Entrepreneurship Vision 2020: Innovation, Development Sustainability, and Economic Growth 515 Knowledge and Skills Necessary for Product Innovation in SMEs Manufacturing Industry in Malaysia Haris Bin Md Noor Faculty of Technology Management, Business and Entrepreneurship Universiti Tun Hussein Onn Malaysia harisn@uthm.edu.my Tan Shirley Faculty of Technology Management, Business and Entrepreneurship Universiti Tun Hussein Onn Malaysia Mohd Nazir Bin Mohd Adi Faculty of Technology Management, Business and Entrepreneurship Universiti Tun Hussein Onn Malaysia Nor Kamariah binti Kamaruddin Faculty of Technology Management, Business and Entrepreneurship Universiti Tun Hussein Onn Malaysia Abstract Product innovation and its spill-overs into new products, technologies and productive capacity are deemed to be important determinants of firms’ productivity growth, competitive advantage and ultimately their survival. In spite of its pivotal role, the process that leads to the production of innovation is still poorly understood among the Malaysian industries. The aim of this research is to identify the knowledge and skills necessary for product innovation in the manufacturing sector of SMEs in Batu Pahat, Johor. This research was conducted using quantitative approach, where questionnaires was used as the major instrument in data collection. The data was analysed by using the Statistical Package for Social Science (SPSS) programme . The research analysis outcomes showed that customer and market knowledge is the most dominant knowledge necessary for product innovation. The mean score was 4.22 for both which have high tendency towards product innovation. The overall outcome for the skills and knowledge showed high tendency towards the necessity for product innovation. Further analysis is suggested to be conducted to get better understanding of the real relationship between skills and knowledge towards product innovation. Key words: knowledge, product innovation, skills 1.0 Introduction The role of small and medium enterprises (SMEs) is set to expand over the years as its contribution to the national gross domestic product is expected to increase.(New Sabah Times, 2011). SMEs cover a wide spectrum of industries and play an important role in both the developed and developing countries economies. Developing a group of diverse and competitive small and medium enterprises (SMEs) is a central theme towards achieving sustainable economic growth. One of the important sources of competitiveness for SMEs has been to serve as agents of change, as the engines for new idea generation and innovative activity. Innovation is one of the key variables influencing productivity growth. Product innovation is the development of new products, changes in design of established products, or use of new materials or components in the manufacture of established products.The product innovation and its spill-overs into new products, technologies and productive capacity are deemed to be important determinants of firms’ productivity growth, competitive advantage and ultimately their survival. In spite of its pivotal role, the process that leads to the production of innovation is still poorly understood among the Malaysian industries.