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Introduction and Background of the Study

    1.1. Introduction

This section of the study focuses on providing background information about the study. The study offers especial emphases on the field of entrepreneurship, innovation and motivated by the lack of knowledge on the nexuses between manufacturing small and medium enterprises (SMEs) performance in terms of job creation and innovation adoption rub by these enterprises in Addis Ababa. Entrepreneurship is creating better values for customers through exploring rarely available opportunities and performing credible corporate business responsibilities than their competitors (Mwangi, 2011).  Possibly, nowadays this is a primary goal of manufacturing SMEs in the world.  Cognizant to these broad objectives of manufacturing SMEs: policymakers, political leaders, researchers and businesspersons, in developing and advanced economies, have worked towards the advancement of economies through the identification of appropriate strategies to reduce poverty and boost employment chances (Bruton, Ketchen & Ireland, 2013; Barakatt & Sereke-Brhan, 2010; Nafukho & Muyia, 2010; Taiwo, Ayodeji, and Yusuf, 2012).  From a broader perspective, it is essential to identify appropriate strategies that consider SMEs entrepreneurs as a veritable vehicle of economic changes.  Possibly their entrepreneurial performances contributed economic progress and provide organizational sustainability and competitiveness both in domestic and global business environments. The focus on SMEs' performance in combination with economic performance is important as they can contribute towards: increased productivity, job creation, technological advancement and innovation (Haltiwanger, 2012).  

Since early economic liberalization in advanced economies and lately in developing economies, SMEs have been credited to contribute to employment, innovation, competitiveness and solving particular problems locally and globally (Inoica, 2011). Indeed, SMEs are considered to be the pillar of modern economies in both developed and developing countries through achieving social, economic and political objectives by creating wealth and alleviating poverty (Nkwe, 2012). Recently, several scholars in the field of entrepreneurship pointed out that creating internationally competitive, sustainable and dynamic SMEs are significantly important for the contemporary knowledge and innovation driven economies (Demirbas, 2011; Kuada, 2014; Sileshi, 2014).

Despite  entrepreneurship has evolved through time and is very important to improve the quality of  life for individuals, families,  societies and  create healthy economies and environments, their establishments, purposes and attributes differ across countries.  Scholars from range of academic fields: for example, psychologist who have studied entrepreneurship  focuses on purposes and attributes of  entrepreneurs;  sociologist have stressed on social background of entrepreneurs; economists have dwell on opportunistic cost and productivities of entrepreneurs; technologists have  emphasised  on innovation capabilities of entrepreneurs and demographist  have centred on the impact of demographic composition on entrepreneurship all have agreed that  economic status of a given country determines the types of entrepreneurs existing in a country. The research findings of these scholars confirmed that entrepreneurs are broadly classified in to two.  These include:  growth- oriented (transformational) entrepreneurs who innovate with ambition and a desire to continuously grow and expand and are dominantly available in high–income countries. They are well educated and constitute the formal sectors and employed numerous employees because of their abilities to create new ventures through their technological innovation performance while necessity (subsistence) entrepreneurs who do business in order to survive and are mostly found in low-income countries, part of informal sectors and those entrepreneurs are at a low level of education. More importantly, the drivers of transformational entrepreneurs are success (profitability), technical innovation, and market chances due the presence of social welfare and greater job opportunities for the citizen in advanced economies. Thus, there is leaser need to establish business for sake of survival. On the contrary, survival entrepreneurs are  typically driven by unhappiness with low salary and a distress of joblessness, since there are high unemployed labor, poor social welfare and possible labor market disadvantages in under-developed economies (Bosma, Stam & Wennekers, 2010; Chen and Yang, 2009; Kuada, 2015).

