ADOPTION OF TECHNOLOGICAL INNOVATION IN A DEVELOPINGCOUNTRY: AN EMPIRICAL ANALYSIS OF ENTERPRISES

IN LAO PEOPLE’S DEMOCRATIC REPUBLIC

MICHAEL LOUIS TROILO

Collins College of BusinessThe University of Tulsa

800 South Tucker Avenue, Tulsa, OK 74104mike-troilo@utulsa.edu

Received April 2014Revised August 2014

Published September 2014

This study investigates the adoption of technological innovation in a least-developed economy: LaoPeople’s Democratic Republic. World Bank Survey data encompassing nearly 380 enterprises from2009 and 2012 were used to analyze the effects of collaboration between smaller domestic firms andlarger firms, both foreign and domestic. Collaboration with larger firms is statistically significant foradopting new technologies and for adopting new processes, with the former significant for sales. Inaddition, foreign ownership is statistically significant for sales in one of the OLS estimates. Thissuggests small and medium enterprises (SMEs), particularly the latter at this point in Lao PDR, wouldbenefit from membership in global value/supply chains.

Keywords: Economic development, SMEs, Lao People’s Democratic Republic, technological inno-vation, resource-based view, absorptive capacity.

1. Introduction

Academic literature touts technological innovation as a pillar of enhanced firm perfor-mance (Wang et al., 2006; Dess et al., 1997). To stay competitive, firms of all sizes andacross sectors need to combine and reorder inputs in novel ways (Kogut and Zander, 1992;Schumpeter, 1934). The need to innovate is prevalent across nations as well. Advancedeconomies strive to maintain their standard of living at a minimum, while developingcountries seek to improve theirs.

Lao People’s Democratic Republic (hereafter Lao PDR) is an example of the latter.Classified by the World Bank as a lower-middle-income country, it has a per-capita grossnational income (GNI) of $1,260 (World Bank, 2013). Alhough it is small with a popu-lation of only 6.6 million (ibid), its government hopes that fostering entrepreneurship andthe SME sector will in turn fuel innovation and economic development (Tipton, 2009;Prime Minister’s Office (PMO) of Lao PDR, 2004).

Journal of Developmental EntrepreneurshipVol. 19, No. 3 (2014) 1450019 (15 pages)© World Scientific Publishing CompanyDOI: 10.1142/S1084946714500198

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For SMEs to innovate, they often need to seek larger partners to surmount their re-source constraints (Lu and Beamish, 2001), e.g. knowledge, capital and human resources.Among organizational constraints; the concept of absorptive capacity is crucial for firminnovation (Cohen and Levinthal, 1990). Absorptive capacity is the ability of organiza-tions to learn new processes and techniques.

Although innumerable papers have examined absorptive capacity, innovation and firmperformance, few have studied these issues in the context of Lao PDR. It is not just thiscountry per se, although the fact that Lao PDR is scarcely covered in business andmanagement journals is one contribution of this manuscript to the academic literature. Thebroader question/contribution is to consider the role of absorptive capacity, innovation andfirm performance in a nation that is both extremely small and extremely poor. Policy-makers around the world urge their SMEs to export or otherwise internationalize theiroperations, hoping a virtuous cycle of market expansion, collaboration with better-endowed firms and growth will take root. At what level of economic development cansuch a cycle reasonably be expected?

This paper aims to investigate these issues using a recent (2012) World Bank surveyof 379 firms in Lao PDR. There are several noteworthy findings. Firms that export are14 percent less likely to adopt new technologies, while firms that hold an internationalcertification of quality are 19 percent more likely to adopt new technologies. Firms thatpartner with larger firms are 13 percent more likely to adopt new technologies and 17percent more likely to adopt new processes. New technologies do correlate positively withsales; firms adopting new technologies generate nearly 100 percent more revenues than theaverage.

The organization of the paper is as follows. The next section contains a review of thepertinent literature and hypotheses for testing. A description of the data and empiricsfollows. The penultimate section presents the results and a discussion of the findings alongwith avenues of future research conclude the manuscript.

