INTRODUCTION

Small & Medium Enterprises (SMEs) across industries have unrealized innovation potential (Chaminade and Van-Lauridsen 2006). According to Harrison and Watson (1998), SMEs are generally more flexible, adapt themselves better and are better located to develop and implement new ideas. The flexibility of SMEs, their simple organizational structure, their low risk and their receptivity to changes are the essential features for enabling them to be innovative both within the organization and in the external market (Ussman et al. 2001). Therefore, they are promoted, among others, as the 'seed bed of innovations' in industrialized countries. Empirical evidence shows that they are innovative even in industrializing countries like India (Bala Subrahmanya 2005).

Despite their important role in innovation, SMEs have a number of resource disadvantages (Lee 2005). They have limited financial and technical manpower resources, narrow external technical networks, small marketing resources, and lack of management skill (Rothwell 1983). These disadvantages are likely to be more intensive in industrializing countries than in industrialized countries. With this backdrop, this paper attempts to analyze the role of internal factors vis-a-vis external factors for product innovations carried out by a SME in India relative to Japan.

SMEs account for a considerable proportion of industrial enterprises, employment, and production in Japan as well as in India (Bala Subrahmanya 2003; Bala Subrahmanya 2006). Japan is rather the most industrialized economy whereas India is one of the rapidly industrializing economies today. Both these economies have been following exclusive policies for the promotion of SMEs: since WWII in Japan and since I Five Year Plan in India. Both the economies have their own policies for modernization and technology up-gradation of SMEs.

It is in the above context that the nature and strategy of product innovations carried out by two different SMEs--one in Tokyo, Japan and another one in Karnataka, India--are comparatively analyzed. Both the SMEs belonged to the engineering industry. Japanese SME is located in Ota ward in Tokyo city whereas Indian SME is located in Mysore, a growing industrial city of Karnataka state in India. Ota's industrial structure is dominated by machinery & metal industry and so is that of Mysore, though not to the same extent (PIO 2004; DIC, Mysore 2002). Similarly, SMEs' dominate the industrial structure of Ota as well as Mysore. But Ota has acquired international reputation for its product innovations whereas Mysore is little known on the industrial map of India, leave alone that of the world.

This article is structured to contain five sections. Section 2 deals with definition of concepts and describes briefly the Innovation Policies for SMEs in Japan and India. Section 3 presents the industrial structure of Ota and Mysore respectively. Section 4 analyzes the technological innovations carried out by two SMEs in two different countries and section 5 brings out inferences and makes propositions. Section 6 comprises summary and conclusions.

2. DEFINITION OF CONCEPTS AND POLICIES FOR INNOVATIONS IN JAPAN AND INDIA

At the outset, it would be appropriate to define the concepts of SMEs and innovation and explain the policy support extended for SME innovations in Japan and India.

2.1 SMEs and innovation: definition of concepts

SMEs can be defined in terms of investment, employment or output or a combination of these three variables. SMEs in Japan are defined in terms of capital investment and employment under the Small and Medium Enterprise Basic Law. In general, SMEs refer to enterprises with capital of not in excess of [yen]300 million or 300 or fewer employees. Small enterprises are defined as enterprises with 20 or fewer employees (SME Agency 2004). The official definition for an SME in India is of recent origin. According to the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 a small scale enterprise is defined in terms of investment in plant & machinery up to Rs.50 million and a medium scale enterprise to have investment in the range of Rs.50 million to Rs.100 million. Thus SMEs would cover all enterprises having investment in plant & machinery up to Rs.100 million (Ministry of SSI 2006).

Innovation is crucial to SMEs' competitive advantage. Innovation within a company is defined as 'creativity' or 'the ability to create innovations', i.e. 'coming up with new and better products' (Ussman et al. 2001). Following the Oslo Manual (OECD 1992) innovation in this article is defined as 'implemented technologically new products and processes and significant technological improvements in products and processes'. This definition has three important points: (i) it is confined to technological innovations related to products and processes; (ii) other types of innovation, in particular, organizational/ administrative innovations; and (iii) the entry into new markets are not covered.