Due to the prevalent of survivalist (subsistence) entrepreneurs in most Africa countries, there are no significantly impacting SMEs in economic growth and development in African countries during the past 3 decade despite a few progresses in the continent (Moses, 2015; Rabarijaona, 2015; UNIDO & UNCTAD, 2011).  Since many African countries' political leaders and policymakers assumed that instead of privately-owned enterprises, state-owned enterprises were the driver of African countries' socio-economic transformation as a result they rapidly change the economy, eradicate poverty, generate employments, and speed up the early industrialization of the countries (Bewayo, 2012). However, this economic growth and development strategy failed to address the intended welfare aspirations in most African countries. Since state-capitalism has become a threat for entrepreneurship and thus, impedes personal creativities and self-employments. As a result there were no stable and dynamic private-sectors that fully participate in socio-economic transformation of African countries.   In fact, from the perspective of entrepreneurship development, especially, the period in 1980s in Africa was considered as lost decade (Kuada, 2015; Rabarijaona, 2015).  

Congruent to globalization, liberalization and advancement of technology, Ethiopia undertook major economic policy reform lately in 1991 to follow open market economy. Since then, some firms started to flourish and operate in the country. Especially, the Federal and regional micro and small enterprises development framework establishment in 2005 facilitates SMEs generation in the country. As a result, 34.6 % of the firms are five and fewer years old, 42.5% are between six and ten years old, and the remaining 22.9% are more than 10 years old (Mulu and Mohnen, 2011). Thus, most SMEs in Ethiopia are at the infancy stages.


Irrespective of the age and size of SMEs the contemporary rapid globalization of business ideas across the globe forced them to involve in competitive markets both locally and internationally (Mutalemwa, 2015). However, to mitigate their inherent resource and size disadvantages and stay competitive in the business environments, SMEs use different competitive strategies and tools when compared to their larger counter parts. One of these strategies is to maximize their competitiveness by enhancing their innovation capabilities (Allocca & Kessler, 2006; Ertiirk & Cakar, 2010). SMEs with an innovation orientation are not only more competitive but also has the potential to change the market structure as well as the distribution and production patterns of economies at large (Matear, Darroch & Johnston, 2012). Using innovation adoption, they can possess distinctive competitive characteristics like quality, safety, high levels of productivity, efficiency, adaptability, modern management, lower costs and are successful in all or selected markets with high customer satisfaction and better performance (Ionica, 2011).

  1.2. Background Information

The Oxford Handbook of Innovation explains the idea of innovation as the application of inventions that has significant impacts on an organization, industries and societies.  In order to equip them with distinct capability, SMEs have used different dimensions of innovation as the basis of their competitive strategies and tools. Based on the effect levels, innovation categories include.  (i) Incremental innovation, which involves the addition of a certain distinctive features on the existing products, processes or services without completely altering the existing features. (ii) Radical innovation involves a complete change of the existing products, services, processes or organization through developing a new solution either to problems or new needs. (iii) Revolutionary innovation is the highest level of innovation, which comprises breakthrough ideas. It is typically related to discovery (McKeown, 2008). These innovation types are interrelated to each other in such a way that incremental innovation stimulates radical innovation that in turn stimulates radical innovation that can then facilitate the appearance of revolutionary innovation (Andadari & Nugroho, 2014).

Moreover, from a broader perspective, innovation is not merely a new product, new process or new technological approaches but can be extended to consider the creation of new market opportunities and new ways of organizing business (Okpara, 2007, Szirmai, 2011).

Similarly, the OECD (2005) and Baregheh and Sambrook (2011) distinguished four types of innovation, these include:

• Product innovation: this is the introduction of a good or service that is new or characteristically much improved products properly fit with the proposed benefits of the customers.

• Process innovation: this is the installation of better techniques as new methods or procedures in order to deliver significantly improved services.

• Marketing innovation: this is the identification new market schemes that involve new product designing, packing, storing, advertising and new pricing strategy to properly market the products.

• Organizational innovation: this is the implementation of a new organizational method in the firm's business processes, workstation and outside relations (OECD, 2005).