2. Literature Review: Innovation and Firm Performance in Lao PDR

Innovation can have a number of different meanings. Kogut and Zander (1992) defineinnovation as: “new learning that are the products of a firm’s combinative capabilities togenerate new applications from existing knowledge.” Kogut and Zander specify that“combinative capabilities” are “the intersection of the capability of the firm to exploit itsknowledge and the unexplored potential of the technology” (ibid). The idea of innovationrevolving around the recombination of firm inputs to meet market needs can be traced toSchumpeter (1934); this is the sense innovation conveys in this paper (Troilo, 2014)a.

Innovation can occur in a variety of ways and be of different types. This paper concernsproduct innovations defined as recombinations of firm knowledge that result in newproducts or services for the market. This distinguishes them from process innovations,

aThe initial paragraphs of the literature review leading to the propositions originate from prior work on firmcollaboration in China: see Troilo, M. (2014). Collaboration, product innovation and sales: An empirical analysisof Chinese firms. Journal of Technology Management in China, 9(1), 37–55.

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which are recombinations that result in new ways of delivering existing products to themarket (Troilo, 2014). A firm undertakes innovation with the expectation of higher profits,though this expectation may not be met. According to Leiponen and Helfat (2010), pos-sible objectives of product innovation “may include goals such as the development of acompletely new product or the improvement of an existing product.” Empirical studies(Wang et al., 2006; Therrien, 2003; Dess et al., 1997; Geroski et al., 1993) support thenotion that increased innovation enhances firm performance.

The ability of a firm to innovate revolves around its resources (Peteraf, 1993;Wernerfeldt, 1984), including the ability to learn from others (Al-Kwifi and Ahmed, 2013;Inkpen and Crossan, 1995; Jones and Macpherson, 2006). This ability to learn is com-monly termed “absorptive capacity” (Cohen and Levinthal, 1990) and suggests the valueof collaboration will be bounded by the firm’s comprehension of what the other party hasto teach. This knowledge-sharing, and the creativity surrounding it, is perhaps the mostimportant resource for innovation (Coleman et al., 2013; Wu et al., 2012; Afuah, 1998).Geringer (1991) suggests that a firm’s search for collaborators begins with an assessmentof competencies and complementarities. A good match produces operating synergies thatin turn produce greater profitability and market share (Luo, 1997, 2002). These synergiesmay be technological, marketing, or management-oriented; they will likely result inrecombinations of knowledge that are the foundation of innovation (Troilo, 2014).

Firms internationalize their operations through exports, trade, cross-border collabora-tions and joint ventures (Singh et al., 2010). The literature on internationalization of SMEsreports that alliances between MNEs and SMEs have as a primary driver the desire of theSME to overcome resource constraints (Liu et al., 2008; Lu and Beamish, 2001). Theseresource constraints include, but are not limited to, capital, personnel and technology, andare more severe for SMEs than for established firms (Singh et al., 2010; Beamish, 1999).Suffice to say, domestic collaborations can also help overcome these constraints, butMNEs, with their global reach, presumably have more resources than the vast majority ofdomestic firms (Troilo, 2014). MNEs often also possess greater quality of resources, e.g.frontier technology (Abereijo et al., 2012), and are the source of innovation throughspillover effects from foreign direct investment (FDI) (Washington and Chapman, 2014).This line of reasoning leads to the following propositions:

Proposition 1: Firms that partner with larger firms are more likely to adopt innovationsthan firms lacking such partnershipsProposition 2: Firms with some foreign ownership are more likely to adopt innovationsthan firms lacking such ownership.Proposition 3: Firms engaging in internationalization activities such as exportingor acquiring certifications are more likely to adopt innovations than firms not thusengaged.

It may reasonably be expected that the concepts expressed above are more or lessuniversal, but the context of Lao PDR may demonstrate how absorptive capacity, or itsabsence, will affect the efforts of firms to upgrade their skills. A small enterprise in

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Denmark may be equal with or superior to a medium enterprise several times its size inLao PDR with respect to absorptive capacity, depending upon the industrial sector. Asmentioned in the introduction, Lao PDR is both destitute and tiny. It may even be the casethat a small-enterprise in a middle-income country like China has an absorptive capacitygreater than that of a Laotian company twice its size in employees.

