FEATURE ARTICLE 93

ICT, Innovation and

Firm Performance: The
Transition Economies
Context
By
Shqipe Grguri-Rashiti
Veland Ramadani
Hyrije Abazi-Alili
Lo-Paul Dana
Vanessa Ratten

The aim of this article is to investigate the impact of information communication technologies (ICT)
and innovation activities on firm performance using the Business Environment Enterprise Performance
Survey (BEEPS) firm-level data in the three rounds: 2002, 2005, and 2008. The novelty of this research
is based on the idea of studying the usage of ICT and innovation activities on firm performance by
using dynamic approach so that we can estimate the adjustments that arise from the impact of ICT
and innovation activities. The rapid technological development and the growing use of information
technology (IT) in business organizations have become the center of attention in past few years. A
bulk of literature has been published on the use of IT in different industries, different types of business
organizations, and in different areas of business management. On the other hand, the probability of the
firm to undertake innovation activities has shown to enhance firm performance. This study implements
various estimations on BEEPS observations to test whether the change in the usage of ICT and other
innovation determinants have increase the probability of firms to undertake innovation activities. 2015
Wiley Periodicals, Inc.

Correspondence to: Veland Ramadani, Faculty of Business and Economics, South East European University, Ilinden 335, Tetovo, 1200 Macedonia,
+389 44 356 075 (phone), v.ramadani@seeu.edu.mk

Published online in Wiley Online Library (wileyonlinelibrary.com)

2015 Wiley Periodicals, Inc. DOI: 10.1002/tie.21772
94 FEATURE ARTICLE
Introduction
T
he impact of innovation activities on economic
growth has been studied extensively for developed
market economies. There is ample evidence in the
literature that the United States experiences higher labor
productivity growth than the EU and that the increase is
attributable to greater development of innovation activi-
ties (Ark, OMahony, & Timmer, 2008; Groth, Esposito, &
Tse, 2015; OMahony, Rincn-Aznar, & Robinson, 2010).
In order to increase the innovation activities undertaken
by firms in the EU the Lisbon Strategy set a goal for
Europe to become the worlds most competitive and
dynamic knowledge-based economy in the world, capable
of sustaining growth with more and better jobs and
greater social cohesion by 2010. Although the EU failed
to achieve this goal, the aspiration to achieve this status
became the first priority area of the Europe 2020 Strat-
egy, which is smart growth through the development
of knowledge, innovation, and education (European
Commission, 2010). Accordingly, the EU has set itself an
ambitious targetthe Barcelona objectiveof increas-
ing research and development (R&D) expenditures to
3% of gross domestic product in particular by improving
the conditions for R&D investment by the private sector,
and developing a new indicator to track innovation. In
order to accomplish these goals, the Organization for
Economic Cooperation and Development (OECD, 2009)
has prepared an innovation strategy, containing the fol-
lowing major themes: (1) the openness of innovation;
(2) the central role of entrepreneurship; (3) creating and
applying knowledge; (4) applying innovation to address
global and social challenges; and (5) improving the gov-
ernance of policies for innovation.
The literature on innovation activities varies in many
ways, particularly in ways of defining innovation and its
measurement and the identification of variables that
influence the level of innovation activities. Furthermore,
