Driving new product development performance: the mediating role of absorptive capacity in open innovation for SMEs

Purpose This study investigates the impact of the outside-in dimension of open innovation (OIO) on new product development (NPD) performance in technology-based small and medium-sized enterprises (SMEs), isolating a dimension often conflated with outbound and coupled strategies. Design/methodology/approach Drawing on survey data from 342 SMEs in Sweden and Slovakia, partial least squares structural equation modeling (PLS-SEM) is applied to test a conceptual framework grounded in the knowledge-based view (KBV) and the dynamic capabilities view (DCV), examining the mediating roles of potential absorptive capacity (PAC) and realized absorptive capacity (RAC) and the moderating role of trust. Findings OIO is found to significantly enhance NPD performance, both directly and indirectly, through PAC and RAC, with PAC identified as the stronger mediator. Trust strengthens the direct OIO–NPD link but does not significantly moderate the PAC–NPD or RAC–NPD relationships. This suggests that trust is more critical during the external knowledge acquisition phase than during the internal stages of knowledge transformation and application. Practical implications For managers, the study’s findings highlight the need to develop PAC and RAC as dynamic routines within the firm to help sense and transform external knowledge while developing trust-based collaborations with external partners during early innovation stages to maximize OIO benefits. Examples of such collaborations include partnering with local research institutions for early knowledge identification and deploying digital technologies to accelerate collaboration and shorten NPD cycles. Originality/value This study advances open innovation research by isolating the outside-in dimension and integrating the KBV and DCV to explain how external knowledge inflows are sensed, seized and transformed into product innovation outcomes. The study confirms the dual role of absorptive capacity as both a knowledge-based resource and a dynamic capability, positioning trust as a key relational enabler for SMEs during the knowledge acquisition phase.