Faculty of Business Economics Master of Management Masterthesis Open innovation in small and medium-sized enterprises: the application and its impacts on firm performance in Vietnam Thuy Linh Nguyen Thesis presented in fulfillment of the requirements for the degree of Master of Management, specialization International Marketing Strategy SUPERVISOR : CO-SUPERVISOR : Prof. Wim VANHAVERBEKE De heer Muhammad USMAN 2016 2017 Faculty of Business Economics Master of Management Masterthesis Open innovation in small and medium-sized enterprises: the application and its impacts on firm performance in Vietnam Thuy Linh Nguyen Thesis presented in fulfillment of the requirements for the degree of Master of Management, specialization International Marketing Strategy SUPERVISOR : CO-SUPERVISOR : Prof. Wim VANHAVERBEKE De heer Muhammad USMAN ACKNOWLEDGEMENTS This thesis is the final step in my education path towards Master Degree at Hasselt University. Thus, I wish to acknowledge and express my deepest gratitude to many people, who had helped me reach this far.
First of all, I am grateful for Prof. Nadine Rojjakers, who was, originally, my thesis promoter. She was the one who guided and inspired me in the Open Innovation field – a very new definition for a student from a developing country like me. I would like to thank Prof.
Wim Vanhaverbeke for his supports, attentive reminds in the final miles of the thesis progress and his assignment me to Mr. Muhammad Usman for help and supports. My great gratitude goes to Mr. Usman for his trust and encouragements in the very last days of the work, his advice and instructions did enlighten my knowledge in a great extent.
A deep gratitude goes to the CEOs of STEP UP English Center, COMICOLA, and Ha Beauty for spending time with me through the video calls and allow me to refer their business in my work. The deepest gratitude goes to my parents, my sister’s family and my boyfriend at home, in Vietnam, who always support and encourage me through all troubles and difficulties in life. Without their supports and love, I would never be able to go this far. Finally, I would like to thank all my friends living here, in Diepenbeek, who have supported me for such a long journey and been with me through all ups and downs.
Thuy Linh, Nguyen August, 2017 i CONTENTS ACKNOWLEDGEMENTS. i TABLE OF TABLES. iv TABLE OF FIGURES. 2 CHAPTER 2: LITERATURE REVIEW.
What is Open Innovation?. Open Innovation implementation in SMEs. Why should SMEs implement OI?. What challenges SMEs face in implementing OI?.
Entrepreneurship in Vietnam. SMEs Development in Vietnam. Business environment and Government supports for SMEs in Vietnam. Innovation in SMEs in Vietnam.
21 CHAPTER 4: CASE STUDY FINDINGS. STEP UP English Centre. Innovation at STEP UP. Open Innovation Practices at STEP UP.
OI impacts on STEP UP performance. Innovations at COMICOLA. Open Innovation Practices at COMICOLA. OI impacts on COMICOLA performance.
Innovations of Ha Beauty. Open Innovation Practices at Ha Beauty. OI impacts on Ha Beauty performance. Cross-case analysis.
46 CHAPTER 5: DISCUSSION AND CONCLUSION. Limitations and Recommendations for Future Research. Transcript of the interview. STEP UP English Centre:.
Second interview with COMICOLA – on Crowd-funding practices. 71 iii TABLE OF TABLES Table 1 Classification of open innovation barriers. 8 Table 2 Vietnamese definition of SMEs. 12 Table 3 STEP UP Overview on OI Practices and impacts on firm performance.
29 Table 4 COMICOLA Overview on OI Practices and impacts on firm performance. 40 Table 5 Ha Beauty Overview on OI Practices and impacts on firm performance. 46 Table 6 Cross-case analysis on OI implementation. 47 Table 7 Cross-case analysis on OI impacts on firms in terms of challenges.
48 Table 8 Cross-case analysis on OI impacts on firms in terms of benefits. 49 iv TABLE OF FIGURES Figure 1 Most important constraints to growth perceived by Vietnamese SMEs in 2015. 13 Figure 2 Sources of finance for new investments of Vietnamese SMEs in 2013-15. 14 Figure 3 Investment purposes of Vietnamese SMEs 2013-15 (percent).
15 Figure 4 Innovation's contribution to revenue (Phong Nha 2013). 17 Figure 5 Display of a video covering a song by STEP UP. 24 Figure 6 ‘Magic Flash Cards’ production chart. 25 Figure 7 STEP UP’s video production chart.
26 Figure 8 Business Model of COMICOLA. 31 Figure 9 Display of community fund-raising projects at COMICOLA. 34 Figure 10 Levels of supports for the ‘Long Than Tuong’ book, volume 4. 35 Figure 11 Long Than Tuong production chart.
36 Figure 12 ‘Hoa Van Dai Viet’ vector collection access on COMICOLA platform. 37 Figure 13 ‘Hoa Van Dai Viet’ vector collection production chart. 38 Figure 14 Business model of Ha Beauty. 43 v ABSTRACT Despite the extensive discussion on various aspects of open innovation (OI) in small and medium-sized enterprises (SMEs), most cases and studies were extracted from developed countries where economies, entrepreneurship and policies are advanced.
OI in SMEs in developing nations where specific differences exist does not seem to get adequate attention. Thus, this research aims to explore the impacts that OI implementation establish on firm performance in SMEs in Vietnam – a developing country in ASEAN that holds unique economic features. First, a general literature review of OI implementation in SMEs and the policy as well as entrepreneurship in Vietnam is described. Next, three cases of different enterprises employing OI strategy are discussed and analysed accordingly.
