The effect of openness to external knowledge sources for innovation on SMEs’ financial performance

In today’s environment an increasing number of firms are changing the way they search for new knowledge for innovation. These firms are adopting open search strategies that involve the use of external knowledge sources. Some authors suggest that these models of “open innovation” allow firms to improve their performance. However, in the specific context of SMEs, although their internal resource constrains emphasize the importance of external sources of knowledge, the lack of substantial inhouse capacity to recognize, evaluate, negotiate, and finally adapt the knowledge available from external actors may reduce its potential. Is then external knowledge sourcing really an effective strategy for enhancing the performance of innovative SMEs? In this study we elaborate on the concept of “openness to external knowledge sources for innovation”, referring to the extent to which firms draw intensively from a wide range of different external sources of knowledge for their innovation activities, and we analyze its impact on SMEs’ financial performance. Using a sample of 281 SMEs situated in the north-east of Italy, the findings of this study show that there is an inverted U-shape relationship between the level of openness to external sources of knowledge and the financial performance.