Absorptive capacity as a determinant of innovation in SMEs: A study of Bengaluru high-tech manufacturing cluster

It is generally known that clusters are the sources of innovation and therefore, of late, the focus of researchers has been increasing to unearth the factors driving innovation among the SMEs in a cluster. Researchers have identified the absorptive capacity, which is a measure of dynamic capability of an SME, as one of the critical factors that determine the innovation propensity of an SME. However, due to a lack of consensus among researchers about the factors determining the absorptive capacity of a firm in general and SMEs specifically, quantifying the absorptive capacity has remained a challenge. Within the context of a Bengaluru cluster which houses a densely interconnected network of high-tech manufacturing SMEs, this paper attempts to quantify the absorptive capacity of a firm taking into account both internal/firm-level and external/industry-level factors. Subsequently, this paper probes the impact of the absorptive capacity of an SME on the innovation performance of an SME.