Effects of Product and Process Innovation on the Performance of SMEs in Lagos State, Nigeria

Abstract

The Small and Medium Enterprises (SMEs) sector is a key driver of economic development, poverty reduction, and employment generation. Yet only 1 in every 10 SMEs survives beyond its first year, underscoring the significant challenges these enterprises face. While innovation is widely recognised as critical to SMEs performance, existing studies have largely examined product and process innovation in isolation, with limited attention paid to their interaction effect, particularly within the context of Nigerian SMEs. This study addresses that gap by examining how product innovation, process innovation, and their interaction influence SMEs performance in Lagos State, Nigeria. A survey research design was employed to collect data from management employees of SMEs across six industries food, water, furniture, clothing, bags, and shoes spanning the 20 local government areas of Lagos State. Data from 276 respondents were analysed using reliability analysis, factor analysis, bivariate correlation, and multiple regression analysis. Results from the three hypotheses tested showed that product innovation, process innovation, and their interaction each had a significant positive effect on SMEs performance. The study contributes theoretically by clarifying the interrelationship between product and process innovation in shaping firm performance, extending current understanding of the innovation-performance nexus in SMEs. Practically, the findings suggest that SMEs managers should prioritise integrating both product and process innovation to drive sustainable, long-term business success.