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Journal of Chinese Economic and


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The role of government, universities,


and businesses in advancing technology
for SMEs innovativeness
a

Fourry Handoko , Alan Smith & Colin Burvill


a

Industrial Engineering Department, National Institute of


Technology (ITN Malang), Malang, Indonesia
b

Mechanical Department, School of Engineering, The University


of Melbourne, Parkville, Australia
Published online: 16 Apr 2014.

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To cite this article: Fourry Handoko, Alan Smith & Colin Burvill (2014) The role of government,
universities, and businesses in advancing technology for SMEs innovativeness, Journal of Chinese
Economic and Business Studies, 12:2, 171-180, DOI: 10.1080/14765284.2014.900968
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Journal of Chinese Economic and Business Studies, 2014


Vol. 12, No. 2, 171180, http://dx.doi.org/10.1080/14765284.2014.900968

The role of government, universities, and businesses in advancing


technology for SMEs innovativeness

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Fourry Handokoa*, Alan Smithb and Colin Burvillb


a
Industrial Engineering Department, National Institute of Technology (ITN Malang), Malang,
Indonesia; bMechanical Department, School of Engineering, The University of Melbourne,
Parkville, Australia

(Received 5 October 2013; accepted 21 February 2014)


Knowledge and technologies play an essential part in this rapid-response capability, by maintaining opportunities for continuous improvement and innovation needed in the development of sustainable competitive advantage.
However, the low capability of SMEs to provide the required resources is a
barrier to the in-house technology development. Consequently, external
resources such as government, businesses, and universities, to support their
performance in developing technological capabilities utilize so-called knowledge and technology transfer programs, which are needed as a shortcut to
improve technological process innovation. This study provides theoretical and
empirical support for the role of government, businesses, and universities in
transferring knowledge and technology for SMEs innovativeness in emerging
economies and the impact of process innovation on SMEs competitiveness.
The results suggest policy directions for governments to support SMEs in
emerging economies.
Keywords: development; technology transfer; innovation; government;
business; university
JEL Classication: O3; L61

1. Introduction
SMEs are faced with an increasingly complex external environment due to rapid technological evolution, globalization and innovative competitors. SMEs that are involved
in this environment must improve their performance in order to survive in the global
market place. In this environment, creating and maintaining competitive advantage
through knowledge management systems has occurred widely. However, the low competency of SMEs to provide the needed resources is a barrier to in-house technology
development. Therefore, external resources are essential to support SMEs performance
improvement. Through knowledge and technology transfer programs, transferors provide a signicantly improved production method as well as newly developed equipment
to stimulate process innovation to gain a competitive advantage.
Since knowledge and technology transfer involves technology suppliers, the process
of knowledge and technology transfer can be analyzed based on transferor characteristics.

