Fostering Innovation Capabilities in SMEs Within the Knowledge Economy Framework

Abstract

The shift into a knowledge-based economy (KBE) has placed greater expectations on Small and Medium Enterprises
(SMEs) to enhance their innovation capabilities in order to remain competitive and resilient. This research focuses on
the systems approach to innovation enhancement in SMEs through the implementation of knowledge policies, digital
technologies, and synergistic networks. The goal is to construct a techno-economic model that assesses the impact of
innovation drivers – R&D expenditure, broadband ICT spending decision, human resources, and institutions - on
SMEs performance in the context of a knowledge economy. The approach uses a multi-level ranking system and
regression framework to evaluate innovation readiness among selected ASEAN SMEs. Results demonstrate that SMEs
with deep knowledge absorptive capacity and robust digital infrastructure perform better in innovation driven growth.
Furthermore, innovation ecosystems’ collaborative platforms and government support are highlighted as critical
components. The importance of the study is its presumed direct impact on policy formulation and management of
level SMEs by fostering more effective systems of scalable innovation policies. By focusing on the processes of
knowledge creation, diffusion, and application, the research advances the dialogue on the need to build a sustainable
system for fostering innovation in SMEs and improving regional economies within the context of KBEs.