1. Department of Agribusiness Management
Faculty of Agriculture & Plantation Management
Wayamba University of Sri Lanka
1

2. Barriers for Innovation among Small and Medium
Scale Entrepreneurs in the Food and Beverage
Industry in Sri Lanka
Sales Growth
H. M. L. PEIRIS
106040
2013
2012
2011
2

3. Content
• Introduction
• Methodology
• Study Area and Data
• Results
• Conclusion
• Acknowledgements
• References
3

4. Introduction
4

5. Innovation
• Innovation
Search for, and the discovery, experimentation, development,
imitation, and adoption of new production process and new
organizational set-ups
• Small Scale entrepreneurships
 Employees less than 5
• Medium Scale entrepreneurships
 Employees less than 25
 Working capital less than Rs. 4 million per year except fixed assets
5

6. Importance of Small and
Medium Entrepreneurs (SMEs)
• SMEs account for 80% or all businesses
• Agri business SMEs 20% of all industrial establishments
Economy is based around the Small and Medium
scale entrepreneurships
6

7. Food and Beverage Industry of Sri Lanka
• Small and Medium scale entrepreneurs and the industry
• Importance
 No. of establishments 3,340
 Employees 24,093
 Salaries Rs. 3.3 Billion
 Value of output Rs. 90 Billion per year
• GDP in 2011 Rs. 2,864 Billion
7

8. Distribution of Food and Beverage Enterprises
8
7%
5%
4%
17%
3%
2%
9%14%
39%
Sabaragamuwa
Uva
North Central
North West
Eastern
Nothern
Southern
Central
Western

9. Categorization of Firms
Tea and Non
alcoholic beverages
Coconut products
Food and
Beverage small
and medium scale
firms
Dairy products
Processed Fruits,
Vegetable food
Bakery products
Other
• 6 types of firms
9

10. Objectives
10

11. Objectives of the Study
• To identify,
1. Barriers to innovate among small and medium scale
entrepreneurs in food and beverage sector
2. Degree to which those barriers have an impact on number of
product, process and management innovations
11

12. Innovation Categorized Under
• What are the innovations in last 3 years
• Product innovation
Changes in the physical product
• Process innovation
Changes in the production process
• Management innovation
changes in management practices that is responsible of changing
the product and process
12

13. Degree of Innovation
• 3 levels of innovation
1. New to the world
 First of its kind
2. New to the market
 Product exists in other countries but new to the market
3. New to the firm
 Competitors are producing the product
13

14. Barriers to Innovation
Internal barriers
• High costs
• Excessive risk
• Innovation cost difficult to control
• Lack of qualified personnel
• Poor accessibility to financial resources
• Difficulty of keeping qualified
employees
• Lack of internal employee training
• Employee resistance to change
• Manager resistance to change
External barriers
• Insufficient government support
• Economic turbulence
• Lack of market information
• Lack of regional infrastructure
• Lack of information about
technologies
• Lack of external partner opportunities
14

15. Other Factors Influence Innovation
• Firm characters
 Firm age or experience
 Annual turnover
 Firm type
 Number of employees
1. Tea and Non alcoholic beverages
2. Coconut products
3. Dairy products
4. Fruits, vegetables and processed foods
5. Bakery products
6. Other
15

16. Methodology
16

17. Conceptuel Framework
Internal
Barriers
External
Barriers
Innovation
activities
Firm characters
Firm age Firm type
Turnover Number of employees
Product
innovations
Process
innovations
Management
innovations
17

18. Ranking of Barriers
• 155 respondents from 5 districts
• The barriers were ranked by entrepreneurs
Giving 1 to most critical barrier
The Likert scale of Strongly agree to Strongly disagree for each barrier
Internal and external barriers were ranked separately
18

19. Measuring the Internal and External Barriers
• Index for Internal barrier =
𝑆𝑐𝑜𝑟𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑖𝑡ℎ
𝐼𝑛𝑡𝑒𝑟𝑛𝑎𝑙 𝑏𝑎𝑟𝑟𝑖𝑒𝑟
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐼𝑛𝑡𝑒𝑟𝑛𝑎𝑙 𝑏𝑎𝑟𝑟𝑖𝑒𝑟𝑠 ∗5
* 100%
• Index for External barrier =
𝑆𝑐𝑜𝑟𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑒𝑡ℎ 𝐸𝑥𝑡𝑒𝑟𝑛𝑎𝑙 𝑏𝑎𝑟𝑟𝑖𝑒𝑟
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑥𝑡𝑒𝑟𝑛𝑎𝑙 𝑏𝑎𝑟𝑟𝑖𝑒𝑟𝑠 ∗5
* 100%
19