Naturally, much depends on the definitions of firm size, among other factors. The PMOof Lao PDR uses employment to categorize firms as “micro” if they have less than fivefull-time workers, “small” is between 5–19 employees, “medium” is between 20–99workers and “large” employs 100 or more people (PMO, 2004). The World Bank Mi-croenterprise Survey (2012) data for Lao PDR utilizes these same conventions. Beyond thefact of mere poverty, Lao PDR is single-party state that began its shift from a Marxistplanned economy in 1986; it has been described as a “State-Coordinated, Liberal MarketEconomy” (Andriesse, 2011; Ritchie, 2009).

Characteristic of a country at this stage of development, Lao PDR is dependent uponcommodities such as copper and lumber and low-skilled industries such as garments topower its economy (Andriesse, 2011). It is plagued by weak formal and informal insti-tutions, a common hindrance among countries at a low stage of development (Gupta et al.,2012; Murisa and Chikweche, 2013).

The two traits most common to successful SME owners in Lao PDR are possession ofhigh levels of education and technical skills and deft touch with customers (Southisengand Walsh, 2010). This is not surprising in a nation where only 37 percent of males andonly 23 percent of females over the age of 25 have finished high school (Andriesse, 2011;UNDP, 2010). Educational attainment would be an obvious advantage in problem-solvingand management, and the common touch would be crucial when so many are lacking ineducation. Trust and family networks are the most popular ways of conducting businessand sourcing capital (Tipton, 2009). Lao PDR celebrated its first initial public offering(IPO) in 2010 (Andriesse, 2011), giving a clear signal about the underdeveloped stage ofcapital markets.

In an advanced economy, the propositions outlined above might be expected to applyto all sizes of firms. Although the Lao PDR government is undertaking greater efforts tofacilitate technology transfer, foster innovation, and encourage high-tech entrepreneurship(Abe et al., 2012; Lee et al., 2011), these efforts take time to bear fruit, precisely becauseabsorptive capacity needs to be developed. For Lao PDR, only larger firms will evidencethe propensity to adopt innovations:

H1: Medium-sized firms are more likely to adopt innovations than small or micro-enterprises.

H2: Large firms are more likely to adopt innovations than medium, small, or micro-enterprises.

Of course, it is not innovation per se that is the goal but rather the performance of thefirm that is innovating; the innovation is the means to the end of higher performance.Empirical studies support the notion that greater innovation increases firm performance

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(Troilo, 2014; Wang et al., 2006; Therrien, 2003; Dess et al., 1997). Adopting innovationsshould improve firm sales, ceteris paribus:

H3: Firm innovations will have a positive effect on sales.

3. Data and Methods

The data consists of 379 firms the World Bank sampled and interviewed in Lao PDR inboth 2009 and 2012 (World Bank Enterprise Survey Lao PDR, 2012). The former consistsof most of the demographic, attitudinal and performance metrics, while the latter gatheredadditional information on labor and workforce skills. The World Bank used a stratifiedrandom sampling method of firms across the economy excluding agriculture to ensureunbiased representation across industrial sectors, size of firm and the like. A perusal of thedata revealed several outliers regarding 2009 sales figures. These anomalies were droppedfrom the dataset to yield 361 usable observations.

Table 1 provides some basic characterizations of the data. Nearly half of the firms aresmall enterprises, and the other 34 percent qualify as medium-sized companies. Almost 40percent hail from the region around Vientiane, the capital, with the remaining 60 percentbeing more or less evenly distributed across the other five geographic locations. Theleading industrial sectors are retail, education services and real estate services with ap-proximately 16 percent, 14 percent and ten percent of the distribution, respectively.

Table 2 defines the variables in the analysis. There are five dependent variables, one ofwhich is continuous and the others categorical in nature. Sales2009 is sales in millions ofLaotian kip and will proxy firm performance. The other four variables as defined askwhether a new technology, process, good, or service has been adopted in the past threeyears, and score a 1 if the answer is “yes” and 0 if the answer is “no.”

