*2.1. SMEs and Innovations*

In the 1930s, J. Schumpeter defined innovation as the introduction of new or qualitative change in existing products, processes, markets, sources of supply of inputs, and organizations. Innovation encompasses a creative activity, the element of novelty, as well as the disruptive change and is often described as a complex, multi-actor process, determined by numerous factors (Assink 2006; Boer and During 2001).

In economic literature, various classifications of innovation have been applied. However, the most common approach is based on the OECD methodology and distinguishes between product, process, organization, and market innovation (Oslo 2018).

Product innovation is defined as any goods, service, or idea that is perceived by its users as new. Process innovation includes the adaptation of existing production lines and the installation of entirely new infrastructure and the implementation of new technologies. Any changes in marketing, purchases and sales, administration, management, and staff policy are classified as organization innovation. In addition, market innovation encompasses the exploitation of new territorial markets or the penetration of new market segments in the existing markets. This approach is widely applied e.g., in the studies by: (Baregheh et al. 2012; Boer and During 2001; Tavassoli and Karlsson 2015 or Varis and Littunen 2010).

J. Schumpeter discussed the importance of SMEs in the context of the innovation process in one of his pioneer works (Schumpeter Mark 1 presented in Schumpeter 1934). He insisted that new, small, entrepreneurial firms are likely to be the source of most innovations, searching creatively for the new market opportunities. However, later, he focused on capital market imperfections and claimed that large, mature firms have better access to finance and extensive resources required for R&D projects. Thus, he proposed subsequently that small firms tend rather to imitate than to innovate themselves due to high costs of R&D activity (Schumpeter Mark 2 presented in Schumpeter 1942). Both hypotheses

formulated by Schumpeter were tested in numerous studies, for various sectors and economies with contradictory results (Freel 2007; Santarelli and Sterlacchini 1990; Van Dijk et al. 1997; Vaona and Pianta 2008). Recent studies, however, point out that small firms are quite heterogeneous, ranging from highly innovative firms to traditional ones for which the innovation process is irrelevant. As a consequence, the main determinants of innovation in SMEs are proposed to be: sector belonging, the particular nature of innovation and the characteristics of the firm itself, such as size and age (Avermaete et al. 2003; Bhattacharya and Bloch 2004; Ortega-Argilés et al. 2009). Another stream of studies examined the effects of innovation on firm performance (Anwar 2018; Kijkasiwat and Phuensane 2020; Wolff and Pett 2006). Most of the works focus on innovative activity in particular countries (e.g., Hall et al. 2009; Lecerf and Omrani 2019 in Germany; Oke et al. 2007 in the UK; Varis and Littunen 2010 in Finland). However, in this stream of literature, the cross-country studies are relatively rare. Skuras et al. (2008) analyzed product innovation in SMEs from six European countries, while Anwar (2018) identified four clusters of European countries based on the level of intensity of innovative activity. Facing this gap, this study remains focused on the cross-country analysis, by referring to four types of innovation: product, process, management, and sales (organization). In this context, the study aims at answering the first research question:

**RQ1:** Are there any contingencies between the types of innovations undertaken by SMEs in the cross-country dimension?
