Building capabilities for external knowledge sourcing: Training and Innovation in Small firms

Abstract

We study how an increase in a firm's internal human capital can support new product development. By adopting training practices, we expect firms to increase the benefits of external knowledge. These benefits may differ between market- and institution-based knowledge sources because each provides distinct expertise to the firm. The study relies on the Community Innovation Survey that tracks firms from twelve European countries in multiple industries in 2006-2014. We find that small firms - those with fewer than 50 employees - attain higher returns to external knowledge when they invest in human capital through training. However, these results only hold for external knowledge that is market-based. Our study links the innovation and strategic human capital literature by illustrating how training helps firms extract the value of external knowledge for new product development.