The Nexus of Institutional Pillars and Service Innovation in Pakistan's ICT SME Sector: An Empirical SEM Analysis

Abstract

Service innovation is a critical driver of economic growth and competitiveness in the Information and Communication Technology (ICT) sector, especially in developing countries like Pakistan. However, the full potential of the ICT sector innovation capacity remains unrealized due to the absence of adequate measures for evaluating and managing the factors that influence innovation, particularly institutional factors. SEM (Structural Equation Modeling) in Pakistan is empirically examined to determine the impact of institutional pillars on their ability to innovate service offerings. The study SEM to analyze data collected from 320 project managers of ICT SMEs in Lahore, Karachi, and Islamabad. The findings reveal that normative, and cognitive institutions have a significant positive impact on service innovation while the regulative pillar has an insignificant impact on ICT SMEs in Pakistan. The comprehensive institutional framework is also found to be positively correlated with service innovation. The findings from this study have important implications for Pakistani policymakers and SMEs in the ICT sector. Policymakers should focus on creating a supportive institutional environment that facilitates service innovation. ICT SMEs should also be aware of the institutional factors that influence innovation and develop strategies to mitigate the negative impact of institutional constraints.