the literature has also struggled to identify the character-
istics of entrepreneurship. In this respect, there is one
view that considers entrepreneurship and innovation as
virtually synonymous. According to Shane and Venkata-
raman (2000), entrepreneurship is defined as investiga-
tion on how, by whom and with what are discovered,
evaluated, and exploited the consequences in the process
of the production of goods and services. Based on the
reflection of Gartner and Carter (2003), entrepreneurial
behavior involves the activities of individuals who are asso-
ciated with creating new organizations rather than the
activities of individuals who are involved with maintain-
ing or changing the operations of ongoing established
Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
organizations. According to Acs and Audretsch (2010),
what distinguishes entrepreneurship from innovation is
the organizational context.
This study is interested in identifying the variables
that influence the level of innovation activities and their
impact on the firm performance. The rapid technological
development and the growing use of information com-
munication technology (ICT) in business organizations
have become the center of attention in past few years. A
great deal of literature has been published on the need to
renew and adjust the information technology (IT) func-
tion in business organizations (Guillemette & Pare, 2012;
Okruhlica & Marsin, 2012; Ratten, 2009), the application
of ICT in different industries (Devaraj & Kohli, 2000;
Francalanci & Galal, 1998), different types of business
organizations (Blili & Raymond, 1993; Heintze & Stuart,
2000) and in different areas of business management
(Devaraj & Kohli, 2000; Ellram & Zsidisin, 2002; Gurau,
Dana, & Lasch, 2012; Tovstiga, Korot, & Dana, 2003). The
belief that technology is a source of competitive advantage
is so widely accepted in the management and economics
literature that it has become axiomatic. Morone (1989)
considered technological innovation as the main force
behind industrial development and productivity growth.
For Porter (1983), it is a source of change in market
and can be one of the factors behind the demise of domi-
nant firms that were causing lack of competition in the
industry. However, it is critically important to have a clear
definition of technology before understanding the rela-
tionship between organizations and technology (Hassan,
2006). A famous definition of technology was given by Gal-
braith (1967), who defined technology as the systematic
application of scientific or other organized knowledge to
practical tasks (p. 23). The use of technology in the busi-
ness organization and market has been increased greatly
since the last decade. Now, the creation and successful
commercialization of technology is among a companys
most potentially viable strategies (Shim & Siegel, 2009).
Nevertheless, it can succeed with the synergy of skilled
management that (re)defines the companys goals and
competencies and through a good strategic planning
process (Fletcher, 1999). Utilization of IT for gaining stra-
tegic advantage over competitors should be the focus of
business entrepreneurial activities to survive in the rapidly
evolving world of e-business (Shim & Siegel, 2009).
The following section discusses the theoretical back-
ground and empirical evidence on innovation and ICT
and the model of the knowledge production function.
Specifically, issues arising when trying to measure innova-
tive activity and firm performance are further discussed.
The third section provides the methodology and the
DOI: 10.1002/tie
 ICT, Innovation and Firm Performance: The Transition Economies Context 95

