How the Innovation Climate and Open Innovation Practices Contribute to Firm Innovativeness in Small- and Medium-Scale Enterprises? An Empirical Analysis

Abstract

Open innovation has emerged as a crucial strategic element for enhancing the efficiency and commercialization of innovation among large companies. However, the potential applicability of this concept to small- and medium-scale enterprises (SMEs) in Indonesia, particularly those based on digital technology, remains relevant. Although research on open innovation for SMEs has yielded important insights, it is relatively limited in scope, with a focus on inbound innovation activities and little consideration for medium- or small-scale enterprises, even though they are often seen as radical innovators in their fields. To address this gap, it is necessary to examine the potential of SMEs in the process of business innovation through digital platforms, with special attention given to their better specialization capabilities than larger companies. This specialization is more profitable when the market is open to innovative activities and when innovation is supported by SME owners–managers who create an innovation climate. Empirical analysis is required to answer the key research questions. The first question pertains to the extent of SME innovativeness, particularly in terms of their capacity to utilize internal, external, and hybrid knowledge sources in open innovation. The second question pertains to the extent to which the innovation climate supports SME owner–manager efforts to find creative ways to exploit and explore innovation sources. The ultimate goal of this study is to develop an extensive framework that elucidates the link between the innovation climate, open innovation, and firm innovativeness in the context of SMEs.