Innovativeness and Human Capital on Performance of Small Scale Firms in Agri-Food Processing Sector in Sri Lanka

Innovativeness is regarded as the key driver of business growth and value creation. It is also accepted that, human factor provides the competitive edge of any business industry, especially in the small-scale firms. The objectives of this study were to investigate the role of innovativeness that plays a key role in the determination of venture performance, to examine the relationship between owners’ human capital and venture performance and to determine whether the relationship between innovations and venture performance is moderated by human capital factors of the firm owner. The study was mainly based on the primary data collected from 120 small scale agri-food processing firms located in Western and North-Western provinces in Sri Lanka by means of a structured questionnaire. The results of the Hierarchical Regression analysis highlighted that, innovativeness has a positive and significant relationship to the sales growth and it had no influence on employee growth. Out of the human capital variables tested, none of them were found significantly related to the sales growth of the firms. Only, the experience of owner was found to have a positive and significant impact on employee growth. Among the human capital variables concerned, only the level of education had a significant but negative effect on moderating the relationship between innovations and sales growth. Due to the positive impact of innovations on sales growth, firm owners are recommended to focus on innovations by overcoming the associated provide barriers. The policy makers are advised to provide necessary facilitations to the present and potential entrepreneurs of the sector, especially in terms of financial facilities, human resource development and technology transfer.