Numerous  empirical studies in both developed and transition economy shows that previous competitive mechanisms such as low cost and price, quality, services, and flexibility are not sufficient to guarantee sustainable competitive performance in all markets of the current intense global competitive business environments (Liu, 2013; UNIDO & UNCTAD, 2011).  Currently, There is a continuous change in the business  environment  due to revolution in the inter-connectivity, rapid globalization and liberalization, and  speedily advancement of technologies (Lau, Baark & Sharif 2013; Raymond, St-Pierre, Uwizeyemungu & Le Dinh, 2014) and customers'  strong demand  for new product development (Bruch et al., 2014; Schrettle, Hinz, Scherrer-Rathje, & Friedli,  2014).  The time has come for new way of doing business, networking, and reliability, establishing an effective technology and developing capability in innovation especially on flexible manufacturing sectors (Hung & Lin, 2014; Lau et al., 2013; Liu, 2013; Raymond et al., 2014; Yam, Tang & Lau, 2011).  For long term sustainability in the global business SMEs needs new markets for new products. This can be achieved through innovation since it is a key driver of business achievements. The business successes obtained as the result of innovation include improved goods and services, strong market demand, achieved market expectations, and increased shareholders' wealth. Nowadays, developing dynamic manufacturing sectors enables the country to undertake effective innovation and creativities. Therefore, the study particularly focuses on Ethiopian manufacturing sectors since manufacturing is the main engine of economic growth and wealth creator for the country. It creates sustainable economy, encourage investments, create jobs and build a nation (Agrawi, Dewangan & Sharman, 2015).


Generally, innovation is a tool that helps entrepreneurs to capture and utilize opportunities for their businesses effectively and efficiently (Weber, 2011). Innovation is further distinguished on the basis of extent (i.e. incremental, radical or revolutionary) and the focus (i.e. product, process, marketing or organization) thereof.

1.3. Innovation Performance Measure

 Global Innovation Index (GII) is an assessment run every year for the last seven years to capture facts on innovation performance of different countries and analyse the trends how innovation has been undertaking globally. More importantly, it serves as tool for action for decision makers to improve innovation performances of a country (Cornell University, INSEAD & WIPO, 2014). According to 2014 Global innovation Index report, the innovation performance of Sub-Saharan African countries is low because of low creative outputs like intangible assets, creative goods and services and online creativity. Institutions such as political, business and regulatory environments are poorly functioning to support innovation. In term of human capital including general, tertiary education, research and development as prerequisite of innovation is poorly functioning implying that science, and technology capability is weak in Sub-Saharan countries (Oyelaran-Oyeyinka, 2014). The general infrastructure, Information communication technology and ecological infrastructure that support innovation is poor to support innovation in such countries.  Business sophistication such as knowledge workers, innovation linkages and Knowledge absorption is less to support innovation. Market sophistication that includes credit facility, investment and trade and competition is weak. Knowledge and technology outputs including knowledge creation, knowledge impact and knowledge diffusion is low.

 Similarly, current innovation performance of Ethiopia is even lower than Sub- Saharan countries due to insignificant gross expenditure on research and development, low loaning capacity to the private sector, fewer scientific publications, weak industry university linkage, little exports volume and poor information communication technology(infrastructure to support innovation) and weak capacity building in science and technology (Dutta, 2011). Due to Weak innovation performances of Sub-Saharan in general and Ethiopia in particular,  little is known about the innovativeness of small firms and its effect upon the performance of enterprises on this continent (Acquah, Robson & Haugh, 2012; Nichter & Goldmark, 2009).


Therefore, this empirical study is intended to fill the lack of knowledge on comprehensive innovation adoption framework and the nexus between innovation adoption and SMEs performance in developing countries particularly the employment growth in small and medium manufacturing enterprises found in Addis Ababa city administration.