There are four explanatory variables of interest and all of them are categorical. Exportscores a 1 if the firm is exporting any amount of its goods or services; this exportingcan be done directly to another country or indirectly through another company. Export isone proxy for internationalization activities. The other is QualityCertificate, whichscores a 1 if the firm possesses an internationally recognized certification of quality likeISO 9000, and 0 otherwise. PartnerLargerFirm measures collaboration: if the firm is partof a larger entity the score is 1 and 0 otherwise. Because foreign cooperation can beparticularly important for technological innovation, there is a variable, ForeignOwner-ship, recording a 1 if any non-Laotian firm or person holds any portion of the respon-dent firm.

A host of controls rounds out the variables. At the firm level, there are separatemeasures for firm size, with Micro as the omitted category in the regressions. FirmAge is acontinuous variable capturing the age of the firm in years and TopManagerExperience isalso a continuous variable measuring the work experience of the chief director of the firmin years. Additional firm controls include whether the legal status of the firm is a soleproprietorship, whether at least one of the owners is female and whether the respondentfirm is satisfied that the higher education system and the Technical and Vocational

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Education and Training (TVET) is preparing the workforce. For industry controls, thereare categorical variables for each of the sectors found on Table 1, with Electricity as theomitted category. There is also a regional categorical variable for Vientiane.

Table 3 describes the statistics. On average, firms in the sample had 7.75 billion kip insales in 2009. In terms of innovation adoption, the mean ranges from 37 percent for newproducts and 45 percent for new processes. Nearly 20 percent of firms export and ten

Table 1. Distributions.

Number Percent (%)

a. Firm sizeMicro < 5 employees 20 5.54Small 5–19 employees 180 49.86Medium 20–99 employees 123 34.07Large 100þ employees 38 10.53

Total 361 100.00b. Geographic region

Vientiane 144 39.89Savannkhet 45 12.47Champasak 38 10.53Luang Prabang 46 12.74Luang Namtha 31 8.59Khammouane 57 15.79

Total 361 100.00c. Basic industry

Mining 14 3.88Food 13 3.60Textiles 3 0.83Garments 25 6.93Wood 13 3.60Paper 2 0.55RecordedMedia 1 0.28Chemicals 3 0.83Plastics 4 1.11MineralProducts 10 2.77BasicMetals 6 1.66TransportMachines 1 0.28Furniture 8 2.22Electricity 1 0.28Construction 13 3.60MotorVehicleSales 9 2.49Wholesale 16 4.43Retail 58 16.07Information Tech IT 1 0.28HotelRestaurant 32 8.86Storage 3 0.83FinancialServices 32 8.86RealEstate 38 10.53Education 50 13.85Other 5 1.39

Total 361 100.00

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percent hold international quality certifications. Almost 14 percent are partners with largerfirms and about ten percent have at least some degree of foreign ownership. Almost 90percent are sole proprietors, and the sample has a mean firm age of 12.31 years. The headsof these companies have nearly 15 years of work experience. The majority of therespondents are pleased with how both the higher education system and the TVET systemare preparing job candidates.

Since firm size is of interest in this study, a pre-estimation analysis of the percentagesof firms by key variable and firm size appears in Table 4. Not surprisingly, the percentagesclimb with firm size. In certain cases, the differences are dramatic: for example, only 22percent of medium-sized companies export compared with 58 percent of large firms. Threetimes as many large firms have some foreign ownership versus medium enterprises. Nearly55 percent of medium enterprises have adopted a new technology in the past three yearsversus only 32 percent of small enterprises.

Another pre-estimation check is to examine the variables for collinearity. Table 5presents the correlation matrix of the main variables for brevity, but the entire matrix ofvariables was checked. Collinearity does not appear to be a concern. The highest corre-lation is 0.612 between NewTechnology and NewProcess, but this is below the thresholdof 0.70 generally used as barometer for collinearity.

Table 2. Variable Definitions.

Variable Name Variable Definition

Dependent variablesSales 2009 Sales revenue for fiscal year 2009 in millions of Laotian kip.NewTechnology In the past three years, has this establishment introduced any new technologies

within this establishment?NewProcess In the past three years, has this establishment introduced any new processes within

this establishment?NewProducts In the past three years, has this establishment introduced any new products on the

market?NewServices In the past three years, has this establishment introduced any new services on the

market?Explanatory variablesExport Has this establishment exported any goods or services?QualityCertificate Does this establishment have an internationally recognized quality certification, e.g.