estimated regressions. Finally, in the fourth section, find- TABLE 1 ICT and Economic Performance of Firms
ings and conclusions are presented.
Performance Indicators Percent of ICT ICT in
Firms with Contribution Combination
Literature Review Reported (percent) with Other
Increase Factors (percent)
There have been considerable debates about the impact
of new ICTs on economic performance and competitive- Labor productivity 50.4 13.1 47.0
ness in general, and on productivity, efficiency, and inno- Operational costs 41.1 5.1 28.1
vation in particular. Over a relatively short time span, ICT Revenue from sales 55.2 7.0 43.4
has become an intrinsic part of everyday life to the extent Profitability 44.0 10.5 48.2
that, like electricity, modern society could not function Capital investment in 51.5 16.1 57.5
in its absence. Recently, it has been discussed that ICTs innovation
impact is transforming economic processes into generat- ICT investment 45.4 30.2 46.0
ing a sustained increase in economic growth through
Competition in price 57.1 5.3 29.1
processes of technological development and innovation;
Competition in quality 63.8 10.0 39.5
however, the expectations at firm level are of greater effi-
ciency, lower costs, and access to larger and new markets. Operational costs 18.6 15.7 51.7
Many research studies have tried to assess the economic
Source: International Bank for Reconstruction and Development/World Bank
impact of ICT on firms and countries. According to (2007).
Jorgenson (2001), emphasis in these studies has been
on the impact of ICT in OECD countries, particularly economic performance, where it is evident that ICT is
the United States. The main findings of these studies a substantial contributor to productivity, profitability,
suggest that ICT has contributed greatly to productivity and growth. More importantly, around 30% of the firms
growth and competitiveness in the OECD countries in have stated that ICT usage itself generates increases in
the past decade. Furthermore, the forthcoming studies ICT investment, which indicates that engagement in ICT
were mainly focused in greater detail on the processes of usage is to a certain extent a self-sustaining process that
application and use of ICT within firms. requires cumulative investment.
In transition economies, the ICT dynamics are at a
stage where one can apply lessons learned from coun- ICT and Firm Performance
tries such as the United States and old European Union The other challenge faced by studies investigating inno-
(EU) member states at both corporate and government vation activities are the determinants of innovation. For
levels (see McCarthy, Puffer, Graham, & Satinsky, 2014; SMEs to be innovative a particular role is played by ICT.
Prudhomme, 2015). On the other hand, considering the Technology, in business environments, is often seen as
characteristics of the transition economies of Central and a vital necessity these days (Aragn-Snchez & Snchez-
Eastern Europe, they might require tailoring of the les- Marn, 2005; Rivard, 2000). The debate has gone further
sons learned from Western Europe and the United States on discussing the impact of size on ICT investments, argu-
and even create new approaches to policies for ICT adop- ing that small businesses have less money and therefore
tion and utilization. In a study conducted in transition less to invest in ICT (Aragn-Snchez & Snchez-Marn,
countries such as Estonia, Latvia, Lithuania, and Poland, 2005; Grguri-Rashiti, Abazi-Alili, & Ramadani, 2013).
from companies surveyed, it was found that companies Hadjimanolis (2000) examined innovativeness from the
use ICT to serve customers and markets (International perspective of resources, suggesting that small firms lack
Bank for Reconstruction and Development/World Bank, resources and bargaining power, which hinders their abil-
2007). A considerable number of the companies in the ity to be innovative. He established that the size of the
survey place a high priority on two interrelated business firm did impact on the availability of resources, resources
areas: purchasing and procurement, and marketing and including ICT, expenditure on training, and R&D.
sales. Firms actively use computer networks for these The above-mentioned relationship is a relatively new
activities, and almost all of them use the Internet to buy area of research, which has even less research focused on
and sell goods and services. According to the same study, small businesses and IT (Ashrafi & Baghdadi, 2008; Hussin,
ICT incorporation has already had an impact on eco- King, & Cragg, 2002). Any business that defies technologi-
nomic performance among firms in transition countries. cal advancements and innovation seems to be awkward,
Table 1 presents the findings on the impact of ICT on not only to its clients but also to business partners and deal-

