the market, these brands

cannot penetrate all clusters of consumers. Therefore the current businesses

continuously need to innovate in order to retain the success and to consider all the

drivers of innovation to get competitive advantages. Moreover the confectionery

businesses need to integrate with not only customers but also suppliers and

manufacturers in the supply chain. To get the integration, the businesses should join the

industrial association such as Myanmar Agricultural Food Processors and Exporters

Association. This organization focused on continuing to educate processors for

understanding what it takes to make nutritious, safe and high quality food and build

capacity and consumers about what constitutes good food. Moreover, it supports the

members with a broad range of capacity building programmed including food labeling

guidelines and food safety training seminars. It intends food processors to use current

technology to be able to strengthen the safety of the food and align with international

standards. Useful information about what is happening in the local but also regional food

industry can gain by joining the industrial associations. It will support to have the

capabilities to export to overseas markets. In addition, the public and private sectors

should collaborate on key food industry issues such as producing safe and high quality

food and sourcing raw materials from countries outside. The collaboration can create

value for enterprises and consumers by building capacity and helping to drive a

harmonized approach to Myanmar’s food standards. In addition, most of the businesses

provide the required information about their product such as list of ingredients and

expiry date. Although all food products have to be labeled: FDA (according to officials

from the Food and Drug Association) to ensure quality and safety, only some

confectionery businesses have FDA certification. If the authorities could keep a check to

221

ensure food safety, it is good for both the manufacturers and the consumers to have more

awareness. The policy makers should support the local businesses to survive among the

rivals.

5.3 Needs for Further Study

In the study, the data are collected from the confectionery businesses in

Mandalay only. Hence, the first recommendation is that further research should be done

by opening the survey to other locations in order to improve the findings of the study.

By doing so will also ascertain larger sample size where questionnaire can be distributed

to more businesses. For example, Yangon may be the research area from which more

data about confectionery businesses can be obtained even if it does not have traditional

confectionery business such as Myint Myint Khin.

Moreover, the organizational capacities for innovation can be assessed with the

ORCI (Organizational Renewal Capability Inventory) method, which enables a reliable

diagnosis of the main organizational strengths and weaknesses in terms of innovation.

To assess and develop the capacities for company-wide sustained innovation, the ORCI

(Organizational Renewal Capability Inventory) (Nisula and Kianto, 2013) can be

applied. Organizational renewal capability is based on the knowledge-based view of the

organization (Spender, 1996) and addresses the ability of an organization to produce

sustained learning and innovation, that is, new products, processes, practices, insights,

and mental models, which enable the organization to adapt to external changes as well

as to create change from within the organization (Kianto, 2008; Leonard-Barton, 1995;

Pöyhönen, 2005).

As a final, further study can be done by focusing on the innovative performance

of confectionery businesses from the customer point of view. The impact of innovation

on customer satisfaction of confectionery business can be analyzed as further study since

this study considered the factors driving the innovation from the side of the business.

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Appendix AQuestionnaire

Yangon Institute of EconomicsDepartment of CommerceResearch Questionnaires

Objective: This question is intended to apply for interview with Founder/Owner-Manager/Managing Director or someone who is playing at the role of decision maker in production plan. It will be used only for a survey that will be conducted in a research required to submit for the attainment of Doctor’s Degree conferred by Yangon University of Economics. Research topic is “Innovation in Confectionery Industry”.

Section OnePart A: Business Profile

(1) Name of the firm …………………

(2) Number of employees

1-49

50-100

Above 100

(3) Firm Age

3-12 year

13-22 year

23 -32year

33-42 year

43-52 year

53and above

(4) Type of ownership

Sole proprietorship Partnership Company

(5) Number of items of product currently in the market …………………..

