1. Introduction
In today’s modern era, innovation has the dominant role for the survival, sustainable growth and economic development of the business organization [
1]. In this regard, the notion of innovation performance of business organizations has gained considerable attention from management and researchers in both developed and emerging economies [
2]. These researchers documented innovation as a firm, dynamic competency that makes it possible for the firms to maintain a competitive position by meeting the customer’s emerging needs [
3]. Due to the emergence of the dynamic environment, the success of a business organization largely depends on its innovation capabilities, which allow them to respond to the rapid changes of the business environment [
1,
4]. Consequently, practitioners and researchers continuously explore and identify the mechanisms for enhancing the innovation capability of business organizations.
IP represents a real challenge for SMEs specifically [
1]. The emergence of FI offers an opportunity or a challenge for SMEs, depending on the NC of these SMEs. SMEs critically need the innovation in their business processes for improving their technical expertise and IP [
5]. IP has appeared as an attractive view in the emerging economy and depends on numerous elements such as a firm’s explorative learning, networks, business guanxi [
6], external industry factors, internal firm specific factors and product characteristics [
7]. However, NC of owner/managers had been ignored by the existing researchers for the improvement of IP of SMEs. Due to the changing environment, it is critical for owner/managers of SMEs to establish networks for the maximum utilization of resources [
8]. Therefore, the aim of this study was to focus on the NC of owner/managers of SMEs and the effect of these networks on IP.
NC are based on four elements, i.e., coordination, relational skills, internal communication and partner knowledge, which enable business organizations to improve relations in order to acquire various resources [
9]. In a dynamic business environment NC have critical importance for the successful operation of a business organization [
10]; however, NC are not the sole factor that make visible improvements in IP. NC are required and also needed to utilize the resources and information via networks for the improvement of IP. In the current study we highlight the internal mechanism that is necessary for the IP of SMEs.
In recent years, environmental turbulence and economic instability greatly influenced the business processes, strategies and innovation efforts in both developing and developed economies [
8]. In developing and emerging economies in particular, restricting resources and facilities compelled commercial landscapes to rethink their innovation strategies, among which, the notion of FI has emerged and gained the wider attention of researchers and practitioners [
11,
12,
13]. FI is considered a resource scarce solution (e.g., business model, service, product or process) that is designed and implemented by the business organization regardless of resource constraints (i.e., material, financial, technological or other resources), whereby the ultimate outcome is in the form of lower cost offerings that meet the basic demands of customers who would otherwise remain unserved [
13]. FI strategy becomes important and an optimal choice for the business organizations working in developing economies, where income constrained customers are satisfied with low-cost products and services [
12]. FI is easy to implement and feasible for resource constrained businesses such as SMEs. Therefore, exploring the antecedents and outcomes of FI has become a necessity for business organizations in developing economies. The current study considered this research gap and highlighted NC as a significant predictor of FI and IP as an outcome.
FI is the mechanism which permits management to utilize data to explore new information and generate innovation at a lower cost for income constrained customers in developing economies [
11]. Researchers such as Cai et al. [
14] have acknowledged that FI plays an important role for the improvement of IP. FI facilitates organizations to exploit existing organizational resources to be involved in innovation activities relating to their product or processes. IP of an organization is also based on the innovative strategies. Through IS, organizations are able to gain information about various stakeholders [
15]. This valuable information is considered a vital input that helps to decide innovation activities within an organization [
16]. Therefore, in the current study we investigate the moderating role of IS on the connection between NC and IP.
This study aims to draw an IP model for SMEs to explore the impact of NC on IP. This study also tests mediation of FI in the relationship between NC and IP. In the current study we also assess the moderating role of IS on the relationship of NC and IP. In the next section of the investigative study, literature relating to study variables has been briefly discussed along with associated developed hypotheses. The subsequent part of the work discusses data collection processes, tools and techniques. Results of analysis, measurement and conclusion are presented in the following section of the study. Concluding the research study are the theoretical implications and practical implications, which are also considerably noted and cross-matched for testing the desired results.
