ABSTRACT. This research found most of the handicraft producers have implemented various innovations during last five years. The newest innovations are managerial innovation, marketing innovation and product innovation. Meanwhile, product innovation and managerial innovation are the most important innovations in enhancing the business performance. Based on the actors, innovation in this case could be classified as producer driven innovation. The main information source of product innovation, process innovation, and service innovation is the producer’s experiences. The study found that the role of social networks in the process of innovation activities is rather limited. This finding is also supported by a fact that the strongest social network of the producers is only the relation with family and close friend in term of their closeness, trust, and willingness to share information. Regression analysis also indicates the aggregate of social network elements does not influence the number of innovations. Components of social network that still show positive impact on the innovation are only the closeness with business partners and with members of other association. The study also suggests that further research on the role of social network or social capital on innovations needs to consider other appropriate indicators of social networks. At the empirical level, differences in location or industry may require different indicators of social networks. pp. 106–121
JEL: O17, Z13

Keywords: social network, innovation, handicraft industry

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