20. Empirical Model
• Y = a0 + b1X1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6 +0
Y = sum of number of product, process, and management
innovations
X1 = Index value for internal barrier
X2 = Index value for external barrier
X3 = Firm age
X4 = Annual turnover (Dummy variable)
X5 = Industry type (TNAB, CP, DP, FVPF, BP, Other)
X6 = Number of employees (Dummy variable)
0 = Error term 20

21. Study Area
• Covering two major provinces
 Western province
 North western province
• Districts covered
- Colombo
- Gampaha
- Kalutara
- Kurunegala
- Puttalam
21

22. Data
• 155 entrepreneurs in food and beverage industry
• Owner or the manager were the respondent
• Sampling technique
 Simple random sampling
 List of entrepreneurs were taken from Department of Census and Statistics
22

23. Results and Discussion
23

24. Descriptive Statistical Analysis of the Sample
• Firm types in the sample
5%
15%
26%
20%
3%
31% TNAB
CP
DP
FVPF
BP
Other
24

25. Product, Process and Management Innovations
TNAB CP DP FVPF BP Other
51 57 59 54 56 57
32
32 28 28 28 28
17 11 17 18 16 15
Product% Process% Management% 25

26. Results of Kruskal-Wallis Test
• Internal Barriers
26
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
High cost
Lack of qualified personals
Innovation cost difficult to control
Difficulty of keeping qualified employees
Manager resistance to change
Poor accessibility to financial resources
Excessive risk
Lack of internal employee training
Employee resistance to change
P-value 0.00

27. 27
• External barriers
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
Insufficient government support
Lack of information about technology
Economic turbulence
Lack of market information
Lack of regional infrastructure
Lack of external partner opportunities
P-value 0.00

28. Results of Ordinal Logistic Regression
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Variable Coefficient Probability
Internal Barrier -0.0352 0.605
External Barrier -0.0679 0.089
Firm Age -0.3510 0.103
TNAB 1.6623 0.072
CP 0.8999 0.130
DP 0.9846 0.061
FVPF -0.7692 0.128
BP -0.6021 0.584
ANE > 5 0.7352 0.606
ANE 5 – 10 -0.1670 0.899
ANE 11 – 15 -0.6954 0.557
ANE 16 - 20 -1.4529 0.227
AAT < 1 2.3479 0.056
AAT 1 – 2 0.4251 0.701
AAT 2 – 3 -0.5050 0.632
AAT 3 – 4 -0.3327 0.723

29. Output of Ordinal Logistic Regression
• Significance and Relationship to number of innovations
29
Factor Significance Relationship
External
Factors
Significant Negative
TNAB Significant Positive
DP Significant Positive
AAT < 1 Significant Positive

30. Conclusions
30

31. • Only external barriers were significantly associated to
innovations
 External barriers have a crucial impact on number of innovations
 Concentrate on major external barriers and eliminate them
 Negative relationship with number of innovations
• Internal barriers declared as not significant ???
 May be there are more internal barriers
 What Kruskal-Wallis test reveals
 Opens up a new avenue of research 31
Major barriers for Entrepreneurs

32. To Overcome the Barriers
• Economic policy makers should be informed
 How to balance the advantage between large scale entrepreneurs and
small, medium scale entrepreneurs
• New technology
 Entrepreneurs willing to adopt new technology
 Access to information about technology
32

33. • Educate managers and owners about modern management
practices
 Skill development
 Revenue and expense management
 Employee training
 Debt control
• Employees for SMEs reducing by day
 Technology plays a major part 33

34. Acknowledgements
34

35. Acknowledgements
• Industrial division of Department of Census and Statistics Sri Lanka
• Respondents of the research
35

36. 36

37. References
37

38. References
• Anon. (2011a). Central Bank Annual Report. Central Bank of Sri
Lanka, Colombo.
• Anon. (2011b). Annual survey of industries. Department of Census
and Statistics, Colombo, Sri Lanka. Available
from:http://www.statistics.gov.lk/page.asp?pa ge=Industry (Accessed
03 March 2014).
• Dosi, G. (1988). Sources, procedures, and microeconomic effects of
innovation.Journal of Evolutionary Economic Literature, 26 (3),
1120–1171.
• Storey, J. (2000). The management of innovation problem.
International Journal of Innovation Management, 4 (3), 347–
369. 38

39. Kruskal-Wallis Test Internal Barriers
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40. Kruskal-Wallis Test for External Barriers
40