Investigating the Role of Innovation Capabilities and the Impact of Knowledge Transfer and Open Innovation Implementation on SME Performance in Yogyakarta

Abstract

The study aims to examine the role of innovation capabilities and the impact of knowledge transfer and open innovation on the SMEs’ performance in Yogyakarta, Indonesia. Although previous research on open innovation has been conducted in Indonesia, it has not been specific to this region, and there are variables that still need to be explored concerning improving SMEs’ performance. Therefore, this study aims to fill this gap through research. An online questionnaire with a five-point Likert points was distributed to respondents who work actively and occupy functional positions in SMEs in Yogyakarta. A total of 202 respondents contributed to this study. Data were analyzed using SPSS and PLS-SEM with the SmartPLS tool. The results of this research reveal that the variables of knowledge transfer and open innovation positively influence SMEs performance and Innovation capabilities have a role in this relationship. Openness to innovation triggered by innovation capabilities will later encourage business practitioners to continuously innovate in their business performance, such as innovation in improving product quality. In this case, businesses need to consider the critical role of knowledge transfer in improving business performance. This study contributes to enriching the literature related to the concept of open innovation and SME performance. Additionally, the results of this study provide valuable insights for business practitioners to implement these three variables to enhance of their business performance.