ISO 9000?PartnerLargerFirm Is the establishment part of a larger firm?ForeignOwnership Is any portion of this establishment owned by a foreigner?Micro The establishment has fewer than five employees.Small The establishment has at least 5 up to 19 employees.Medium The establishment has at least 20 up to 99 employees.Large The establishment has 100 or more employees.Sole The owner/manager of the establishment is a sole proprietor.FirmAge Age of the establishment in years.FemaleOwner Does the establishment have at least one female owner?TopManagerExperience Work experience of the top manager in years.TVET Does the TVET system meet the skills needs of employers?HigherEd Does the higher education system meet the skills needs of employers?

Note: Industry controls not listed for brevity.

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The estimation methodologies are straightforward. The first part of the analysis esti-mates the likelihood that a firm adopted a particular innovation. Because the probability ofan outcome is to be estimated, a logistic regression is an appropriate methodology(Woolridge, 2002). The regression equation is the following:

PrðinnovationÞ ¼ αðExportÞ þ βðQualityCertificateÞþ γðPartnerLargerFirmÞ þ θðForeignOwnershipÞþ δ

X9

1ðFirmControlsÞ þ �

X24

1ðIndustryControlsÞ

þ Vientianeþ Constant þ �, ð1Þ

Table 3. Descriptive Statistics.

Variable Name Observations Mean Std. Dev. Min Max

Dependent variablesSales2009 361 7,751.18 30,876.33 7.20 375,000.00NewTechnology 361 0.418 0.494 0.000 1.000NewProcess 361 0.449 0.498 0.000 1.000NewProducts 361 0.373 0.485 0.000 1.000NewServices 361 0.407 0.492 0.000 1.000Explanatory variablesExport 361 0.197 0.398 0.000 1.000QualityCertificate 361 0.100 0.300 0.000 1.000PartnerLargerFirm 361 0.139 0.346 0.000 1.000ForeignOwnership 361 0.094 0.292 0.000 1.000Control variablesMicro 361 0.055 0.229 0.000 1.000Small 361 0.498 0.501 0.000 1.000Medium 361 0.341 0.475 0.000 1.000Large 361 0.105 0.307 0.000 1.000Sole 361 0.881 0.324 0.000 1.000FirmAge 361 12.319 8.279 1.000 75.000FemaleOwner 361 0.463 0.499 0.000 1.000TopManagerExperience 361 14.770 9.843 0.000 1.000TVET 361 0.562 0.497 0.000 1.000HigherEd 361 0.582 0.494 0.000 1.000

Note: Industry control variables omitted for brevity.

Table 4. Percentages by Firm Size for Key Variables.

Micro (%) Small (%) Medium (%) Large (%)

NewTechnology 20.00 32.22 54.47 57.89NewProcess 10.00 38.89 52.50 71.05NewProducts 30.00 32.22 41.46 52.63New Services 25.00 36.11 48.78 44.74Export 5.00 11.67 21.95 57.89QualityCertificate 0.00 5.56 13.82 23.68PartnerLargerFirm 5.00 7.22 18.70 34.21ForeignOwnership 0.00 3.33 11.38 36.84

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where the categorical variables NewTechnology, NewProcess, NewProducts, andNewServices alternate as the dependent variable in the equation. The firm controls arethose previously described, e.g. Small, Medium, Large. Micro and Electricity are theomitted categories in FirmControls and IndustryControls, respectively.

The second part of the analysis is the estimation of sales. Because the relationshipbetween this continuous variable and the independent variables appears to be linear, andbecause other conditions are met, e.g. homoscedasticity and normality of distribution ofthe error term, ordinary least squares (OLS) regression is an appropriate methodology(Woolridge, 2002). The equation is similar to (1):

Sales2009 ¼ tðinnovationÞ þ αðExportÞ þ βðQualityCertificateÞþ γðPartnerLargerFirmÞ þ θðForeignOwnershipÞ

þ δX9

1ðFirmControlsÞ þ �

X24

1ðIndustryControlsÞ

þ Vientianeþ Constant þ �, ð2Þ

where NewTechnology, NewProcess, NewProducts, and NewServices alternate as anindependent variable in four separate predictions of Sales2009.

