Science and Public Policy February 2011 0302-3427/11/10067-12 US$12.00  Beech Tree Publishing 2011 67 Science and Public Policy, 38(1), February 2011, pages 67–78 DOI: 10.3152/030234211X12834251302445; http://www.ingentaconnect.com/content/beech/spp Are small, medium- and micro-sized enterprises engines of innovation? The reality in South Africa Irma Booyens This paper examines the relationship between innovation activity and firm size in the South African context. Based on data from the National Innovation Survey (2002–2004) the paper looks in particular at the nature of innovation by small, medium- and micro-sized enterprises (SMMEs). The main finding is that the innovation rate of SMMEs is relatively high, with small enterprises reporting the highest innovation rate. A limited dependent variable regression, however, determines a negative statistically significant relationship between the probability to innovate and firm size. SMMEs are therefore not more innovative than large enterprises in South Africa. This paper identifies innovative entrepreneurs and micro enterprises as important foci for entrepreneurship and innovation policy. MALL AND MEDIUM-SIZED enterprises are recognised for their contribution to economic growth, employment, innovation and wealth creation (Bell et al., 2004). However, small enter- prises have a greater impact on economic perfor- mance in highly developed economies where high levels of education, low inflation rates and high lev- els of financial intermediary development are evi- dent (Ayyagari et al., 2003). Even though the economic output performance of small and medium- sized enterprises might not be significant in some economies, their positive contribution in terms of in- troducing innovations, facilitating change and en- hancing competition are worth consideration (Wong et al., 2005). In South Africa, much emphasis has been placed on the potential of SMMEs to generate employment, thus contributing to poverty alleviation. The South African literature focuses on the role of SMMEs in local economic development, entrepreneurship, growth prospects and constraints. The importance of innovation in small business development is also emphasised. Wolf (2006) indicates that the ability to innovate, adopt new technologies and apply them to local conditions is crucial to increase the productivi- ty of SMMEs. According to Rogerson (2001) inno- vative entrepreneurship is one of the key success factors for the growth of small enterprises. Luiz (2002) argues that SMMEs provide a nursery and proving ground for innovation. The dynamics of in- novation, entrepreneurship and small enterprises have, however, only received a little research atten- tion in South Africa. According to Lorentzen (2009) the National Inno- vation Survey and the related R&D survey have not been analysed sufficiently by researchers. Policy- makers thus have very little micro-based knowledge to inform innovation policy-making in South Africa. This paper aims to contribute to bridging this gap in research. The purpose of this study is to examine the nature of SMMEs’ innovation, investigate the rela- tionship between the propensity to innovate and firm size in South Africa, and explore what this means for entrepreneurship and innovation policy. With this purpose in mind this study compiles a series of innovation indicators for SMMEs, the first time such information has been published for South Africa. On S Irma Booyens is at the Centre for Science, Technology & Inno- vation Indicators, Human Sciences Research Council, Private Bag X9182, Cape Town, South Africa, 8000; Email: ibooyens@ hsrc.ac.za; Tel: +27 (0)21 466 7822. The author wishes to thank William Blankley, Neo Molotja, Peter Jacobs, Moses Sithole and Weziwe Sikaka at the Human Sciences Research Council (HSRC) for their valued inputs. Downloaded from https://academic.oup.com/spp/article-abstract/38/1/67/1694182/Are-small-medium-and-micro-sized-enterprises by Universitas Indonesia user on 15 September 2017