Product Innovation and Small Business Growth: A Comparison of the Strategies of German, U.K. and Irish Companies

Innovation in small firms is important both because of its direct contribution to the competitiveness of those companies but also because of the potential for the small firm sector to act as the initiator, catalyst and medium for wider technical change. In this paper data from the Product Development Survey, a new international survey of firms' product innovation activity and strategy, is used to examine the relationship between product innovation and growth in German, Irish and U.K. small firms. In each country the output of innovative small firms was found to grow significantly faster than that of non-innovators. In Germany, output growth was achieved by a product innovation strategy which sharply increased productivity but reduced employment. U.K. and Irish small firms adopted a more balanced approach with increases in both employment and productivity associated with innovative behaviour. Comparison of the organisation of product innovation indicated that German small firms adopted a less market-oriented, less risky, and more formally organised approach than their U.K. and Irish counterparts. The revealed characteristics of U.K. and Irish small firms suggested that they may be the most effective initiators and catalysts for wider technological change. The larger proportion of German small firms which were innovating, however, suggested that the German small firm sector may be the more effective technology transfer medium.