Informal Competition Effect on SMEs’ Innovation: Do Credit Constraints Matter? Evidence from Eastern European Countries

Abstract

This paper examines the influence of informal competition on SME innovation in the Eastern European transition economies. Using the BEEPS VI, which covers the period from 2018–2020, we investigated the conditional mediation of credit constraints moderated by business plan elaboration. Looking at SMEs’ product innovation, process innovation, radical innovation, and green innovation, we find that informal competition’s direct effect enhances all the innovation proxies. Besides, the informal sector increases SMEs’ credit constraints, which indirectly leads to less corporate innovation. The negative indirect effect is alleviated by the business strategy development. Finally, using bootstrap resampling, we confirm the significant conditional mediation effect of credit constraints on the informal competition and the innovation proxies.

Exploring Determinants of Firm´s Innovation in Morocco: Evidence from the World Bank Enterprises Survey

“…Foreign ownership is also found to have a positive impact on investment in R & D. This suggests that foreign ownership can bring additional resources, expertise, and support for R & D initiatives, which can help companies to innovate more effectively. Informal sector competition is also found to be a significant determinant of investment in R & D. The results suggest that increased competition from informal sector firms can drive formal sector firms to invest more in R&D in order to remain competitive (Amin, 2021;Hlioui et al 2022). The findings of Model 4 in Table 3 suggest that there are several key factors that influence the adoption of technology licensed from a foreign-owned company by firms in Morocco.…”

How Does Sustainable Leadership Affect Environmental Innovation Strategy Adoption? The Mediating Role of Environmental Identity

“…In this paper, we adopt EIS as a key sustainable business strategy, because EIS implies the strategy of implementing environmental innovations for better manufacturing activities [4][5][6]. Not only can EIS increase the profits of enterprises, but it can also reduce the pollution of the earth and form a sustainable human living environment, which meets the triple bottom line.…”

“…Therefore, the main goal of this research is to explain why firms adopt an environmental innovation strategy (EIS) through the organizational leadership mechanism (e.g., sustainable leadership), a pathway which previous research has not addressed. EIS refers to the strategy used to implement environmental innovations for the betterment of manufacturing activities [4][5][6]. In addition, air pollution alone has caused economic losses reaching 8 billion U.S. dollars worldwide [7], so understanding the drivers of EIS is an important issue [8][9][10].…”

Are small- and medium-sized enterprises more likely to innovate when facing informal competition? Evidence from Kazakhstan

“…unfair competition from the informal sector remains one of the biggest obstacles to doing business in the region, EIB, 2022). More so, informal firms have a competitive advantage in operating their businesses because they do not have to bear the costs of licenses, respectively, of fiscal and social benefits (Hlioui et al, 2022;McGahan, 2012). Second, the presence of informal competitors on a broader scale can limit access to new financial resources and information, which ultimately reduces the profitability, market share and strategic choices of formal smaller firms (Van Elk et al, 2014).…”

“…Understanding how competition from the informal sector affects the innovation strategies of formal SMEs can provide valuable insights into the dynamics of innovation in diverse economic landscapes. The innovation management literature in the context of informal sector competition in SMEs suggests that, in environments where informal sector competition is widespread among SMEs, such as in emerging economies, both product and process innovation emerge as effective tools to differentiate from unregistered competitors (Hlioui et al, 2022). The existing literature also suggests that there has been limited research on the impact of competition from the informal sector on product innovation and the interplay between informal and formal firms (Mendi and Costamagna, 2017;Kouakou, 2023;McCann and Bahl, 2016;P erez et al, 2021).…”