The role of Innovation Activities to SMEs Performance in Tanzania: A case Study of SMEs in Arusha City

Abstract

The study on “The Role of Innovation Activities to the SMEs Performance in Tanzania” was conducted using a case study of SMEs in Arusha City. The main objective of this study was to assess the contribution of innovation activities to SMEs performance. An explorative study design was used to a sample of 100 respondents and cross sectional data collection approach was employed. Purposive and snowball sampling techniques were used where data was collected using structured questionnaires. Multiple linear regression analysis was applied. The analyzed findings revealed that innovation activities such as invention of new products/services (NPS), new marketing techniques (NMT) and new management/organizational structure (NMS) are significant variables to predict the SMEs performance (profits, sales, growth and survival) in Tanzania, given the model (SMEP) = (-40.62883 – 0.322881NPS + 6.2142042NMT + 1.4938266NMS – 0.32288NPP) Shapiro Wilk W test and heteroscedasticity were used to validate the model. The study revealed that, innovation activities NPS and NPP are inversely related with SMEs performance but NMT and NMS are positively related with SMEs performance. The results of R2 = 98.71% % is significant level to explain about the model. This is interpreted as that; the variation in SMEs performance can be influenced by these innovation activities. Thus the study recommends that the SMEs must engage themselves on inventing new marketing techniques and new management structure to realize better performance because these two innovation activities have positive relationship with performance. Each SME must develop good policies on invention of new management techniques and new management structure. However, SMEs should be a bit more sensitive when setting up policies concerning invention of new products/service and new production processes as they might have negative impact on performance.