(6) Number of years for developing new product ………………......235

Under 2 years

2-4 years

5-7 years

8-10 years

Above 10 years

(7) For innovation we depend on close cooperation with ... CustomersSuppliersCompetitorsOther

(8) Your business is a member of Myanmar Food Processors and Exporters Association? Yes No

236

Part B: Decision Maker’s Profile

(1) (i) Position at work Owner Manager

(ii) Age ( ) years

(iii) Gender Male Female

(2) Education(i)

(ii)

(iii)

(iv)

High School

Graduated

Master

Others

(3) Which way did you use to get started current businesses?(i) Start from scratch

(ii) Inherited

(iii) Partnership

(iv) Purchasing existing firm

(v) Others

(4) Do you think your business is innovative? Yes No(5) In your innovative activities,

(i) Exploring new ideas(ii)Modifying the existing product(iii)Improving production methods/procedures(iv)Adapting as the other success firms

(6) Who start the innovative activities?(i) Owner(ii) Manager(iii)Marketer

(7)Where the business gets the innovative ideas?(i) Suppliers(ii)Market survey and competitors(iii)Customer survey/suggestion

(8) During the three years (2013-2015), did the business improve the existing product or produce the new product? Yes No

237

(9) During the three years (2013-2015), did the business change the production processes?Yes No

(10) During the three years (2013-2015), did the business change the marketing processes?Yes No

238

Section TwoPart A: Drives of Innovation

(Please circle on the most appropriate level of your agreement or disagreement to the following statement)

1=Strongly Disagree, 2=Disagree, 3=Neutral, 4=Agree, 5=Strongly agree

The questions of intellectual capital

1.The product development team in your company is made up of ‘creative’ people. 1 2 3 4 5

2. Human resources are producing new ideas and knowledge. 1 2 3 4 5

3.Your business has enough skillful labor for new product development.

1 2 3 4 5

4.Human resources are able to recruit and retain the competent people needed for new product development. 1 2 3 4 5

5. You are always seeking new ways to do things. 1 2 3 4 5

6.You consider yourself creative and original in your thinking and behavior. 1 2 3 4 5

7. In your business, you are often skeptical of new ideas. 1 2 3 4 5

8. You like to spend trying out new things. 1 2 3 4 5

9. Your behavior influences others to try new things. 1 2 3 4 5

10.Communication and knowledge sharing is high between employees from different departments.

1 2 3 4 5

11.Knowledge sharing and learning from each other is very common from employees from same department.

1 2 3 4 5

The questions of organizational structure

1.Communication channels are open between upper levels of management and the employees. 1 2 3 4 5

2. Employees are informed on corporate plans.1 2 3 4 5

3. Communication channels are open among the employees

239

at the same level of hierarchy. 1 2 3 4 5

4.Employees seek assistance for decision making in documents such as organization handbook, procedures and manuals. 1 2 3 4 5

5.Employees consider your company as a completely institutionalized entity. 1 2 3 4 5

6.Employees are monitored constantly whether the initiatives they take violate the corporate rules and procedures. 1 2 3 4 5

7.Decision making incentives are limited for middle and upper level employees. 1 2 3 4 5

8.Authority for making decisions on even insignificant issues rests with the senior management.

1 2 3 4 5

9.Routine decision making and daily tasks require approval from upper level managers.

1 2 3 4 5

The questions of organizational culture

1.In your organization, the developments of new and innovative ideas are encouraged. 1 2 3 4 5

2.Developing one’s own ideas is encouraged for the improvement of the corporation.

1 2 3 4 5

3.It is encouraged that employees from different department come together to develop new project ideas.

1 2 3 4 5

4.Upper management is aware and very receptive to new ideas and suggestions.

1 2 3 4 5

5.Employees received or will receive the rewards depend on their work on the job. 1 2 3 4 5

6.Employees with innovative and successful projects will be highly rewarded. 1 2 3 4 5

7. Employees from every level will be rewarded, if they innovate. 1 2 3 4 5

8. Employees will be appreciated by their managers, if they perform 1 2 3 4 5

240

very well.

9.Managers increase employee’s job responsibilities if they perform well.

