2012 International Conference on Innovation, Management and Technology Research (ICIMTR2012). Melaka, MALAYSIA: 21-22 May 2012 Index Terms-Innovation, SMEs, Scarce Resources, VSMEs Abstract-- Small and medium sized enterprises have been recognized as the main driver of economic development of a country. Hence their development is the main issue of discussions in the literature. In Pakistan, 96% of its SMES are employed less than five workers (Very Small and Medium Sized Enterprises-VSMEs). These enterprises face a lot of difficulties in their development. Hence, this paper examines the structure of the VSMEs. Its objective is to propose a conceptual framework on the factors contributing to the innovativeness of these VSMEs. Consequently, their contribution is more significantly in the development of the country. I. INTRODUCTION HE role of SMEs is a crucial for the development of a nation in terms of innovation, economic growth and sustainability. Due to their sheer numbers, size and nature of operations, this fragment is the back bone of Pakistani economy. To strengthen the flexibility of the economy in a competitive and challenging environment are inarguable. The SMEs are best user of the scare resources and domestic products, and has better linkages with other sectors of domestic economy [1-2]. Pakistan has emerged as the second swiftly growing economy in Asia after China in 2004 – 2005, as claimed by government of Pakistan and well accepted by international raters and financial institutions [3]. In Pakistan, the important role of SMEs is clearly indicated by research and statistics. In 2009-10, a period during which real GDP of Pakistan grew by 3.8 percent, the small-scale sector contributes to overall growth by 7.5 percent. Thus, it is clear that in times of economic recession, SMEs outperform than large enterprises providing much support to overall economic growth [4]. There are 3.2 million establishments working in Pakistan. 99% of these establishments are SMEs. Out of this 96% SMEs are less than five Employees, (SMEDA, 2005). These SMES are involve in different types of business such as Fazli Wadood. PhD Student Department of Technology Management. Faculty of Technology Management and Business Entrepreneur, University Tun Hussein Onn Malaysia Parit Raja, Batu Pahat 86400, Johor, Malaysia E.Mail: wadoodam@yahoo.com Dr. Alina Shamsuddin. Senior Lecturer Department of Technology Management Faculty of Technology Management and Business Entrepreneur, University Tun Hussein Onn Malaysia Parit Raja, Batu Pahat 86400, Johor, Malaysia E.Mail: alina@uthm.edu.my retail, wholesale, restaurants, service sector, and manufacturing [5]. So we called these SMEs as Very Small and Medium Enterprises (VSMEs). These organizations face a lot of difficulties in a way of development. They are deprived class in the realm of business and in marsh of problems. However, the important role it plays is un-ignorable. Thus, the objective of this paper is to examine the structure of the VSMEs, and to propose a framework on the factors contributing to the innovativeness of VSMEs. Consequently, their contribution is more significantly in the development of the country. II. INNOVATION IN SMES Encouraging innovation in VSMEs remains intensive for owner/ Manager. Innovation enhances the economic development at a local, regional, national and international level [6]. Organizations can achieve their competitive advantage through process and practices of innovation [7]. Innovation is a process where individuals use his or her observation, experience and skills and getting ideas for translating these ideas into concepts and models [8]. The dying of old hops that big is beautiful replaced with the logic of motivating economic growth [10]. Dr. Charlotte Brogren- 2011 argues that “research converts money into knowledge, while innovation converts knowledge into money". As a result, innovation is one of the key processes that enable the economy to utilize knowledge capital to concretely generate growth and prosperity [9]. However, the understanding of innovation is the viable development of thoughts is relatively limited [11]. The entrepreneurs and managers alike have long shown interests in the adoption of innovation in organizations, primarily because of the essential role innovation plays in securing a sustained competitive advantage (Porter, 2005). It is arguable that organizational size affects innovation adoption. Innovation adoption has occurred in both small and large firms. But small firm hesitate to adopt an innovation due to financial cost, and the efforts involve. Thus, importance is now given to the social shaping of innovation [12]. Earlier research has focused a lot on research based on ‘science-push’ i.e Basic Science, R&D, Production, Marketing [13] or ‘market-pull’ i.e Demand, R&D, Production, and Sale [14]. Consequently, continuous efforts are needed to improve the innovative research that led to increasing interest in the process through which ‘new ideas, objects and practices are created and KEY FACTORS ENHANCING INNOVATIVENESS AMONG VSMEs OF PAKISTAN Fazli Wadood, Alina Shamsuddin T