Manufacturing is the most important source of economic development and growth and, undoubtedly, small and medium enterprises (SMEs) make a significant contribution to economic growth. The aim of this exploratory study is to examine the complex interactions among variables that affect the innovation dimensions (product and process innovation) of European manufacturing SMEs by using two hierarchical log linear models. The focus of this paper is twofold. First, we unveil the complex interactions among seven different variables on
Product Innovation (ProDI) and Process Innovation (ProCI). Second, we depict all the complex interactions visually. The empirical evidence is based on an official survey conducted by European Commission’s “Sectoral e-Business Watch” in 2009. This survey consists of 627 telephone interviews in 6 selected EU countries. The seven variables used in our study concern outsourcing ICT services, employment of ICT practitioners, impact on economic crisis on ICT investments, internationalization activities, implementation of advanced sustainable
manufacturing technologies (i.e. technologies to increase manufacturing efficiency in the use of energy and materials and drastically reduce emissions), energy cost advantages, and company size. First, all seven variables were found to be associated with the two outcome variables ProDI and ProCI in a chi-square test analysis. Second, the hierarchical log linear analysis among ProDI and the chosen variables revealed thirteen out of an original twentyeight possible two-way interrelationships. Along the same line the second analysis between ProCI and the chosen variables revealed fourteen two-way interrelationships. It is hoped that this exploratory research has laid the foundation for further examination of innovation activity in the SME context. Future studies should be able to replicate the process in other industries and on a larger scale. Results of this research may have implications for both policy makers and the industries themselves. The findings of this study extend the innovation literatures and help build a foundation for further understanding of the links between the different dimensions of Innovation. This paper constitutes a continuation of authors’ works on the concept of
Innovation.