International Journal of Business and Social Science Vol. 4 No. 15 [Special Issue – November 2013] 89 Innovation and Competitiveness in SMEs: The Local Experience in San Luis Potosi, Mexico M.A. Mario Alberto Martínez Rojas Polytechnic University of San Luis Potosí Mexico M.B.A. Gloria Cristina Palos Cerda Polytechnic University of San Luis Potosí Mexico PhD. José Guadalupe Vargas Hernández CUCEA University of Guadalajara. Abstract At this time, small and medium enterprises represent the national productive force. They are the sustained at the generation of self-employment in the Mexican business. Determine factors are directly related to the generation of opportunities that maximize performance and level of participation in the local and international level. This paper analyzes the relationship between innovation and competitiveness through the operational activities measurement in small and mediums enterprises (SMEs) in San Luis Potosi, Mexico. The theoretical framework is based on literature review, where it encompasses innovation and competitiveness terminology and the connection within SMEs. Further, it ascertains the SMEs economic and occupational work dominance taking place in commerce, services and manufacturing business activity. Finally, the research model focuses a quantitative paradigm to measure the competitiveness and innovation as variables. The results show, for a sample of 65 SMEs, that there is a direct relationship between innovation activities and competitiveness replicated in the operations of the companies studied in the city of San Luis Potosi, Mexico. Key words: innovation, competitiveness, SMEs, relationship, Mexico. 1.Introduction Innovation is the result of a complex process of existing thoughts that leads to new ideas within the same procedure, either in a form of products, services or production processes. Regarding competitiveness, nowadays it is critical to determine endogenous and dynamic comparative advantages. Undoubtedly, both terms focus on increasing productivity and developing technology by reducing costs or depreciation. Given the above, this paper is traduced on variables that measure their relationship and interaction within SMEs of San Luis Potosi, Mexico. 2. Theoretical Framework A. Terminology of innovation and innovation management model. In a changing and competitive environment, innovation is a key factor for any business survival. It encompasses a wide research field that analysis multiple aspects. The different terms to refer to it, explain the complexity of the concept. Below are shown contributions to the field of global innovation study in chronological order: “Innovation is a complex process that brings ideas to market in the form of new or improved products or services. This process consists of two parts, which are not necessarily sequential to each other, although they are linked paths between them in a back and forth direction. One it is specialized on the known-how and the other it is devoted primarily to the application as a process, a product or a service. In both cases, they incorporate new advantages to the market” (Castro, E., & Fernandez de Lucio, I., 2001). “Innovation is toproduce, to assimilate and successfully to exploit the novelty in the economic and social areas” (Comunicación de la Comisión al Consejo, al Parlamento Europeo, al Comité Económico y Social Europeo y al Comité de las Regiones, 2003).