1 2 3 4 5

The questions of market strategies

1. Businesses receive customer response for new product development.1 2 3 4 5

2.Member/s of new product development team regularly travel/s to

new locations in search of new product ideas. 1 2 3 4 5

3. Business enables to meet market needs. 1 2 3 4 5

4. Business gives priority to customer needs. 1 2 3 4 5

5.Your business objectives are driven primarily by customer

satisfaction. 1 2 3 4 5

6.Business strategy for competitive advantage is based on

understanding of customer needs. 1 2 3 4 5

The questions of manufacturing strategies1. Business can decrease in total cost of manufacturing processes. 1 2 3 4 5

2.Business can decrease in total cost of internal and external logistics processes. 1 2 3 4 5

3. Business can decrease in input costs. 1 2 3 4 5

4. Business can decrease in operating waste. 1 2 3 4 5

5. Business can increase in delivery speed of products. 1 2 3 4 5

6. Business can decrease in waste and scrap. 1 2 3 4 5

7.Business can decrease the make span from taking the orders to the end of delivery. 1 2 3 4 5

8.Business can decrease the make span from start of manufacturing process to the end of delivery. 1 2 3 4 5

9. Business can increase in ability of flexible use of current personnel. 1 2 3 4 5

10. Business has ability to change machines and equipments priorities. 1 2 3 4 5

241

The questions of Customer Needs and Wants

1.Business inquires the information/feedback from customers.

1 2 3 4 5

2.Business can increase in product and service quality according to customers’ demand. 1 2 3 4 5

3. Business can provide the customer needs. 1 2 3 4 5

4. Business can decrease in customer complaints. 1 2 3 4 5

5.

Business accepts the first priority to meet the customer needs and wants.

1 2 3 4 5

6.It is important the situation of target market for the business.

1 2 3 4 5

The questions of Intensity of Competition

1. Business inquires the information from competitors.1 2 3 4 5

2. Business cooperates with others in the same industry.1 2 3 4 5

3.Business can increase in product and service quality compared to rivals. 1 2 3 4 5

4. Business creates/imitates the product as the competitors. 1 2 3 4 5

5. Business accepts that the industry is competitive.1 2 3 4 5

The questions of Technological Opportunity

1. Technology is important in improving product quality.1 2 3 4 5

2. Business has sufficient technical knowledge.1 2 3 4 5

3. Business has sufficient technical experience.1 2 3 4 5

242

243

Part B: Innovation

(Please circle on the most appropriate level of your agreement or disagreement to the following statement during recent three years 2013-2015.)

1=Strongly Disagree, 2= Disagree, 3=Neutral, 4=Agree, 5=Strongly agree

The questions of product innovation

1.Business developed new products totally differing from the current ones. 1 2 3 4 5

2.

Business developed newness for current products leading to improved ease of use for customers and to improved customer satisfaction. 1 2 3 4 5

3.Business developed new products with ingredients differing from the current ones. 1 2 3 4 5

4.Business increased manufacturing cost in ingredients of new products. 1 2 3 4 5

5.Business increased manufacturing quality in ingredients of current products. 1 2 3 4 5

The questions of process innovation

1.Business used new and more effective techniques and machines in NPD processes. 1 2 3 4 5

2. Business decreased cost in NPD processes.1 2 3 4 5

3.Business decreased variable cost and/or increasing productivity in production processes. 1 2 3 4 5

4. Business increased output quality in NPD processes. 1 2 3 4 5

The questions of marketing innovation

1.Business renewed the product promotion techniques employed for the promotion of the current and/or new products. 1 2 3 4 5

244

2. Business renewed the distribution channels in the delivery of the product. 1 2 3 4 5

3.Business renewed the product pricing techniques employed for the pricing of the current and/or new products. 1 2 3 4 5

4.Business renewed the design of the current and/or new products through changes such as in appearance, packaging, shape and volume. 1 2 3 4 5

245

Part C: Performance

(Please circle on the most appropriate level of your business performance to the following statement during recent three years 2013-2015.)

1=Much declined, 2=Moderate declined, 3=Not change, 4=Slightly improved, 5=Improved

1.

For business innovation, number of employees was increased in 2013-2015.

(50 and above =1, Under 50= 2, Neither increase nor decrease=3,

1-50= 4, 50 and above=5)

1 2 3 4 5

2.

After innovation, the business increased number of production volume.

(11-20%=1, 1-10%= 2, 0%=3, 1-29%=4, 30-50%=5)1 2 3 4 5

3.After innovation, the business increased in sale volume.

(11-20%=1, 1-10%= 2, 0%=3, 1-29%=4, 30-50%=5)1 2 3 4 5

4.After innovation, the business increased profit.

