Innovation is an important aspect for all sectors including the tourism sector. The challenging external environment forced businesses to innovate for continuously competitive. Accordingly, improvement and creating new product should be implemented in line with the tourist desire. The rural Homestay Program is one of the unique activities and has the potential to grow in tourism. This study intends to explore the implementation of product innovations in this program on the East Coast Federation of Malaya, Malaysia. Two Homestay programs were selected based on the high performance of tourist arrivals in 2016 and have a uniqueness of the packages offered. A qualitative approach using a face-to-face interview has been done with the Homestay’s coordinators. The findings show that the Homestay programs have implemented the product innovation in terms of accommodation, activity packages and enterprises. This result can be used by the industry to upgrade the program Homestay in Malaysia as an effort to increase competitive advantage through innovation.

Innovation is an important aspect in tourism sector. The increasingly challenging external environment is forcing businesses to innovate for continuously competitive. Homestay program is a form of rural tourism activity that has its own uniqueness and potential to contribute to the socio -economic development among local community. However, lack of awareness on the importance of innovation implementation can lead to the failure of some homestay programs. This study aims to explore the capability of product innovation implementation; and had identified determinant factors that influence innovation implementation in homestay program. In total, eight homestay programs at Peninsular Malaysia were selected based on several criteria. Face-to-face interviews were conducted with the homestays’ coordinators and the collected data were analysed using content analysis technique. Results have shown that the most significant product innovation implemented are the improvement of accommodation quality, uniqueness of rural activity packages and small-medium enterprises development. There are four determinant factors were found including market orientation, entrepreneurial spirit, government supports and knowledge. This result can be used by industry players as a benchmark to upgrade the other program homestay in Malaysia to be more successful.