Geographical proximity and open innovation of SMEs in Cyprus

Open innovation implies that geographical proximity is irrelevant. However, we posit that any potential innovation outcome depends on the spatial constraints on openness. In this paper, we add a geographical proximity dimension to open innovation by analysing how a domestic and international open innovation approach affects innovation outcomes. In particular, we hypothesise that domestic open innovation has positive effects on new-to-the-firm product innovation, due to easily accessible resources. We further posit that, through international open innovation, SMEs can access new and advanced knowledge which is not available locally, leading to more novel innovations. However, we expect that the relationship between openness, both domestic and international, and innovation is conditional on R&D activities. Our empirical analysis based on the Cyprus Community Innovation Survey supports these hypotheses. Our results underline the critical role of the spatial aspect on open innovation in SMEs, something which has remained surprisingly absent from the literature.