Abstract

A robust literature has provided compelling evidence showing how open innovation impacts incumbent firms. However, only a paucity of research has linked open innovation strategies to different types of innovation in startups. This paper fills this gap in the literature by focusing on if, how and why open innovation enhances innovative activity in newly created firms. In particular, the paper examines how the role of both the specific external partner as well as the geographical location of partner matters in how product and process innovation is shaped in startups. The empirical evidence garnered in this paper suggest that not only do startups benefit from open innovation, but also the extent of product innovation and the propensity to innovate new processes in startups are significantly affected by specific external partner and its geographical location. The positive impact of open innovation reflects the heterogeneous effects of knowledge embedded in different partner types and the role that technological, institutional, and competitive arrangements play domestically and internationally in startup innovation. This study provides new light on how and why open innovation benefits not just incumbents but also startups as well.

Introduction

It is important to understand the effects of open innovation for innovation activity in startups. First, the rise of globalization and the growth of new digital technologies, and the evolution of knowledge in the field of engineering, technology and management (Cunningham and Kwakkel, 2011), have contributed to the emergence of open innovation models (Chesbrough, 2006, Chesbrough, 2007; Kafouros et al., 2020) and the rise of inter-firm collaboration and knowledge spillovers (Schilling and Phelps, 2007; Tucci et al., 2016). However, the returns to open innovation differ between startups and incumbent firms (Audretsch and Belitski, 2021). Second, ever-increasing innovation costs and a lack of resources push startups to search for external knowledge collaborators to co-create knowledge together and reduce innovation costs (van Beers and Zand, 2014).

Despite the theoretical underpinning and importance of knowledge collaboration for innovation, the entrepreneurship and management literatures (Tambe et al., 2012; Roper et al., 2017; Knoben and Bakker, 2019) have not identified the impact that knowledge partner type and location may have on a startup.

Conclusions

This study investigated the returns from knowledge collaboration across different partner types and geographical locations for innovation performance in startups. Knowledge collaboration with external partners directly affects the propensity for process innovation and the share of innovation sales. This study provides new insights on open innovation theory for entrepreneurs, by comparing how startups use the knowledge spillover of innovation (Audretsch and Belitski, 2022) across different partner types and locations.

Our findings pave the way for future studies that may address this study’s limitations. Firstly, our study was based on a sample of UK firms. Our findings are contextually limited and may not be generalizable to other countries, particularly developing countries and other developed countries. Future studies can expand the longitudinal dimension of data, aiming for longer lags as well as switching to internationalization vs. de-internationalization of collaboration for startups. Further research is needed to explore the breadth and depth of knowledge collaboration for startups and incumbent firms.