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

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.