An innovation implies a technologically new product/process or a product/process having undergone a significant technological improvement. Thus, minor modifications to products and processes (such as improvement of product design or package) are not considered.

To be considered, the innovations must have been implemented, that is, introduced into the market (product innovations) or used in a production process (process innovations). Thus, aborted innovations and those in progress are not considered.

2.2 Innovation promotion policies and product innovations in SMEs

Japan promotes innovation in SMEs explicitly as part of its overall SME Policy. Small and Medium Enterprise Basic Law 1963 of Japan aims at, among others, promoting business innovation and start-ups and promoting creative business activity among SMEs (SME Agency 2007). To promote business innovation at SMEs, the Government would promote R&D related to technologies for developing new products and services; promote the introduction of plants and equipments to substantially improve the efficiency of production, etc. Promotion of modernization and technology elevation is the other objective of SME Basic Law. What is important to note is that a significant proportion of SMEs in Japan are innovative. In 1998/99, over 50% of SMEs developed 'new products by improving existing technology' and some 30% went so far as to develop 'new products by combining existing and new technologies' (SME Agency 1999). In 2003/04, about 62% of the SMEs have developed new products (SME Agency 2004). This indicates that innovation intensity of SMEs in Japan is quite significant.

On the contrary, policy measure to promote any kind of innovation is conspicuous by its absence in India's SSI promotion policy. Technology development has been the thrust of SSI promotion policy in India since the early 1950s (Bala Subrahmanya 2005). The efforts pursued for technology development relies heavily on technology transfer rather than on in-house technological innovations. Even the recently introduced MSMED Act 2006 made no reference to promotion of innovations in SMEs. By and large, the focus of Indian policy has been the removal of technological obsolescence in the SME sector through technology upgradation and modernization rather than technological innovation. Further, there is no official data source, which throws light on the product innovations of SMEs. A recently conducted survey-based study for Karnataka (Bala Subrahmanya et al. 2001) revealed that only 716 (53%) out of the 1358 small enterprises and 258 (40%) out of the 648 micro enterprises were engaged in R&D and innovations in Karnataka. But only 286 (40%) of the 716 small enterprises and 73 (28%) of the 258 tiny enterprises claimed that they had developed new product designs. Of course this percentage appears quite significant in the context of an industrializing country.

Given this, it is appropriate to probe how product innovations of SMEs differ in an industrialized country relative to an industrializing country. To ascertain and comparatively analyze the product innovations of SMEs, we have adopted case study method and confined to one medium enterprise each in Japan as well as India.

3. INDUSTRIAL STRUCTURE OF OTA AND MYSORE

Since our case study enterprises are located in Ota district of Tokyo metropolitan region in Japan and Mysore district of Karnataka state in India, a brief description of the industrial structure of these two districts is in order.

Ota city is the most prominent industrial centre of Tokyo, leading in the number of factories, employees and value of products shipped (PIO 2004). An important feature of industrial structure of Ota is the integration of industrial enterprises of varying sizes through subcontracting, a distinctive feature of Japanese manufacturing. The number of factories reached a peak of about 9000 dominated by SMEs in the mid-1980s but declined steadily since then. The number of factories stood at about 5000 in 2004. The major factor responsible for this decline was the exit of SMEs due to competition from SMEs of South East Asian Countries and China (PIO 2004). Another feature of industrial structure of Ota is the predominance of machinery & metal industry. This sector, which manufactures general machinery, electric machinery and appliances, metal and plastic products, transport machinery and precision machinery, accounts for more than 80% of the factories whereas more than 24% of the production of general machinery and appliance manufacture of Tokyo (PIO 2004). Ota is considered one of the major pillars of Japanese machinery and metal industry, which is primarily responsible for the global competitiveness of Japanese manufacturing. Further, Ota has acquired international reputation for its product innovations done by its skilled workers. It is commonly said, 'if a drawing of a product is dropped out of a window in Ota even by accident, a sample piece will emerge the next day from one of its factories' (Whittaker 1997).