Pathways to innovation in Colombian service SMEs: The role of funding, institutions, and intangible investments

Purpose

This study investigates the multidimensional factors associated with innovation outcomes among innovation-active small and medium-sized enterprises (SMEs) in the Colombian service sector, an emerging economy characterized by financial asymmetries and fragmented innovation support and knowledge-transfer frameworks. The objective is to examine how aggregate funding structures, institutional linkages, and innovation-oriented investments relate differentially to the incidence of product innovation (market-oriented) and process innovation (internally oriented). By disentangling these pathways among innovation-active firms, the study provides evidence on how resource configurations shape innovation trajectories in contexts with relatively low technological intensity. METHODOLOGY: The study employs Partial Least Squares Structural Equation Modeling (PLS-SEM) using firm-level microdata from 2,782 innovation-active service-sector SMEs derived from Colombia’s VIII Survey of Technological Development and Innovation (EDIT VIII 2020–2021). All constructs are first-order composites, measured formatively with non-redundant binary indicators that capture multidimensional resource configurations. Two independent structural models are estimated to represent distinct innovation pathways: one explaining the incidence of product and service innovations, and another capturing process-related innovations associated with operational and organizational improvements.

Findings

The results reveal a clear asymmetry in the patterns of association observed across innovation outcomes. Institutional support shows the strongest association with product innovation (β = 0.416), indicating that connectivity with the broader innovation ecosystem—universities, public agencies, and international partners—helps compensate for limited internal R&D capacity in SMEs. Conversely, innovation investment, particularly in intangible assets such as software, training, and intellectual property, shows the strongest association with process innovation (β = 0.371), highlighting the role of internal capability building for operational upgrading. Funding sources show a positive but comparatively modest association in both models (β = 0.07), suggesting that financial access operates primarily as an enabling condition when effectively translated into innovation investments and institutional collaboration. IMPLICATIONS: These findings highlight the importance of integrated innovation support mechanisms that extend beyond credit provision. For policymakers, strengthening institutional linkages and knowledge-transfer channels appears particularly effective for fostering market-oriented innovations. For firm managers, prioritizing investment in intangible assets and participating in collaborative networks may help mitigate structural resource constraints and enhance innovation outcomes. ORIGINALITY & VALUE: This study contributes to the literature on innovation in emerging economies by providing context-sensitive evidence on differentiated innovation pathways in service-sector SMEs. Methodologically, it demonstrates the usefulness of composite-based modeling for analyzing national innovation survey data with dichotomous indicators and complements the analysis with an Importance–Performance Map Analysis (IPMA).