Process innovation in small- and medium-sized enterprises: The critical roles of external knowledge sourcing and absorptive capacity

Although previous studies have contributed substantially to our understanding of the role of external collaboration on product innovation in the context of high-tech industries in developed countries, there has been limited attention to the role of knowledge search on process innovation in small- and medium-sized enterprises (SMEs) operating in extreme institutional environments. Drawing on the open innovation and absorptive capacity literatures, two key findings emerge from our study of 124 SMEs operating in the automotive industry. First, we find that external knowledge-search breadth, but not depth, is related to the development of process innovation. Second, process innovation is positively related to performance.