The Challenges and Mindset Limitations Impacting Innovation in Manufacturing SMEs in Regional Australia

Small and Medium Enterprises (SMEs) are often described as the 'backbone' of a country's economy that should be recognised as a major source of prosperity and employment. In Australia, SMEs constitute 95.9% of businesses and they therefore play a significant role in the economy and society. SMEs are especially critical to the resilience of rural and remote communities. The ability to innovate is considered to be one of the most important strategic capabilities of manufacturing SMEs. The new economy is earmarked by relationships, networks, knowledge and information. Qualitative case study research was conducted through personal interviews with managers of manufacturing SMEs in regional Australia, to identify the challenges they face to innovate and survive in a digitally connected business environment. The research revealed that the SMEs face external challenges such as the downturn in the Australian manufacturing sector, geographic- and social isolation, limited access to capable staff and technical infrastructure limitations. It was also found that the mindset of regional SMEs result in behaviours that limit their innovative capability. They are often competitive instead of collaborative, they focus on operational issues rather than having a strategic outlook, they lack technology skills and prefer face-to-face networking instead of using social media to connect with stakeholders. This paper includes recommendations for SMEs to overcome these challenges and mindset limitations.