*Corresponding author. Email: f.handoko2@pgrad.unimelb.edu.au


2014 The Chinese Economic Association UK

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It is widely recognized that the transferors involved in knowledge and technology transfer
are government, businesses, and universities.
Every technology supplier has distinct characteristics and motives. The diversity of
characteristics and motives will potentially affect the result, and indeed the success, of
knowledge and technology transfer. It is important, therefore, to understand any differences in phenomena associated with the process of transferring knowledge and technology from government, businesses, and universities to SMEs. This study aims to provide
theoretical and empirical support of the role of transferors (government, businesses, universities, and joint programs) to promote process innovation through knowledge and
technology transfer programs for SMEs in emerging economies, and also the impact of
process innovation on SMEs competitiveness.
2. Technology transfer for innovation and competitiveness
Technology transfer is considered a shortcut to develop technological capability (Liebrenz
1982), particularly technology transfer to SMEs in emerging economies where SMEs generally perform less in terms of human resource, research, and development, and capital
(BPPT 2005) in comparison to competitors in more mature economies. Technology transfer programs potentially support SMEs to increase their technology capabilities.
Improving technological capability can be achieved through learning processes associated with the technology (Kemmis 2004; Padmadinata, Sugarmansyah, and Nurzall
2006). The important steps of the learning process are associated with both the adaptation and innovation associated with the technology. Effective learning processes associated with adaptability and innovation can improve the capability of the rm to exploit
the technology (Kemmis 2004; Rogers 2003).
The stages of technology innovation (i.e. basic research, applied research, development, and learning process) can be cut short by technology transfer (Gumbira,
Rachmayanti, and Muttaqin 2001; Khalil 2000). Within a successful technology transfer
process, the rm will adapt the new technology and encourage innovation. Innovation
is signicant competitively because of special qualities (Chen 1994; Enos 1989). It also
provides a sustainable competitive advantage to the rm (Tyre 1997). Hence technology
transfer is imperative as a way to promote technology innovation.
Innovation is important to an organization seeking to sustain its competitiveness
(Khalil 2000). For example, by process innovation, the application of manufacturing
hardware, discipline in managing system functions, and controlling maintenance efciency and effectiveness in managing the organization can reduce production costs with
an associated reduction of product cost (Schlie 1996). This can improve an organizations competitive advantage (Khalil 2000; Porter 2001; Schlie 1996).
2.1. Technology process innovation
Technological innovation has played an important role in business success and has frequently been credited for improving organizational competitiveness and success in a
dynamic market environment. As a source of competitive advantage, technology innovation must be closely linked with a rms strategic and competitive context (Enos 1989).
Innovation, as dened by Schumpeter (1934), is the new combination of factors of
production made by the entrepreneur and an imperative driving force for economic
growth. The perceived newness of the idea for the individual determines his or her reaction to it. If the idea seems new to the individual, it is an innovation (Rogers 2003).
The concept of innovation involves process innovation (Daft 1978).

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173

Process innovation is the implementation of a signicantly improved production


method, including signicant changes in techniques and equipment. Process innovation
is concerned with identifying new and more effective internal operations (Cohen and
Levin 1989). New devices and knowledge in throughput technology mediate between
input and output and reduce the production cost (Freeman 1984) that will improve an
organizations competitiveness.
This paper focuses on process innovation because process innovation is essential
and applied in technology transfer programs for SMEs. Knowledge and technology
transfer programs promote signicant changes by delivering new methods and equipment (e.g. the knowledge and technology transfer program of Divided Blast Cupolas to
replace earlier furnace design) for SMEs to improve their competitive advantage in the
global market environment. Indeed, when a new or signicantly improved production
method or equipment as part of the process innovation is implemented, the product
innovation becomes the next target.
2.2. Transferors
In emerging economies, government-initiated knowledge and technology transfer is normally completed through government ministries and their associated agencies, interministry departments and local government. Government-initiated knowledge and technology transfer programs have provided training programs and expertise in transfer, as
well as physical equipment (machinery and tools) to SMEs. In addition, Government
has provided training centers to be utilized by SMEs (Handoko 2013). However, government in transferring technology have their own motives, such as legislative requirement, economic development, outgrowth of cooperative research, and development
(Bozeman 1997; Kremic 2003).
The effectiveness of a technology transfer program will be inuenced by government motives. One might assume that emphasis on the legislative mandate as a motive
for technology transfer would be negatively related to success, simply because such a
desultory motive would rarely lead to success. On the other hand, motives such as economic development and entrepreneurship motivation will possibly positively impact the
technology transfer program (Bozeman 1997), by providing education and training, in
order to develop the technology capability of SMEs, and to broaden a pre-existing program for standardization of processes and products (Handoko 2013).
Large Enterprises (LEs; business) were found to be involved in knowledge and
technology transfer through human resource development, in particular the motive of
LEs in transferring technology to SMEs is usually associated with the need for potential
suppliers to support products (Hayashi 2002). LEs have provided highly focused training programs to SME employees. These training programs have, for example, sought to
encourage improved capabilities in product standardization, enabling SMEs to then supply products with the required quality to these larger businesses through improved competency.
Universities also support knowledge and technology transfer to SMEs by conducting
specically targeted training programs in human resource development. The universitybased training programs have the long-term goals of maximizing the potential of SME
employees. Universities were also found to collaborate with government and businesses
in providing specic expertise for short-term knowledge and technology transfer programs (Handoko 2013).

