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Small and medium enterprises (SMEs) are normally required to attain dynamic success targets by improvement of their processes, products and services. One way to achieve this could be through quality initiatives and innovation in processes, products and services. In a knowledge based economy, use of quality measures alone may not bring competitive advantage due to severe resource constraints. Therefore, innovation may become a key parameter to define the strategic objectives. This paper focuses on investigating quality initiatives implemented by SMEs and its innovation. Data was collected on these parameters from 38 SMEs and eight measures of innovation were investigated for their importance and use. Pakistani, British and Portuguese SMEs were compared. [ABSTRACT FROM AUTHOR]