4. Results

Table 6 displays the results of the logistic regressions of innovation adoption. For New-Technology, Export is negative and significant at ten percent, while QualityCertificate ispositive and significant at five percent and PartnerLargerFirm is positive and significant atten percent. For NewProcess, PartnerLargerFirm is positive and significant at five percent.None of the four explanatory variables are significant for either NewProducts or New-Services. For firm size, the variables Medium and Large are positive and significant for allspecifications except for Medium and NewTechnology.

The next step is to calculate the marginal effects of the key explanatory variables thatare statistically significant. The marginal effect is the partial derivative of the dependentvariable with respect to the independent variable, holding all other variables constant at

Table 5. Correlation Matrix of Primary Variables.

1 2 3 4 5 6 7 8 9

1. Sales2009 1 1.0002. NewTechnology 2 0.147 1.0003. NewProcess 3 0.133 0.612 1.0004. NewProducts 4 0.121 0.401 0.385 1.0005. NewServices 5 0.086 0.463 0.511 0.525 1.0006. Export 6 0.080 �0.024 0.002 0.079 �0.013 1.0007. QualityCertificate 7 0.194 0.168 0.109 0.125 0.063 0.138 1.0008. PartnerLargerFirm 8 0.121 0.164 0.186 0.104 0.157 0.044 0.161 1.0009. ForeignOwnership 9 0.256 0.073 0.090 0.252 0.061 0.103 0.178 0.255 1.000

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their mean values. For a categorical independent variable in a logistics regression, themarginal effect is the change in probability of the dependent variable occurring when theindependent variable changes from 0 to 1. Calculating marginal effects for New-Technology reveals that Export is associated with a 14 percent decrease in the likelihoodthat exporting firms will adopt a new technology. On the other hand, firms that hold aninternational quality certification are nearly 19 percent more likely to adopt a new tech-nology, and firms partnering with larger companies are 13 percent more likely to adopt anew technology.

Repeating this analysis for NewProcess finds that firms partnering with largerenterprises are 17 percent more likely to adopt a new process than firms without such

Table 6. Logistic Regressions of Various Innovations.

(1) (2) (3) (4)

NewTechnology NewProcess NewProducts NewServicesExport �0.708* �0.525 �0.360 �0.060

(0.401) (0.388) (0.379) (0.382)QualityCertificate 0.936** 0.502 0.531 0.193

(0.443) (0.433) (0.430) (0.424)PartnerLargerFirm 0.659* 0.836** 0.635 0.603

(0.378) (0.389) (0.390) (0.371)ForeignOwnership 0.250 0.116 �0.330 0.281

(0.512) (0.518) (0.549) (0.504)Small 0.132 1.215 0.860 0.580

(0.670) (0.828) (0.584) (0.609)Medium 1.029 1.637* 1.270** 1.139*

(0.709) (0.858) (0.643) (0.656)Large 1.844** 3.048*** 2.275*** 1.929**

(0.865) (1.010) (0.799) (0.836)Sole 0.754 0.026 0.768 0.488

(0.459) (0.441) (0.505) (0.430)FirmAge �0.019 �0.049*** �0.018 �0.029*

(0.017) (0.019) (0.019) (0.017)FemaleOwner �0.232 �0.338 �0.063 �0.433

(0.276) (0.272) (0.280) (0.271)TopManagerWorkExperience �0.019 0.012 0.008 �0.002

(0.015) (0.016) (0.016) (0.015)TVET �0.212 �0.393 �0.390 �0.338

(0.330) (0.327) (0.345) (0.335)HigherEd �0.346 0.150 �0.041 0.082

(0.334) (0.333) (0.343) (0.338)Vientiane 0.111 0.170 �0.163 0.181

(0.297) (0.295) (0.302) (0.280)Constant �0.491 �0.883 �2.368** �0.853

(1.018) (1.113) (1.016) (0.951)Observations 351 358 351 353Likelihood ratio Chi-square 65.320*** 67.550*** 55.650*** 49.680***Pseudo R-square 0.138 0.137 0.122 0.105

Standard errors in parentheses*significant at 10%; **significant at 5%; ***significant at 1%Industry controls are not shown for brevity.

