Although non-technological innovation has been found to have influences on technological innovation of firms in the literature, some studies suggest it has no effect on technological innovation. It is unclear why these inconsistent findings have emerged. This study utilises longitudinal data from the biennial surveys of Vietnamese manufacturing small- and medium-sized enterprises and data from the Provincial Competitiveness Index surveys during the period from 2011 to 2015 and applies various estimation techniques. Findings demonstrate that the effects of non-technological innovation, which includes organisational and marketing innovation, on product and process innovation vary with the quality of the local business environment. Enterprises operating in a higher-quality local business environment have a higher probability of adopting product and process innovation than others. These findings suggest that policies to improve the business environment should be combined with other innovation policies to facilitate innovation of small- and medium-sized enterprises in transition economies.
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