Exploring the Impact of Research and Development on the Performance of Small and Medium Enterprises

This study delves into how research and development (R&D) efforts and actions impact the performance of medium enterprises (SMEs). It also aims to investigate the influence of R&D strategies, managerial experience and infrastructure quality, on SME sales growth in various countries. Using data from the EBRD EIB World Bank Group Enterprise Survey and the World Bank Development Indicators this research adopts a multi-level hierarchical modeling approach to examine factors at both firm and country levels that may affect SME performance. The results validate two of the three put forward hypotheses. The first hypothesis, which suggests that outsourcing R&D may not always enhance efficiency is supported by the further displayed findings. The study highlights significant challenges in communication and coordination associated with R&D outsourcing aligning with works of Bengtsson, Berggren, Lind (2009) as well as Howells, Gagliardi, Malik (2008). These challenges often lead to inefficiencies and less than optimal innovation outcomes due to a lack of control and misalignment of goals with external contractors. Consequently, the second hypothesis is also affirmed, indicating that investments in R&D infrastructure play a substantial role in both boosting sales growth and fostering innovation activities. Companies investing in high-quality R&D infrastructure demonstrate superior research capabilities and innovation processes, leading to better market adaptation and competitive advantage (Zhang et al., 2020; Hottenrott and Lopes-Bento, 2014). The study also confirms the third hypothesis, which suggests a link of positive association between managerial experience and R&D productivity. Experienced managers are found to play a crucial role in effectively planning, organizing, and controlling R&D processes, translating these efforts into marketable outcomes (Cunningham & Link, 2016; Herrmann et al., 2012). Additionally, the importance of model selection for analyzing the performance of medium enterprises is emphasized in the research. The preferred model includes parameters such as company age, industry type, well as macroeconomic factors like GDP and ease of conducting business. This model exhibits high explanatory power and predictive accuracy. Factors like quality of R&D infrastructure and years of experience of executives were predictors of sales growth, whereas firm size and R&D sourcing strategies showed mixed results. Findings suggest that external factors like regional economic situational conditions and industry traits significantly impact the connection between GDP growth rates and sales growth for SMEs. This highlights the significance of taking into account elements when assessing how macroeconomic factors affect the performance of small and medium-sized enterprises. In essence, the study seeks to validate the existing knowledge, on the factors that impact SME sales expansion, highlighting the importance of R&D infrastructure, managerial expertise and the wider economic landscape. These discoveries can offer insights to policymakers and business executives looking to improve the effectiveness and innovation potential of SMEs through targeted investments in R&D and strategic managerial training.