42

Identification of potential innovation efforts plays an important role in evaluating the innovation process. The innovation efforts of firms in developing countries might be different to those of western enterprises. This paper evaluates innovation processes in developing countries, especially the relationship between innovation efforts and innovation outcomes. Instead of capturing only investment in research and development as in western firms, the innovation efforts of firms in developing countries include investments in in-house research and development, technology acquisition, and other informal innovation activities. This research develops a mechanism to capture all innovation efforts based on firms’ characteristics, market features, and business environment. A predicted value of innovation investment is created which is intended to capture observed and latent innovation efforts. It can be a broader innovation measurement for developing countries which is found to encourage complex innovation outputs (product and process innovation simultaneously) in the context of Vietnamese small- and medium-sized enterprises.JEL Codes: C52, O31, O32, O57