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3. Methodology
The successes or failure of knowledge and technology transfer programs are indeed
inuenced by the transferee. However, transferors have their own motives and are also
very dominant in knowledge and technology transfer processes. When collaborating
with transferors, it was possible that an effective knowledge and technology transfer
program could be applied. An associated question with reference to SMEs: To what
extent does the technology transfer program of government, businesses, and universities; and collaboration among them directly impact on technology process innovation?
Technology transfer is valuable if it enables an improvement in an organizations
competitiveness (Porter 2001). Since the role of technology transfer is to provide a
shortcut to process innovation, the transformation can be worthwhile if they are able to
enhance an SMEs competitiveness. An associated question with reference to SMEs: To
what extent does SME process innovation directly impact on its competitiveness?
Research instruments were constructed to allow analysis of the impact of transferor
programs (government, businesses, and universities) on the technology process
innovation of SMEs, and also to analyze the impact of process innovation on SMEs
competitiveness. In order to formally investigate the question, hypotheses that can be
empirically tested are formulated and listed below.
Hypothesis 1a: The government transferor has a direct and positive impact on technology
process innovation.
Hypothesis 1b: The business transferor has a direct and positive impact on technology process innovation.
Hypothesis 1c: The university transferor has a direct and positive impact on technology
process innovation.
Hypothesis 1d: Technology transfer programs succeed when there is interplay among the
three groups (i.e. government, business and university).
Hypothesis 2: Technology process innovation has a direct and positive impact on SMEs
competitiveness.

This research examined the relation between the transferors and technology process
innovation, and the relation between process innovation and competitiveness. The conceptual and theoretical model is shown in Figure 1.

Government

Businesses

H1b
Universities

H1c

H1a
Process
innovation

H1d
Joint
programs

Figure 1. The knowledge and technology transfer model.

H2
Competitiveness

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3.1. Statistical modeling


Structural Equation Modeling (SEM) is a statistical methodology which is utilized to
analyze the survey data in this research. SEM is adopted to quantify the strength of proposed relationships within a technology transfer model.

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3.2. Source of empirical data


The subjects of the research were SMEs involved in metal-based SMEs in emerging
economies (Indonesia). This domain was chosen because SMEs in this area were pioneering in terms of knowledge and technology transfer. As part of the long history of
experience in knowledge and technology transfer, and consequently, accumulated
knowledge, the metal-based manufacturing industry was deemed appropriate as the subject of the survey of this research.
Emperical data were obtained from those prospective respondents areas. A total of
240 organizations, representing a response rate of above 50%, responded. An issue
related to the level of analysis was the person in the organization who was directly

Table 1. List of items to measure the construct.


Transferors

Technology process innovation

Competitiveness








 Assessing each of the processes


 Identifying potential
technological and human
factors
 Identifying constraining
technological and human
factors
 Assessing existing business
strategy for process direction
 Formulating process
performance objectives
 Understanding the current
process ow
 Measuring the process in terms
of the new process objectives
 Brainstorming design
alternatives
 Assessing feasibility, risk, and
benet of design alternatives
 Selecting the appropriate
process design
 Prototyping the new process
design
 Developing a migration strategy

 Skills in production process


 Quality performance over the past
two years
 High-value product based on
customer needs
 Product and service quality meet
customer needs
 Plants customer relations are
superior to competition on a global
basis
 Reliable and durable product that
meets customer needs
 Cost efciency offer price that meets
customer needs
 Cost production offer price that
meets customer needs
 Product that only a few rms can
achieve
 Time delivery that meets customer
need
 Manufacturing exibility that meets
customer needs
 New products are based on customer
needs
 Market share than other rm
 Total sales average of the industry
 Market objectives

Responsibility
Project terms
Communication
Conference
Industry visit
Workshop
program
 Personnel
exchange
 Feedback
process

Note: (Modied from the previous studies of: Bozeman 1997; Davenport 1993; Handoko 2013;
Kremic 2003; Lee 1997; Porter 2001; Schlie 1996; Tracey 1999; Xenophon, Mark, and William
2002).

