Abstract

This study explores the impact of digitalization on technological (product and process) innovations in German
small and medium-sized enterprises (SMEs). In particular, three forms of digitalization are considered – digitalization
in production and logistics, digital value chains, and big data analytics. Empirical analysis utilizes the
Mannheim Innovation Panel (MIP) dataset of German SMEs operating in manufacturing and service sectors. A
binary probit model is separately estimated for micro, small and medium-sized firms to test if theoretically
assumed positive innovation effects of digitalization occur in SMEs of different size. Empirical findings confirm
that the impact of digitalization on innovation activities is heterogenous among SMEs. Furthermore, the innovation
effects are modest and depend on the form of digitalization and a type of innovation. The study also
explores a moderating effect of internal R&D activities. The findings suggest that the engagement in internal
R&D weakness the innovation effects of digitalization. More specifically, the impact of digitalization on product
and process innovations is absent in those SMEs that conduct intramural R&D, while in non-R&D SMEs, this
impact is positive. Based on these findings, the study offers some theoretical and policy implications.