Innovation in clusters: effects of absorptive capacity and environmental moderators

Purpose This paper aims to empirically explore the impact of absorptive capacity (AC) on explorative and exploitative innovation in business cluster settings, and the environment's moderating role on these relationships. Design/methodology/approach Using a sample of Central European companies, the paper applies multivariate data analysis techniques to test the effect of AC on innovation performance and potential moderators, respectively. Findings The empirical evidence indicates that AC impacts both explorative and exploitative innovation, and that the strength of the impact depends on the business clusters' level of dynamism and competitiveness. Environmental dynamism and competitiveness positively moderate the effect of AC on explorative innovation, and negatively moderate the effect of AC on exploitative innovation. Research limitations/implications Several research limitations apply. First, only one interview per firm was conducted on a self‐reporting basis. Second, the survey's focus was on SMEs. Third, questionnaire translations and differing interviewer behaviour may bias the results. Practical implications The findings suggest that firms in business clusters must develop AC to gain the fruits of agglomeration effects. Furthermore, attention should be paid to the cluster's environmental conditions, since dynamism and competition play a significant role for innovation. Originality/value Although the importance of AC has often been highlighted, much more remains to be understood about its role in business cluster settings. This issue is addressed in this work by providing systematic, empirical evidence on how AC affects innovation performance at the firm level, and on how this relationship depends on the business cluster's environmental characteristics.