Open innovation of small and medium-sized enterprises and innovation efficiency

ABSTRACT

Although open innovation approaches were introduced because of firms’ decreased innovation efficiency in a rapidly changing environment, few studies shed light on the effects of open innovation on innovation efficiency. Additionally, previous studies shed minimal light on open innovation practices in the small- and medium-sized enterprises (SMEs) context. This study attempts to remedy these research gaps using a unique dataset of Korean SMEs in manufacturing industries. I examined the effects of SMEs’ two inbound open innovation activities, external search and collaboration activities, on innovation efficiency. To measure SMEs’ innovation efficiency scores, I used the data envelopment analysis method, which calculates the relative innovation efficiency scores among them. The results revealed external search activities of SMEs improve their innovation efficiency, whereas their collaboration activities decrease their innovation efficiency. I also found the positive effect of SMEs’ external search activities on innovation efficiency is weakened by their internal R&D capacity. Nevertheless, with higher levels of internal R&D capacity, SMEs can improve their innovation efficiency through collaboration activities. Furthermore, the results showed the effects of these two inbound open innovation activities alter through the SMEs’ growth phases and the effects of collaboration activities on SMEs’ innovation efficiency and innovative performance are different.

KEYWORDS:

• Innovation efficiency
• external search
• collaboration activity
• small and medium-sized enterprises
• data envelopment analysis

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Ji-Hoon Park is an assistant professor in the college of business administration at Keimyung University. He completed his Ph.D. in Management Engineering (Organization and Strategy Area) at Korea Advanced Institute of Science and Technology (KAIST). His research interests include technology innovation management, entrepreneurship, strategic management, and organization studies. His work appears in peer-reviewed journals, including the Research Policy and Technology Analysis and Strategic Management.

ORCID

Ji-Hoon Park http://orcid.org/0000-0001-7075-8114

Notes

1. A firm’s inward technology sourcing such as licensing-in or buying technologies in technology markets can be considered an inbound open innovation approach. However, this phenomenon is mostly examined in the research on technology markets (Conti, Gambardella, & Novelli, 2013), which are more economic-oriented in comparison to the open innovation literature. Because this paper attempts to contribute to the current research on open innovation, this study focuses on the above two types of inbound open innovation activities, external search and collaboration activities.

2. More broadly, inter-organizational collaboration refers to “a cooperative, inter-organizational relationship that is negotiated in an ongoing communicative process, and which relies on neither market nor hierarchical mechanisms of control” (Hardy, Phillips, & Lawrence, 2003, p. 323). Here, this study defines collaboration activities as co-development activities among firms because this study focuses on the effect of activities on firms’ innovation activities, particularly the efficiency of their innovation processes.

3. In the dataset, there are 421 SMEs from non-manufacturing industries (110 firms from the publishing industry, 67 firms from the computer programming and consultancy industry, 45 firms from the information service industry, 60 firms from the research and development industry, 103 firms from the architectural and engineering and other technical services industry, and 36 firms from the scientific and technical service industry). Because these industries have different characteristics compared to manufacturing industries in terms of innovation activities, this study excluded these SMEs in the final sample.

4. In this study, I assume ‘technological’ innovation in measuring innovation efficiency (Cruz-Cázares et al. 2013). In other words, firms’ innovation is composed of a series of activities in technological development, which involve the phases of searching for, implementing, and capturing value (Tidd and Bessant 2009).

5. The percentage of sales from R&D activities is defined as the amount of sales that a firm generated from the implementation of R&D activities, such as new product introductions and improved product introductions.

6. The survey collected the information on each firm’s technological domain that represents the level of technologies used in its products. There are three categories in the technological domain: (1) High Technology, which indicates that a firm’s products are based on original patents or technologies, (2) Medium Technology, which indicates that a firm’s products are based on widespread technologies in advanced countries, and (3) Low Technology, which indicates a firm’s products are based on common technologies mostly in newly industrialized countries.

7. In Figure 3, the dotted line with a diamond-shaped mark shows the marginal effect of two inbound open innovation activities at the mean value of internal R&D capacity (0.17). The straight line with a circle represents the marginal effect of those activities at the value calculated by subtracting one standard deviation from the mean value of internal R&D capacity (0.02). The dotted line with a square-shaped mark represents the marginal effect of those activities at the value calculated by adding one standard deviation to the mean value of internal R&D capacity (0.32).

8. Market Entry includes firms established less than three years ago, and Growing includes firms for which total sales and market share are consistently growing. In the Mature phase, a firm’s total sales or market share is stagnating, but its profitability is consistently high. In the Declining phase, a firm’s total sales, market share, and profitability are consistently declining.

9. The ‘Survey on the State of Technology for SMEs’ is not provided as panel data.