How Can External Relationships Enhance Innovation in SMEs? New Evidence for Europe*

This paper investigates the role of external relationships as key drivers of small business innovation. An empirical analysis is based on data for approximately 500 small and medium-sized enterprises (SMEs) in six European countries. The results indicate that innovation performance is higher in SMEs that are proactive in strengthening their relationships with innovative suppliers, users, and customers. Furthermore, the findings of this paper support the view that SMEs will have better new product development results if they improve their relationships with laboratories and research institutes.