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partners. Although the firm size variables are control variables, it is instructive toobserve the differences. Large firms are nearly 37 percent more likely than micro-enterprises (the comparison category) to adopt new technologies, 62 percent more likelyto adopt new processes, 44 percent more likely to adopt new products and 40 percent

Table 7. OLS Regressions of Sales.

(1) (2) (3) (4)Sales2009 Sales2009 Sales2009 Sales2009

NewTechnology 7,718.745**(3,274.374)

NewProcess 5,095.438(3,217.144)

NewProducts 4,158.567(3,334.275)

NewServices 4,665.091(3,215.535)

Export �2,751.432 �3,337.513 �3,564.403 �3,755.947(4,670.892) (4,680.559) (4,681.850) (4,672.825)

QualityCertificate 6,858.907 7,796.242 7,807.925 8,110.754(5,335.574) (5,334.611) (5,347.832) (5,329.747)

PartnerLargerFirm 664.677 881.965 1,232.271 1,113.181(4,700.130) (4,730.532) (4,723.955) (4,722.282)

ForeignOwnership 9,784.314 10,056.743 10,456.904* 9,878.289(6,265.387) (6,293.059) (6,306.568) (6,299.596)

Small 2,961.940 2,301.874 2,247.019 2,508.972(7,389.488) (7,440.267) (7,464.956) (7,439.059)

Medium 1,344.030 1,677.253 1,773.102 1,782.814(8,055.950) (8,104.132) (8,130.415) (8,109.111)

Large 32,350.185*** 32,480.571*** 33,115.971*** 33,387.151***(9,910.654) (10,025.158) (10,029.276) (9,964.183)

Sole 3,751.347 4,795.939 4,349.398 4,360.672(5,320.190) (5,325.501) (5,346.967) (5,338.420)

FirmAge 64.333 84.985 51.140 64.950(210.351) (213.147) (211.620) (212.005)

FemaleOwner 4,963.602 5,010.351 4,666.387 5,042.510(3,368.486) (3,389.778) (3,386.393) (3,395.282)

TopManager WorkExperience 83.032 43.934 50.957 54.709(183.731) (184.409) (184.564) (184.360)

TVET 1,375.910 1,474.592 1,336.594 1,303.593(4,067.086) (4,093.369) (4,097.168) (4,090.523)

HigherEd �626.253 �1,379.925 �1,169.578 �1,232.182(4,093.885) (4,106.734) (4,111.613) (4,107.985)

Vientiane �1,421.573 �1,440.813 �1,176.286 �1,478.761(3,631.798) (3,649.568) (3,655.056) (3,652.867)

Constant �9,073.660 �7,951.796 �5,917.760 �7,314.122(12,176.905) (12,227.971) (12,176.413) (12,205.592)

Observations 361 361 361 361Adjusted R-squared 0.21 0.20 0.20 0.20

Standard errors in parentheses*significant at 10%; **significant at 5%; ***significant at 1%Industry controls are not shown for brevity. Amounts are in millions of Laotian kip.

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more likely to adopt new services. Medium-sized companies are 33 percent morelikely to adopt new processes, 25 percent more likely to adopt new products and24 percent more likely to adopt new services. These findings generally support bothH1 and H2.

Table 7 shows the results of the OLS regressions. There are only two findings ofsignificance. NewTechnology is positive and significant at five percent for Sales2009, andin the third regression ForeignOwnership is positive and significant at ten percent forSales2009. Unlike in the logistic regression, where the marginal effects are distinct fromthe values of the coefficients, the values of the coefficients in an OLS estimation also canbe interpreted as the marginal effect of that variable. Adopting new technology is asso-ciated with an increase of nearly 7.8 billion Laotian kip in 2009 sales versus not adoptingnew technology. To put this amount in perspective, recall from Table 3 that the meanvalue of sales is also nearly 7.8 billion, so the marginal effect is a nearly 100 percentincrease. The marginal effect of ForeignOwnership is 10.45 billion kip, or nearly a 135percent increase, but the caveat is that this variable is significant at only ten percent in onlyone specification. The influence of foreign ownership on sales cannot be said to be robust.H3 is at best weakly supported, because the adoption of only one innovation (New-Technology) correlated positively and significantly with firm performance (Sales2009).Perhaps not surprising, being a large firm is statistically significant at one percent across allfour specifications.

