Impact of innovation strategy, absorptive capacity, and open innovation on SME performance: A Chilean case study

Open innovation has an important impact on the innovative activity and competitiveness of SMEs. Moreover, it is a topic of interest for academics and practitioners. This study analyzes, in the context of SMEs, how absorptive capacity can favor incoming and outgoing open innovation practices, the mediating role that innovation strategy plays in this relationship, and the effect of open innovation practices on performance. Partial least squares (PLS-SEM) and empirical data obtained from interviews with 194 managers of Chilean manufacturing SMEs with between 10 and 250 employees were used. The results obtained make a relevant contribution to the literature in two aspects: (1) absorptive capacity has a significant and positive influence on firms' strategies and outbound innovation practices and (2) firm strategies play a complete mediating role between absorptive capacity and inbound open innovation practices and a complementary mediating role between absorptive capacity and outbound open innovation practices. Additionally, the results show that open innvoation improves SME performance. These results have important theoretical and practical implications for both policy makers and SME managers. •The innovation strategy's mediation between absorptive capacity and open innovation.•The effect of open innovation practices on the innovation performance of small and medium-sized businesses.•The effect of absorptive capacity on both outbound and inbound open innovation practices.