Determinants of innovation in Croatian SMEs – comparison of service and manufacturing firms*

In this paper we focus on SMEs in Croatia operating in the manufacturing and services sectors and seek to compare them in terms of their involvement in innovation activities, the factors that determine their decision to innovate in general and in four types of innovations in particular: product/service, process, organisational and marketing innovations. The analysis relies on the Croatian Community Innovation Survey 2010 (CIS 2010) data. To find out whether innovations have a different pattern of drivers in manufacturing and in services, we estimate the probit and multivariate probit models separately on these two groups of firms. The findings reveal that despite some differences, service and manufacturing SMEs are not that different from one another when it comes to innovation activities. Service SMEs are somewhat less likely to introduce technological innovations, but manufacturing and service SMEs do not significantly differ from each other when it comes to non-technological innovations. One noteworthy difference between manufacturing and service SMEs is that the latter rely much more than the former on acquired knowledge.