Finally, the findings show that (1) outbound OI are largely employed by SMEs in Vietnam; (2) the challenges in partner selection exist in OI application for firms; (3) the OI term is little known by entrepreneur in Vietnam; (4) Government roles are limited towards SMEs in OI. This research explored an aspect of OI application in micro and small-sized firms in Vietnam and the impacts of OI on the firm performance. 1 CHAPTER 1: INTRODUCTION Small and medium-sized enterprises (SMEs) takes ups around ninety seven percent of total enterprises in Vietnam (Can, 2017), thus, their roles in national economy is of great importance. The development of SMEs, however, has great potential lying in the Open Innovation strategy (Lee, et al.
According to the Global Innovation Index 2017, Vietnam takes the 47 th position out of 127 countries, which is 12 places higher than that of 2016; and the highest ranking in the last 10 years. That means, the evolvement of Vietnamese economy has a lot of tendency towards innovation-driven economy. To develop and evolve in such business environment, SMEs need to make several efforts since their resource capacity is weak and lacking. In this regard, this research aims to explore how SMEs adopted OI in Vietnam and whether the OI application impact on them positively or negatively.
Based on that target, the following research questions will be focused to analyse: • What are the innovations of the SMEs? • How Open Innovation is performed in the SMEs? • What impacts (in terms of benefits and challenges) do OI implementation put on firm performance? In the next chapter (chapter 2), a literature review on Open Innovation terms, the benefits and challenges on SMEs performances proposed by scholar will be illustrated, along with that, Vietnamese context on SMEs, innovation situation and business environment will be elaborated. Chapter 3 will deliver the methodology that the thesis employed. Chapter 4 will in-depth analyse the three cases of companies in Vietnam. Finally, chapter 5 will conclude, suggest some managerial implications, limitations and future research recommendations.
2 3 CHAPTER 2: LITERATURE REVIEW 2. What is Open Innovation? Since Chesbrough first introduced his book “Open Innovation” in 2003, hundreds of academic articles and several industry conferences have discussed different aspects of the topic (Chesbrough, 2015). The definition of the term, thus, has been developed and further clarified over time. In 2006, “open innovation” was defined as “the purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively” (Chesbrough, et al.
Until 2014, Chesbrough and Bogers concluded that OI should be a process that “involves purposively managed knowledge flows across the organizational boundary” (Chesbrough & Bogers, 2014). From both cases, it means when the flow goes beyond firm boundary, knowledge can make its way to develop and create value in the existing as well as the new market. Based on the original conception of OI, the knowledge flow is classified into two main directions: “In-bound” (outside-in) and “Outbound” (inside-out) (Chesbrough, 2003), plus an extension version called ‘coupled’ process which combines the two main types (Gassmann & Enkel, 2004). The most important activities in the flow involve external innovations search, relevant innovations selection and acquisition, innovations integration into the firm R&D and distributing to market (West & Bogers, 2014).
With the out-bound OI strategy, firms can perform several contractual practices, e., out-licensing agreements, spin-offs, or technology sales. Via those, firms try to develop their technological knowledge from the 4 outsiders and earn further revenues (Lichtenthaler & Ernst, 2007). Coupled OI refers to the firm’s jointly R&D work cooperated with different types of partners under several forms of partnerships. The commercial success relies largely on the mutual achievements of firms (Gassmann & Enkel, 2004).
Later, the purpose of coupled OI was clarified as managing mutual knowledge flow to go beyond boundaries of organizations. The mechanisms in coupled OI can be listed as: strategic alliances, joint ventures, consortia, networks, ecosystems and innovation platforms (Chesbrough, et al. Chesbrough argues in his book that the traditionally closed innovation is not the strategic asset as it was before (Chesbrough, 2003), and OI has become a popular business strategy in various industries (Dahlander & Gann, 2010) (Gassmann, et al. Thus, these factors may drive firms to implement the OI practice.
However, the collaboration in OI also involves a number of challenges in terms of organizational and managerial issues for firms (Chatenier, et al., 2009) (Naqshbandi, et al. For the purpose of this analysis, the next part exploits the literature on the implementation of OI in SMEs in terms of enablers, ba rriers and ways SMEs deal with OI. Open Innovation implementation in SMEs The number of studies discussing OI in SMEs is relatively low (Ahn, et al., 2013) (Brunswicker & van de Vrande, 2014) (Parida, et al., 2012), most research works focused on large firms (van de Vrande, et al., 2009) (Bianchi, et al., 2010), however, there are researches that have illustrated motives and challenges to OI adoption in the small and medium-sized enterprises. Why should SMEs implement OI? In terms of benefits, open innovation holds great potential for SMEs (Lee, et al.
It is also argued that SMEs are more effective than large firms since they can perform several OI practices parallel (Spithoven, et al. This benefit of SMEs happens to be extremely competitive in comparing to large firms. According to Chesbrough (2010), “SMEs have structural edges in open innovation world”. The small size of SMEs allows them to exploit 5 smaller markets and access to new trends sooner with the relatively low entry costs.
The focus as well as business specialization can also be adjusted to suit the needs of “particular market, customer type, expertise or technology” to “generate a sustainable competitive advantage in industries”. Besides, fast decision making, rapid implementation, quick reaction and fast learning with the input from customers and challenges are considered as the potential competitive advantage of SMEs in the OI application process as well (Chesbrough, 2010). Thus, the structure of SMEs themselves serves a great deal of benefits in regards to adopting OI. In terms of searching strategy, according to Theyel (2013), the selection of practices and partners plays a heavy role in the effective implementation of OI (Theyel, 2013).
The process of locating the suitable searching strategy is of great importance because searching strategy involves “acquisition” and “exploitation”. Those two steps mean the activity of absorbing external technologies and commercializing them (Hossain, 2016).