1.4. Statement of the Problem

The promotion of SMEs as socio-economic transformation tool and catalyst for job generation has evolved and got emphasis in both developed and under-developed countries over time. Congruent to this notion, governments, donors, and businesspersons are applying different types of growth theories to promote entrepreneurship, enhance SMEs' growth and competitiveness in both domestic and global markets (Collins & Troilo, 2015). There have been three prominent theories to explain SMEs' growth and competitiveness since 1931. These includes:  firstly, the law of proportionate growth (Gibrat, 1931). This theory explained that the growth rate of a firm is independent of its size. In other words-- size does not affect the growth of firms. Conversely several scholars have critiqued this theory because of its impracticalities to current firm growth phenomenon. Numerous research findings proved that the size of a firm affects its growth. That is the smaller firms grow faster than the larger counterparts because of their easy flexibility and simple hierarchical structure (Daunfeldt & Elert, 2011). Secondly, Resource-based theory (Penrose, 1959) which explains SMEs with unique, valuable and non-imitative resources and/or distinctive capabilities can grow and survive. According to this theory, firms with better access to resources can grow and likely to be larger company. Thirdly, Theory of ‘noisy' selection Jovanovic's (1982), the notion of this theory was that firm with enough resource may not grow because there are firms which are inefficient to utilize their resource and unable to grow and survive. This theory criticized the resource-based growth theory in such way that owning abundant resources alone cannot guarantee better performances of a firm but the capability of management to handle these resources is desirable to bring adequate growth and competitiveness of a firm (Dumbu, 2014).  Thus, this theory focuses on competences and originated from managers' capabilities. Despite the two firms have enough resources; the one that has superior efficiency can grow to larger company than inefficient one. Theory also assumed that managers' capabilities were in born not acquired through time. As other above two theories criticized, this theory also criticized for managers' only in born capabilities since manager's capability is both inborn and acquired through time.  Finally, Storey (1994) developed a comprehensive framework from different factors associated with SMEs growth and competitiveness. These factors broadly classified to entrepreneur characteristics, firm strategy and firm resources. Later, the framework further refined by Hitt, Ireland, Sirmon and Trahms (2011) to include tools, techniques and concepts emanated from entrepreneurship and strategic management. Thus, this comprehensive framework consists of leaders' capabilities (knowledge, skills, information, experience and qualification), investment in research and development (R&D), innovation, networks, internationalization, organizational learning, performance of senior management teams and governance. Therefore, the latest growth framework consists of innovation adoption as essential contributors for sustainable SMEs' growth and development (Yanadori & Cui, 2013). Moreover, the foundation for SMEs to undertake different kinds of innovation adoptions is the accumulations of existing knowledge and talent as innovation capabilities (Forsman, 2011; Martín-de Castro, Delgado-Verde, Navas-López & Cruz-González, 2013).  These innovation capabilities enable SMEs to offer a better product, service, or to become acquainted with a new technology enabling them to adapt dynamic market environments, perform well and become a sustainedable operators (Brem & Voigt, 2009). This  consecutively leads them to  success or  movement from the informal to the formal economy; graduating from small and medium-sized enterprise to large-scale enterprises categories; or change from local market orientation to global market orientation (Tvedten, Hansen, and Jeppesen, 2014). Eventually, SMEs offer a range of outcomes such as new job creation in the industries, poverty reduction, wealth creation, fair income distribution and reduction in income disparities, economic liberalization and strongly competing in the global markets (Ayanda & Laraba, 2011). Therefore, knowledge accumulation leads SMEs to successful innovation adoption and this in turn leads them to better performances(Ahn,  Minshall and Mortara, 2015).   Thus, SMEs as being a critical catalyst of innovation needs to examine their innovation adoption performance to bring a long-term success in all market performances. For example, Rosil and Sidek (2013) argued that the fiery competition in the global market leads SMEs to carryout evaluation on their competitive position against their rivals through innovation.

Many scholars acknowledge that, there are a number of studies carried out on the factors affecting innovation in the developed countries(Oyelaran-Oyeyinka, 2014). Government, policymakers, donors and business organizations utilize these research findings to formulate their policies and strategies (Radas & Bozic, 2009). However, due to the socioeconomic structure and economic policies of the developing countries, the relevance of existing studies is questionable in a developing economy context. Obviously, the business environments, governance situation and educational level and type of entrepreneurs in developing countries are quite different. Thus, the principle one size does not fit for all holds true for this case (Oyelaran-Oyeyinka, 2014). Moreover, Murat Ar & Baki (2011) confirmed that there is limited research that examines the antecedents of innovation to formulate atypical model that helps to understand the relation between antecedents and  innovation adoption in a developing countries setup. In other words, there are very few empirical studies concerning innovation adoption model peculiar to SMEs found in developing countries (Lee, Yoon & Park, 2010).

