Impact of Globalisation on Innovation of Small and Medium Enterprises in Vietnam

Innovation contributes to improved labour productivity and an enhanced competition, thereby ensuring to the development of the firm. However, small and medium enterprises (SMEs) encounter many difficulties in attempts to innovate. It is not clear whether globalisation works to encourage firms to innovate via transferring knowledge and promote market competition mechanism; or whether it works against such innovation due to a negative impact on the diversification of different dimensions in economic, social, and political life. The primary purpose of this research was to examine how globalisation affects innovation among SMEs in Vietnam. It analyses the micro and macro effects of globalisation on innovation in businesses using a Probit model with data obtained from selected SMEs during the period 2005–2015. The result showed that at a macro level, globalisation negatively correlates with innovation. Additionally, it was found that economic and political globalisation facilitates innovation while social globalisation discourages it. At the micro level, increasing competitive pressure and knowledge transfer due to globalisation are positively correlated with the propensity towards innovation of SMEs.