DOI: 10.1002/tie Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
96 FEATURE ARTICLE
ers associated with it. However, in todays running environ-
ment, technology has impacted and integrated with almost
all the small and large organizations and industries, to
some extent (Devaraj & Kohli, 2000; Francalanci & Galal,
1998; Stoneman, 2011). Apart from them, businesses that
intend to solely rely on technological innovations and
advancements seek the easiest possible ways to achieve
their goals. This can be specifically explained in a man-
ner that, with the surrounding environment transforming
gradually, they face some basic hurdles in their way of inte-
grating technology as an umbilical organ of their process
and functions. The integration of business with technology
is mostly done with an intention to reduce operational
costs, increase efficiency of results, and increase effective
communication development, effective promotion, and
progression toward development. In this process of inte-
gration, different organizations and businesses face vari-
ous difficulties and hurdles, which are to be eliminated or
ruled out with the help of effective planning and process
reengineering (Ashrafi & Baghdadi, 2008).
Nowadays, there is an increasing trend of moving
away from the traditional approach of managing com-
panies and concentrating more on IT, which is becom-
ing an essential part of the future of the companies.
Previous studies reported the significant importance of
timely access to reliable information for increasing firms
productivity and highlighted the role played by IT in
this regard. A study in Thailand showed that firms with
greater ICT use had higher sales per employeethe
more sophisticated ICT, the higher sales realized. In
addition, the study showed that firms with a combined
use of computers, Internet, and Web had realized, on
average, 21% higher sales per employee than firms that
do not use these ICTs (United Nations Conference on
Trade and Development [UNCTAD], 2008). Based on
a study in Uganda, the majority of respondents strongly
agree that ICTs contribute to increased savings (52%),
increased efficiency (81%), improved service delivery
(61%), decreased transaction costs (47%), and improved
market performance (38%) to the organization that
invests in ICT (Ssewanyana & Busler, 2007). The litera-
ture also pointed out the need to look at the usability of
ICT application by the decision makers to understand the
actual use of IT in improving performance (Basant, Com-
mander, Harrison, & Menezes-Filho, 2006; Bloom, Sadun,
& van Reenen, 2006; Piget & Kossa, 2013; Ratten, 2013).
Innovation and Firm Performance
The importance of the SME as a sector is getting vital
factor for economic growth. As such, it has gained a high
importance in the research field. There is a vast literature
Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
investigating the determinants of firm performance, such
as size of firm, innovation activities, ownership, techno-
logical change, and others. The European Commission
(2010) puts forward the definition of small and medium-
sized enterprises (SMEs): (1) a small business defined as
employing between 10 and 49 people, and (2) a medium-
sized enterprise defined as employing between 50 and
250 people.
Innovation represents a significant factor in deter-
mining a firms success (Pratali, 2003; Ramadani, Grguri,
Rexhepi, & Abduli, 2013; Tse, Esposito, & Soufani, 2015).
The firms that do not innovate face underperformance
or dissolution (Ratten, 2015; Wilkinson & Thomas, 2014).
The empirical literature on investigating innovation
behavior and its effect on firm performance face the
methodological challenge of how to measure innovation
or technological change. This challenge is accompanied
by the difficulty of getting appropriate data that cor-
respond to the definition of innovation. Consequently,
the empirical studies have mainly adjusted their analysis
of innovation depending on the measures of innovation
available to them, using proxies that reflect only some
aspects of the innovation process.
In defining innovation activities undertaken by com-
panies, most of the empirical evidence follows Schum-
peter (1934), who defined innovation in a broad sense
as carrying out of new combinations that include the
introduction of new goods, new methods of produc-
tion, the opening of new markets, the conquest of
new sources of supply and the carrying out of a new
organization of any industry (p. 66).
Following Schumpeters definition of innovation
activities, most of the empirical literature defines innova-
tion as the development of new products and/or new
processes introduced to the market. The OECD (2009)
Oslo manual guiding the collection of data on innovation
reflects this perspective by defining innovation as ...
the implementation of a new or significantly improved
product (good or service), or process, a new marketing
method, or a new organisational method in business
practices, workplace organisation or external relations
(p. 11). An alternative definition of innovation adopted
more recently by policymakers in the United Kingdom
and also applied in the literature (Rivard, 2000) regards
innovation as the successful exploitation of new ideas.
If this is scrutinized further, this definition combines (1)
new ideasinvolve new product/process or service, (2)
exploitationpresents the applicability of the idea, and
(3) successfulimplies that the innovation is adapted
by the market (from the firms viewpoint the target is
increased profitability).
DOI: 10.1002/tie
 ICT, Innovation and Firm Performance: The Transition Economies Context 97