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selected to complete the questionnaires. In this survey, the person who was preferred to
be chosen to answer the questionnaires was the manager or the owner of the organization responsible for the technology transfer program.
3.3. The research instrument
The development process of the measurement instrument started with the derivation of
the constructs of technology transfer. The areas relevant to support the key factor of the
technology transfer program were also included. Using the psychometric approach,
measurement items that encapsulated the core ideas of the constructs were developed.
All constructs had multiple items.
The draft instruments were pre-tested with experts and then subjected to pilot testing
with a sample of metal-based SME organizations. Since the pilot study involved a
rather small sample size, tests such as those for reliability and validity were conducted.
Eventually, the nal measurement instrument was developed (Table 1).
In sum, the rigorous scientic process that was used to collect data provides sufcient condence that the quality of the data is high and has been measured well (e.g.
reliability and validity). This, therefore, provides condence that the propositions and
hypotheses of this study can be thoroughly tested with accuracy.
4. Results and discussion
To verify the reliability and validity of the instruments, a range of reliability and validity tests were conducted. For the purpose of examining the constructs in this research,
the adequacy of the one-factor congeneric models were based on the t-value, chi-square
(), p-value, RMSEA, GFI, AGFI, and CFI (Singh and Smith 2004). The result of the
analysis of the one-factor congeneric models show that all construct models provide
good t indicating that there is no problem of unidimensionality after modication.
4.1. Structural equation model
Having comprehensively conducted the measurement part of the SEM the next step is
to examine the full structural part of the SEM.
Maximum likelihood estimation was applied to estimate the parameters and calculate the goodness-of-t indices. The LISREL software package was utilized in this
study (Hair et al. 2010).
As a result, Figure 2 shows that the t-value for joint programs is 5.83, higher than
the cut-off t-value of 1.96. It is the only variable having a direct and positive impact of
the four proposed transferor inuences on technology process innovation, and compares
with the t value of government of 3.05, business of 0.71, and university of 3.27. In
terms of the impact of process innovation and competitiveness, the result shows that the
variable of technology process innovation has a positive and signicant impact on the
variable competitiveness. Thus, it explains that technology capability signicantly
impacts on organization competitiveness.
4.2. Goodness-of-t
The overall t of the model is evaluated from the goodness-of-t between data and the
model. Five measures of t (Hair et al. 2010; Singh and Smith 2004) are shown

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Government

-3.05
Businesses

-0.71
Process
Innovation

9.61

Competitiveness

-3.27
Universities

5.80

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Joint programs

Figure 2. Diagram of t-value results of the full model.

(- good t: p > 0.05); normed chi-square (/df good t: 1 < /df < 2); goodness-of-t
index (GFI-acceptable t: 0.95 < GFI < 1); Tucker-Lewis Index (TLI-acceptable t:
TLI > 0.95); root mean square error of approximation (RMSEA-acceptable t: RMSEA
< 0.05). The goodness-of-t indices results show the good t of the data to the model
(Table 2).
4.3. Discussion
It is important to compare these research results with research ndings published in the
literature to determine the veracity of the claims that are being made in this study. In
some cases the research hypotheses of this study support previous research, however
some are different.
In terms of the role of transferors in advancing technology for innovativeness, the
success or failure of a technology transfer program is indeed inuenced by the transferee. However, the transferors, with their own motives, are also very prominent in the
process of technology transfer (Bozeman 1997; Kremic 2003; Samli 1985). The motivation of the transferors may lead to their methods in technology transfer programs being
different from each other (Bozeman 2000; Kremic 2003; Lee 2000).
The results of this empirical research show that only the joint program has a direct
and positive impact on technology process innovation. The results in Figure 2 show that
t-value of joint programs is positive, indicating that the effects are positive.
It conrms that when the technology transfer program is implemented by a single
transferor, either the government, a business, or a university the impact is not sufcient
to affect the transferees technology process innovation. Conversely, the empirical evidence supports the signicant and positive impact of joint programs in transferring technology to increase the transferees technology process innovation.