Similarly, there is hardly any empirical evidence on the nexus between innovation adoption and SMEs job creation in African countries. The existing few studies in Africa mainly examined the determinants of innovative activities and the attributes of innovations in a fragmented manners (Robson, Haugh & Obeng, 2008, Oyelaran-Oyeyinka, 2006 and Van Dijk, 2002). The lack of empirical evidence is even more apparent when it comes to the effect of innovation activities on the SMEs performance. Thus, the level of innovation and SMEs' performance relation has not yet been empirically confirmed in Africa (Acquah, Robson & Haugh, 2012; Nichter & Goldmark, 2009). Furthermore, Rosli and Sidek (2013) confirmed that there has been  little attention paid to examine the impact of the different types of innovation adoption on the SMEs job creation in the developing countries situations. Fewer availability of study on nexus between SMEs' innovation adoption performances and job creation mainly due to most African countries undertook private/individual entrepreneurship lately. For example during 1980s there was dominantly state-capitalism in African countries--state-owned enterprises (Jolly, 2009; Ziaul Hoq and Che Ha, 2009). Thus, SMEs in most African countries are young inexperienced in both domestic and international markets.  As a result, SMEs in low income countries competitiveness through innovation adoption is a contemporary issue.

Ethiopia, one of the sub-Saharan African countries has a relatively short history in SME development that goes back to 1991 when the transformation from the planned to a market economy started. Because of this, there were few privately owned businesses in the country for a long time. The existing few SMEs are at the infancy stage and young. Innovations of all types have not sufficiently practiced for a long time. However, due to changes in the economic policy and strategy, which enhance privatization and globalization, Ethiopia currently has given due attention to micro, small and medium enterprise establishment and development over the last two decades. Current open market economy allows large companies to come to Ethiopia to invest tremendously in special areas that need high capital and skilled work forces, which is not covered by local business. Despite, Ethiopia is undertaking open market economic system and encouraging the establishment of small and medium enterprises, there is no significantly impact study to formulate a comprehensive peculiar model presenting the relationship between the different perspective of antecedents and innovation adoption in Ethiopian context (Hailemichael & Raju, 2015). Mulu (2009) studied the determinant of innovation only on informal enterprises (micro-enterprises). Similarly, Sileshi (2014) studied the barriers of innovation focusing on only the technological innovation in small and medium enterprises in Addis Ababa.

To conclude, there is a lack of peculiar innovation adoption framework that helps to understand the relation between the antecedents of innovation and innovation adoption in the developing countries context in comprehensible manner.  Though Ethiopia is showing a fast growing economy in the world, it is one of the ideal countries where the contribution of innovation for the growth of SMEs has not yet been explored. Furthermore, the typologies of interaction and the level of connection between innovation and SMEs job generation have not yet been examined in Ethiopia. Therefore, the study is intended to contribute in resolving such scientific and policy gaps by examining the antecedents of innovation to draw innovation adoption framework and the link between innovation and business performance particularly on the employment growth in Addis Ababa city administration.

  1.5. Objectives

    1.5.1. General Objective

The main objective of the study is to investigate the antecedents of innovation for SMEs. The antecedents will be used to develop and test a conceptual framework that will be an enabling tool to measure innovation adoption in SMEs that operate in Addis Ababa. Furthermore, the interplay between innovation adoption and SME relative competitive performance will be examined.

   1.5.2.   Specific Objectives

More specifically, the study aims:

• To investigate the antecedents of innovation adoption in small and medium enterprises,

• To develop and test innovation adoption framework for small and medium enterprises (SMEs),

• To measure the relationship between innovation adoption and relative competitive performance of SMEs in terms of job creation.