Based on these definitions, the most common mea-
sures used in the literature analyzing the innovation
process are as follows: (1) a measure of the inputs into
the innovation process, such as R&D expenditure or the
number of scientists and engineers; (2) a measure of
output, such as the number of inventions that have been
patented; and (3) a direct measure of innovation output,
such as new products or new processes. These proxy
measures for the innovation process have their limita-
tions. Not all R&D expenditures result in innovation
output, since this measure reflects only the resources
committed to producing innovation output but not the
innovation process. The number of patents does not
indicate whether this output has a positive economic
value or whether it has been successfully introduced in
the market, whereas the new product and/or process is
acknowledged as a proxy that directly quantifies the effect
of innovation and its success in the market.
Methodology
For the empirical analysis of this paper we use firm-level
data from the World Bank/EBRDs Business Environ-
ment Enterprise Performance Surveys (BEEPS) con-
ducted in 2002, 2005, and 2009 (World Bank Group,
2010). The BEEPS questionnaire consists of questions
that allow us to specify the variables that are used in the
theoretical framework followed here. The pooled data
for 2002, 2005, and 2009 is used in order to utilize the
advantage of a larger number of observations, with the
final sample consisting of 9,354 firms.1 Table 2 provides
the description of the variables employed in the model
and their expected signs.
According to the statistics for the pooled data, the
average labor productivity increased by 25% from 2002
to 2005, and doubled from 2005 to 2009. The size of the
companies in the sample varies on average from 90 to
140 employees. On average, the firms R&D investments
are approximately 4% (R&D expenditure to sales ratio).
The average exporting experience of firms that have
exported directly is 10 years (12% of firms). Firms were
established mainly 16 to 20 years prior (in the 1980s and
1990s). For companies surveyed in 2002, on average 33%
of the employees had a university degree, and this per-
centage dropped to 14% in 2009. Considering innovation
activities, 62% of the companies indicated that they have
introduced new products and/or processes in 2002; the
number had increased to 79% by 2009.
In order to explore the nature of the innovation
process in transition countries, we develop a model
to empirically investigate the relationship between
firms innovation activities, ownership structure, and

