Internal Capabilities and External Knowledge Sourcing for Product Innovation in LMT SMEs

Harold Alvarez,Paul Iske

doi:10.24840/2183-0606_003.002_0007

Abstract

Low- and medium-tech small and medium-sized enterprises (LMT SMEs) constitute a large and important segment in European economies. Because of increasingly international competition, LMT SMEs must rely on innovation to strengthen their competitive position over time. In this study, we empirically analyze possible complementarity or substitutability between internal capabilities and external knowledge sourcing. Using a short panel of 142 Dutch LMT SMEs, we find empirical evidence that suggests a negative interplay between internal capabilities and external knowledge sourcing.

Highlights

One may distinguish two dominant approaches to achieving innovation: the first approach views a firm’s internal capabilities as the primary drivers of innovation (Dosi, 1982), while the second approach views innovation as driven by a firm’s external partnerships
This study sheds light on the possible complementarity between internal capabilities and external knowledge sourcing defined by the theory of open innovation
We mainly focused on a short panel of 142 Dutch low- and medium-technology (LMT) SMEs in the period 2000-2003

Summary

Introduction

One may distinguish two dominant approaches to achieving innovation: the first approach views a firm’s internal capabilities as the primary drivers of innovation (Dosi, 1982), while the second approach views innovation as driven by a firm’s external partnerships (von Hippel, 1998). Open innovation implicitly posits complementarity between a firm’s internal capabilities and external knowledge sourcing (e.g., Cassiman and Valentini, 2011). A key pre-condition to open innovation is that firms dispose of absorptive capacity to internalize external knowledge (e.g., Vanhaverbeke et al, 2008). Empirical evidence to support the importance of open innovation has been mainly concentrated on so-called high technology industries, e.g., computers, information technology, and pharmaceuticals (Chesbrough et al, 2006). Open innovation has been studied mostly in multinational enterprises, of which most have large internal R&D departments (Vanhaverbeke et al, 2012). In this context, empirical evidence has indicated that internal capabilities and external knowledge sourcing are complements

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