OPEN INNOVATION PRACTICES IN MANUFACTURING SMEs: EVIDENCE FROM A DEVELOPING COUNTRY

Although there is a growing body of research on open innovation, small and medium-sized enterprises (SMEs) have received little attention. The vast majority of literature on open innovation has been focused on large firms. In addition, most studies are conceptual and descriptive by nature. Only a few and recent studies have provided empirical analysis of positive and significant relationship between Open Innovation practices and innovation performances of firm while financial performances were left on the side. On the other hand, there is a considerable number of studies which confirmed that collaboration with externals for SMEs is more significant in the commercialization than in innovation development stage. Given commercialization stage of innovation process together with market capability affect both innovation and financial performances of firms, this paper aims to investigate how Open Innovation practices affect financial performances of SMEs. The study extends understanding OI practices in SMEs by providing empirical evidence on the effects of both Inbound and Outbound OI on financial performances of SMEs including ROA, ROE, ROS, market share and sales growth as key measures. In order to test our research framework we conducted a survey on SMEs located in Bosnia and Herzegovina. Most surveyed SMEs are mainly located in central part of the country (79%) and belong to metal (23,6%), wood (21,3%) and textile (19,8%) industries. The results revealed that both Inbound and Outbound OI have significant impact on firm financial performances. Based on the evidence discussed in this paper, conclusions, research and managerial implications are drawn. Precisely, this study confirms that SMEs management need to be aware of OI practices and their importance not just for overcoming firm's liabilities of smallness but also for commercialization of innovation and creating the economic return. They should recognize necessity to be more open in innovation processes and thus improve both innovation and financial performances. Moreover, this study extends existing knowledge on innovation by providing insights about OI practices in SMES from developing countries.