Designing an Open Innovation Strategy to Improve Competitiveness of SMEs

Abstract

This study develops an open innovation strategy to improve the competitiveness of agro-processing SMEs in Depok. These SMEs face limitations in resources, knowledge management, and innovation capability, which constrain their ability to compete in dynamic and digitalized markets. Competitiveness is therefore examined as an outcome of how SMEs build internal capabilities, engage in open innovation practices, and translate these efforts into innovation performance. A mixed-methods approach was applied. Qualitative data from interviews, observations, and documents were used to capture contextual constraints, while quantitative survey data were analyzed using structural equation modeling. The study examines four constructs: open innovation capabilities (OIC), open innovation practices (OIP), innovation performance (IP), and competitiveness (COMP), enabling an integrated analysis of capability development, openness, performance, and competitive outcomes. The results indicate that SMEs exhibit moderate OIC, particularly in human capital and learning ability, but weak digital knowledge management and structured collaboration. OIC significantly influences OIP, indicating that stronger internal capabilities encourage external knowledge search and collaboration. OIP, in turn, positively affects innovation performance, reflected in product improvement, process efficiency, and market responsiveness, which subsequently enhances competitiveness. Qualitative findings show that limited digital literacy, concerns over knowledge sharing, and reliance on informal networks constrain OIP and IP. Nevertheless, SMEs demonstrate strong learning motivation when supported by practical facilitation and trusted intermediaries. This study proposes a dual-path open innovation strategy that integrates internal capability strengthening and structured external collaboration to improve innovation performance and sustain SME competitiveness. Keywords: collaboration, competitiveness, innovation performance, open innovation, SMEs