  1.7. Rationale of the Study

SMEs are one of the key driving forces of economic change in terms of employment, productivity and market structure change (Oke, Burke & Mayers, 2007). Ninety per cent of the total business in both developed and underdeveloped economies in the world is accounted for SMEs (Ogbo, 2012). Specifically, in industrialized world, most of the business constitute of SMEs (Oke et al, 2007). They have contributed to the economy through creating wealth, alleviation of poverty and generation of potential entrepreneurs. However, the survival rate, the promotion to a large company and even their horizontal growth are dependent on their ability to carry out innovation adoption to adapt dynamic market conditions. Innovation performances enhance the SMEs' competitiveness through upgrading product quality, improving the design and packing, integration in the global market, and maintaining the need and expectation of customers (Hana, 2013).

The rational for this research is, therefore, to formulate innovation adoption framework regarding the antecedents of innovation performance, and investigate the link between innovation and SMEs' performance in terms of employment. As mentioned above, SMEs is at an infancy stage and young since Ethiopia had a closed market system before 1991. Infant Ethiopian SMEs do not have sufficient and strong experience in innovation and have been unable to compete in the global market significantly. Therefore, this research will investigate the antecedents of innovation to draw innovation adoption framework in a comprehensive manner in the context of developing countries' beliefs, norms, values and behaviour of entrepreneurs. Moreover, the research intended to examine the nexus between small and medium enterprise growth in terms of job creation and innovation performance.

 1.8. Significance of the Study

From the theoretical and empirical perspective, this study will have two contributions to the horizon of academic knowledge. Primarily, unlike the prior studies which focused on the identification of innovation antecedents in developed economies, this study focuses on identifying the antecedents of innovation in the context of a developing and fast growing countries to  formulate innovation adoption framework that helps to understand the relationship between antecedents and  innovation adoption deeply. Secondly, the study is the first to show the impact or effects of innovation on SMEs' performance in terms of employment in the context of developing countries' beliefs, values, and norms and market behaviours, especially, in Ethiopia. It examines the impact or effect of different types of innovations on employment growth by SMEs in Ethiopia. That means the existing findings in the literature that focused on developed economy will be extended in the context of developing countries.

From pragmatic point of view, the findings of this study could be useful for policymakers, businesspersons and donors to identify the antecedents of innovation and the effects of innovation in job creation by SMEs in developing countries. This is particularly important in Ethiopia, where the country formulates and develops innovation policies aimed at enhancing sustainability and competitiveness of SMEs. Its major concern is to promote economic growth and sustainable development based on promoting the country from an unskilled labour-driven economy towards an innovation, knowledge and information driven economy.

Generally, from this study, a new innovation adoption framework will be formulated on the relationship between antecedents of innovation and innovation adoption. Additional knowledge will be generated on the nexus between innovation and firm growth in terms of job creation in the developing countries setup. These two new contributions will be properly identified, tested and documented. Moreover, the knowledge that will be gained from the study will be synthesized to provide answers to the key questions in relation to the antecedents of innovation and the effect of innovation on the firm growth in the developing countries.

  1.9.   Delimitation of the Study

As the name indicates, the delimitation of the study refers to the scope of research on which the study will focus. Along with this idea, the proposed study  is delimited to the context, constructs and theoretical perspective of employed by the study.  Firstly, it will be limited to the context of small and medium enterprises operating in Addis Ababa city administration. It will focus on Addis Ababa because there are ample SMEs operating on manufacturing in the city. Thus, there will not be any problem on data availability and gathering. Moreover, the government support SMEs especially operating manufacturing manifold because the government assumes that cultivating SMEs helps to generate large-scale companies in the country shortly.  More importantly, there is high unemployed labour force in Addis Ababa and thus, the study helps the government to take policy measures. However, the study will not be considering micro enterprises and large companies found in and outside Addis Ababa city Administration since some of the micro enterprises are not often registered. Therefore, it is challenging to target the population to take the representative sample. Similarly, the study will examine only the antecedents and the effects of innovation on SMEs performance in term of employments. Any other SMEs' performance measure, like profitability, market share, return on investment, and annual turnover as performance of SMEs will not be investigated in this study since it is difficult to get comprehensive financial records. Moreover, the study will assess antecedents of innovation in terms of beliefs, norms, behaviours, socio-economic status and political objectives of the country to determine the differences clearly from the developed nation.   


