Investigation of Barriers to SMEs Innovation Capacity in Tanzania: Can Technology and R&D Mitigate Their Effects?

Abstract Small and medium-sized firms have gained increasing attention in the innovation literature. Exactly how innovation occurs in these firms is still rather unknown. This study was conducted on a large number (N=384) of small and medium manufacturing furniture firms in Tanzania. With increasing competition and quickly spreading of knowledge, the future of many businesses depend upon their ability to innovate. However, empirical and environmental scan evidence shows that low technological innovativeness of small and Medium Enterprises (SMEs) in Tanzania. In these firms barriers that cause the SMEs to Innovate was investigated and its effects was tested. The results clearly support that Technology and R&D mitigate the effect. The lack of financial resources was found to be one of the major barriers to innovation for SMEs. More than half of the responding firms reported problems in financing innovation projects. However, when extending the basic model with contextual variables, type of industry and firm size, we did find some support for the relationship between barriers of innovation and financial crisis in SMEs. Despite the fact that innovation is a perfect aspect in SMEs sector globally particularly in Tanzania, there is a little understanding of how these innovations affect their business performance. In addition, little integration of innovation and business performance research is found in the country literature. Therefore, the main purpose of this study was to investigate the barriers that cause the SMEs to innovate in Tanzania