Table 2. Goodness-of-t indices.


Goodness of t indices results
Chi-square ( (685.14), df (661), p-value (0.25) (good t)
GFI = 0.88 (moderate t)
RMSEA = 0.012 (good t)
TLI = 1.0 (good t)
Normed Chi-square () = 1.03 (good t)

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The empirical evidence supports the proposition that the interplay among different
transferors in a consortium enables a combination of motives to drive successful
technology transfer programs. Another possible explanation for the success of joint
technology transfer programs is that the transferors perform at their best, since under
inter-organization collaboration, the programs could be supervised by each of the transferors management involved in the programs. It empirically supports previous research
in terms of inter-sector cooperation (Bozeman and Coker 1992; Brown, Berry, and Goel
1991; Spann, Adams, and Souder 1995).
By contrast the empirical evidence shows that technology transfer by a single transferor is not sufcient to positively affect the transferees technology process innovation.
Possible explanations for the ineffectiveness of technology transfer programs when
applied by a single transferor (government, business, or university) might be associated
with the motives of the transferor.
The motives of the transferor vary in nature. For example, for government, the
motive might be legislation-based (Bozeman 2000; Kremic 2003; Spivey 1994), business is more likely to have prot-based motives (Kremic 2003), and universities might
apply outreach-mission motives regarding their technology transfer programs (Burvill
and Leary 2001; Lee 2000) and community service. The problem of transferring technology may occur when the management level of the transferor does not apply the
mandate for the technology transfer program as a prioritized mission and policy of their
management.
At the level of the employees who are involved directly in the technology transfer
programs, the distortion of policy of technology transfer between the level of management and the level of the employees means a lack of motivation of the employees in
transferring technology may also emerge. Furthermore, when transferors were associated
with local government the local government employees who have responsibility for
technology transfer program were obtaining their salary from the central government. It
did not matter whether the employees were successful or unsuccessful in completing a
technology transfer program, as they received their salary regardless of outcome. Additionally, a technology transfer programs by a single transferor could only be supervised
by their own organization, their own manager, or even their own colleagues. It could
lead to a lack of motivation. The consequence of a lack of motivation may lead to inappropriate programs that, in this study, have empirically been revealed to insufciently
improve the transferees process innovation.
In terms of the relation of process innovation and competitiveness, this research provides empirical evidence to claims that there is a direct and positive effect of process
innovation on competitiveness. The innovation strategies through external support
(knowledge and technology transfer) create internal change (process innovation), and
have a positive and signicant impact on SMEs competitiveness. This nding supports
the importance of process innovation in improving SMEs competitiveness in the global
market, by implementing signicant changes in techniques and equipment, identifying
effective internal operations, and delivering knowledge to advance production line
between inputs and outputs and reduce production costs.
5. Conclusion
Analysis of the proposed model and hypotheses, using a structural equation modeling
technique, showed that the empirical evidence supports the signicant impact of joint
programs in transferring technology to increase transferees process innovation. It is

Journal of Chinese Economic and Business Studies

179

clear that in order to achieve the best value program for SMEs, a potential transferor
should form a partnership with a transferor from another sector. It is also crucial to consider designing the program for process innovation in order to gain a sustainable competitivenes.

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