How Will Openness to External Knowledge Impact Service Innovation? Evidence from Korean Service Sector

I examine whether firms’ openness improves innovative performance of the firms and what factors make the openness more effective in generating innovation. Using 2006 Korean Innovation Survey in service sector, I test whether openness improves innovative performance and how absorptive capacity, new startup and use of appropriation methods influence the effect of openness on Korean service firms’ innovation respectively. I find the following: First, the effect of openness varies depending on type of innovation. Openness is more effective for radical innovation than for incremental innovation. Second, there is complementarity between openness and R&D intensity when innovation is radical. When the R&D intensity level is high, the effect of openness becomes stronger. However, there is no complementarity when innovation is incremental. Third, openness is more effective for a new startup to perform radical innovation than incremental innovation. Fourth, when a firm uses too many appropriation methods, openness is not effective for innovation.