Effects of open innovation in startups: Theory and evidence

Abstract

A robust literature has provided compelling evidence showing how open innovation impacts incumbent firms. However, only a paucity of research has linked open innovation strategies to different types of innovation in startups. This paper fills this gap in the literature by focusing on if, how and why open innovation enhances innovative activity in newly created firms. In particular, the paper examines how the role of both the specific external partner as well as the geographical location of partner matters in how product and process innovation is shaped in startups. The empirical evidence garnered in this paper suggest that not only do startups benefit from open innovation, but also the extent of product innovation and the propensity to innovate new processes in startups are significantly affected by specific external partner and its geographical location. The positive impact of open innovation reflects the heterogeneous effects of knowledge embedded in different partner types and the role that technological, institutional, and competitive arrangements play domestically and internationally in startup innovation. This study provides new light on how and why open innovation benefits not just incumbents but also startups as well.