The Importance of Internal Knowledge Generation and External Knowledge Sourcing for Sme Innovation and Performance: Evidence From Ireland

Abstract

This paper analyses the knowledge sourcing, transformation, and exploitation stages of the innovation value chain for a sample of Irish small to medium sized enterprises (SMEs) using Community Innovation Survey data. It explores the role of internal research and development (R&D) and external knowledge on SMEs’ innovation and performance. The open innovation paradigm, which stresses the importance of external linkages, is used to examine the impact of different external knowledge sources on SMEs’ innovation. The consideration of external linkages in the innovation performance of SMEs is crucial as these firms may be constrained in their ability to perform R&D due to their size. The analysis expands the traditional CDM methodology beyond the consideration of research and development as the sole source of knowledge for innovation by also considering a range of potential external knowledge sources. The findings indicate that SMEs generate knowledge internally through the performance of R&D, while also exploiting linkages to external agents. However, the impact of external sources of knowledge is not uniform. The results suggest that backward linkages have a positive impact on SME product innovation, but negatively affect SME process innovation, while public knowledge sources are positively related to the probability of product innovation occurring. This may have important policy implications. Finally, process innovation is also found to be a key determinant of SME productivity, while product innovation has no impact on SME performance.

From knowledge sourcing to firms’ productivity: investigating innovation value chain of Indonesian manufacturing firms

“…In relation to formal cooperation, firms tend to restrict cooperation with firms within the same group and with suppliers when they perform internal or external R&D activities. This finding supports the recent studies on the complementary relationship between internal and external knowledge sourcing activities (Bogers and Lhuillery, 2018;Doran et al, 2019;Majidpour, 2017;Paula and Da Silva, 2018).…”

“…Complementary relationships are also found between internal and external R&D in firms from high-technology industries in manufacturing firms across European countries (Paula and Da Silva, 2018). While, a complementary relationship also exists between Irish SMEs internal and external knowledge sourcing activities, especially between R&D and linkages with customers and public knowledge sources (Doran et al, 2019). Based on this, a hypothesis is proposed:…”

“…In this study, productivity (indicated by total sales/number of employees) is used to measure how innovation affects overall firms' performance. Prior IVC studies find that innovation output in the form of process innovation (Doran et al, 2019), product and process innovation (Ganotakis and Love, 2012;Roper et al, 2008) significantly and positively influence innovation performance as measured by sales and employment growth. Surprisingly, both a negative impact (Roper et al, 2008) and no relationship (Ganotakis and Love, 2012) of product innovation success on productivity have been found.…”

“…Open-source information and knowledge from scientific publications prove beneficial for firms (Caloghirou et al, 2004). Recent empirical evidence shows that different external sources of knowledge used by firms influence innovation adoption (Doran et al, 2019;Simao and Franco, 2018).…”

Knowledge Management, Organizational Ambidexterity, and Manufacturing Performance in the Era of Industry 4.0: A Proposed Model

“…Thus, this will bring forward greater accessibility for both exploration and exploitation related activities for the firm (Dezi et al, 2019). In addition, another separate study indicates that both EKS and internal knowledge sourcing are indeed complementing each other, and the result implies knowledge from an external source will be an important source for the firm to learn exploitatively and achieve the best innovation outcome (Doran & Mccarthy, 2019). In order to have multiple sources of new knowledge, collaboration with external parties is important (Olander et al, 2014;Patel et al, 2012) and close ties will further facilitate the sharing of confidential information that will benefit the ambidextrous orientation of the firm (Dezi et al, 2019;Xie et al, 2019).…”