  1.10. Limitation of the Study

As there are limitations in other research works, this research is not free of any limitation. The sample comprising small and medium enterprises is taken from the Addis Ababa City. As a result, taking such a sample focusing on only one place could limit the generalization of the result to the other small and medium enterprise in different region.


1.11. Organization of the study

This study will consist of  five chapters.  Chapter one comprises of the introduction and background information concerning the current status of manufacturing SMEs in Addis Ababa  in particular and  other countries in general.  The chapter also briefly outlined the statement of the problem, objective, rational of the study, the significance of the study, delimitation of the study and limitation of the study.

The second chapter is dedicated to present and argue the pertinent theoretical framework that advises this study about entrepreneurship, innovation adoption historical development and the performance of manufacturing SMEs. The chapter will also properly discuss the relevant literature about entrepreneur demographic and psychological factor, environmental factor and firm level factors as antecedents of innovation adoption in manufacturing SMEs. Moreover, this chapter will consist of a hypothetical innovation adoption framework showing the relationship between the antecedents of innovation and innovation adoption (independent and dependent variable).   

Chapter three presents the research paradigm, methodology, and instrumentation used in the study. Moreover, the population of the study, sampling techniques, data analysis procedure and data reliability and ethical concern of the study will be outlined briefly.  


The data collected were presented, discussed and analyzed in Chapter Four. The discussion in the section was carried out bearing in mind research questions as well as cross-reference with information from the literature review chapter. Finally, chapter five presented conclusions, the summary of the research findings, the contribution made by the investigation, recommendations and areas for further study.

 1.12. Summary

The present chapter has examined the introduction, background information and the theoretical framework as the underlying basis to examine the antecedents of innovation and the link between innovation adoption and manufacturing SMEs performance in terms of job creation in Addis Ababa.  The statement of the problem, the objective and the rationale of the study were also discussed in detailed. Moreover, the significance of the study, the delimitation of the study and limitation of the study outlined and discussed in brief. The subsequent chapter will discuss the literature review fully.  

   1.13. Conclusion   

The role of SMEs has long been recognized as the veritable vehicles of economic growth and catalysts for socio-economic transformation of a county. SMEs importance also increases significantly through time. Since unemployment and poverty reduction are still critical problems for under-developed nation in general and Ethiopia in particular. Currently, Governments, donors and policy makers in both high-income and low-income countries promote SMEs for future industry establishments and developments. Especially, state-capitalism in African countries is transforming in to private/ individual enterprises because private enterprises enable self–employment, creativities and thus, reduce unemployment significantly. SMEs in order to achieve  their broad objectives such as increasing employment opportunities and poverty alleviation, among others, they need to be competitive both domestically and globally since currently the  competitive pressure as a result of globalization, liberalization and advancement of technology is getting very intense.

The old theories of firms' growth are evolving through time to be applicable   to the contemporary turbulent business environment. Consequently, the pervious firm competitive strategies and tools such as low cost and price are not sufficient to guarantee the firms to be competitive in the current local and international business environments.   Presently, having sufficient capabilities such as knowledge, skills, information, and talent as innovation adoption capabilities are mandatory. These innovation adoption / generation capabilities enable SMEs to undertake different type of innovation as per the requirements. This innovative performance greatly helps the SMEs to be competitive being a well performing business entity in the dynamics of business environments.

Through innovation, SMEs can develop a new produces, services, process for a new market.  Thus, identifying the antecedents of innovation in a comprehensive manner  and examining how those antecedents behave in developing countries setup helps to draw  innovation adoption framework that show the relationship between innovation antecedents and innovation adoption. Moreover, examining the relation between innovation adoption and SMEs performance in terms of job creation, especially for survival entrepreneurs in African countries are very relevant.  

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