TABLE 2 Description of the Variables and Expected Signs

Dependent Variables Description of the Variables

Labor productivity Labor productivity = Sales / Number of employees (log)
Innovation activities Dummy for innovative firms (new product and/or process)
Independent Variables Description of the Variables Expected Signs
Size Number of employees /+
R&D intensity Amount spent on R&D/sales +
dInvestR&D Invested in R&D (dummy variable = 1 if the firm has invested in R&D) +
dInternetCONN dummy = 1 if the firm has a high-speed, broadband Internet connection on its premises +
de_mailCOM dummy = 1 if the firms currently communicate with clients and suppliers by e-mail
Direct_exports % of establishment sales as direct exports +
dFRGNinv Foreign ownership (= 1 if the % share of foreign capital in the company >10%) /+
dDOMprivate Domestic ownership (=1 if the % share of domestic capital in the company >10%) /+
dSTATE State ownership
FRGNcomppress Pressure from foreign competitorseffect on decisions to develop new products / +
Skilled_workers Share of employees with university degree +
Age Firms experienceyear since establishment +
Agesq Firms experienceyear since establishment squared +
EU_members dummy = 1 if EU member country +
Sector The industry in which the firm operates

DOI: 10.1002/tie Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
98 FEATURE ARTICLE

productivity. The econometric technique applied in this
investigation is a probit model on innovation activities
(Green, 2012). The model presents the probability of
the firms to innovate (probit model), which reveals the
importance of a group of firm-specific factors on firms
innovation activity. The general model we will refer to can
be written as follows:
Innov_activityit = 0 + 1Sizeit + 2R&D_intensityit
+ 3 Direct_exportit + 4 dFRGN_invit
+ 5dDOM_privateit + 6FRGN_comppressit
+ 7Skilled_workersit + 8T1 + 9T2 + it (1)
The regression coefficients and corresponding
p-values of two specifications of the probit model (for the
probability to innovate) are presented in Table 3.
In the first specification, we employ R&D intensity as
an indicator of innovation activity. Since there is a large
number of missing data for the R&D investment variable
(73%, 40%, and 92% for 2002, 2005, and 2009, respec-
tively), we replace this variable with a dummy variable
of whether the firms have invested in R&D or not (the
second specification reported in Table 3), which is based
on larger number of observations.
Implications for Research and Practice
In transition economies, ICT represents the way busi-
nesses communicate and conduct activities in the global
marketplace. It is important for researchers and managers
of ICT organizations to harness the potential of innova-
tion activities for firm performance. This article has dem-
onstrated the role of ICT for researchers and managers
of firms in their business environment. This is helpful for
researchers and managers to utilize the changes occur-
ring over a time period to see the increased emphasis
on innovation in the transition economy context. This is
especially relevant for managers of firms in Europe as the
knowledge-based economy is becoming more important.
As more firms focus on the relationship between their
innovative capabilities and ICT strategies, it is crucial that
managers encourage an atmosphere that is conducive to
innovation.
Researchers and managers can utilize the discussion
in this article about how innovation is undertaken to