(-20%=1, -10%= 2,0%=3, 1-10%=4, 11-20%=5)1 2 3 4 5

Thank You for Your Participation.

Appendix – B

Table (B-1) Multiple Regression Analysis of Product Innovation on DriversModel Summaryb

Model R R Square Adjusted R SquareStd. Error of the

Estimate Durbin-Watson

246

1 .782a .612 .557 .38307 2.207

ANOVAa

Model Sum of Squares df Mean Square F Sig.1 Regression

17.841 11 1.622 11.053 .000b

Residual11.299 77 .147

Total29.140 88

Table (B-2) Multiple Regression Analysis of Process Innovation on DriversModel Summaryb


Estimate Durbin-Watson1 .561a .315 .217 .49425 2.321

ANOVAa


8.640 11 .785 3.215 .001b

Residual18.810 77 .244

Total27.449 88

Table (B-3) Multiple Regression Analysis of Marketing Innovation on DriversModel Summaryb



1 .563a .317 .220 .68089 2.026

ANOVAa

Model Sum of Squares df Mean Square F Sig.1 Regression 16.577 11 1.507 3.251 .001b

Residual 35.698 77 .464Total 52.275 88

Table (B-4) Multiple Regression Analysis of Firm Performance on Types of InnovationModel Summaryb



1 .498a .248 .221 .41104 1.711

ANOVAa


247

Residual 14.361 85 .169Total 19.090 88

Table (B-5) Multiple Regression Analysis of Firm Performance (Number of Employees) on Types of Innovation

Model Summaryb


Estimate Durbin-Watson1

.471a .222 .195 .487 1.939

ANOVAa


Residual 20.188 85 .238Total 25.955 88

Table (B-6) Multiple Regression Analysis of Firm Performance (Production Volume) on Types of Innovation

Model Summaryb



.337a .114 .082 .539 1.816

ANOVAa


Residual 24.740 85 .291Total 27.910 88

Table (B-7) Multiple Regression Analysis of Firm Performance (Sale Volume) on Types of Innovation

Model Summary



ANOVAa


Residual 24.740 85 .291Total 27.910 88

Table (B-8) Multiple Regression Analysis of Firm Performance (Profit) on Types of Innovation

Model Summaryb



.563a .317 .292 .498 1.778

ANOVAa

248


Residual 21.117 85 .248Total 30.899 88

Table (B-9) Multiple Regression Analysis of Firm Performance on Product Innovation Factors

Model Summaryb



.609a .371 .333 .38032 1.857

ANOVAa


Residual 12.006 83 .145Total 19.090 88

Table (B-10) Multiple Regression Analysis of Firm Performance on Process Innovation Factors

Model Summaryb



ANOVAa


3.534 4 .884 4.771 .002b

Residual15.556 84 .185

Total19.090 88

Table (B-11) Multiple Regression Analysis of Firm Performance on Marketing Innovation Factors

Model Summaryb



1 .347a .120 .078 .44712 1.762

ANOVAa

Model Sum of Squares df Mean Square F Sig.1 Regression 2.297 4 .574 2.872 .028b

Residual 16.793 84 .200Total 19.090 88

249

Figure (B-12) Analysis of Product Innovation on Drivers

Figure (B-13) Analysis of Process Innovation on Drivers

250

Figure (B-14) Analysis of Marketing Innovation on Drivers

251

Figure (B-15) Analysis of Performance on Innovation

252

Appendix C

Forms of Product Innovation (Figure 1-5)

Figure 1

253

Figure 2

Figure 3

254

Figure 4

255

Figure 5

256

Forms of Process Innovation with New Technology and Machineries (Figure 6-14)

Production Process from Kneading to Packaging by Electronic Machines (Figure 6-

10)

Figure 6

257

Figure 7

258

Figure 8

259

Figure 9

260

Figure 10

261

Production Process from Kneading to

Packaging By Manpower with Machines

(Figure 11-14)

Figure 11

262

Figure 12

263

Figure 13

264

Baking by Coal Boiler

Figure 14

265

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meral.edu.mm. Phyo PhD... · Web view2020. 9. 25. · In manufacturing sector of Myanmar, food industry comprises the largest percentage whereas the confectionery business takes