5. Discussion and Conclusion

The purpose of this paper is to investigate firm adoption of technological innovation in LaoPDR, and also to determine what impact, if any, such innovations have on firm perfor-mance, specifically current revenues. Beyond gathering stylized facts about a country thatis scarcely covered in management literature, another contribution is to start the conver-sation about the relationship between the absorptive capacity of firms and the national levelof economic development when that level is exceedingly low. As has been mentioned, LaoPDR is both tiny in terms of its population and its income level; its market doesn’t make aripple in the global economy. To what extent can collaboration with better-endowed firmsand internationalization of operations lead to the adoption of technological innovations,thereby kick-starting a virtuous cycle of firm growth and national development in a contextlike Lao PDR?

There are several key findings around this question. Firms that obtain internationalquality certifications are more likely to adopt new technologies, as are firms that partnerwith larger enterprises. The adoption of new technologies in turn correlates with higherfirm revenues, to the tune of nearly 100 percent above the average sales figure. Crucially,the question asked about new technologies does not specify which technology wasadopted, and more nuanced questions about processes, products and services were notfound to be statistically significant with regard to revenues. A limitation of this study, andan avenue for future work, is to identify what innovations are of particular value to thefirms in Lao PDR and similar contexts.

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A peculiar finding is the negative relationship between exporting behavior and thelikelihood of adopting a new technology. Lee et al. (2011) specifically advise the Lao PDRgovernment to craft an export-oriented strategy for deepening the national innovativecapacity, yet this finding contradicts such advice. It may be again that a more honedquestion about the type of technology adopted would resolve this issue, or a more nuancedempirical analysis, e.g. by industrial sector, might answer it. Because internationalizationactivities like exporting do often lead to greater innovation, it hardly seems reasonable toput too much stock in this anomalous finding.

Collaboration with larger firms is statistically significant for adopting new technologiesand for adopting new processes, with the former significant for sales. In addition, foreignownership is statistically significant for sales in one of the OLS estimates. This suggeststhat SMEs, particularly the latter at this point in Lao PDR, would benefit from membershipin global value/supply chains, which should also be a policy priority (c.f. Abe et al.,2012).

Firm size matters.b Some of the recommendations found in the cited literature (Ritchie,2009; Southiseng and Walsh, 2010; Abe et al., 2012) then need to be enhanced for nascententerprises to survive and grow into large ones. These include actions the Lao PDR isalready undertaking, such as skills education, entrepreneurship training, communication ofregulations, as well as new efforts, e.g. better access to financing (Southiseng and Walsh,2010; Abe et al., 2012) and the construction of industrial parks (Lee et al., 2011; Abeet al., 2012). Obviously, some of these policy prescriptions are more expensive in bothtime and myriad resources than others. It is up to the Lao PDR government to prioritizeaccording to their constraints.

Academically, this paper expands most nearly upon the work of Southiseng andWalsh (2010). The latter offer some specific policy suggestions based upon qualitativefieldwork (52 interviews) culminating in several case studies of entrepreneurs in Vien-tiane, Savannakhet and Luang Prabang. The control variables for higher education andTVET are inspired by their findings of relevant entrepreneurial skills. This paper addsfindings based upon empirical analysis of over 350 firms across Lao PDR. The resultsshould be generalizable for this context if not similar ones. Additionally, the resultsaugment the work of Washington and Chapman (2014), who find entrepreneurial activityto be a spillover effect of FDI by MNEs. Here MNEs are the catalyst for technologyadoption and enhanced sales more directly through collaboration than as a peripheralevent.

In conclusion, this paper is just a start in understanding a small but complex economy:Lao PDR. Not only does this country require further study, the wider notion of absorptivecapacity in the least-developed nations deserves further attention. It is hoped that this workwill stimulate the curiosity of other scholars to pursue these topics.

bIt is important to note that large firms in Lao PDR are not like their counterparts in more developed economies interms of branding, advertisements and marketing prowess. There are no Laotian large firms that have global brandnames, nor are there outstanding examples of Laotian large firms in the dataset. What they have in common isresources including headcount. I thank an anonymous reviewer for highlighting this issue.

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