TABLE 3 The Determinants of the Probability to Innovate

Dependent Variable: Innovation Activities

(= 1 if new product and/or new process introduced)
Independent Variables Coefficients p-values Coefficients p-values
Size .23*** (.000) .13*** (.000)
R&D2Sales 2.54*** (.004)
dInv_R&D .67*** (.000)
dInternetCONN .02 (.007) .03 (.612)
Direct_export .002** (.049) .00 (.298)
dFRGNinv .21** (.050) .22*** (.002)
dDOMprivate .23*** (.002) .17** (.012)
FRGNcomppress .09*** (.000) .07*** (.000)
Skilled_workers .01*** (.001) .01*** (.000)
Age .01 (.004) .00 (.612)
Agesq .00 (.449) .00 (.267)
EU_members .33*** (.000) .25** (.046)
Sector .01*** (.002) .01*** (.001)
D1: 1 if year = 2002 .72 (.181) .52** (.078)
D2: 1 if year = 2005 1.12 (.172) .49** (.043)
Constant 1.42*** (.000) .65 (.113)
Observations 3,004 5,281
LR 2 438.2 654.2
Pseudo R2 .1138 .1028

Thunderbird International Business Review Vol. 59, No. 1 January/February 2017 DOI: 10.1002/tie

show the linkage with sustained economic performance
and social cohesion in a transition economy perspec-
tive. As the European Commission further increases the
role of innovation, it is important for managers to know
how to do this so they stay internationally competitive.
One way to do this might be for managers to prepare
an innovation strategy to track the role of innovation,
entrepreneurship, and creativity in their organizations.
This article emphasized how innovation and entrepre-
neurship are different concepts, and this is important for
all organizations, but especially those in the knowledge
economy.
This article emphasized transition economies, which
will be helpful to manage institutional constraints with
international market regulations (Agarwal & Wu, 2014;
Dana & Ramadani, 2015a, 2015b). Local entrepreneurs
can use this study, as it offers practical relevance to the
pursuit of innovation strategies by considering how
entrepreneurship enhances global competitiveness. This
articles findings clarifies which innovation and perfor-
mance approaches are valuable for firms in the transition
economy context. A focus on these settings enables firms
to understand how innovation shapes and facilitates tran-
sition economies.
Limitations of the Study
In transition economies, the main limitations are related
to the data availability for empirical investigation. This
study relied on BEEPS data sets, which were subject to
major limitations, such as:
The availability of relevant variables. Having in mind
the effect of innovation activities undertaken by firms
on their performance, we were primarily interested
in investigating the determinants of the innovation
process among firms in transition economies in dif-
ferent stages of the innovation process, starting from
the decision of firms to innovate, through the ICT as
determinant of innovation, to the impact of innova-
tions on the performance (using a three-equation
system). Because of lack of data we had to limit our-
selves to examining the relationship between ICT,
innovation activities, and firm performance using a
single-equation model.
Treatment of missing observations. There are large num-
bers of missing observations for some questions in
BEEPS, in particular for an important variable of
interest to this studyR&D intensity. Although the
process of cleaning the data established that a large
number of the missing observations were indeed zero,
the problem was not fully resolved.
DOI: 10.1002/tie
ICT, Innovation and Firm Performance: The Transition Economies Context 99
Incorrect figures in the data set. In some cases (for Alba-
nia and Slovenia), the figures for sales were extraor-
dinarily highin thousand billions. We contacted
the World Bank, and they confirmed the mistake
and suggested a way of dealing with the error. Their
suggestion worked for Albania but was not possible
for Slovenia. Slovenia is therefore excluded from the
analysis because of the errors found in the data set for
this country.
Change in the measurement of variables. The problem
related to the innovation activities variable comes
from the questionnaire. While for 2002 and 2005 the
question on innovation activities referred to product
and process innovation in separate questions, in 2009
the innovation question referred only to product
innovation. However, since we have considered the
innovation activities variable as product and/or pro-
cess innovation, we have overcome the problem.
Conclusions
The probit model results show a significant effect of some
of the innovation activities determinants, which are in
accordance with the theoretical literature. The consider-
ation of size as a determinant explaining innovation goes
back to Schumpeter (1942), who stated that large firms
in concentrated markets are more advantageous in inno-
vation. The positive and significant sign of the firm size
supports this hypothesis, indicating that larger firms in
transition economies tend to undertake more innovation
activities than smaller ones.
According to new growth theory, R&D activities
are expected to lead to product and process innova-
tion. Becheikh, Landry, and Amara (2006), in a review
of empirical studies published between 1993 and 2003,
bring together a set of variables related to the innovation
process and find that R&D expenditures do not necessar-
ily lead to new products and/or processes. Regarding the
transition economies, we mentioned in the previous sec-
tion that not all firms that undertake innovation activities
have indicated they would invest in R&D. However, both
specifications of the R&D variables in the regression, the
R&D intensity and dummy invested in R&D, appear to
have a positive and significant relationship with innova-
tion activities. Because of the insignificant coefficient of
the ICT implementation on firms, we cannot interpret
the coefficient.
Ownership structure is shown to influence produc-
tivity both directly and indirectly, through innovation
activities (Hill & Snell, 1989). Carlin, Fries, Schaffer, and
Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
100 FEATURE ARTICLE

