External Knowledge Search, Organizational Proximity and Innovation Performance in South Korean SMEs

Abstract

This study aims to figure out the relationship between the theory of open innovation and organizational proximity. Open innovation has been the main research target for SMEs who want to grow faster when they have a possible network with other institutions. However, most research studies have focused on the relationship between the internal and external network. There has hardly been a mechanism by which an organization creates links with outside institutions. In this study, we suggest that network spill-over effect can be moderated by the closeness of availability between institutions, which is called organizational proximity. We define organizational proximity as a firm’s capability to allow collaborators to recognize external new knowledge or possible resources with the help of being in a close location. As a result, we found that there exists an inverted U-shape relationship between both the breadth and depth of external knowledge and innovation performance, and that organizational proximity has a moderate effect on breadth, but not on depth. The negative outcome of over-investment in breadth for innovation performance is moderated by organizational proximity.