Effects of Innovation on Business Performance: Empirical Evidence from Manufacturing Firms in Tanzania

Abstract

Regardless of its relevance for business performance, the influence of innovation on the performance of manufacturing firms in Tanzania is not well documented. Thus, this study aimed to examine the effects of innovation on business performance of manufacturing firms in Tanzania. The study used cross-sectional design and quantitative approach. Copies of a structured questionnaire were administered to 420 participants from 28 manufacturing companies in Dar es Salaam and Coast Regions. An impressive response rate of 93.1% was achieved. Data were tested for reliability using Cronbach’s alpha coefficient. Tests for normality, multicollinearity and autocorrelation were conducted, and the results showed the data were reliable, normally distributed, free of multicollinearity and autocorrelation problems. Descriptive and multiple regression statistical techniques were employed. The results suggested that a significant positive effect existed between performance of manufacturing firms and product innovation (B=0.705, p=0.001), process innovation (B=0.640, p=0.000) and marketing innovation (B=.818, p=0.000). The obvious implication to industry is that innovation is important to business success of the manufacturing companies, thus the governments should motivate firms to innovate continuously by giving incentives to invest in R&D. Past studies linking innovation and performance have focused on financial measures of performance. The major contribution of the current study is to use non-financial measures of performance such as business growth and responsiveness to change.