4. Results
The study hypotheses were tested with the help of descriptive statistics, correlation coefficients and SEM. Correlation coefficients determine the associations among the NC, FI, IS and IP. Direct relations are confirmed with the support of path analysis values generated through SEM technique. Furthermore, the “Process” approach developed by Preacher and Hayes [
38] was used for testing the mediation effect. Moreover, Fornell and Lacker’s [
39] approach was used to confirm the discriminant validity of the constructs. Cronbach’s α value was used to check the reliability of the construct. The outcomes of reliability and validity are shown in
Table 1.
The outcomes of confirmatory factor analysis (CFA) confirmed the model fitness, while construct reliability (CR), discriminate validity and convergent validity were also satisfactory. Four models with different configurations were run to access the model fitness.
Table 2 contains the results of the four models.
4.1. Correlation Results
Table 3 contains the correlation coefficients and the value of descriptive statistics. The correlation coefficients confirmed the connection among study variables. The correlation coefficients revealed that NC are positively associated with the FI (0.32 **), IS (0.25 **) and IP (0.21 **). The results also confirmed that FI is also positively associated with IP (0.30 **) and IS (0.23 **). Similarly, IS are positively associated with IP (0.17 **).
4.2. Analysis of Direct Effect
The study hypotheses with direct effect were analyzed with the help of SEM technique and coefficients of path analysis, which confirmed the direct effect of NC for IP and FI. Furthermore, the outcomes also established the direct effect of FI for IP. The results of SEM presented in
Table 4 show significant connections among established links. The first hypothesis of the study presents the direct association of NC on IP. The coefficients of path analysis established the direct influence of NC on IP (0.22 **). Based on these findings, H1 of the study was confirmed.
The second hypothesis of the study presents the direct effect of NC on FI. The coefficients of path analysis confirmed the direct effect of NC on FI (0.33 **). Based on these findings, H2 of the study was accepted. Furthermore, the third hypothesis shows the direct influence of FI on IP. The coefficients of path analysis established the direct influence of FI on IP (0.28 **). Based on these findings, H3 of the study was confirmed.
4.3. Mediating Role of FI between NC and IP
H4 relates to the mediation effect of FI between NC and IP. Mediation effect is tested with the help of Preacher and Hayes’ approach (2008). The outcomes of Preacher and Hayes’ approach are presented in
Table 5. The mediating effect of FI between NC and IP is confirmed as the value of indirect effect is significant (i.e., Beta= 0.1471, lower value = 0.1894, upper value= 0.2222). In addition to Preacher and Hayes’ approach, the Z score = 5.74 ** of Sobel test, which also confirmed the indirect effect of NC on IP of FI. These results confirmed H4.
4.4. Moderating Role of IS on NC and IP Link
H5 of the study is about the moderating effect of IS on the association of NC and IP. In the current study we applied hierarchical regression to test the moderation role of IS on NC and IP link. The outcomes of the hierarchical regression analysis are presented in
Table 6 using a three-step procedure. Base model information is depicted in steps 1 and 2 in
Table 6. Furthermore, step 3 presents the coefficients for the moderation of IS on NC and IP link.
Table 6 also presents the coefficient of the interaction term, i.e., NC × IS, which shows that IS significantly affect the connection between NC and IP (β = 0.24,
p < 0.01).
5. Discussion
The objective of the present study was to highlight how NC contribute to the improvement of IP of FI. To achieve the objective, we interlinked the NC with FI and IP. Beyond the direct relationships, the mediating role of FI and the moderating role of IS have also been tested on NC and IP link.
For the current study we formulated five hypotheses. Regarding H1, we proposed that NC have a direct and positive relationship with IP. The findings revealed that NC allow firms to acquire valuable information which provide a foundation for the increase of IP [
40,
41]. NC allow the firms to integrate and configure the required information from external stakeholders and utilize the acquired information as input for decisions relating to innovation activities [
42,
43]. The findings show the positive effect of NC on IP and are consistent with previous empirical findings [
41,
43].
The results also revealed that H2 was confirmed as the NC significantly predicted FI. These findings suggested that NC are the leading force behind the improvement of FI. The current study also proposed that FI has a positive relationship with IP. Therefore, the results confirmed H3 as FI significantly predicts IP. These findings suggested that reformulation of innovation strategies at a lower cost and alignment of product/services with emerging markets increases the mechanism of FI, which helps organizations achieve IP at a higher level [
14,
28,
43].
