Malaysia encounters difficulty in upgrading the technological capability of SMEs. One way to enable SMEs to climb up the technological ladder is to assist them to undertake their R&D activity. The findings show that SMEs of larger size and belonging to foreign group of companies are more likely to innovate, but surprisingly those with foreign ownership are less likely to innovate. In this regard, policies on foreign investment may consider targeting foreign group of companies that may assist SMEs in upgrading their R&D capabilities. While one may perceive that external knowledge sources are of particular importance especially for SMEs with constrained resources, the results do not appear to support this notion. SMEs have access to a broad spectrum of information sources from various players, but only formal knowledge interactions via cooperative arrangement with foreign players appear to be important in driving SMEs participation in in-house R&D. Policies which aim at intensifying the cooperative arrangement with the foreign players will assist SMEs to carry out more sophisticated innovation activity such as undertaking R&D. The various informal knowledge sources are found to be not important in driving SMEs to participate in in-house R&D activity. Finally, the results, to some extent, indicate that both knowledge sources from higher education institutions and human capital are factors that may drive SMEs to undertake in- house R&D. Policies stimulating SMEs‘ accessibility to knowledge sources from players such as higher education institutions and consultants, and increasing human capital in SMEs, should be given priority.
6. Acknowledgement
We gratefully acknowledge the Malaysian Science and Technology Information Centre for providing the data and Universiti Sains Malaysia for funding this research (304/PSOSIAl/6312084).
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