Seabright (2001) find significant effect of privatization
on new product restructuring. Moreover, new products
directly increase sales and productivity growth, implying
an indirect effect of ownership on enterprise growth. We
employ variables of private foreign- and domestic-owned
firms (state companies as base category) in innovation
and productivity models. We expect that foreign owner-
ship plays an important role in explaining innovation,
considering it an external source of information for
innovation. In accordance with this, the results show that
foreign-owned firms with more than 10% of ownership
are significantly positively related to firms innovation
activities, indicating that they are more innovative than
state-owned firms. The same applies for the domestic
owned firms.
The literature on innovation suggests that a moder-
ate degree of competition is better than either monopoly
or intense competition (Fiti & Ramadani, 2013). The
data provide a qualitative perception variable of foreign
competition pressure on the decision to develop new
products. We employ this variable for having the impact
of competition, and the results show a positive significant
coefficient of the variable. The firms innovation activities
are higher if the firm has competitive pressure from for-
eign firms. The role of human capital on the decision of
the firms to innovate has gained importance in the most
recent literature. We employ the level of education of
the employees as the share of employees with a university
degree. The coefficient of this variable is significant and
positively related to the decision to innovate. The firms
export activity may affect the innovation behavior of the
firm. We suppose that firms learn from trade in terms of
innovation (learning-by-exporting hypothesis), and thus
exporting firms will improve their innovation activities to
remain competitive in international markets. The variable
included in the model is the percentage of direct exports
to sales to indicate the effect on innovation activities. The
regression results show a positive significant impact of
export intensity on innovation activities when using R&D
intensity as independent variable. However, the results
show an insignificant coefficient when applying the other
alternative variable of R&D, the dummy invested in R&D.
The age of the firm together with age squared
appears to be insignificant in both probit model speci-
fications. We control for time and sector in the model.
The interpreted coefficients are statistically significant
at 1% level of significance, offering evidence that the
Ho hypothesis (it = 0) can be rejected for these cases.
On the other hand, age and age squared are statistically
insignificant at the 1%, 5%, and 10% level of significance.
Therefore, their calculated p-values lie in the region of
acceptance, so we fail to reject the Ho hypothesis. Accord-
ing to 2 statistics the explanatory variables are jointly
significant (since Prob > 2 = .000) at 1% level of signifi-
cance, therefore the null hypothesis that all regressors are
jointly insignificant may be rejected.
Note
1. Empirical results are provided on nine CEE (EU members): Bulgaria,
Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania,
and Slovakia; and five Southeast Europe countries: Albania, Bosnia and
Herzegovina, Croatia, Macedonia, and Serbia and Montenegro. The
2009 sample consisted of three groups of firms: (1) the group selected
randomly; (2) the group that had been previously interviewed in 2005
and reinterviewed in 2009; and (3) the group that had been interviewed
in all three rounds, which constitute the panel component. For the
key sample (pooled data), we have cleaned the data set by keeping only
the randomly selected group in years and dropped the reinterviewed
observations (i.e., the panel components). There is an indication of
publication of a forthcoming survey by the end of 2015 (the new round
of BEEPS). Taking into consideration the effort taken for cleaning
and correcting the BEEPS data set employed in this study, which will
probably need to be undertaken for the new data set, it is impossible to
consider them at this point.

Shqipe Grguri-Rashiti is an assistant professor at the College of Business Administration, American University
of Middle-East, Kuwait. Her research interests include management, strategic management and management infor-
mation systems. She has authored approximately 20 research articles. She has been also involved in managing
United Nations Development Programme projects within the South-East European University, Macedonia.

Veland Ramadani is an associate professor at South-East European University, Republic of Macedonia, where
he teaches both undergraduate and postgraduate courses in entrepreneurship and small business management.
His research interests include entrepreneurship, small business management, and venture capital investments. He

Thunderbird International Business Review Vol. 59, No. 1 January/February 2017 DOI: 10.1002/tie
 ICT, Innovation and Firm Performance: The Transition Economies Context 101

has authored or co-authored more than 60 research articles and 12 textbooks. He also serves as a member of
editorial and reviewer board of several international journals. Veland is an associate editor of International Journal
of Entrepreneurship and Small business (IJESB).

Hyrije Abazi-Alili is an assistant professor at South-East European University, Republic of Macedonia, where
she teaches both undergraduate and postgraduate courses in economics and econometrics. Her research inter-
ests include innovation, business performance, and social entrepreneurship. Currently, she is an affiliate fellow at
CERGE-EI Prague.

Lo-Paul Dana is a professor at Montpellier Business School and Marie Curie Fellow at Princeton University. He
obtained his BA and MBA at McGill University and his PhD from the Ecole des Hautes Etudes Commerciales HEC
Montral. He served as the deputy director of the International Business MBA Programme at NTU in Singapore, and
on the faculties of McGill University, INSEAD, and the University of Canterbury. He holds the title of adjunct profes-
sor at the University of Regina and the same at the University of the South Pacific. He has published extensively
in a variety of journals, including the British Food Journal, Cornell Quarterly, Entrepreneurship Theory and Practice,
Journal of Small Business Management, Journal of World Business, and Small Business Economics.

Vanessa Ratten is an associate professor of entrepreneurship and innovation at the La Trobe University, Australia.
She has extensive experience in teaching and researching international business, management, marketing, entre-
preneurship, and innovation in both Australia and the United States. Her main research areas are sports entrepre-
neurship, international entrepreneurship, and technology innovation.

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