Regarding H4, the results confirmed that NC predicted IP of FI. NC provide necessary innovation-related knowledge through relationships with various stakeholders, which become the foundational step towards FI and a source of IP [
40,
42]. The finding shows that organizations having required information about market conditions and customers have strong FI activities, which are a major source for the improvement of IP. Finally, H5proposed moderating the role of IS on the connection between NC and IP. IS facilitate organizations for the best utilization of existing resources for the achievement of innovation-related opportunities that exist in the market [
33]. The findings revealed that the effect of NC on IP is moderated by IS.
5.1. Theoretical Contribution
The current study contributes to the theory and literature in various ways. This study provides a significant understanding of the innovation mechanisms of networks established by the business organization. The current study contributed by using NC as vital determinants of FI and IP in the context of SMEs operating in emerging economies. Limited studies have empirically tested these relationships in the context of SMEs. The researchers have mostly deliberated on these constructs within the context of large-scale organizations.
Second, the current study contributes by offering an IP model for the SMEs sector. The IP model shows how the integrated elements, e.g., NC, FI and IS determine IP. The current study enlarges the existing body of knowledge by investigating how NC enable SMEs to gain the required information for the formulation of innovation activities using existing resources, which help to improve the overall innovation performance.
Third, the empirical findings denote the review of NC in developing FI. FI is an important mechanism of organizations exploring new opportunities that support innovation direction and utilization of existing resources [
32,
40]. Finally, the mediating role of FI contributes to the existing literature of innovation management. Furthermore, moderating the role of IS for the improvement of IP also significantly contributes to the existing body of knowledge.
5.2. Practical Implications
The current study also has valuable implications for management in practice, policy makers and SMEs operating in emerging economies. First, the current study suggests that SMEs must focus on innovation activities rather than just pursuing the traditional mode of business. The findings revealed that SMEs of emerging economies can enhance IP with the help of NC of FI. By doing so, IP can only be achieved when organizations have strong FI and resources for the required innovation activities. Furthermore, for the formulation of the best strategies of innovation, NC can be considered for a better response to the dynamic environment of IP [
23].
Second, this study suggests that NC provide a foundation for FI. Therefore, for the successful response to the various demanding innovation strategies such as FI, which ultimately strengthen IP, management must focus on NC [
41]. However, to bring flexibility in firms, strategies make it easier to achieve IP. Therefore, this study suggests owner/managers of SMEs consider the NC in order to acquire the updated information for betterment of IP.
Third, the focus of the current study was to also highlight the mediating role of FI between NC and IP link. The outcomes of the current study suggest that owner/managers of SMEs must coordinate with all the stakeholders, in order to identify the changing circumstances that enable them to cope with these changes, by making required changes in the existing innovation strategies to achieve IP. Lastly, this study highlights the moderating mechanism in which IS moderate the relationship between NC and IP. Without innovation stance towards business activities, it seems difficult to leverage the benefits of NC to improve IP.
6. Conclusions
The basic aim of this study was to highlight the stance of SMEs towards FI as well as the IP of these SMEs that are the consequences of NC. NC are one of the important factors that enhance IP. The most constructive aspect of NC is FI. The current study found positive effects of NC on FI and IP. Furthermore, the findings also suggested that FI also positively affects IP due to the development of NC. Moreover, IS also moderate the relationship between NC and IP. In summary, we concluded that NC contribute to enhancing the FI capabilities of SMEs, which become the reason for their higher IP.
The current study has some limitations that might be addressed by future research directions. The current study has been conducted on the SMEs working in emerging economies; however, future research may include some other economies to generalize the findings of this research. We took data from SMEs only about study variables; however, some other industries may be taken for future research. We only examined the relational effect of NC on FI and IP through quantitative analysis; however, data may be taken and analyzed through qualitative techniques for more insights of study variables. The current study applied a cross-sectional design for testing the hypothesized model; however, a longitudinal design can be used tounderstand the impact of NC on IP of FI.